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 September 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. [X] Yes [ ] No
Indicate by check mark whether the Company is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
The Company had 100,000,000 shares of Common Stock, $.001 par value, issued and
outstanding as of November 14, 2005.
Transitional Small Business Disclosure Format: [ ] Yes [X] No
STATEMENT REGARDING THIS AMENDMENT
The Company is amending its Form 10-QSB for the period September 30, 2005, as
previously filed on November 14, 2005.
A. Subsequent to the original issuance of the Company's September 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
components of stockholders' deficit. At December 31, 2004, the Company
recognized the liability of $13,195. During the three- and nine month periods
ended September 30, 2005, the Company redeemed additional shares valued at
$67,083 and $2,510,990.
B. The Company determined that subscriptions received for the purchase of the
Company's common stock totaling $435,000, 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 measurement date and volatility factors used
to value the options under the Black/Scholes method were incorrect. 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 June 30, 2005, warrants valued
at $395,477 were recognized. During the three month period ended September 30,
2005, warrants valued at $46,211 were exercised. The Company is required to
revalue this liability at the end of every reporting period. Accordingly, at
September 30, 2005, the Company decreased the value of the liability by $182,638
and recognized a gain on value of derivative liabilities for the three- and nine
months periods ended September 30, 2005 of $110,290 and $75,569, 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.
F. The Company determined that the liability for shares to be issued to various
vendors and creditors was improperly classified as a long-term liability and
should have been classified as short term. The liability represents amounts due
to vendors for their respective services used in the ordinary course of business
and such vendors could demand payment at any time. The reclassification had no
effect on the net loss or stockholders' deficit as of September 30, 2005 and
December 31, 2004 and for the three-months and year then ended, respectively.
The effect of these restatements was to decrease the net loss of the Company by
$110,290 (less than $0.01 per share) for the three month period ended September
30, 2005 and increase the net loss by $17,256 ($0.01 per share) for the nine
month period ended September 30, 2005 and increase stockholders' deficit by
$3,198,161.
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 November 14, 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, 005, June 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
Restatement of September 30, 2005 Consolidated Financial Statements 4
Introductory Statement 4 - 5
Part I. Financial Information
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2005 and
December 31, 2004 6
Consolidated Statements of Operations for the Three
Months Ended September 30, 2005 and 2004 and the Nine
Months Ended September 30, 2005 and 2004 7
Consolidated Statements of Cash Flows for the Nine
Months Ended September 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 September 30, 2005 Consolidated Financial Statements
The Company is amending its Form 10-QSB for the period September 30, 2005, as
previously filed on November 14, 2005.
A. Subsequent to the original issuance of the Company's September 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
components of stockholders' deficit. At December 31, 2004, the Company
recognized the liability of $13,195. During the three- and nine month periods
ended September 30, 2005, the Company redeemed additional shares valued at
$67,083 and $2,510,990. 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 $435,000, were improperly classified as a
component of stockholders' deficit and should have been classified as a
liability. See Note 12 - Liability for Stock Subscriptions Received.
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 measurement date and volatility factors used
to value the options under the Black/Sholes method were incorrect. 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 June 30, 2005, warrants valued
at $395,477 were recognized. During the three month period ended September 30,
2005, warrants valued at $46,211 were exercised. The Company is required to
revalue this liability at the end of every reporting period. Accordingly, at
September 30, 2005, the Company decreased the value of the liability by $182,638
and recognized a gain on value of derivative liabilities for the three- and nine
months periods ended September 30, 2005 of $110,290 and $75,569, 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 Subscriptions Received.
F. The Company determined that the liability for shares to be issued to various
vendors and creditors was improperly classified as a long-term liability and
should have been classified as short term. The liability represents amounts due
to vendors for their respective services used in the ordinary course of business
and such vendors could demand payment at any time. The reclassification had no
effect on the net loss or stockholders' deficit as of September 30, 2005 and
December 31, 2004 and for the three-months and year then ended, respectively.
See Note 12 - Liability for Shares to be Issued.
The effect of these restatements was to decrease the net loss of the Company by
$110,290 (less than $0.01 per share) for the three month period ended September
30, 2005 and increase the net loss by $17,256 ($0.01 per share) for the nine
month period ended September 30, 2005 and increase stockholders' deficit by
$3,198,161.
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.
4
Introductory Statement - continued
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 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 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)
September 30, 2005 December 31, 2004
------------------ ------------------
(As Restated) (As Restated)
ASSETS
Current assets
Cash $ 13,504 $ 4,310
Accounts receivable 30,767 --
Interest receivable 47,482 38,750
Inventory 57,141 31,348
Deposits and prepaid expenses 987 --
------------------ ------------------
TOTAL CURRENT ASSETS 149,881 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 399,881 324,408
================== ==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current maturities of long-term debt $ 3,230 $ 3,505
Accounts payable 181,098 367,329
Accrued expenses 164,249 243,219
Advance from related party 54,224 64,196
Liability for shares to be issued 403,000 467,000
Warrant liability 238,976 --
Liability to stockholders for shares redeemed 2,524,185 13,195
Liability for stock subscriptions received 435,000 850,000
Notes payable to related party -- 100,000
------------------ ------------------
TOTAL CURRENT LIABILITIES 4,003,962 2,108,444
------------------ ------------------
Long-term liabilities
Long-term debt, net of current maturities 85,595 162,986
------------------ ------------------
TOTAL LIABILITIES 4,089,557 2,271,430
------------------ ------------------
Stockholders' deficit
Common stock 100,000 100,000
Additional paid-in capital 6,597,022 7,808,732
Accumulated deficit (10,537,071) (9,999,219)
Accumulated other comprehensive income 150,373 143,465
------------------ ------------------
(3,689,676) (1,947,022)
------------------ ------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 399,881 $ 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 Nine Months
Ending September 30, Ending September 30,
------------------------------ ------------------------------
2005 2004 2005 2004
------------- ------------- ------------- -------------
(As Restated) (As Restated)
Sales $ 38,951 $ 1,560 $ 123,309 $ 219,741
Cost of sales 25,193 4,527 96,608 201,010
------------- ------------- ------------- -------------
Gross profit 13,758 (2,967) 26,701 18,731
------------- ------------- ------------- -------------
Operating expenses
Research and development 67,681 11,762 147,936 106,378
Selling and marketing 7,334 76,969 44,857 372,603
General and administrative 55,275 120,294 356,723 444,083
------------- ------------- ------------- -------------
130,290 209,025 549,516 923,064
------------- ------------- ------------- -------------
Operating loss (116,532) (211,992) (522,815) (904,333)
------------- ------------- ------------- -------------
Other income (expense)
Gain on value of derivative
liabilities 110,290 -- 75,569 --
Financing costs -- -- (92,825) --
Other 1,909 (514) 2,219 (4,083)
------------- ------------- ------------- -------------
112,199 (514) (15,037) (4,083)
------------- ------------- ------------- -------------
Net loss (4,333) (212,506) (537,852) (908,416)
Accumulated deficit - beginning (10,532,738) (9,051,300) (9,999,219) (8,355,390)
------------- ------------- ------------- -------------
Accumulated deficit - ending $ (10,537,071) $ (9,263,806) $ (10,537,071) $ (9,263,806)
============= ============= ============= =============
Basic and diluted net income (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
INCOME (LOSS)
Net loss $ (4,333) $ (212,506) $ (537,852) $ (908,416)
Other comprehensive income (loss) 8,274 (977) 6,908 9,755
------------- ------------- ------------- -------------
Comprehensive income
((loss) $ 3,941 $ (213,483) $ (530,944) $ (898,661)
============= ============= ============= =============
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 Nine Months Ended September 30,
2005 2004
-------------- --------------
(As Restated)
Cash flows from operating activities
Net loss $ (537,852) $ (908,416)
Adjustments to reconcile net loss to net cash used
for operating activities:
Accrued interest on note receivable-related party (8,732) (8,981)
Depreciation -- 2,034
Foreign exchange gain (7,721) (575)
Gain on value of derivative liabilities (75,569) --
Financing costs 92,825 --
General and administrative expense associated
with stock based transactions 65,000 189,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (30,767) (7,329)
Inventory (25,793) 71,570
Deposits and prepaid expenses (987) --
Increase (decrease) in:
Accounts payable (108,705) 75,262
Accrued expenses (79,228) (29,208)
-------------- --------------
Net cash used for operating activities (717,529) (616,643)
-------------- --------------
Cash flows from financing activities
Principal payments on long-term debt (3,430) (4,915)
Principal payments on note payable - related party (100,000) 6,000
Repayment of advances from related party (93,755) (80,000)
Cash received for sale of common stock, exercise
of warrants and stock subscribed 917,000 350,000
-------------- --------------
Net cash provided by financing activities 719,815 271,085
-------------- --------------
Effects of changes in foreign exchange rates 6,908 9,755
-------------- --------------
Net increase (decrease) in cash 9,194 (335,803)
Cash - beginning 4,310 335,803
-------------- --------------
Cash - ending $ 13,504 $ --
============== ==============
Supplemental disclosures of cash flows information
Cash paid during the period for interest $ 13,611 $ 3,921
============== ==============
Issuance of stock to settle accounts payable $ 60,000 $ 67,000
============== ==============
Non-cash investing activities
Liability to stockholders for shares redeemed and
cancelled $ 2,534,324 $ --
============== ==============
Issuance of warrants relating to private placements $ 550,166 $ --
============== ==============
Issuance of warrants for financing costs $ 92,825 $ --
============== ==============
Exercise of warrants classified as liabilities $ (158,129) $ --
============== ==============
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 uses third parties for manufacturing, and 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 September 30, 2005 Interim Consolidated Financial Statements
The Company is amending its Form 10-QSB for the period September 30, 2005, as
previously filed on November 14, 2005.
A. Subsequent to the original issuance of the Company's September 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
components of stockholders' deficit. At December 31, 2004, the Company
recognized the liability of $13,195. During the three- and nine month periods
ended September 30, 2005, the Company redeemed additional shares valued at
$67,083 and $2,510,990. 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 $435,000, were improperly classified as a
component of stockholders' deficit and should have been classified as a
liability. See Note 12 - Liability for Stock Subscriptions Received.
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 measurement date and volatility factors used
to value the options under the Black/Sholes method were incorrect. 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 June 30, 2005, warrants valued
at $395,477 were recognized. During the three month period ended September 30,
2005, warrants valued at $46,211 were exercised. The Company is required to
revalue this liability at the end of every reporting period. Accordingly, at
September 30, 2005, the Company decreased the value of the liability by $182,638
and recognized a gain on value of derivative liabilities for the three- and nine
months periods ended September 30, 2005 of $110,290 and $75,569, 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 Subscriptions Received.
F. The Company determined that the liability for shares to be issued to various
vendors and creditors was improperly classified as a long-term liability and
should have been classified as short term. The liability
9
Advanced Lumitech, Inc. and Subsidiary
Note to Consolidated Financial Statements - continued
(Unaudited)
1. OPERATIONS - continued
Restatement of September 30, 2005 Interim Consolidated Financial Statements -
continued
represents amounts due to vendors for their respective services used in the
ordinary course of business and such vendors could demand payment at any time.
The reclassification had no effect on the net loss or stockholders' deficit as
of September 30, 2005 and December 31, 2004 and for the three-months and year
then ended, respectively. See Note 12 - Liability for Shares to be Issued.
The effect of these restatements was to decrease the net loss of the Company by
$110,290 (less than $0.01 per share) for the three month period ended September
30, 2005 and increase the net loss by $17,256 ($0.01 per share) for the nine
month period ended September 30, 2005 and increase stockholders' deficit by
$3,198,161.
2. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements at September 30,
2005 and for the three-month and nine-month periods ended September 30, 2005 and
2004 include the accounts of the Company and its wholly-owned subsidiary
(Brightec S.A.). All inter-company transactions and balances have been
eliminated in consolidation. In our opinion, these unaudited consolidated
financial statements have been prepared on the same basis as the audited
consolidated financial statements included in our Annual Report on Form 10-KSB
for the year ended December 31, 2004 and include all adjustments necessary to
make the financial statements not misleading. 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 in accordance with rules of the Securities and Exchange Commission for
interim reporting. These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements included in our
Annual Report on Form 10-KSB for the year ended December 31, 2004. The results
of operations for the three- and nine periods ended September 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 $3,854,081 and an accumulated
deficit of $10,537,071 at September 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)
September 30, 2005 December 31, 2004
------------------ ------------------
(As Restated) (As Restated)
Raw materials $ 20,475 $ 19,867
Work in process 31,699 7,181
Finished goods 4,967 4,300
------------------ ------------------
$ 57,141 $ 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 September 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 returns
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 September 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 note bears interest at a fixed rate of 5.05% and is due no
later than December 31, 2011. Interest on the note is accrued quarterly and due
annually. No interest payments on such note have been made to date. During the
three-month and nine-month periods ended September 30, 2005 and the year ended
December 31, 2004, the Company recognized interest income of $3,182, $9,443 and
$13,627, respectively, on the above note receivable and advances. As of
September 30, 2005 and December 31, 2004, net accrued interest was receivable
from the president of $47,482 and $38,750, respectively.
At September 30, 2005 and December 31, 2004, the Company owed the president
$54,224 and $55,196, respectively, in connection with advances made by him to
the Company in prior years. During the three-month and nine-month periods ended
September 30, 2005, he made advances to the Company of $5,500 and $43,000,
respectively and the Company repaid $14,755 and $127,755, respectively, of the
outstanding advances due. During the nine-month period ended September 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 the 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 and amounted to $1,443 for the nine months
ended September 30, 2005.
In December 2004, the principal stockholder advanced the Company $9,000 on a
non-interest bearing basis. The advance was repaid in January 2005.
Additional 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 the due date, 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 September 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
September 30, 2005 and December 31, 2004, $0 and $50,000, respectively, was
outstanding under this note and accrued interest of $0 and $2,997, respectively,
was due.
11
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements - continued
(Unaudited)
8. COMMON STOCK NUMBER OF SHARES OF COMMON STOCK AUTHORIZED
Under the Company's charter, 100,000,000 shares of common stock are authorized.
As of September 30, 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
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. On August 23, 2005, the Company
entered into an agreement with another of the Company's stockholders allowing
the Company to redeem 583,334 shares of common stock he held, in order to permit
the Company to issue a like number of shares of common stock to an investor who
partially exercised a warrant to purchase shares of common stock.
Under the agreement, the stockholders are to receive no additional compensation
for the redemption of their respective securities, beyond the re-issuance of the
loaned shares. Upon the amendment of the Company's Articles of Incorporation,
the Company will reissue the exact number of shares redeemed from these
stockholders for no consideration.
As of September 30, 2005, the Company has committed to issue an additional
23,153,099 shares. It is anticipated that a vote of the Company's stockholders
to increase the number of shares of common stock authorized will occur early in
2006.
ISSUANCES OF COMMON STOCK
On August 23, 2005, the Company issued 583,334 shares of common stock to an
investor who partially exercised a warrant to purchase shares of common stock
with an aggregate purchase price of $ 70,000.
9. LONG-TERM DEBT
As of September 30, 2005 and December 31, 2004, $88,825 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 nine-month periods ended September 30,
2005 and the year ended December 31, 2004 of $1,955, $4,611 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
------------------------------- ---------------
September 30, 2006 $ 3,230
September 30, 2007 3,230
September 30, 2008 3,230
September 30, 2009 3,230
September 30, 2010 3,230
Thereafter 72,675
---------------
$ 88,825
===============
During the nine-month period ended September 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 September 30, 2005.
As of June 30, 2005 and December 31, 2004, 1,890,000 and 3,210,000 shares,
respectively, with an aggregate value of $328,000 and $467,000, respectively,
were committed but unissued.
12
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
10. LIABILITY FOR SHARES TO BE ISSUED - continued
On August 22, 2005, the Company entered into an agreement with a former
consultant, to issue 1,000,000 shares of common stock, valued at $0.075 per
share, in satisfaction of indebtedness owed by the Company to the former
consultant for prior services rendered, in the amount of $40,000 and to pay a
"sign-on" bonus of $ 35,000 upon hiring the former consultant as an employee on
August 22, 2005.
As a result of the above transactions, 2,890,000 shares with an aggregate value
of $403,000 are committed but un-issued as of September 30, 2005.
11. WARRANT LIABILITY
During the quarter ended September 30, 2005, the Company did not issue any
additional warrants. As the Company had already issued all of its shares of
authorized common stock, the value of the warrants previously issued 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. 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 September 30, 2005, the value of the remaining
balance of outstanding warrants was $238,976. For the three and nine months
ended September 30, 2005, the Company recognized a gain on value of derivative
liabilities of $110,290 and $75,569, 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 September 30, 2005: risk-free interest rate of 4.08%; no
dividend yield; an expected life of the options of 31 months; and a volatility
factor of 327.9%.
12. LIABILITY FOR STOCK SUBSCRIPTIONS RECEIVED
Liability for stock subscribed represents amounts received for equity
investments for which shares of common stock remain unissued at September 30,
2005.
As of June 30, 2005, 3,335,000 shares with an aggregate purchase price of
$375,000 were subscribed but unissued.
On August 30, 2005, the Company received a stock subscription for 500,000 shares
with an aggregate purchase price of $60,000. These shares remain un-issued at
September 30, 2005.
As a result of the above transactions, 3,835,000 shares with an aggregate
purchase price of $435,000 are subscribed but unissued as of September 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 and at various times during 2005, the Company's president and
another stockholder agreed to allow the Company to redeem shares of their
respective 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 agreements
state that the Company will reissue to its president and the other 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 June 30, 2005, the value of those shares redeemed was $2,457,102. On
August 23, 2005, another stockholder and former director of the Company entered
into a similar agreement, allowing the Company to
13
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
13. LIABILITY TO STOCKHOLDERS FOR REDEEMED SHARES - continued
redeem 583,334 shares of his common stock initially valued at $67,083.
As of September 30, 2005, the liability representing the Company's obligation to
its stockholders for the common stock shares redeemed was $2,524,185.
14. STOCK OPTIONS
There were no stock options granted to employees of the Company during the
fiscal quarter ended September 30, 2005.
The following table illustrates the pro forma effect on net loss and net loss
per share for the three-month and nine-month periods (the only interim period in
which employee stock options were granted) ended September 30, 2005 if the
Company had applied the fair value recognition provisions of SFAS No. 123,
"Accounting for Stock-based Compensation" and SFAS No. 148, "Accounting for
Stock-based Compensation - Transition and Disclosure":
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, 2005 September 30, 2005
------------------ ------------------
(As Restated) (As Restated)
Net loss for the period $ (4,333) $ (537,852)
Less: Stock based compensation expense
determined under fair value based method for awards -- 336,000
------------------ ------------------
Proforma net loss $ (4,333) $ (873,852)
================== ==================
Basic and diluted net loss per share:
As reported $ 0.00 $ (0.01)
================== ==================
Proforma $ 0.00 $ (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 Amended Quarterly Report
on Form 10-QSB/A and our Annual Report on Forms 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 assumptions 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
September 30, 2005.
RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED WITH THREE MONTHS
AND NINE MONTHS ENDED SEPTEMBER 30, 2004
REVENUES:
The Company's revenue, net of returns, allowances and discounts, for the
three-month period ended September 2005, was $ 38,951 compared to $ 1,560 for
the comparable three months of 2004. This increase in revenue resulted from
additional commercial sales of the Company's luminescent product, which was sold
to a major poster board and inkjet paper 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 and two "Inkjet
Glow-in-the-Dark Photo Quality Paper Packs," one including five sheets of
Brightec glow-in-dark paper in an 4"x6" format and the second including three
sheets of Brightec glow-in-dark paper in an 8.5"x11" format. The Company's
revenue, net of returns, allowances and discounts, for the nine months ended
September 30, 2005 was $123,309 compared to $219,741 for the comparable nine
months of 2004. The decrease in revenues for the nine months ended September 30,
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 nine months ended
September 30, 2005.
GROSS PROFIT:
The Company's gross profit percentage was 35.32% and 21.65% for the three- and
nine-month periods ended September 30, 2005, compared to a loss for the
comparable three-month period in fiscal 2004 and 8.52% for the comparable
nine-month period in fiscal 2004. The increase in the level of the gross profit
margin was primarily due to continued improvement in the manufacturing cost of
the Company's products and no additional price reductions in the three-month
period ended September 30, 2005. In order to continue 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 $55,919 for the three months
ended September 30, 2005 to $67,681 from $11,762 for the comparable three months
of 2004 and increased by $41,558 for the nine months ended September 30, 2005 to
$147,936 from $106,378 for the comparable nine months of 2004. The increase in
research and development expenses for the three months ended September 30, 2005
was primarily due to non-cash charges of $ 35,000 relating to commitments to
issue shares of the Company's common stock related to a signing bonus for the
hiring in the second quarter of 2005 of a former consultant as a full time
employee to oversee the Company's research and development. The increase in
research and development expenses in the third quarter of 2005 was also due to
an increase in the number of manufacturing trial runs.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
SELLING AND MARKETING EXPENSES:
Selling and marketing expenses decreased by $69,635 for the three months ended
September 30, 2005 to $7,334 from $76,969 for the comparable three months of
2004 and decreased by $327,746 for the nine months ended September 30, 2005 to
$44,857 from $372,603 for the comparable nine 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 terminating the
services of 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
September 30, 2005, compared to $45,000 of such charges for the comparable three
months of 2004 and included non-cash charges relating to commitments to issue
shares of the Company's common stock in exchange for consulting services of
$30,000 for the nine months ended September 30, 2005, compared to $189,000 of
such charges for the comparable nine 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 fees. General and administrative expenses decreased by $65,019
for the three months ended September 30, 2005 to $55,275 from $120,294 for the
comparable three months of 2004 and decreased by $87,360 for the nine months
ended September 30, 2005 to $356,723 from $444,083 for the comparable nine
months of 2004. The decrease in the third quarter of 2005 from the comparable
period in 2004 was primarily due to a decrease in professional fees and the
overall decrease for the nine months ended September 30, 2005 from the
comparable period in 2004 was primarily due to a decrease in consulting fees and
accounting fees.
OTHER INCOME (EXPENSE):
For the three months ended September 30, 2005 and 2004, interest expense, net of
interest income was ($2,167) and $514, respectively. For the nine months ended
September 30, 2005 and 2004, interest expense, net of interest income was
($2,348) and $3,179, respectively. Interest expense and interest income are
dependent on the level of loans due to and from affiliates parties. For the
three- and nine month periods ended September 30, 2005, Other Income (Expense)
also includes $129 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.
GAIN ON VALUE OF DERIVATIVE LIABILITIES:
Gain on value of derivative liabilities of $75,569 and $110,290 for the nine and
three months ended September 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 Subscriptions Received.
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 SEPTEMBER 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 September 30, 2005, cumulative
net cash proceeds from the sale of its equity of approximately $4.8 million. The
Company's net working capital deficit at September 30, 2005 was $3,854,081
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
LIQUIDITY AND CAPITAL RESOURCES AS OF SEPTEMBER 30, 2005 - continued:
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 September 30, 2005.
As of September 30, 2005, the Company had also made commitments to issue an
additional 23,153,099 shares of common stock, none of which the Company can
issue. The 23,153,099 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
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. In August 2005, another stockholder agreed to allow the Company to
redeem 583,334 shares of his common stock for no consideration in order to allow
the Company to fulfill its obligation under the partial exercise of an
outstanding stock warrant by another stockholder. Upon the increase in the
number of authorized shares of its common stock, the Company will issue
16,428,099 replacement shares (adjusted for any re-capitalization transactions)
for no additional consideration.
Cash and cash equivalents increased to $13,504 at September 30, 2005 from $4,310
at December 31, 2004. Net cash used for operating activities for the nine months
ended September 30, 2005 was $717,529. Net cash provided by financing activities
for the nine months ended September 30, 2005 was $719,815.
The net cash provided was the result of cash received of $917,000 from the sale
and subscription of common stock and the exercise of warrants, net of principal
payments on long-term debt ($3,430), principal payments on a note payable to a
related party ($100,000) and repayment of advances to a related party ($93,755).
ABILITY TO CONTINUE AS A GOING CONCERN:
At September 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 $10,537,071. At September 30, 2005, the
Company's current liabilities exceed its current assets by $3,854,081. The
Company's ability to remedy this condition is uncertain due to the Company's
current financial condition. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The Company believes it has
the ability to obtain additional funds from its principal stockholders or by
raising additional debt or equity securities as described below. The Company is
continuing discussions with investors in its effort to obtain additional
financing. However, there can be no assurances that the Company will be able to
raise the funds it requires, or that if such funds are available, that they will
be available on commercially reasonable terms.
The ability of the Company to continue to operate as a going concern is
primarily dependent upon the ability of the Company to generate the necessary
financing to effectively market and produce Brightec products, to establish
profitable operations and to generate positive operating cash flows. If the
Company fails to raise funds or the Company is unable to generate operating
profits and positive cash flows, there are no assurances that the Company will
be able to continue as a going concern and it may be unable to recover the
carrying value of its assets. Management believes that it will be successful in
generating the necessary financing to fund the Company's operations through the
2005 calendar year. Accordingly, management believes that no adjustments or
reclassifications of recorded assets and liabilities are necessary at this time.
CREDIT AVAILABILITY:
The Company had no line-of-credit facilities as of September 30, 2005.
COMMITMENTS:
The Company had no material capital expenditure commitments as of September 30,
2005.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
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 seven commercial sales of its Luminescent Products
aggregating a total of approximately $388,000. 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 $10.54 million through September 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 September 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 employees have limited
financial experience and the Company currently lacks an adequate system of
internal financial or management controls. The Company does not have an
accounting department but relies on outside bookkeeping services to record
financial activity and consultants to assist in the preparation with financial
statements. The Company has received a letter from its independent registered
public accountants indicating that the Company has material weaknesses with
respect to (1) accurately recording day-to-day transactions, (2) the lack of
segregation of duties, (3) the approval of significant transactions in a timely
manner by the Company's Board of Directors and (4) the preparation of its
financial statements in an accurate and timely fashion. If the Company is unable
to raise additional capital, it will not have sufficient resources to implement
an adequate system of internal management and financial controls and will be
unable to hire employees with adequate financial and accounting experience.
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 of 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 September 30, 2005, warrants and options to acquire a total of 28,979,577
shares of the Company's common stock were outstanding. As of such date, the
Company had also made commitments to issue an additional 23,153,099 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
The following discussion of the Company's market risk includes forward-looking
statements that involve risks and uncertainties. Actual results could differ
materially from those projected in the forward-looking statements. Market risk
represents the risk of changes in value of a financial instrument caused by
fluctuations in interest rates, foreign exchange rates, and equity prices.
As of September 30, 2005, 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 S.A. 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 nine month periods ended September 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 nine month periods ended September 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 nine month periods ended September 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 August 22, 2005 to
September 30, 2005 and were not registered under the Securities Act of 1933, as
amended (the "Securities Act").
On August 22, 2005, the Company agreed to issue 1,000,000 shares of common
stock, at an agreed upon value of $0.075 per share, to Louis Kronfeld, in
satisfaction in indebtedness owed by the Company for consulting services
rendered in 2004 in the amount of $40,000 and to pay for his signing bonus of
$35,000 upon his hiring by the Company as an employee in the second quarter of
2005.
On August 22, 2005, Jeffrey Stern Revocable Trust exercised warrants to purchase
583,334 shares of the Company's common stock for an aggregate exercise price of
$70,000.
On August 30, 2005, the Company sold 500,000 shares of common stock to John
Dolan at a purchase price of $0.12 per share for an aggregate of $60,000.
On August 22, 2005, the Company entered into an agreement with Francois Planche,
one of the Company's stockholders, allowing the Company to borrow 583,334 shares
of common stock he held, in order to issue shares of common stock to other
investor that exercised a warrant to purchase shares of common stock, which
could not be issued since the Company had sold the maximum number of shares of
common stock authorized under its Articles of Incorporation. Under the
agreement, Mr. Planche 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 borrowed from Mr. Planche.
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