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 June 30, 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.
----------------------------------------------
(Name of small business issuer in its charter)
Nevada 87-0438637
------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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, $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 141,142,837 shares of Common Stock, $0.001 par value, issued and
outstanding as of August 17, 2007.
Transitional Small Business Disclosure Format: [ ] Yes [X] No
INDEX
Page Number
Note Regarding Forward Looking Statements 3
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet at June 30, 2007 - Unaudited 4
Consolidated Statements of Operations and Accumulated Deficit
and Comprehensive Income (Loss) for the Three- and Six Month
Periods Ended June 30, 2007 and 2006 - Unaudited 5
Consolidated Statements of Cash Flows for the Three- and
Six Month Periods Ended June 30, 2007 and 2006 - Unaudited 6
Notes to Consolidated Financial Statements - Unaudited 7 - 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14 - 18
Item 3. Controls and Procedures 19
Part II. Other Information
Item 1. Legal Proceedings 20
Item 2. Unregistered Sales of Equity and Use of Proceeds 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits 21
Signatures 22
Exhibit Index 23
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, but are not limited to, 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.
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
June 30, 2007
(Unaudited)
ASSETS
Current assets
Cash $ 32,700
Accounts receivable 510
Inventory 241,911
Prepaid expenses 26,528
------------
TOTAL CURRENT ASSETS 301,649
------------
Office and photographic equipment 23,511
Less accumulated depreciation (23,511)
------------
--
------------
Deposit 2,041
Deferred offering costs 20,085
------------
22,126
------------
TOTAL ASSETS $ 323,775
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Line of credit $ 650,000
Accounts payable 102,826
Accrued liabilities (including related party interest of $4,878) 290,462
Advances due to related parties 368,970
------------
TOTAL CURRENT LIABILITIES 1,412,258
------------
Stockholders' deficit
Preferred stock --
Common stock 141,143
Additional paid-in capital 12,403,923
Accumulated deficit (13,834,273)
Accumulated other comprehensive income 200,724
------------
TOTAL STOCKHOLDERS' DEFICIT (1,088,483)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 323,775
============
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 For the Six Months
Ended June 30, Ended June 30,
------------------------------ ------------------------------
2007 2006 2007 2006
------------- ------------- ------------- -------------
(As Restated) (As Restated)
Sales $ 3,391 $ 7,012 $ 5,250 $ 10,588
Cost of sales 1,899 3,141 2,650 4,901
------------- ------------- ------------- -------------
Gross profit 1,492 3,871 2,600 5,687
------------- ------------- ------------- -------------
Operating expenses
Research and development 37,551 30,832 55,245 53,620
Selling and marketing 57,999 1,885 81,343 4,351
General and administrative (including related
party expenses of $0, $20,000, $0 and $20,000
respectively) 259,384 89,193 437,377 167,679
------------- ------------- ------------- -------------
354,934 121,910 573,965 225,650
------------- ------------- ------------- -------------
Operating loss (353,442) (118,039) (571,365) (219,963)
------------- ------------- ------------- -------------
Other Income (Expense)
Interest income - related party -- 3,148 37 6,261
Foreign exchange gains -- 17,656 -- 17,656
Gain on value of derivative liabilities -- 56,373 -- 235,487
Financing costs (128,680) -- (128,680) --
Interest expense (including related party interest
of $3,848, $932, $4,878 and $2,027,
respectively) (36,400) (5,404) (71,018) (6,499)
------------- ------------- ------------- -------------
(165,080) 71,773 (199,661) 252,905
------------- ------------- ------------- -------------
Net income (loss) (518,522) (46,266) (771,026) 32,942
Accumulated deficit - beginning (13,315,751) (10,693,779) (13,063,247) (10,772,987)
------------- ------------- ------------- -------------
Accumulated deficit - ending $ (13,834,273) $ (10,740,045) $ (13,834,273) $ (10,740,045)
============= ============= ============= =============
Basic and diluted net income (loss) per share $ 0.00 $ 0.00 $ (0.01) $ 0.00
============= ============= ============= =============
Weighted average number of shares used in
computation of basic and diluted net
income (loss) per share 130,709,870 100,000,000 127,767,901 100,000,000
============= ============= ============= =============
COMPREHENSIVE INCOME (LOSS)
Net income (loss) $ (518,522) $ (46,266) $ (771,026) $ 32,942
Foreign currency translation gain (loss) 6,221 (18,225) 1,780 (14,249)
------------- ------------- ------------- -------------
Comprehensive income (loss) $ (512,301) $ (64,491) $ (769,246) $ 18,693
============= ============= ============= =============
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 Six Months Ended
June 30,
------------------------------
2007 2006
------------- -------------
(As Restated)
Cash flows from operating activities
Net income (loss) $ (771,026) $ 32,942
Adjustments to reconcile net income (loss) to net cash used for
operating activities:
Amortization of deferred financing costs 44,369 8,874
General and administrative expenses associated with stock based
transactions 60,500 --
Selling and marketing expenses associates with stock based
transactions 22,500 --
Financing costs associated with stock based transactions 128,680 --
Accrued interest on advances from related party 4,878 2,027
Accrued interest on note receivable - related party (37) (3,518)
Loss on value of derivative liabilities -- (235,487)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (510) (3,190)
Inventory (143,321) (34,540)
Prepaid expenses (16,360) (1,411)
Deposit 744 --
Increase (decrease) in:
Accounts payable 22,716 (35,830)
Accrued liabilities 56,036 38,326
------------- -------------
Net cash used for operating activities (590,831) (231,807)
------------- -------------
Cash flows from investing activities
Repayment of note receivable - related party 11,030 --
------------- -------------
Cash flows from financing activities
Cash received for sale of common stock, exercise of
warrants and stock subscribed -- 120,000
Advances on line of credit -- 350,000
Advances received from related party 590,000 95,600
Repayment of advances from related party (11,030) (176,200)
Payment of deferred financing costs -- (37,500)
Payment of deferred offering costs (20,085) --
------------- -------------
Net cash provided by financing activities 558,885 351,900
------------- -------------
Effects of changes in foreign exchange rates 1,780 (14,249)
------------- -------------
Net increase (decrease) in cash (19,136) 105,844
Cash - beginning 51,836 2,445
------------- -------------
Cash - ending $ 32,700 $ 108,289
============= =============
Supplemental disclosures of cash flows information
Cash paid during the period for interest $ 77,334 $ --
============= =============
Non-cash activities
Issuance of common stock related to capital raise $ 4,244 $ --
============= =============
Issuance of common stock in satisfaction of accrued liabilities -
related party $ 150,000 $ --
============= =============
Issuance of common stock in satisfaction of advances from related
party $ 210,000 $ --
============= =============
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.) ("BRTE" or the "Company")
develops and markets luminescent films incorporating luminescent or
phosphorescent pigments (the "Luminescent Product"). These pigments absorb and
re-emit visible light producing a "glow" which accounts for the common
terminology "glow in the dark." The Company's anticipates that its 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 June 30, 2006 Interim Consolidated Financial Statements
On May 9, 2007, the Company amended its Quarterly Report on Form 10-QSB for the
period June 30, 2006, as previously filed on August 21, 2006.
The Company determined that the stock redemption agreements between the Company
and certain stockholders were improperly marked-to-market, with the changes in
the fair value improperly reported as gains or losses in fair value of
derivative liabilities on the Company's statement of operations. As a result,
the Company increased its liability to stockholders for shares redeemed by
$1,296,097, increased additional paid-in capital by $214,094 and increased its
accumulated deficit by $1,377,036 to reverse the net gains recognized resulting
from mark-to market adjustments prior to January 1, 2006. For the three- and six
month periods ending June 30, 2006, the Company reversed recognized gains of
$1,271,759 and $133,155, respectively.
The effect of these restatements was to decrease net income by $1,271,759 ($0.01
per share) and $133,155 (less than $0.01 per share) for the three- and six month
periods ended June 30, 2006, respectively.
NOTE 2 - INTERIM FINANCIAL STATMENTS
The accompanying unaudited consolidated financial statements at June 30, 2007
and for the three- and six month periods 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 the
Company's opinion, these unaudited consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements
included in the Company's Annual Report on Form 10-KSB 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 Report on Form 10-KSB
for the year ended December 31, 2006.
NOTE 3 - LIQUIDITY, MANAGEMENT PLANS AND GOING CONCERN
The Company has a working capital deficit of $1,110,609, an accumulated deficit
of $13,834,273 at June 30, 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
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 and under
certain circumstances, 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 Statement of
Financial Accounting Standard 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:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------------- ----------------------------
2007 2006 2007 2006
------------ ------------ ------------ ------------
Warrants (weighted average) 6,320,832 4,888,193 6,390,353 4,888,193
============ ============ ============ ============
Convertible debt (weighted average) 5,416,667 260,417 5,416,667 260,417
============ ============ ============ ============
Stock options (weighted average) 24,962,911 -- 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 June 30, 2007:
Raw materials $ 46,506
Work in process
145,513
Finished goods
49,892
------------
$ 241,911
============
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 9 - 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 the Company's 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 June 30, 2007, the full
amount of the deferred financing expenses had been amortized. Amortization
expense related to the deferred financing expenses, for the three- and six month
periods ended June 30, 2007 and 2006 was $17,748 and $8,874, $44,369 and $8,874,
respectively.
NOTE 7 - INCOME TAXES
The Company has not calculated the tax benefits of its net operating losses as
of June 30, 2007 and December 31, 2006 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, 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.
8
Brightec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - continued
(Unaudited)
NOTE 8 - RELATED PARTY TRANSACTIONS
NOTE RECEIVABLE - RELATED PARTY
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, bore interest at a fixed rate of 5.05% and was full-recourse. Interest on
the note was accrued quarterly and due annually. During the six month period
ended June 30, 2007, the entire outstanding balance of $10,993 plus accrued
interest was paid in full. The Company recognized interest income of $37,
$3,148, $37, $6,261 for each of the three- and six month periods ended June 30,
2007 and 2006, respectively.
ADVANCES FROM RELATED PARTY
During the three-month period ended March 31, 2007, the Company's president 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
outstanding advances. During the three month period ended June 30, 2007, he made
additional advances to the Company of $400,000. On June 18, 2007, the Company
repaid $210,000 of the outstanding advances through the issuance of 7,000,000
shares of the Company's common stock at a price of $0.03 per share, the closing
price of the Company's common stock on that date. As of June 30, 2007, the
Company owed its president $368,970.
All such aforementioned advances bear interest at the Internal Revenue Service
short term "Applicable Federal Rate" (4.73% at June 30, 2007) calculated and
accrued monthly. For the three- and six month periods ended June 30, 2007 and
2006, the Company incurred $3,843, $932, $4,878 and $2,027 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 (the
"Agreement") with Ross/Fialkow, in the amount of $750,000. The Agreement, which
was scheduled to expire on July 15, 2007, was extended until December 31, 2007
under an agreement dated June 27, 2007. The Company incurred a $5,000 renewal
fee for the extension. Advances from the line of credit 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 $0.12 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").
At December 31, 2006, the Company was not in compliance with the terms of the
Agreement as it did not file the Registration Statement 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 the
Registration Statement on Form S-1 or SB-2 was extended to
July 15, 2007.
The Company filed the required Registration Statement (the "Registration
Statement") on Form SB-2 with the Securities and Exchange Commission (the "SEC")
on July 6, 2007. On July 25, 2007, the Company received a comment letter from
the SEC regarding the Registration Statement. The Company is currently preparing
its response to the SEC and anticipating filing an amended Registration
Statement to address the comments in the SEC's letter.
As of June 30, 2007, the outstanding balance on the line of credit was $650,000.
Interest expense was $32,552, $4,472, $66,140 and $4,472 for the three- and six
month periods ended June 30, 2007 and 2006, respectively.
9
Brightec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - continued
(Unaudited)
NOTE 10 - ACCRUED EXPENSES
At June 30, 2007, accrued expenses consisted of the following:
Executive officer compensation $ 112,500
Professional fees 133,425
Employee compensation 30,000
Payroll and other taxes 4,323
Line of credit renewal fee 5,000
Interest - related party 4,878
Other 336
------------
$ 290,462
============
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 Emerging Issues Task Force 00-19,
"Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock." The Company was required to re-value the
warrants at the end of every 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. For the three- and six
month periods ended June 30, 2006, the Company recognized a gain on the value of
derivative liabilities of $56,373 and $235,487, respectively.
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 June
30, 2007, 141,142,837 shares of common stock were issued and outstanding. There
were no shares of preferred stock outstanding as of June 30, 2007.
Preferred Stock
Five million shares of "blank check" preferred stock are authorized under the
Company's Amended 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 its
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
At December 31, 2006, the Company had issued 124,698,935 shares of its 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,
10
Brightec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - continued
(Unaudited)
NOTE 12 - CAPITAL STOCK - continued
Issuances of Common Stock - continued
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, to Newbridge Securities Corporation ("Newbridge"), in
satisfaction of and upon the execution of the Placement Agent Agreement (the
"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.
On June 7, 2007, the Company issued 200,000 shares of common stock, valued at
$8,000, under an agreement and in satisfaction of certain marketing and sales
fees. For the three- and six month periods ended June 30, 2007, the Company
recognized the $8,000 and $8,000, respectively, as selling and marketing expense
based on the market price of $0.04 per share, the market price of the Company's
stock on the date the agreement was reached.
On June 18, 2007, the Company issued 5,000,000 shares of its common stock,
valued at $150,000, to its president as payment for his current year salary
through June 30, 2007 ($75,000) and for unpaid amounts from prior years
($75,000). The number of shares issued to the president's was based on the
closing market price of the Company's common stock of $0.03 per share on June
15, 2007, the date of the Board of Directors' corporate resolution to issue the
shares.
On June 18, 2007, the Company also issued 7,000,000 shares of its common stock,
valued at $210,000, to its president as repayment of certain cash advances made
by him to the Company. The number of shares of common stock issued was based on
the closing market price of the Company's common stock of $0.03 per share on
June 15, 2007, the date of the Board of Directors' corporate resolution to issue
the shares.
As of June 30, 2007, as a result of the aforementioned transactions, the Company
had issued 141,142,837 shares of its common stock.
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, under certain circumstances (as
described below), periodically sell to Cornell shares of the Common Stock for a
total purchase price of up to $10,000,000. For each share of the 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, 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. 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 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
11
Brightec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - continued
(Unaudited)
NOTE 12 - CAPITAL STOCK - continued
Standby Equity Distribution Agreement - continued
(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, the Registration Statement filed on July 6, 2007
(subject to amendment), such costs were deferred. Total deferred offering costs
at June 30, 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- or six month periods
ended June 30, 2007. During the three- and six month periods ended June 30,
2007, warrants for the purchase of 0 and 416,667 shares of the Company's common
stock expired.
On April 1, 2007 and June 27, 2007, the Company amended three of its previously
issued warrants to extend the exercise period of two warrants and modify the
time period in which the option holder can notify the Company of his/her desire
to exercise the options. Generally accepted accounting principles requires that
when the terms of a previously issued warrant are modified, the modification is
treated as an exchange of the original warrant. The excess of the value of the
warrant on the date the modification is effective over the value of the warrant
on the date immediately preceding the modification date, if any, is amortized to
expense over the remaining vesting period (or recognized immediately if the
warrants are vested 100%).
Accordingly, the fair value of the warrants was estimated on March 31, 2007 and
April 1, 2007 and June 26, 2007 and June 27, 2007 using the Black/Scholes
pricing model using the following assumptions: risk-free rate of return range of
4.56% to 4.91%; no dividend yield; an expected life of approximately 13 months
to 82 months; and a volatility factor ranging from 127.42% to 337.77%. As a
result of the revaluations, the Company recognized financing costs of $128,680.
As of June 30, 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 (LOSS)
The Company reports comprehensive income (loss) in addition to net income (loss)
from operations. Comprehensive income (loss) 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
(loss).
NOTE 14 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48) an
interpretation of FASB Statement No. 109, "Accounting for Income Taxes", which
clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. The Interpretation requires that the Company recognize in the
financial statements, the impact of a tax position, if that position is more
likely than not of being sustained on audit, based on the technical merits of
the position. FIN 48 also provides guidance on de-recognition of a previously
recognized tax position, classification, interest and penalties, accounting in
interim periods and disclosures. The provisions of FIN 48 are effective
12
Brightec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - continued
(Unaudited)
NOTE 14 - RECENT ACCOUNTING PRONOUNCEMENTS - continued
beginning January 1, 2007 with the cumulative effect of the change in accounting
principle recorded as an adjustment to the opening balance of retained earnings.
FIN 48 did not have an effect on the financial position or results of operations
of the Company.
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. SFAS 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.
In September 2006, the 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 February 2007, the 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.
13
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 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 various 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 Report on Form
10-KSB for the year ended December 31, 2006. There have been no material changes
to our critical accounting policies as of and for the three- and six month
periods ended June 30, 2007.
OVERVIEW
We develop and markets luminescent films incorporating luminescent or
phosphorescent pigments. These pigments absorb and re-emit visible light
producing a "glow" which accounts for the common terminology "glow in the dark."
Our Luminescent Product has been and will be sold primarily as a printable
luminescent film designed to add luminescence to existing or new products. We
manufacture through third-party manufacturers, markets and sells graphic quality
printable luminescent films. These films are based on our proprietary and
patented technology that enables prints to be of photographic quality by day and
luminescent by night. We expect that our Luminescent Product will be available
for sale in a number of versions appropriate for commonly used commercial and
personal printing technology, including offset printing or inkjet printing, plus
a variety of "print on demand" digital technologies. We currently expect to
offer our products in sheets and rolls.
We are currently in the process of redesigning our website, which is
approximately 75% complete, in anticipation of the introduction of our new
product lines to the marketplace. We anticipate starting to launch our new
products in September 2007. During the first and second quarters of 2007, as a
result of our anticipated new product lines introduction, we have been building
and continue to build our inventory to meet the anticipated product demand.
Products to be introduced by the end of the year 2007 include a line of new and
improved printing quality inkjet sheets of different formats, which will be sold
in small packs and bulk packs for the home, office and photographic digital
printing market, a line of inkjet rolls and sheets for the wide format digital
printing market, and a line of offset sheets and flexo rolls for the commercial
printing market.
Our goal is to launch our new website the first week of September 2007 and
introduce our new product line shortly after; introducing a new product line
every subsequent month. We anticipate having all of our currently planned
products introduced to the market by the end of 2007.
ABILITY TO CONTINUE AS A GOING CONCERN
The Company has a working capital deficit of approximately $1,111,000, an
accumulated deficit of approximately $13,834,000 at June 30, 2007 and recurring
negative operating cash flows since inception. The future viability of our
14
Company is dependent upon our 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 in the accompanying notes to our consolidated
financial statements. In addition, the Company's president has advanced $607,000
from January 1, 2007 through July 16, 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.
RESULTS OF OPERATIONS
THREE- AND SIX MONTH PERIODS ENDED JUNE 30, 2007 COMPARED WITH THREE- AND SIX
MONTH PERIODS ENDED JUNE 30, 2006
REVENUES
Our revenues, net of returns, allowances and discounts, for the three- and six
month periods ended June 30, 2007, were $3,391 and $5,250, respectively compared
to $7,012 and $10,588 for the comparable three- and six month periods 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
commercial printing industry. In addition, we concentrated on building our
inventory in anticipation of the demand for our new product once it is launched
at the end of the third quarter of 2007. Our goal is to have introduced a wide
range of new product lines for the graphic industry market by the end of the
year 2007. We anticipated that we would start to introduce our new product lines
late in the fourth quarter of 2006; however, due to a technical complication we
had to postpone the product launch.
GROSS PROFIT
Our gross profit was $1,492 (44.0%) and $2,600 (49.5%) for the three- and six
month periods ended June 30, 2007, respectively, compared to a gross profit of
$3,871 (55.2%) and $5,687 (53.7%) for the comparable three- and six month
periods in fiscal 2006. The decrease in the Company's gross profit was due to
the decrease in revenue derived from our online webstore.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased by $6,719 and $1,625 for the three-
and six month periods ended June 30, 2007, respectively, to $37,551 and $55,245,
respectively, from $30,832 and $53,620 for the comparable three- and six month
periods of 2006. The increase during the three- and six month periods ended June
30, 2007 is primarily related to an increase in the renewal costs of our
patents, held by our Swiss subsidiary Brightec SA. The increase in the patent
renewal costs is primarily attributable to a weaker US dollar against the Swiss
franc. The increase in patent renewal costs was offset by a decrease in 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
15
releases and shareholder communications. Selling and marketing expenses
increased by $56,114 and $76,992 for the three- and six month periods ended June
30, 2007, respectively, to $57,999 and $81,343, respectively, from $1,885 and
$4,351 for the comparable three- and six month periods of 2006. The increase in
selling and marketing expenses was due to the reallocation of certain employee
compensation, increases in costs related to the redesign of our website and
increases in costs for marketing and promotion and travel related to our
anticipated product launch by the end of 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 EXPENSES
General and administrative expenses consisted primarily of the compensation of
our executive officer, other payroll and related taxes and benefits, deferred
financing expenses and rent as well as legal and accounting fees. General and
administrative expenses increased by $170,191 and $269,698 for the three- and
six month periods ended June 30, 2007, respectively to $259,384 and $437,377,
respectively, from $89,193 and $167,679 for the comparable three- and six month
periods 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 and our Quarterly Reports on Form 10-QSB for
the periods ending March 31, 2005, June 30, 2005, September 30, 2005, March 31,
2006, June 30, 2006 and September 30, 2006. The increase is also attributable to
higher professional fees related to the preparation and filing of our
Registration Statement on Form SB-2 on July 6, 2007 and the amortization of
deferred financing expenses incurred relating to our line of credit, which we
acquired in the second quarter of 2006.
OTHER INCOME (EXPENSE)
INTEREST INCOME
For the three- and six month periods ended June 30, 2007 and 2006, interest
income was $0, $3,148, $37, and $6,261, 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, $56,373, $0 and $235,487 for the
three- and six month periods ended June 30, 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 in the notes to our consolidated
financial statements.
FINANCING COSTS
In the second quarter of 2007, the Company modified the terms of certain of its
warrants issued to investors. As a result of the modifications, the Company
recognized financing costs of $128,680 for the three- and six month periods
ended June 30, 2007. See a further discussion in NOTE 12 - CAPITAL STOCK -
Issuances of Warrants, in the notes to our consolidated financial statements.
INTEREST EXPENSE
For the three- and six month periods ended June 30, 2007 and 2006, interest
expense was $36,400, $5,404, $71,018, and $6,499, 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- and six month periods ended June 30, 2007 and 2006, we incurred
interest of $32,552, $4,472, $66,140, and $4,472, respectively, on our line of
credit. We also incurred interest on cash advances from our president of $3,848,
$932, $4,878 and $2,027, respectively.
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.
16
LIQUIDITY AND CAPITAL RESOURCES AS OF JUNE 30, 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 June
30, 2007, cumulative net cash proceeds from the sale of our equity of
approximately $4.9 million. Our net working capital deficit at June 30, 2007 was
$1,110,609 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 141,142,837 shares were issued and outstanding at June 30, 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 $32,700 at June 30, 2007 from $51,836 at December 31, 2006.
Net cash used for operating activities for the six months ended June 30, 2007
was $590,831. The primary reason for the decrease was to fund the loss for the
period and build our inventory in anticipating of our product launch in the
third quarter of 2007.
Net cash provided from investing activities for the six months ended June 30,
2007 amounted to $11,030 and represented collections of the related party note
receivable including $37 of interest due on the note.
Net cash provided by financing activities for the six months ended June 30, 2007
was $558,885. The net cash provided was the result of cash received of $578,970
from net advances received from our president, net of $20,085 paid for services
related to our entry into the SEDA.
On March 30, 2007, we entered into the SEDA with Cornell, pursuant to which we
may, at our discretion, under certain circumstance, 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 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 fifteen thousand dollars ($15,000) on the
Closing Date and shall pay five hundred Dollars ($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 three hundred thousand dollars
($300,000).
We also entered into the PAA, dated as of the Closing Date, by and between us
and Newbridge pursuant to which 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.
Under the SEDA, we are required to have filed and declared effective, the
Registration Statement for the sale of our common stock by other parties, of
which Cornell is one of those parties. We filed the required Registration
Statement on July 6, 2007. Until we have declared the Registration Statement
effective, none of our common stock can be sold and consequently, we will not be
able to receive any of the proceeds from any sale of our common stock to
Cornell.
On July 25, 2007, we received an inquiry from the SEC regarding our filed SB-2
statement. As of the date of this filing, we have not responded to the SEC's
inquiry. Until we do so, the Registration Statement cannot be declared
effective.
17
See a further discussion in NOTE 12 - CAPITAL STOCK in the notes to our
consolidated financial statements.
ABILITY TO CONTINUE AS A GOING CONCERN:
At June 30, 2007, we have generated minimal revenues from commercial sales of
the Company's products. To date, our operations have generated accumulated
losses of $13,834,273. At June 30, 2007, our current liabilities exceed our
current assets by $1,110,609. 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 previously described in NOTE 12 - CAPITAL STOCK in the notes
to our consolidated financial statements. In addition, the Company's president
has advanced monies totaling $607,000 from January 1, 2007 through July 16,
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 in the notes to our consolidated financial statements. As of June 30,
2007 we had borrowed $650,000 of the $750,000 available under this agreement.
At December 31, 2006, we were not in compliance with the terms of the agreement
as we did not file the Registration Statement (on Form S-1 or SB-2) 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 the
Registration Statement on Form S-1 or SB-2 was extended to
July 15, 2007.
On June 27, 2007, we entered into an agreement with Ross/Fialkow, in exchange
for a $5,000 renewal fee, to extend the expiration date of the Agreement until
December 31, 2007. On July 6, 2007, we filed an SB-2 Statement with the SEC.
COMMITMENTS:
The Company had no material capital expenditure commitments as of June 30, 2007.
EFFECTS OF INFLATION:
Management believes that financial results have not been significantly impacted
by inflation and price changes.
18
ITEM 3. CONTROLS AND PROCEDURES
During the last seven years, we 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 our financial statements. Upon the
completion of the audit of the December 31, 2005 financial statements, the
Company received a letter from our former 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. Our management agreed with the
assessment of our former independent registered public accounting firm and we
developed a plan to address these material weaknesses, which we are in the
process of implementing.
During the three- and six month periods ended June 30, 2007, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer, Chief Financial Officer and Treasurer, of
the effectiveness of the design and operation of our 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, we 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- and six month periods ended June 30, 2006, which are presented in
this document, required restatement from their previous filing. We believed 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 has been a tremendous improvement in the internal control system in the
first six months of 2007, the system is still undergoing change in order to
satisfy the requirements of appropriate internal controls. It is our intention
to address accounting issues on a timely basis, and prevent misstatement based
on errors and/or lack of understanding.
Our 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 our 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.
19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Company is a party
or to which any of its properties are subject.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following equity transactions occurred during the period April 1, 2007 to
June 30, 2007 and were not registered under the Securities Act of 1933, as
amended (the "Securities Act").
On June 7, 2007, the Company issued 200,000 shares of common stock, valued at
$8,000, under an agreement and in satisfaction of certain marketing and sales
fees. These shares were issued at a market price of $0.04 per share, the market
price of the Company's stock on the date the agreement was reached.
On June 18, 2007, the Company issued 5,000,000 shares of its common stock,
valued at $150,000, to its president as payment for his current year salary
through June 30, 2007 ($75,000) and for unpaid amounts from prior years
($75,000). These shares were issued at a market price of $0.03 per share, the
closing market price of the Company's common stock on June 15, 2007, the date of
the Board of Directors' corporate resolution to issue the shares.
On June 18, 2007, the Company also issued 7,000,000 shares of its common stock,
valued at $210,000, to its president as repayment of certain cash advances made
by him to the Company. These shares were issued at a market price of $0.03 per
share, the closing market price of the Company's common stock on June 15, 2007,
the date of the Board of Directors' corporate resolution to issue the shares.
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
20
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.
21
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: August 20, 2007 By: /s/ PATRICK PLANCHE
-------------------------------------
Patrick Planche
President and Chief Executive Officer
22
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
23