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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2007
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 033-55254-27
BRIGHTEC, INC.
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(Name of small business issuer in its charter)
Nevada 87-0438637
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
8C Pleasant Street, First Floor, South Natick, MA 01760
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(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, $0.001 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 128,942,837 shares of Common Stock, $0.001 par value, issued and
outstanding as of May 7, 2007.
Transitional Small Business Disclosure Format: [ ] Yes [X] No
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INDEX
Page Number
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Note Regarding Forward Looking Statements 3
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet at March 31, 2007 - Unaudited 4
Consolidated Statements of Operations and Accumulated Deficit and Comprehensive
Income (Loss) for the Three Months Ended March 31, 2007 and 2006 - Unaudited 5
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2007 and 2006 - Unaudited 6
Notes to Consolidated Financial Statements - Unaudited 7 - 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13 - 17
Item 3. Controls and Procedures 18
Part II. Other Information
Item 1. Legal Proceedings 19
Item 2. Unregistered Sales of Equity and Use of Proceeds 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits 20
Signatures 21
Exhibit Index 22
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
2
Note Regarding Forward Looking Statements:
This Form 10-QSB 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, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. 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. 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 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 within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. 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 upon request, 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 100 F Street, NE,, 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.
3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRIGHTEC, INC. AND SUBSIDIARY
Consolidated Balance Sheet
March 31, 2007
(Unaudited)
ASSETS
Current assets
Cash $ 15,165
Accounts receivable 510
Inventory 102,269
Prepaid expenses 6,063
Deferred financing expense 17,747
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TOTAL CURRENT ASSETS 141,754
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Office and photographic equipment 23,511
Less accumulated depreciation (23,511)
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-
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Deposit 2,041
Deferred offering costs 20,085
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22,126
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TOTAL ASSETS $ 163,880
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Line of credit $ 650,000
Accounts payable 69,371
Accrued liabilities (includes related party interest of $1,035) 338,401
Advances due to related parties 178,970
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TOTAL CURRENT LIABILITIES 1,236,742
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Stockholders' deficit
Preferred stock -
Common stock 128,943
Additional paid-in capital 11,919,443
Accumulated deficit (13,315,751)
Accumulated other comprehensive income (loss) 194,503
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TOTAL STOCKHOLDERS' DEFICIT (1,072,862)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 163,880
=============
The accompanying notes are an integral part of these consolidated
financial statements.
4
BRIGHTEC, INC. AND SUBSIDIARY
Consolidated Statements of Operations and Accumulated
Deficit and Comprehensive Income (Loss)
(Unaudited)
FOR THE THREE MONTHS ENDING
MARCH 31,
----------------------------------
2007 2006
--------------- ---------------
(As Restated)
Sales $ 1,859 $ 3,576
Cost of sales 751 1,760
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Gross profit 1,108 1,816
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Operating expenses
Research and development 17,694 22,788
Selling and marketing 23,344 2,466
General and administrative 177,993 78,486
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219,031 103,740
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Operating loss (217,923) (101,924)
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Other Income (Expense)
Interest income - related party 37 3,113
Gain on value of derivative liabilities - 179,114
Interest expense (including related party interest of
($1,035 and $1,095, respectively) (34,618) (1,095)
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(34,581) 181,132
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Net income (loss) (252,504) 79,208
Accumulated deficit - beginning (13,063,247) (10,772,987)
--------------- ---------------
Accumulated deficit - ending $ (13,315,751) $ (10,693,779)
=============== ===============
Basic and diluted net income (loss) per share $ 0.00 $ 0.00
=============== ===============
Weighted average number of shares used in
computation of basic and diluted net loss per share 124,793,244 100,000,000
=============== ===============
COMPREHENSIVE INCOME (LOSS)
Net income (loss) $ (252,504) $ 79,208
Foreign translation adjustment (4,441) 3,976
--------------- ---------------
Comprehensive income (loss) $ (256,945) $ 83,184
=============== ===============
The accompanying notes are an integral part of these consolidated
financial statements.
5
BRIGHTEC, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ending
March 31,
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2007 2006
--------------- ---------------
(As Restated)
Cash flows from operating activities
Net income (loss) $ (252,504) $ 79,208
Adjustments to reconcile net income (loss) to net cash
used for operating activities:
Amortization of deferred financing costs 26,622 -
Accrued interest on note receivable - related party - (1,998)
Gain on value of derivative liabilities - (179,114)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (510) 3,183
Inventory (3,679) 3,977
Prepaid expenses (895) 6,064
Deposit 744 -
Increase (decrease) in:
Accounts payable (10,739) (45,782)
Accrued liabilities 33,853 39,913
--------------- ---------------
Net cash used for operating activities (207,108) (94,549)
--------------- ---------------
Cash flows from investing activities
Repayment of related party note receivable 10,993 -
--------------- ---------------
Net cash provided by investing activities 10,993 -
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Cash flows from financing activities
Advances from related party 190,000 -
Cash received for sale of common stock, exercise of
warrants and stock subscribed - 118,500
Cash paid for services related to capital raise (15,085) -
Repayment of advances from related party (11,030) (9,200)
--------------- ---------------
Net cash provided by financing activities 163,885 109,300
--------------- ---------------
Effects of changes in foreign exchange rates (4,441) 3,976
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Net increase (decrease) in cash (36,671) 18,727
Cash - beginning 51,836 2,445
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Cash - ending $ 15,165 $ 21,172
=============== ===============
Supplemental disclosures of cash flows information
Cash paid during the period for interest $ 33,583 $ -
=============== ===============
Non-cash activities
Liability to stockholders for shares redeemed and cancelled $ - $ 13,708
=============== ===============
Issuance of warrants relating to private placements $ - $ 114,084
=============== ===============
Exercise of warrants classified as liabilities $ - $ (25,450)
=============== ===============
Issuance of common stock related to capital raise $ 174,000 $ -
=============== ===============
The accompanying notes are an integral part of these consolidated
financial statements.
6
BRIGHTEC, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - OPERATIONS
Brightec, Inc. (formerly Advanced Lumitech, Inc.) ("Brightec" or the "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. 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 March 31, 2006 Interim Consolidated Financial Statements
On March 3, 2007, the Company amended its Form 10-QSB for the period March 31,
2006, as previously filed on June 30, 2006.
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 December 31, 2005, the
Company's liability for outstanding warrants was $252,135. During the three
month period ended March 31, 2006, the Company issued warrants initially valued
at $114,084 and warrants valued at $5,472 were exercised. The Company was
required to revalue this liability at the end of every reporting period.
Accordingly, for the three months ended March 31, 2006, the Company reduced the
value of the liability and recognized a gain on value of derivative liabilities
of $179,114. See NOTE 11 - WARRANT LIABILITY.
The effect of the restatement was to increase the net income of the Company by
$179,114 (less than $0.01 per share) for the three months ended March 31, 2006.
NOTE 2 - INTERIM FINANCIAL STATMENTS
The accompanying unaudited consolidated financial statements at March 31, 2007
and for the three-month period then ended includes 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 Reports
on Form 10-KSB and Form 10-KSB/A for the year ended December 31, 2006, 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 Reports on Form 10-KSB and Form
10-KSB/A for the year ended December 31, 2006.
NOTE 3 - LIQUIDITY, MANAGEMENT PLANS AND GOING CONCERN
The Company has a working capital deficit of $1,094,988 and an accumulated
deficit of $13,315,751 at March 31, 2007, 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 2007 calendar
year; however, there can be no assurances that such financing can be obtained.
7
BRIGHTEC, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - continued
(Unaudited)
NOTE 3 - LIQUIDITY, MANAGEMENT PLANS AND GOING CONCERN - continued
On March 30, 2007 (the "Closing Date"), the Company entered into a Standby
Equity Distribution Agreement (the "SEDA") with Cornell Capital Partners, LP
("Cornell") pursuant to which the Company may, at its discretion, periodically
sell to Cornell shares of its common stock, par value $0.001 per share (the
"Common Stock") for a total purchase price of up to $10,000,000. See NOTE 12 -
COMMON STOCK.
NOTE 4 - EARNINGS (LOSS) PER SHARE
The Company computes earnings or loss per share in accordance with SFAS No. 128,
Earnings per Share. Basic earnings per share, is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding. Diluted earnings per share reflect the potential dilution that
could occur if securities or other agreements to issue common stock were
exercised or converted into common stock, only in the periods in which the
effect is dilutive. The following securities have been excluded from the
calculation of net loss per share, as their effect would be anti-dilutive:
(Unaudited) (Unaudited)
March 31, 2007 March 31, 2006
--------------- ---------------
(As Restated)
Warrants (weighted average) 6,737,499 4,288,968
=============== ===============
Convertible debt (weighted average) 5,416,667 -
=============== ===============
Stock options (weighted average) 24,962,911 -
=============== ===============
NOTE 5 - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
value and consist of the following at March 31, 2007:
Raw materials $ 21,825
Work in process 23,031
Finished goods 57,413
---------------
$ 102,269
===============
NOTE 6 - DEFERRED FINANCING EXPENSES
In connection with the Loan and Security Agreement (the "Loan and Security
Agreement") entered into on June 8, 2006 between the Company and Ross/Fialkow
Capital Partners, LLC, Trustee of Brightec Capital Trust ("Ross/Fialkow") (see
NOTE 11 - LINE OF CREDIT), the Company agreed to pay a commitment fee of $37,500
to Ross/Fialkow and issued a warrant to Ross/Fialkow to purchase 1,500,000
shares of common stock at an exercise price of $0.12 per share. The warrant was
valued at $68,985 using the Black/Scholes method of valuing options and
warrants. These amounts are being amortized over the term of the Loan and
Security Agreement (twelve months). As of March 31, 2007, the balance of
deferred financing expense consisted of the following:
Commitment fee $ 37,500
Value of warrants issued 68,985
Less: accumulated amortization (88,738)
---------------
$ 17,747
===============
NOTE 7 - INCOME TAXES
The Company has not calculated the tax benefits of its net operating losses as
of March 31, 2007 and December 31, 2006 since it does not have the required
information. The Company has not filed its federal and state corporate
8
BRIGHTEC, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - continued
(Unaudited)
NOTE 7 - INCOME TAXES - continued
tax returns for years ended December 31, 2005, 2004, 2003, 2002 and 2000. The
tax return filed for 2001 will need to be amended, if permitted by statute. 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.
NOTE 8 - RELATED PARTY TRANSACTIONS
As of December 31, 2006, a note was receivable from the Company's president, who
is also a director and stockholder. The note, due no later than December 31,
2011, bears interest at a fixed rate of 5.05% and is full-recourse. Interest on
the note is accrued quarterly and due annually. During the three months ended
March 31, 2007, the entire outstanding balance of $10,993 plus interest was paid
in full. The Company recognized interest income of $37 and $3,113 for each of
the three month periods ended March 31, 2007 and 2006, respectively.
At March 31, 2007, the Company owed its president $178,970 in connection with
advances made by him to the Company. During the three-month period ended March
31, 2007, he made advances to the Company of $190,000, of which $11,030 was used
to repay the aforementioned note receivable from him. The Company did not repay
any of the remaining advances. All such advances bear interest at the Internal
Revenue Service short term "Applicable Federal Rate" (4.95% at March 31, 2007)
calculated and accrued monthly. For the three months ended March 31, 2007 and
2006, the Company incurred $1,035 and $1,095 of interest expense on the
outstanding advances.
NOTE 9 - LINE OF CREDIT
On June 8, 2006, the Company entered into the Loan and Security Agreement with
Ross/Fialkow, in the amount of $750,000. The line expires on July 15, 2007 and
advances under the line bear interest at 20% per annum. The principal amount of
the loan plus accrued but unpaid interest, if any, is convertible at any time
prior to payment at the election of Ross/Fialkow, into the Company's common
stock at the rate of $.12 per share. Such shares carry piggy-back registration
rights. All assets of the Company have been pledged, including the assets of the
Company's wholly-owned subsidiary, Brightec S.A., a Swiss corporation (the
"Subsidiary"). In addition, the Company is required to file a registration
statement on Form S-1 with respect to all common stock as to which the Company
has obligations to deliver to Ross/Fialkow by July 15, 2007.
As of March 31, 2007, the outstanding balance on the line of credit was
$650,000. Interest expense was $33,583 for the three months ended March 31,
2007.
At December 31, 2006, the Company was not in compliance with the terms of the
agreement as it did not file a registration statement on form S-1 by December
31, 2006. On March 15, 2007, the Loan and Security Agreement was amended as
follows:
1. The due date of the agreement was extended to July 15, 2007.
2. The date by which the Company was required to file a registration
statement on Form S-1 was extended to July 15, 2007.
NOTE 10 - ACCRUED EXPENSES
At March 31, 2007, accrued expenses consisted of the following:
Executive officer compensation $ 225,000
Professional fees 45,415
Employee compensation 40,000
Payroll and other taxes 3,817
Consulting and other miscellaneous expenses 11,940
Interest (including related party interest of $1,035) 12,229
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$ 338,401
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9
BRIGHTEC, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - continued
(Unaudited)
NOTE 11 - WARRANT LIABILITY
Prior to September 25, 2006, the Company had issued all of its shares of
authorized common stock. As a result, the value of warrants 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 was required to revalue the warrants at the end of every
reporting period with the change in value reported on the statement of
operations as "Gain on Value of Derivative Liabilities" in the period in which
the change occurred. As of March 31, 2006, the Company recognized a gain on the
value of derivative liabilities of $179,114.
On September 25, 2006, at a special meeting of the Company's stockholders, the
stockholders voted to increase the number of authorized shares of common stock
from 100 million to 245 million. This resulted in the elimination of the
requirement to classify the value of the warrants as a liability. From the date
of the various issuances through September 25, 2006, the Company valued the
warrants at the end of each reporting period.
NOTE 12 - CAPITAL STOCK
Number of Shares of Common Stock Authorized, Issued and Outstanding
Under the Company's charter, 245,000,000 shares of $0.001 par value common stock
and 5,000,000 shares of "blank check" preferred stock are authorized. As of
March 31, 2007, 128,942,837 shares of common stock were issued and outstanding.
There were no shares of preferred stock outstanding as of March 31, 2007.
Preferred Stock
Five million shares of "blank check" preferred stock are authorized under the
Company's Articles of Incorporation. The terms, rights and features of the
preferred stock will be determined by the Board of Directors upon issuance.
Subject to the provisions of the Company's certificate of amendment to the
articles of incorporation and the limitations prescribed by law, the Board of
Directors would be expressly authorized, at its discretion, to adopt resolutions
to issue shares, to fix the number of shares and to change the number of shares
constituting any series and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, including dividend
rights (including whether the dividends are cumulative), dividend rates, terms
of redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any series of the
preferred stock, in each case without any further action or vote by the
stockholders. The board of directors would be required to make any determination
to issue shares of preferred stock based on its judgment as to the best
interests of the Company and its stockholders.
Issuances of Common Stock
On March 30, 2007, the Company issued 4,000,000 shares of common stock, valued
at $164,000, to Cornell in satisfaction of a commitment fee in connection with
the signing the SEDA on the same date. For the three months ended March 31,
2007, the Company recognized the $164,000 as an offset to additional paid-in
capital based on the market price of $0.041 per share on the aforementioned
date.
In addition, on March 30, 2007, the Company issued 243,902 shares of common
stock, valued at $10,000, Newbridge Securities Corporation, in satisfaction of
and upon the execution of the Placement Agent Agreement ("PAA") on the same
date. For the three months ended March 31, 2007, the Company recognized the
$10,000 as an offset to additional paid-in capital based on the market price of
$0.041 per share on the aforementioned date.
Standby Equity Distribution Agreement
On the Closing Date, the Company entered into a SEDA with Cornell pursuant to
which the Company may, at its discretion, periodically sell to Cornell shares of
the Common Stock for a total purchase price of up to $10,000,000. For each share
of Common Stock purchased under the SEDA, Cornell will pay to the Company
ninety-six percent (96%) of the lowest volume weighted average price (as quoted
by Bloomberg, LP) of the Common Stock during the five (5) consecutive trading
days after the Advance Notice Date (as such term is defined in the SEDA),
subject to any reduction pursuant to the terms therein. On the Closing Date,
Date, the Company paid to Cornell a non-refundable due diligence fee equal to
$5,000 and issued 4,000,000 shares of Common Stock ("Commitment Shares") to
10
BRIGHTEC, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - continued
(Unaudited)
NOTE 12 - CAPITAL STOCK - continued
Standby Equity Distribution Agreement - continued
Cornell as a commitment fee, of which 2,000,000 Commitment Shares will have
demand registration rights and 2,000,000 Commitment Shares will have
"piggy-back" registration rights.
Cornell will retain five percent (5%) of each advance under the SEDA. The
Company has paid to Yorkville Advisors, LLC ("Yorkville") a structuring fee
equal to $15,000 on the Closing Date and shall pay $500 to Yorkville on each
Advance Date directly out of the gross proceeds of each Advance (as such terms
are defined in the SEDA). Cornell's obligation to purchase shares of Common
Stock under the SEDA is subject to certain conditions, including, without
limitation: (a) the Company obtaining an effective registration statement for
shares of its Common Stock sold under the SEDA pursuant to that certain
Registration Rights Agreement, dated as of the Closing Date, by and between the
Company and Cornell and (b) the amount for each Advance as designated by the
Company in the applicable Advance Notice shall not be more than $300,000.
The Company also entered into the PAA, dated as of the Closing Date, by and
between the Company and Newbridge Securities Corporation ("Newbridge") pursuant
to which the Company engaged Newbridge to act as it exclusive placement agent in
connection with the SEDA. Upon the execution of the PAA, the Company issued to
Newbridge 243,902 shares (the "Placement Agent Shares") of the Company's Common
Stock. Newbridge is entitled to "piggy-back" registration rights with respect to
the Placement Agent Shares.
Deferred Offering Costs
The Company paid $15,000 to Yorkville for structuring fees, $5,000 to Cornell
for due diligence fees and $85 to record the issuance of the Cornell and
Newbridge shares with the Company's stock transfer agent. As shares of the
Company's common stock cannot be sold to Cornell until the Company files, and
has declared effective, an S-1 registration statement, such costs were deferred.
Total deferred offering costs at March 31, 2007 amounted to $20,085. Such costs
will be offset against equity raised.
Issuances of Warrants
The Company did not issue any warrants during the three months ended March 31,
2006. During the quarter ended March 31, 2007, warrants for the purchase of
416,667 shares of the Company's common stock expired.
As of March 31, 2007, the Company has warrants outstanding for the purchase of
6,320,832 shares of common stock at an exercise price of $0.12 per share.
2006 Stock Incentive Plan
An aggregate of 50 million shares of common stock are reserved for issuance and
available for awards under the 2006 Plan.
NOTE 13 - COMPREHENSIVE INCOME
The Company reports comprehensive income (loss) in addition to net income from
operations. Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income.
11
BRIGHTEC, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements - continued
(Unaudited)
NOTE 14 - RECENT ACCOUNTING PRONOUNCEMENTS
In February 2007, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.
SFAS No. 159 permits entities to choose to measure eligible financial
instruments at fair value. The unrealized gains and losses on items for which
the fair value option has been elected should be reported in earnings. The
decision to elect the fair value options is determined on an instrument by
instrument basis, it should be applied to an entire instrument, and it is
irrevocable. Assets and liabilities measured at fair value pursuant to the fair
value option should be reported separately in the balance sheet from those
instruments measured using another measurement attributes. SFAS No. 159 is
effective as of the beginning of the first fiscal year that begins after
November 15, 2007. The Company does not expect the adoption of this
pronouncement to have a material effect on the financial position or results of
operations of the Company.
In September 2006, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements. SAB 108 provides guidance on the consideration of effects of the
prior year misstatements in quantifying current year misstatements for the
purpose of a materiality assessment. The SEC staff believes registrants must
quantify errors using both a balance sheet and income statement approach and
evaluate whether either approach results in quantifying a misstatement that,
when all relevant quantitative and qualitative factors are considered, is
material. SAB 108 was effective for the first annual period ending after
November 15, 2006 with early application encouraged. The Company adopted the
provisions of SAB 108 on December 31, 2006 and the impact of adoption was not
material to its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements which
applies under most other accounting pronouncements that require or permit fair
value measurements. SFAS No. 157 provides a common definition of fair value as
the price that would be received to sell or paid to transfer a liability in a
transaction between market participants. The new standard also provides guidance
on the methods used to measure fair value and requires expanded disclosures
related to fair value measurements. SFAF No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. The
Company does not expect this guidance to have a material impact on the financial
statements.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the our financial condition and results of our
operations should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included elsewhere in this Quarterly Report on Form
10-QSB and our Annual Report on Form 10-KSB and 10-KSB/A for the year ended
December 31, 2006. This Quarterly Report on Form 10-QSB 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.
CRITICAL ACCOUNTING POLICIES
Certain of our accounting policies are particularly important to the portrayal
and understanding of our financial position and results of operations and
require us to apply significant judgment in their application. As a result,
these policies are subject to an inherent degree of uncertainty. In applying
these policies, we use our judgment in making certain assumption and estimates.
Our critical accounting policies, which consist of revenue recognition, account
receivable reserves and inventories, are described in our Annual Reports on Form
10-KSB and Form 10-KSB/A for the year ended December 31, 2006. There have been
no material changes to our critical accounting policies as of and for the three
months ended March 31, 2007.
OVERVIEW
Brightec 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 has been and
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. These films are based on the Company's proprietary and
patented technology that 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 expects to offer its products in
sheets and rolls.
ABILITY TO CONTINUE AS A GOING CONCERN
The Company has a working capital deficit of approximately $1,095,000, an
accumulated deficit of approximately $13,316,000 at March 31, 2007 and recurring
negative operating cash flows since inception. The future viability of the
Company is dependent upon the Company's ability to obtain additional financing
and achieve profitability in future operations. These circumstances raise
substantial doubt about the Company's ability to continue as a going concern.
Our auditors have included a "going concern" qualification in their auditor's
report for the year ended December 31, 2006. Such a "going concern"
qualification may make it more difficult for us to raise funds when needed. We
believe we have the ability to obtain additional funds from new investors, our
principal stockholders and employees through the issuance of additional debt,
equity securities and/or the exercise of warrants and stock options. In March
2007, we entered into a $10,000,000 SEDA as described above. In addition, the
Company's president has advanced $235,000 through April 30, 2007.
We are continually having discussions with investors in its effort to obtain
additional financing; however, there can be no assurances that we will be able
to raise the funds we require, or that if such funds are available, that they
will be available on commercially reasonable terms. Our ability to continue to
operate as a going concern is primarily dependent upon our ability to generate
the necessary financing to effectively market and produce our products, to
establish profitable operations and to generate positive operating cash flows.
If we fail to raise funds or are unable to generate operating profits and
positive cash flows, there are no assurances that we will be able to continue as
a going concern and we may be unable to recover the carrying value of our
assets. We believe that we will be successful in generating the necessary
financing to fund our operations through the 2007 calendar year. Accordingly, we
believe that no adjustments or reclassifications of our recorded assets and
liabilities are necessary at this time.
13
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2007 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2006
REVENUES
Our revenues, net of returns, allowances and discounts, for the three month
period ended March 31, 2007, were $1,859 compared to $3,576 for the comparable
three months of 2006. This decrease in revenue is due to a decrease in the
amount of sales made through the Company's online webstore.
In addition, we did not make any commercial sales of our product because we
continued to focus on improving our cost structure in order for us to be
competitive once our product launch occurs, particularly as it relates to the
professional graphics industry. We want to position ourselves to introduce a
wide range of products for that industry market segment rather than introduce
products as they become ready to be introduced to the marketplace. We
anticipated that we would introduce our product line late in the fourth quarter
of 2006; however, due to a technical complication we had to postpone the product
launch. We now anticipated that the introduction of the product to the market
will take place by the third quarter of 2007.
GROSS PROFIT
Our gross profit percentage was $1,108 (59.6%) for the three month period ended
March 31, 2007, compared to a gross profit of $1,186 (50.8%) for the comparable
three month period in fiscal 2006. The decrease in the Company's gross profit
was due to the decrease in revenue previously discussed.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses decreased by $5,094 for the three months ended
March 31, 2007 to $17,694 from $22,788 for the comparable three months of 2006.
The decrease in fiscal 2007 was primarily due to the lack of specific costs
incurred in relation to testing of new raw materials, during manufacturing trial
runs, to be used in the manufacturing of the Luminescent Product. During the
comparable period of 2006, we tested various mediums to be used for our
printable surface and various pigments to be used to create our luminescent
"effect."
SELLING AND MARKETING EXPENSES
Selling and marketing expenses consist of payroll, costs to maintain our
website, travel and fees paid in connection with promotional activities, press
releases and shareholder communications. Selling and marketing expenses
increased by $20,878 for the three months ended March 31, 2007 to $23,344 from
$2,466 for the comparable three months of 2006. The increase in selling and
marketing expenses was due to increases in payroll costs for an employee who
previously worked as a consultant, increases in costs related to the redesign of
our website, increases in costs for marketing and promotion and travel related
to our anticipated product launch by the third quarter of 2007.
We anticipate that once our product launch occurs, our selling and marketing
expenses will increase significantly as we introduce ourselves to the
marketplace and maximize the exposure of our products to the consumer.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consisted primarily of the compensation of
our executive officer, other payroll and related taxes and benefits, financing
costs and rent as well as legal and accounting fees. General and administrative
expenses increased by $99,507 for the three months ended March 31, 2007 to
$177,993 from $78,486 for the comparable three months of 2006. The increase was
primarily due to an increase in professional fees and printing costs relating to
the amending and restating of our 2004 and 2005 Annual Reports on Form 10-KSB/A
and our Quarterly Reports on Form 10-QSB/A for the periods ending March 31,
2005, June 30, 2005, September 30, 2005 and March 31, 2006. The increase is also
due to the amortization of financing costs incurred relating to our line of
credit, which we acquired in the second quarter of 2006.
14
OTHER INCOME (EXPENSE)
INTEREST INCOME
For the three months ended March 31, 2007 and 2006, interest income was $37 and
$3,113, respectively. Interest income is dependent on the outstanding balance of
a note receivable from our president. As of March 31, 2007, the entire
outstanding balance of the note receivable was paid in full and we do not have
any other sources from which we derive interest income. We do not currently
anticipate recognizing any future interest income.
GAIN ON VALUE OF DERIVATIVE LIABILITIES
Gain on value of derivative liabilities of $0 and $179,114 for the three months
ended March 31, 2007 and 2006, respectively, related to the warrant liability.
Such derivative liabilities were required to be marked-to-market under generally
accepted accounting principles. See a further discussion in NOTE 11 - WARRANT
LIABILITY of the Company's financial statements.
INTEREST EXPENSE
For the three months ended March 31, 2007 and 2006, interest expense was $34,618
and $1,095, respectively. Interest expense is dependent on the outstanding
balance of our line of credit entered into on June 8, 2006 and the outstanding
balance of cash advances we received from our president.
For the three months ended March 31, 2007, we incurred interest of $33,583 on
our line of credit. We also incurred interest on cash advances from our
president of $1,035. For the three months ended March 31, 2006, the interest
incurred of $1,095 was on the outstanding balance of cash advances received from
our president.
INCOME TAXES
We have not calculated the tax benefits of our net operating losses, since we do
not have the required information. Due to the uncertainty over our 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 MARCH 31, 2007
Since inception, our operations have not generated sufficient cash flow to
satisfy our capital needs. We have financed our operations primarily through the
private sale of shares of our common stock, warrants to purchase shares of our
common stock and debt securities. We have generated, from inception through
March 31, 2007, cumulative net cash proceeds from the sale of our equity of
approximately $4.9 million. Our net working capital deficit at March 31, 2007
was $1,094,988 compared to a deficit of $829,695 as of December 31, 2006.
Our authorized capital stock consists of 245,000,000 shares of common stock, of
which 128,942,837 shares were issued and outstanding at March 31, 2007. The
number of shares issued excludes shares of common stock to be issued upon the
exercise of outstanding options and warrants.
Cash decreased to $15,165 at March 31, 2007 from $51,836 at December 31, 2006.
Net cash used for operating activities for the three months ended March 31, 2007
was $207,108. The primary reason for the decrease was to fund the loss for the
period.
Net cash provided from investing activities for the three months ended March 31,
2007 amounted to $10,993 and represented repayments of the related party note
receivable.
Net cash provided by financing activities for the three months ended March 31,
2007 was $163,885. The net cash provided was the result of cash received of
$178,970 from net advances received from our president net of $15,085 paid for
services related to our entry into the SEDA.
On the Closing Date, we entered into the SEDA with Cornell, pursuant to which we
may, at our discretion, periodically sell to Cornell Common Stock for a total
purchase price of up to $10,000,000. For each share of Common Stock purchased
under the SEDA, Cornell will pay to the Company ninety-six percent (96%) of the
lowest volume weighted average price (as quoted by Bloomberg, LP) of our common
stock during the five (5) consecutive trading days after the Advance Notice Date
(as such term is defined in the SEDA), subject to any reduction pursuant to the
15
terms therein. On the Closing Date, the Company paid to Cornell a non-refundable
due diligence fee equal to $5,000 and issued 4,000,000 shares of common stock
("Commitment Shares") to Cornell as a commitment fee, of which 2,000,000
Commitment Shares will have demand registration rights and 2,000,000 Commitment
Shares will have "piggy-back" registration rights.
Cornell will retain five percent (5%) of each advance under the SEDA. We paid
Yorkville a structuring fee equal to $15,000 on the Closing Date and shall pay
$500 to Yorkville on each Advance Date directly out of the gross proceeds of
each Advance (as such terms are defined in the SEDA). Cornell's obligation to
purchase shares of Common Stock under the SEDA is subject to certain conditions,
including, without limitation: (a) our obtaining an effective registration
statement for shares of our Common Stock sold under the SEDA pursuant to that
certain Registration Rights Agreement, dated as of the Closing Date, by and
between the us and Cornell and (b) the amount for each Advance as designated by
us in the applicable Advance Notice shall not be more than $300,000.
We also entered into the PAA, dated as of the Closing Date, by and between us
and Newbridge pursuant to which the we engaged Newbridge to act as our exclusive
placement agent in connection with the SEDA. Upon the execution of the PAA, we
issued to Newbridge the Placement Agent Shares. Newbridge is entitled to
"piggy-back" registration rights with respect to the Placement Agent Shares.
See a further discussion in NOTE 12 - CAPITAL STOCK of the Company's financial
statements.
ABILITY TO CONTINUE AS A GOING CONCERN:
At March 31, 2007, we have generated minimal revenues from commercial sales of
the Company's products. To date, our operations have generated accumulated
losses of $13,315,751. At March 31, 2007, our current liabilities exceed our
current assets by $1,094,988. Our ability to remedy this condition is uncertain
due to our current financial condition. These conditions raise substantial doubt
about our ability to continue as a going concern. Our auditors have included a
"going concern" qualification in their auditor's report for the year ended
December 31, 2006. Such a "going concern" qualification may make it more
difficult for us to raise funds when needed. We believe we have the ability to
obtain additional funds from new investors, our principal stockholders and
employees through the issuance of additional debt, equity securities and/or the
exercise of warrants and stock options. In March 2007 we entered into a
$10,000,000 SEDA as described above. In addition, the Company's president has
advanced monies totaling $235,000 through April 30, 2007. We are continually
having discussions with investors in its effort to obtain additional financing;
however, there can be no assurances that we will be able to raise the funds we
require, or that if such funds are available, that they will be available on
commercially reasonable terms.
Our ability to continue to operate as a going concern is primarily dependent
upon our ability to generate the necessary financing to effectively market and
produce our products, to establish profitable operations and to generate
positive operating cash flows. If we fail to raise funds or are unable to
generate operating profits and positive cash flows, there are no assurances that
we will be able to continue as a going concern and we may be unable to recover
the carrying value of our assets. We believe that we will be successful in
generating the necessary financing to fund our operations through the 2007
calendar year. Accordingly, we believe that no adjustments or reclassifications
of our recorded assets and liabilities are necessary at this time.
CREDIT AVAILABILITY:
We have a $750,000 Agreement with Ross/Fialkow, as described in NOTE 9 - LINE OF
CREDIT of our consolidated financial statements. As of March 31, 2007 we had
borrowed $650,000 of the $750,000 available under this agreement.
At December 31, 2006, the Company was not in compliance with the terms of the
agreement as it did not file a registration statement on form S-1 by December
31, 2006. On March 15, 2007, the Loan and Security Agreement was amended as
follows:
1. The due date of the agreement was extended to July 15, 2007.
2. The date by which the Company was required to file a registration
statement on Form S-1 was extended to July 15, 2007.
16
COMMITMENTS:
The Company had no material capital expenditure commitments as of March 31,
2007.
EFFECTS OF INFLATION:
Management believes that financial results have not been significantly impacted
by inflation and price changes.
17
ITEM 3. CONTROLS AND PROCEDURES
During the last seven 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, 2005 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, we began to carry 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, 2006 and 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 States 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, 2006 and 2005. As a result,
the figures for the three months ended March 31, 2006, 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, 2005 and for the three-
and six months periods ended June 30, 2006, 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 had 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.
We are continually monitoring our internal control system for weaknesses and
ways in which the system might be improved to further enhance the effectiveness
of our controls over the material weaknesses identified by our independent
registered public accounting firm and to ensure and enhance effective controls
over the analysis, preparation and dissemination of our financial information.
18
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 January 1, 2007 to
March 31, 2007 and were not registered under the Securities Act of 1933, as
amended (the "Securities Act").
On March 30, 2007, we issued 4,000,000 to Cornell as commitment fee, at a market
price of $0.041 per share or an aggregate market value of $164,000.
On March 20, 3007, we issued 243,902 shares to Newbridge to act as our exclusive
placement agent in connection with the SEDA. The shares were issued at a market
price of $0.041 per share or an aggregate market value of $10,000.
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
19
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.
20
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.
BRIGHTEC, INC.
Date: May 7, 2007 By: /s/ Patrick Planche
-------------------------------------
Patrick Planche
President and Chief Executive Officer
21
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
22