UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 2008
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
------------------------------- -------------------
(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 registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer", "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the Company is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares outstanding
Class as of May 11, 2008
------------------------------ ------------------------------
Common stock, $0.001 par value 144,342,837
INDEX
Page Number
Note Regarding Forward Looking Statements 3
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 2008
(Unaudited) and December 31, 2007 (Audited) 4
Condensed Consolidated Statements of Operations and
Accumulated Deficit and Comprehensive Loss for the
Three Months Ended March 31, 2008 and 2007 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2008 and 2007
(Unaudited) 6
Notes to Condensed Consolidated Financial Statements
(Unaudited) 7 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
Item 4T. Controls and Procedures 15
Part II. Other Information
Item 1. Legal Proceedings 16
Item 2. Unregistered Sales of Equity and Use of Proceeds 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits 17
Signatures 18
2
Note Regarding Forward Looking Statements:
This Form 10-Q and other reports filed by the Company from time to time with the
U.S. Securities and Exchange Commission (the "SEC"), as well as the Company's
press releases, contain or may contain forward-looking statements. 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-Q that do not describe historical
facts, including without limitation statements concerning expected revenues,
earnings, product introductions and general market conditions, may constitute
forward-looking statements. 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 ability
to attract 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 files periodic reports with the SEC, as well as current 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, N.E.,
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 subsidiary may be found at www.brightec.com.
3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Brightec, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
March 31, 2008 and December 31, 2007
March 31, December 31,
2008 2007
------------- -------------
(Unaudited) (Audited)
ASSETS
Current assets
Cash $ 20,781 $ 32,464
Accounts receivable 6,701 3,936
Inventories 226,018 213,578
Prepaid expenses 14,252 11,675
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TOTAL CURRENT ASSETS 267,752 261,653
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Office and photographic equipment 27,984 23,511
Less: accumulated depreciation (23,636) (23,511)
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4,348 --
------------- -------------
Deposit 2,041 2,041
Deferred offering costs 20,085 20,085
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22,126 22,126
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TOTAL ASSETS $ 294,226 $ 283,779
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Line of credit $ 700,000 $ 700,000
Accounts payable 91,343 105,881
Accrued liabilities (including related
party interest of $22,648 and
$16,417 at March 31, 2008 and
December 31, 2007, respectively) 368,800 317,669
Advances due to related party 999,460 809,150
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TOTAL CURRENT LIABILITIES 2,159,603 1,932,700
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Stockholders' deficit
Preferred stock -- --
Common stock 144,343 144,093
Additional paid-in capital 12,485,890 12,485,390
Deferred compensation expense (44,057) (50,807)
Accumulated deficit (14,648,922) (14,426,481)
Accumulated other comprehensive income 197,369 198,884
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TOTAL STOCKHOLDERS' DEFICIT (1,865,377) (1,648,921)
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 294,226 $ 283,779
============= =============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
Brightec, Inc. and Subsidiary
Condensed Consolidated Statements of Operations
and Accumulated Deficit and Comprehensive Loss
For the Three Months Ended
-------------------------------
March 31, March 31,
2008 2007
------------- -------------
(Unaudited) (Unaudited)
Sales $ 8,385 $ 1,859
Cost of sales 6,633 751
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Gross profit 1,752 1,108
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Operating expenses
Research and development 33,082 17,694
Selling and marketing 55,817 23,344
General and administrative (including related party
consulting expense of $7,469 and $0 for the three
month periods ended March 31, 2008 and 2007,
respectively) 93,675 177,993
------------- -------------
182,574 219,031
------------- -------------
Operating loss (180,822) (217,923)
------------- -------------
Other Income (Expense)
Interest income - related party -- 37
Interest expense (including related party interest of
$6,230 and $1,035 for three month periods ended
March 31, 2008 and 2007, respectively) (41,619) (34,618)
------------- -------------
(41,619) (34,581)
------------- -------------
Net loss (222,441) (252,504)
Accumulated deficit - beginning (14,426,481) (13,063,247)
------------- -------------
Accumulated deficit - ending $ (14,648,922) $ (13,315,751)
============= =============
Basic and diluted net loss per share $ -- $ --
============= =============
Weighted average number of shares used in
computation of basic and diluted net loss per share 144,103,948 124,793,244
============= =============
COMPREHENSIVE LOSS
Net loss $ (222,441) $ (252,504)
Foreign currency translation adjustment (1,515) (4,441)
------------- -------------
Comprehensive loss $ (223,956) $ (256,945)
============= =============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
Brightec, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended
------------------------------
March 31, March 31,
2008 2007
------------- -------------
(Unaudited) (Unaudited)
Cash flows from operating activities
Net loss $ (222,441) $ (252,504)
Adjustments to reconcile net loss to net cash used for
operating activities:
Amortization of deferred stock based compensation 7,500 --
Accrued interest on advances from related party 6,230 --
Depreciation and amortization expense 125 --
Amortization of deferred financing costs -- 26,622
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (2,765) (510)
Inventories (12,440) (3,679)
Prepaid expenses (2,577) (895)
Deposit -- 744
Increase (decrease) in:
Accounts payable (14,538) (10,739)
Accrued liabilities 44,901 33,853
------------- -------------
Net cash used for operating activities (196,005) (207,108)
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Cash flows from investing activities
Purchases of property and equipment (4,473) --
Repayment of note receivable - related party -- 10,993
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Net cash provided by (used for) investing activities (4,473) 10,993
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Cash flows from financing activities
Advances received from related party 190,310 190,000
Cash paid for services related to capital raise -- (15,085)
Repayment of advances from related party -- (11,030)
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Net cash provided by financing activities 190,310 163,885
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Effects of changes in foreign exchange rates (1,515) (4,441)
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Net decrease in cash (11,683) (36,671)
Cash - beginning 32,464 51,836
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Cash - ending $ 20,781 $ 15,165
============= =============
Supplemental disclosures of cash flows information
Cash paid during the period for interest $ 35,222 $ 33,583
============= =============
Non-cash activities
Issuance of common stock related to investor relations
agreement $ 750 $ --
============= =============
Issuance of common stock related to capital raise $ -- $ 174,000
============= =============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
Brightec, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 - OPERATIONS
Brightec, 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 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.
NOTE 2 - INTERIM FINANCIAL STATMENTS
The accompanying unaudited condensed consolidated financial statements at March
31, 2008 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 condensed consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements included in
our Annual Report on Form 10-KSB for the year ended December 31, 2007, 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 ("GAAP") have been condensed or omitted in accordance with
rules of the Securities and Exchange Commission (the "SEC") for interim
reporting. These condensed 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, 2007.
NOTE 3 - LIQUIDITY, MANAGEMENT PLANS AND GOING CONCERN
The Company had working capital deficits of $1,891,851 and $1,671,047 and
accumulated deficits of $14,648,922 and $14,426,481 at March 31, 2008 and
December 31, 2007, respectively, and recurring net losses since inception. The
ability of the Company to continue to operate as a going concern is primarily
dependent upon its ability 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 it 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.
The ability of the Company to continue to operate as a going concern is
primarily dependent upon the ability of the Company to generate the necessary
financing to effectively produce and market Brightec's products at competitive
prices, to establish profitable operations and to generate positive operating
cash flows.
In 2006 the Company entered into a Loan and Security Agreement (the "Loan
Agreement") with Ross/Fialkow Capital Partners, LLP, Trustee of the Brightec
Capital Trust ("Ross/Fialkow") and borrowed $650,000. During 2007, the Company
borrowed an additional $50,000 under the Loan Agreement. As of March 31, 2008,
the remaining funds available under the Loan Agreement were $50,000. See NOTE 8
- - LINE OF CREDIT.
The Company's president has been funding its cash requirements as needed through
unsecured cash advances. For the period January 1, 2008 through May 11, 2008,
the president has made unsecured cash advances of $265,000 and paid other
operating liabilities of $10,310. See NOTE 7 - RELATED PARTY TRANSACTIONS.
Management believes that it will continue to be successful in raising the
necessary financing to fund the Company's operations throughout the 2008
calendar year; however, unless alternative sources of funding are identified,
the Company will be totally dependent on its president to finance its
operations. There is no guarantee that the president will continue such
financing.
7
Brightec, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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:
March 31, 2008 March 31, 2007
--------------- ---------------
(Unaudited) (Unaudited)
Warrants (weighted average) 6,320,832 6,737,499
=============== ===============
Convertible debt (weighted average) 5,833,333 5,416,667
=============== ===============
Stock options (weighted average) 20,500,000 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, 2008 and December 31, 2007:
March 31, December 31,
2008 2007
--------------- ---------------
(Unaudited) (Audited)
Raw materials $ 35,637 $ 23,728
Work in process 114,938 122,699
Finished goods 75,443 67,151
--------------- ---------------
$ 226,018 $ 213,578
=============== ===============
NOTE 6 - INCOME TAXES
The Company has not calculated the tax benefits of its net operating losses as
of March 31, 2008 and December 31, 2007 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.
NOTE 7 - RELATED PARTY TRANSACTIONS
Note Receivable
- ---------------
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 three month period
ended March 31, 2007, the entire outstanding balance of $10,993 plus interest
was paid in full. The Company recognized interest income of $37 for the three
month period ended March 31, 2007.
Advances due to related party
- -----------------------------
At December 31, 2007, the Company owed its president $809,150 in connection with
unsecured cash advances made by him to the Company. During the three month
period ended March 31, 2008, he made advances to the Company of $190,310, of
which $10,310 were for costs incurred by the Company that he paid for
personally. The Company did not repay any of the outstanding advances. All such
8
Brightec, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
advances bear interest at the Internal Revenue Service short term "Applicable
Federal Rate" (2.23% and 3.81% at March 31, 2008 and December 31, 2007,
respectively) calculated and accrued monthly. As of March 31, 2008 and December
31, 2007, accrued interest owed on the unsecured cash advances was $22,648 and
$16,417, respectively. Interest expense incurred for the three month periods
ended March 31, 2008 and 2007 was $6,230 and $1,035, respectively.
Consulting agreement
- --------------------
On September 11, 2007, the Company issued 2,000,000 shares of common stock,
valued at $60,000, as consideration for a two-year consulting contract with a
significant stockholder. These shares were issued at $0.03 per share, the
closing price of the Company's common stock on the aforementioned date. For the
three month period ended March 31, 2008, the Company recognized an expense of
$7,469 related to the consulting agreement. At March 31, 2008 and December 31,
2007, no monies were owed to this stockholder.
NOTE 8 - LINE OF CREDIT
On June 8, 2006, the Company entered into the Loan Agreement with Ross/Fialkow,
in the amount of $750,000. The line expires on June 30, 2008 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
$0.12 per share. Such shares carry piggy-back registration rights. All assets of
the Company have been pledged, including the assets of Brightec S.A. In
addition, the Company was required to file a registration statement with the SEC
on Form S-1 (or Form SB-2) (the "Registration Statement") by July 15, 2007, with
respect to all common stock as to which the Company has obligations to deliver
to Ross/Fialkow by December 31, 2006. The Registration Statement was filed on
July 6, 2007.
As of March 31, 2008 and December 31, 2007, the outstanding balance on the line
of credit was $700,000. Interest expense was $35,389 and $33,583 for the three
month periods ended March 31, 2008 and 2007, respectively.
NOTE 9 - ACCRUED LIABILITIES
At March 31, 2008 and December 31, 2007, accrued liabilities consisted of the
following:
March 31, December 31,
2008 2007
--------------- ---------------
(Unaudited) (Audited)
Executive officer compensation $ 225,000 $ 187,500
Professional fees 64,752 47,554
Employee compensation 40,000 35,000
Interest (including related party interest of $22,648 and
$16,417 as of March 31, 2008 and December 31, 2007,
respectively) 34,703 28,306
Payroll and other taxes 3,942 13,896
Purchases -- 4,772
Other 403 641
--------------- ---------------
$ 368,800 $ 317,669
=============== ===============
NOTE 10 - 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
are authorized. As of March 31, 2008 and December 31, 2007, 144,342,837 and
144,092,837 shares of common stock, respectively, were issued and outstanding.
9
Brightec, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Number of Shares of Preferred Stock Authorized, Issued and Outstanding
- ----------------------------------------------------------------------
5,000,000 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 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. There are no shares of preferred
stock issued and outstanding at March 31, 2008 or December 31, 2007.
Issuances of Common Stock
- -------------------------
On March 14, 2008, the Company agreed to issue 250,000 shares of its common
stock valued at $750 to Agoracom Investor Relations Corp. ("Agoracom") as
payment under an Investor Relations Agreement (the "IR Agreement"). Agoracom
will receive another 200,000 shares of common stock if the IR Agreement is not
terminated on or before September 17, 2008. The 250,000 shares of common stock
were issued on March 28, 2008.
Deferred Compensation Expense
- -----------------------------
As discussed in NOTE 7 - RELATED PARTY TRANSACTIONS, 2,000,000 shares of common
stock, valued at $60,000, were issued as consideration for a two-year consulting
contract with a significant stockholder. The value of the stock issuance was
recognized as deferred compensation and is being amortized over twenty-four
months (the term of the consulting contract). As of March 31, 2008 and December
31, 2007, the unamortized balance of deferred compensation, related to the
consulting contact with the significant stockholder was $43,338 and $50,807,
respectively.
As previously discussed, on March 14, 2008, the Company agreed to issue 250,000
shares of its common stock valued at $750 to Agoracom pursuant to the IR
Agreement. The value of the stock issuance was recognized as deferred
compensation and is being amortized over twelve months (the term of the IR
Agreement). As of March 31, 2008, the unamortized balance of deferred
compensation, related to the IR Agreement was $719.
As of March 31, 2008 and December 31, 2007, the unamortized balance of deferred
compensation expense was $44,057 and $50,807, respectively.
NOTE 11 - RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations - a
replacement of FASB Statement No. 141", ("SFAS 141(R)") which significantly
changes the principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree. The statement also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. This statement is effective
prospectively, except for certain retrospective adjustments to deferred tax
balances, for fiscal years beginning after December 15, 2008. This statement
will be effective for the Company beginning in fiscal 2009. The Company is
currently evaluating SFAS 141(R), and has not yet determined the impact if any,
it will have on its consolidated results of operations or financial position.
10
Brightec, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities - an amendment of FASB Statement No. 133"
("SFAS 161"). SFAS 161 requires enhanced disclosures about an entity's
derivative and hedging activities and thereby improves the transparency of
financial reporting. The objective of the guidance is to provide users of
financial statements with an enhanced understanding of how and why an entity
uses derivative instruments; how derivative instruments and related hedged items
are accounted for; and how derivative instruments and related hedged items
affect an entity's financial position, financial performance, and cash flows.
SFAS 161 is effective for fiscal years beginning after November 15, 2008.
Management is currently evaluating the impact SFAS 161 will have on the
Company's consolidated financial statements, but it currently does not expect
the effect to be material.
11
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 Condensed Consolidated
Financial Statements and Notes thereto included elsewhere in this Quarterly
Report on Form 10-Q and our Annual Report on Form 10-KSB for the year ended
December 31, 2007. This Quarterly Report on Form 10-Q 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, inventories, derivative instruments (including stock
options) and income taxes are described in our Annual Report on Form 10-KSB for
the year ended December 31, 2007. There have been no material changes to our
critical accounting policies as of and for the three month period ended March
31, 2008.
OVERVIEW
We develop and market luminescent films incorporating luminescent or
phosphorescent pigments (the "Luminescent Products"). These pigments absorb and
re-emit visible light producing a "glow" which accounts for the common
terminology "glow in the dark." Our Luminescent Products have 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,
market and sell 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. Our Luminescent Products
are 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
offer our products in sheets and rolls.
We completed the process of redesigning our website and began to introduce our
new product lines to the marketplace. We started launching 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 began building, and continue to
build, our inventory to meet the anticipated product demand.
Products that we introduced by the end of the 2007 included a line of new and
improved printing quality inkjet sheets of different formats, which are being
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.
We achieved our goal of launching our new website in September 2007 and we began
to introduce our new product line shortly thereafter. We anticipated introducing
a new product line every subsequent month and having all of our currently
planned products introduced to the market by the end of 2007. However, due to a
manufacturing complication, we were forced into re-working our manufacturing
process, which caused us not to be able to introduce all of the new product
lines that we had anticipated.
ABILITY TO CONTINUE AS A GOING CONCERN
We have a working capital deficit of approximately $1,900,000, an accumulated
deficit of approximately $14,650,000 at March 31, 2008 and recurring negative
operating cash flows since inception. Our future viability is dependent upon our
ability to obtain additional financing and achieve profitability in future
operations. These circumstances 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, 2007.
Such a "going concern" qualification may make it more difficult for us to raise
funds when needed.
12
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;
however, until we identify alternative sources of funding, we will be totally
dependent on our president to fund our operations. Our president has made
approximately $275,000 in unsecured cash advances to us through May 11, 2008.
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 2008 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 MONTHS ENDED MARCH 31, 2008 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2007
Revenues
- --------
Our revenues, net of returns, allowances and discounts, for the three month
period ended March 31, 2008, were $8,385 compared to $1,859 for the comparable
three month period of 2007. This increase in revenue is due to an increase in
the number of commercial sales we made and because of a specialized promotional
product that we manufactured and delivered in the first quarter of 2008.
Gross Profit
- ------------
Our gross profit was $1,752 (20.9%) for the three month period ended March 31,
2008, compared to a gross profit of $1,108 (59.6%) for the comparable three
month period in fiscal 2007. The decrease in the Company's gross profit
percentage was primarily due to cost overruns with respect to the specialized
promotional product that we manufactured and delivered in the first quarter of
2008.
Research and Development Expenses
- ---------------------------------
Research and development expenses increased by $15,388 for the three month
period ended March 31, 2008 to $33,082 from $17,694 for the comparable three
month period of 2007. The increase in 2008 was primarily due to specific costs
incurred relating to a necessary change in the primary raw materials used in the
manufacturing of our Luminescent Product. The change required us to change our
manufacturing process.
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 $32,473 for the three month period ended March 31, 2008 to $55,817
from $23,344 for the comparable three month period of 2007. The increase in
selling and marketing expenses was due to increases in costs related to the
redesign of our website and increases in costs for marketing, promotion and
travel related to the introduction of our products to the marketplace.
We anticipate that, as a result of our recent product launches, 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, financing
costs and rent as well as legal and accounting fees. General and administrative
expenses decreased by $84,318 for the three month period ended March 31, 2008 to
$93,675 from $177,993 for the comparable three month period of 2007. The
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decrease is primarily due a change in salary allocation to allocate more
employee compensation costs to selling and marketing and research and
development. In addition, we incurred non-recurring legal and accounting fees in
the first quarter of 2007 related to our amended quarterly and annual reports
filed with the SEC. The first quarter of 2007 also included the amortization of
deferred financing costs related to our Loan Agreement.
Other Income (Expense)
- ----------------------
Interest income - For the three month period ended March 31, 2007, interest
income was $37. Interest income was 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.
Interest Expense - For the three month periods ended March 31, 2008 and 2007,
interest expense was $41,619 and $34,618, respectively. Interest expense is
dependent on the outstanding balance of our line of credit and the outstanding
balance of unsecured cash advances we received from our president.
For the three month periods ended March 31, 2008 and 2007, we incurred interest
of $35,389 and $33,583, respectively, on our line of credit. We also incurred
interest the unsecured cash advances from our president of $6,230 and $1,035 for
the three month periods ended March 31, 2008 and 2007, respectively.
Liquidity and Capital Resources as of March 31, 2008
- ----------------------------------------------------
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, 2008, cumulative net cash proceeds from the sale of our equity of
approximately $4.9 million. Our net working capital deficit at March 31, 2008
was $1,891,851 compared to a deficit of $1,671,047 as of December 31, 2007.
Cash decreased by $11,683 to $20,781 at March 31, 2008 from $32,464 at December
31, 2007.
Net cash used for operating activities for the three month period ended March
31, 2008 was $196,005. The primary reason for the decrease was to fund the loss
for the period.
Net cash used for investing activities for the three month period ended March
31, 2008 amounted to $4,473 and represented the purchases of a new computer and
marketing software.
Net cash provided by financing activities for the three month period ended March
31, 2008 was $190,310. The net cash provided was the result of unsecured cash
advances received from our president.
Credit Availability
- -------------------
We have a $750,000 Agreement with Ross/Fialkow, as described in NOTE 8 - LINE OF
CREDIT of our condensed consolidated financial statements. As of March 31, 2008
we had borrowed $700,000 of the $750,000 available under this agreement.
Commitments
- -----------
We had no material capital expenditure commitments as of March 31, 2008.
Effects of Inflation
- --------------------
We believe that our financial results have not been significantly impacted by
inflation and price changes.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a "smaller reporting company" defined by Item 10 of Regulation S-K, we are
not required to provide this information.
ITEM 4T. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
- ------------------------------------------------
Based on an evaluation of our disclosure controls and procedures as of the end
of the period covered by this annual report, our Chief Executive Officer, who is
also our Chief Financial Officer, has concluded that our disclosure controls and
procedures (as defined in Rule 13a-15(e) of the Securities Act are effective for
the purposes set forth in Rule 13a-15(e).
Changes in Internal Controls Over Financial Reporting
- -----------------------------------------------------
As disclosed in our Annual Report on Form 10-KSB for the year ended December 31,
2007, we made several changes and improvements to our internal control.
For the period January 1, 2008 through March 31, 2008, there have been no
changes in our internal control over financial reporting that have materially
affected or are reasonably likely to materially affect our internal control over
financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which we are a party or to
which any of our properties are subject.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following equity transactions occurred during the period January 1, 2008 to
March 31, 2008 and were not registered under the Securities Act of 1933, as
amended (the "Securities Act").
On March 14, 2008, we agreed to issue 250,000 shares of our common stock valued
at $750 to Agoracom Investor Relations Corp. ("Agoracom") as payment under an
Investor Relations Agreement (the "IR Agreement"). Agoracom will receive another
200,000 shares of our common stock if the IR Agreement is not terminated on or
before September 17, 2008. The 250,000 shares of our common stock were issued on
March 28, 2008.
All shares of our common stock were issued without registration pursuant to the
exemption from registration contained in the Securities Act of 1933, as amended.
A legend was placed on the stock certificates representing all securities issued
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
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ITEM 6. EXHIBITS
Number Description of Exhibit
- ------ ----------------------
31 Certification of Chief Executive Officer and Chief
Financial Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith). E-1
32 Certification of Chief Executive Officer and Chief
Financial Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (filed herewith). E-2
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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 20, 2008 By: /s/ PATRICK PLANCHE
-------------------------------------
Patrick Planche
President and Chief Executive Officer
18