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| BRTE.OB > SEC Filings for BRTE.OB > Form 10-K on 15-Apr-2009 | All Recent SEC Filings |
15-Apr-2009
Annual Report
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. We expect that our Luminescent Products 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 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 launched 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.
At the end of 2008, the Company has decided to add to its Brightec films product offering for 2009 a new line of finished products for children under the brand name PlayGlo™. This new PlayGlo™ product line uses Brightec's films, will be manufactured in the USA and will comprise puzzles and stickers.
Going Concern Consideration
We had a working capital deficit of $2,744,859 and an accumulated deficit of $15,545,866 at December 31, 2008, and recurring net losses 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, 2008. 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 addition, for the period January 1, 2009 through April 7, 2009, our president advanced us $33,000.
Critical Accounting Policies
This section entitled addresses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these statements requires us to make judgments, estimates and assumptions at a specific point in time that affect the amounts reported in the consolidated financial statements and disclosed in the accompanying notes. We believe that the following accounting policies are critical to the preparation of our consolidated financial statements and other financial disclosures. The following is not intended to be a comprehensive list of all of our significant accounting policies, which are more fully described in NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES of our audited financial statements.
We generally recognize revenue upon product shipment or when title passes and when collection is probable.
Accounts and Notes Receivable
Accounts receivable are recorded net of an allowance for doubtful accounts based upon our analysis of the collectability of the balance.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out method and the value of the inventory is adjusted for estimated obsolescence.
Income Taxes
Deferred tax assets and liabilities are recognized based on temporary differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the years in which the temporary differences are expected to reverse. A valuation allowance is applied against net deferred tax assets if, based on available evidence, it is more likely than not that some or all of the deferred assets will not be realized.
Stock Based Compensation
We account for stock option awards granted to officers, directors and employees under the recognition and measurement principles of SFAS No. 123(R) - "Share Based Payment" (SFAS No. 123(R)) utilizing the "modified prospective" method as described in SFAS No. 123(R). In the "modified prospective" method, compensation cost is recognized for all share-based payments granted after the effective date and for all unvested awards granted prior to the effective date. In accordance with SFAS No. 123(R), prior period amounts were not restated. SFAS No. 123(R) also requires the tax benefits associated with these share-based payments to be classified as financing activities in the Statement of Cash Flows, rather than operating cash flows as required under previous regulations.
Equity instruments issued to non-employees are recorded at their fair values as determined in accordance with SFAS No. 123 and Emerging Issues Task Force 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods and Services."
Recent Accounting Pronouncements
In June 2008, the FASB issued FSP No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities." This FSP provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. Upon adoption, a company is required to retrospectively adjust its earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform with the provisions in this FSP. Early application of this FSP is prohibited. We have not issued any share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No. 162"). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States (commonly referred to as the GAAP hierarchy). The statement is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company is currently evaluating the potential impact, if any, the adoption of SFAS No. 162 will have on its financial position, results of operations, cash flows, and disclosures.
In December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No. 51." SFAS No. 160 requires companies with noncontrolling interests to disclose such interests clearly as a portion of equity but separate from the parent's equity. The noncontrolling interest's portion of net income must also be clearly presented on the income statement. SFAS No. 160 is effective for financial statements issued for fiscals years beginning after December 15, 2008 and will be adopted by the Company in the first quarter of fiscal year 2009. The Company does not expect that the adoption of SFAS No. 160 will have a material impact on our financial condition or results of operation.
Results of Operations
Year Ended December 31, 2008 Compared with Year Ended December 31, 2007
Revenues
Our total revenue decreased 15.8% or $2,639 in 2008 to $14,058 from total revenue in 2007 of $16,697. The decrease in revenue was primarily due to fewer sales of our products in 2008. In 2008, we made only one commercial sale of our Luminescent Products, where as in 2007, we made three commercial sales of the Luminescent Products.
We were not able to introduce as many products in the fourth quarter of 2007 as we had planned due to a necessary change in the manufacturing process. This change resulted in increases in the costs of both raw materials and manufacturing. It also resulted in new tests for our converting process (PSA, sheeting, small rolls, etc.).
Gross Profit
Our gross profit was $4,374 (31.1%) in 2008 and $10,406 (62.3%) in 2007. The decrease in our gross profit was primarily due to the increased cost of our raw material.
Research and Development Expenses
In 2008, total research and development expenses decreased by 30.8% or $56,929 to $127,726 from total research and development expenses in 2007 of $184,655. The decrease was also attributable to fewer manufacturing trial runs and the use of fewer supplies related to our efforts to reduce the manufacturing cost of our Luminescent Products.
Selling and Marketing Expenses
Selling and marketing expenses consist of payroll, costs to upgrade and redesign our website, travel and fees paid in connection with promotional activities, press releases and stockholder communications. In 2008, total selling and marketing expenses increased by 29.6% or $64,925 to $284,109 in 2008 from $219,184 in 2007.
General and Administrative
In 2008, total general and administrative expenses decreased by 33.3% or $230,609 to $460,853 from total general and administrative expenses in 2007 of $691,462. General and administrative expenses consist primarily of the compensation of the executive officer, rent, consultants and legal and accounting costs Decreases in general and administrative expenses in 2008 include a change in salary allocation to allocate more employee compensation costs to selling and marketing and research and development expense.
The Company wrote down inventory by $85,000 for items that it does not expect to utilize during the next twelve months. The items identified will not be scrapped or sold but have been segregated in a storage facility. We do not anticipate that these identified items will be used in manufacturing PlayGlo products. In accordance with Accounting Research Bulletin No. 43, "Restatement and Revision of Accounting Research Bulletins", this reduction of inventory has been segregated from cost of goods sold and included in operating expenses.
Financing Costs
On April 1, 2007 and June 27, 2007, we amended three of our previously issued warrants to (i) extend the exercise period of two warrants and (ii) modify the time period (from 60 days to 61 days) for all three warrants in which the option holder can notify us 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%).
As a result of the revaluations, we recognized financing costs of $128,680 in 2007. See a further discussion in NOTE 7 - CAPITAL STOCK - "Warrants" in the notes to our audited financial statements.
There were no such costs incurred during 2008.
Interest Expense
On June 8, 2006, we entered into the $750,000 Loan Agreement with Ross/Fialkow
with a stated interest rate of 20% per year, calculated and due quarterly. For
2008 and 2007, we incurred $139,611 and $133,279, respectively, of interest
expense in connection with the Loan Agreement. See a further discussion in NOTE
6 - LINE OF CREDIT of our audited financial statements and Liquidity and Capital
Resources as of December 31, 2008, later in this section.
Interest expense incurred on amounts due to a related party was $26,425 and $16,417 for 2008 and 2007, respectively. The increase in interest expense is due primarily to the additional funds that we borrowed from such related party.
Income Taxes
The Company has not calculated the tax benefits of its net operating losses, since it does not have the required information. Due to the uncertainty over the Company's ability to utilize these operating losses, any deferred tax assets, when determined, would be fully offset by a valuation allowance.
Liquidity and Capital Resources
Since inception, the Company's operations have not generated sufficient cash flow to satisfy the Company's capital needs. The Company has financed its operations primarily through the private sale of shares of its common stock, warrants to purchase shares of the Company's common stock and debt securities. The Company's net working capital deficit at December 31, 2008 was $2,744,859.
Cash and cash equivalents decreased to $10,271 at December 31, 2008 from $32,464 at December 31, 2007.
Net cash used for operating activities for the year ended December 31, 2008 was $836, 280. The primary reason for the decrease was to fund the loss for the year.
Net cash used for investing activities for the year ended December 31, 2008 amounted to $4,473 and represented purchases of new equipment.
Net cash provided by financing activities for the year ended December 31, 2008 was $819,485. The net cash provided was the result of advances received from our president of $869,485 less a repayment of borrowings of $50,000 under our line of credit.
We have generated minimal revenues from commercial sales of our products. To date, our operations have generated accumulated losses of approximately $15,500,000. At December 31, 2008, our current liabilities exceed our current assets by approximately $2,700,000. 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. We believe we have the ability to obtain additional funds from our principal stockholders or by raising additional debt or equity securities. 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 our ability to generate the necessary financing to effectively produce and market our products at competitive prices, to establish profitable operations and to generate positive operating cash flows. If the Company fails to raise funds or 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 Company has a $750,000 line of credit with Ross/Fialkow. As of December 31, 2008, the Company had a $650,000 outstanding balance under the line. The Company received a notice of default from the lender dated January 6, 2009 for the non-payment of accrued interest and the balance due under the Agreement upon maturity. The Company and Ross/Fialkow signed an Amendment and Waiver Agreement effective April 10, 2009 extending the maturity date to December 31, 2009, reducing the interest rate charged to 10% effective April 1, 2009 and waiving the events of default. See NOTE 6 - LINE OF CREDIT.
Patrick Planche, the Company's chairman, president and chief executive officer, has been funding the Company's cash requirements as needed through unsecured advances. For the year ended December 31, 2008, Mr. Planche has made unsecured cash advances of $858,500 and paid other operating liabilities of $10,984. For the period January 1, 2009 through April 7, 2009, Mr. Planche has advanced an additional $33,000. See NOTE 3 - RELATED PARTY TRANSACTIONS.
Management believes that it will continue to be successful in generating the necessary financing to fund the Company's operations throughout the 2009 calendar year; however, unless alternative sources of funding are identified, the Company will be totally dependent on Mr. Planche to finance its operations. Due to the recent turmoil in the global economy, it is uncertain that funds will be available when we require them and there is no guarantee that the president will continue such financing.
Credit Availability
We have a $ 750,000 line of credit with Ross/Fialkow, of which $100,000 is unused. See NOTE 6 - LINE OF CREDIT of our audited financial statements, for a discussion of the major terms of the agreement.
We had no other line-of-credit facilities as of December 31, 2008.
Commitments
We had no material capital expenditure commitments as of December 31, 2008.
Effects of Inflation
Management believes that financial results have not been significantly impacted by inflation and price changes. However, recent increases in fuel costs may introduce a modest increase in the cost of our products as it may become more expensive to have our raw materials shipped to our manufacturers.
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