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| BRTE.OB > SEC Filings for BRTE.OB > Form 10-Q on 15-May-2009 | All Recent SEC Filings |
15-May-2009
Quarterly Report
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-K for the year ended December 31, 2008. This Quarterly Report on Form 10-Q contains forward-looking statements based on our current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements are usually accompanied by words such as "believes," "may," "should," "anticipates," "estimates," "expects," "future," "intends," "hopes," "plans," and similar expressions, and the negative thereof. 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 assumptions and estimates. Our critical accounting policies, which consist of revenue recognition, accounts receivable reserves, inventories, derivative instruments (including stock options) and income taxes are described in our Annual Report on Form 10-K for the year ended December 31, 2008. There have been no material changes to our critical accounting policies as of and for the three month periods ended March 31, 2009.
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.
ABILITY TO CONTINUE AS A GOING CONCERN
At March 31, 2009, we have a working capital deficit of approximately $2.9 million, an accumulated deficit of approximately $15.7 million and recurring negative operating cash flows since inception. Our future viability is dependent upon our ability to obtain additional debt and/or equity 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. However, until we identify alternative sources of funding, we will be totally dependent on Mr. Planche to fund our operations. We do not have any current plans to access typical sources of credit until our sales volume increases and we have no plans to make significant investments in property, plant or equipment. Mr. Planche has made $1.7 million in unsecured cash advances to us through May 14, 2009.
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 debt and/or equity 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.
Due to the recent turmoil in the global economy, it is uncertain that the necessary funds will be available when we require them. We feel that we may benefit from, and take advantage of, the recent economic uncertainty. As it becomes more difficult for companies to stay in business, we believe they will need to find more creative and unique ways to differentiate themselves from their competition. We believe those companies will be more open to our products as they try to maintain their market share.
We believe that we will be successful in generating the necessary financing to fund our operations through the 2009 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 MONTH PERIOD ENDED MARCH 31, 2009 COMPARED WITH THREE MONTH PERIOD ENDED
MARCH 31, 2008
Revenues
Our revenues, net of returns, allowances and discounts, for the three period ended March 31, 2009 were $1,742 compared to $8,385 for the comparable three month period of 2008. The decrease in our revenue for the three month period ended March 31, 2009 was due to fewer sales of our Luminescent Products through our internet webstore and less effort place on commercial sales in anticipation of launch of PlayGlo in the second quarter 2009.
During the first quarter of 2009 we had no commercial sales of our Luminescent Products as we concentrated on building our PlayGlo™ line of products, and their planned launch during the second quarter 2009.
During April, the Company shipped several thousand sheets of its new paper-backed offset product to a stationery products company. The Company will recognize $48,270 of revenue from this sale in the second quarter 2009.
Our gross profit was $942 (54.1%) for the three month period ended March 31, 2009, compared to a gross profit of $1,752 (20.9%) for the comparable three month period in fiscal 2008. The decrease in our gross profit for the three month period ended March 31, 2009 was due to fewer sales of our products through the webstore.
Research and Development Expenses
Research and development expenses decreased by $18,082 for the three month period ended March 31, 2009, to $15,000 from $33,082 for the comparable three month period in 2008. The decrease was primarily related to shifting our focus to our upcoming marketing effort in the second quarter 2009.
Selling and Marketing Expenses
Selling and marketing expenses consist of payroll and related taxes, website maintenance costs, travel costs and fees paid in connection with promotional activities and press releases. Selling and marketing expenses increased by $6,115 to $61,932 from $55,817 for the three month period ended March 31, 2009 compared with the three month period of 2008.
The increase for the three month period ended March 31, 2009 is primarily related to the costs associated with a national toy fair during the quarter. The increase is also attributable to higher material costs to produce our sales and marketing samples with our new raw materials and samples for the toy fair.
We anticipate beginning a major sales and marketing effort targeting consumers that use our Luminescent Products to enhance an existing product, such as a puzzle or a game, stickers, home decoration, "skins" for electronic products, trading cards and other sports collectibles. Our sales and marketing costs will increase significantly as our marketing samples are produced in the second and third quarters and our sales and marketing effort begins in the second quarter 2009. We anticipate that the cost of our 2009 sales and marketing effort to be between $500,000 to $750,000, which includes, but is not limited to, the costs to produce all of our marketing collateral and samples, travel costs, employee compensation.
General and Administrative
General and administrative expenses consisted primarily of the compensation of the executive officer, other payroll and related taxes and benefits, consultants, rent and legal and accounting fees. General and administrative expenses decreased by $14,945 for the three month period ended March 31, 2009, to $78,730 from $93,675 for the comparable three month period in 2008.
The decrease for the three month period ended March 31, 2009 is primarily related to a reduction of accounting and legal and a decrease in payroll and payroll related costs due to higher allocations to selling and marketing.
General and administrative costs include consulting fees of $7,551 and $7,469 for the three month periods ended March 31, 2009 and 2008 respectively, related to a two-year consulting contract with a significant stockholder, which was executed on September 11, 2007.
OTHER INCOME (EXPENSE)
Interest Expense
For the three month periods ended March 31, 2009 and 2008, interest expense was $35,632 and $41,619, 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 Mr. Planche.
For the three month periods ended March 31, 2009 and 2008, we incurred interest of $32,642 and $35,389, respectively, on our Loan Agreement with Ross/Fialkow. We also incurred interest on cash advances from Mr. Planche of $2,990 and $6,230, 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. The Company paid $456 along with its extension for a state tax return.
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. Our net working capital deficit at March 31, 2009 was $2.9 million compared to a deficit of $2.7 million as of December 31, 2008.
The current financing for our operations is derived primarily from unsecured, interest bearing cash advances from Mr. Planche. While we believe that he will be able to continue funding our operations, there is no guarantee that he will have the ability to continue to do so. In light of the recent economic turmoil in the global credit markets, Mr. Planche may not be able to fund our operations on a timely basis to enable us to take advantage of various economic opportunities. We do have the ability to borrow $86,000 under our Loan Agreement with Ross/Fialkow (see NOTE 8 - LINE OF CREDITin the notes to our condensed consolidated financial statements included in this Form 10-Q); however, it is inadequate based on our current and future funding requirements.
Due to the recent turmoil in the global economy, it is uncertain that the necessary funds will be available when we require them. We feel that we may benefit from, and take advantage of, the recent economic uncertainty. As it becomes more difficult for companies to stay in business, we believe they will need to find more creative and unique ways to differentiate themselves from their competition. We believe those companies will be more open to our products as they try to maintain their market share.
In addition, our current sales and marketing efforts will require substantial funding beyond our current operating requirements. We currently intend to attempt raising capital from various sources, however, we feel that we will be unable to attract the necessary debt and/or equity financing unless our current sales and marketing efforts are successful and until additional commercial and retail sales can be generated to demonstrate that there is a market for our Luminescent Products beyond our current limited successes.
As previously discussed, we estimate that it will require $500,000 to $750,000 in additional funding, to be used for various purposes, to make this sales and marketing effort successful. An ability to raise capital to fund this effort, or fund it timely, may influence how successful our sales and marketing effort is and consequently, affect our ability to attract future debt and/or equity financing for future operations.
Cash decreased to $2,629 at March 31, 2009 from $10,271 at December 31, 2008.
Net cash used for operating activities for the three months ended March 31, 2009 was $50,600. The primary reason for the cash usage was to fund the loss for the period.
Net cash provided by financing activities for the three months ended March 31, 2009 was $42,000. The net cash provided was derived from unsecured cash advances received from our president of $28,000 and advances from our line of credit of $14,000.
Credit Availability
We have a $750,000 Loan Agreement with Ross/Fialkow, as described in NOTE 8 - LINE OF CREDIT of our condensed consolidated financial statements. We have borrowed $664,000 of the $750,000 available under this loan agreement. As of March 31, 2009, the outstanding balance under the line of credit was $664,000.
Effects of Inflation
We believe that our financial results have not been significantly impacted by inflation and price changes. We have experienced only minimally modest increases in the cost of transporting our inventory to and between our manufacturing vendors and our warehouse and the costs of shipping our Luminescent Products to purchasers, as our vendors have added fuel surcharges to our normal shipping costs.
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