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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 033-55254-27
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ADVANCED LUMITECH, INC.
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(Name of small business issuer in its charter)
Nevada 87-0438637
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
8C Pleasant Street, First Floor, South Natick, MA 01760
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(Address of principal executive offices, Zip code)
(508) 647-9710
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(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
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Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
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(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 100,000,000 shares of Common Stock, $.001 par value, issued and outstanding as of
June 27, 2006.
Transitional Small Business Disclosure Format: [ ] Yes [X] No
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INDEX
Page Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at March 31, 2006 4
Consolidated Statements of Operations and Accumulated
Deficit and Comprehensive Income For the Three Months
Ended March 31, 2006 and 2005. 5
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2006 and 2005 6
Notes to Consolidated Financial Statements 7 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13- 16
Item 3. Controls and Procedures 17
Part II. Other Information
Item 1. Legal Proceedings 18
Item 2. Unregistered Sales of Equity and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
Exhibit Index 21
Exhibit31 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) E1
Exhibit32 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) E2
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NOTE REGARDING 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 DEFINED IN THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. ANY SUCH FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN ARE BASED ON CURRENT EXPECTATIONS, BUT ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES
THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM EXPECTATIONS. THE FACTORS THAT COULD CAUSE
ACTUAL FUTURE RESULTS TO DIFFER MATERIALLY FROM CURRENT EXPECTATIONS INCLUDE THE FOLLOWING: THE
COMPANY'S ABILITY TO RAISE THE FINANCING REQUIRED TO SUPPORT THE COMPANY'S OPERATIONS; THE COMPANY'S
ABILITY TO ESTABLISH ITS INTENDED OPERATIONS; FLUCTUATIONS IN DEMAND FOR THE COMPANY'S PRODUCTS AND
SERVICES; THE COMPANY'S ABILITY TO MANAGE ITS GROWTH; THE COMPANY'S ABILITY TO DEVELOP, MARKET AND
INTRODUCE NEW AND ENHANCED PRODUCTS ON A TIMELY BASIS; THE COMPANY'S LACK OF CUSTOMERS; AND THE
ABILITY OF THE COMPANY TO COMPETE SUCCESSFULLY IN THE FUTURE. FURTHER INFORMATION ON FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER FROM THOSE ANTICIPATED IS DETAILED HEREIN IN ITEM 2, RISK
FACTORS, AND IN VARIOUS FILINGS MADE BY THE COMPANY FROM TIME TO TIME WITH THE SECURITIES AND
EXCHANGE COMMISSION. ANY FORWARD-LOOKING STATEMENTS SHOULD BE CONSIDERED IN LIGHT OF THOSE FACTORS.
-3-
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Advanced Lumitech, Inc. and Subsidiary
Consolidated Balance Sheet
March 31, 2006
(Unaudited)
ASSETS
Current assets
Cash $ 21,172
Inventory 54,128
Prepaid expenses 2,042
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TOTAL CURRENT ASSETS 77,342
Office and photographic equipment, net -
Interest receivable from related party 52,329
Note receivable from related party 250,000
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TOTAL ASSETS $ 379,671
======================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 188,521
Accrued liabilities 320,232
Liability for shares to be issued 403,000
Advances from related parties 113,772
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TOTAL CURRENT LIABILITIES 1,025,525
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Stockholders' deficit
Common stock 100,000
Additional paid-in capital 9,335,903
Stock subscribed 470,000
Accumulated deficit (10,751,954)
Accumulated other comprehensive income (loss) 200,197
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TOTAL STOCKHOLDERS' DEFICIT (645,854)
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TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 379,671
======================
The accompanying notes are an integral part of these financial statements
-4-
Advanced Lumitech, Inc. and Subsidiary
Consolidated Statements of Operations and
Accumulated Deficit and Comprehensive Income
(Unaudited)
For the Three Months Ending March 31,
2006 2005
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Sales $ 3,576 $ 35,442
Cost of sales 1,760 34,103
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Gross profit 1,816 1,339
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Operating expenses
Research and development 22,788 18,594
Selling and marketing 2,466 33,452
General and administrative 78,486 112,295
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103,740 164,341
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Operating loss (101,924) (163,002)
Other income (expense), net 2,018 (138)
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Net loss (99,906) (163,140)
Accumulated deficit - beginning (10,652,048) (9,908,695)
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Accumulated deficit - ending $ (10,751,954) $ (10,071,835)
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Basic and diluted loss per share $ - $ -
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Basic and diluted weighted average
common shares outstanding 100,000,000 100,000,000
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COMPREHENSIVE LOSS:
Net loss $ (99,906) $ (163,140)
Foreign translation adjustment 3,976 -
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Comprehensive loss $ (95,930) $ (163,140)
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The accompanying notes are an integral part of these financial statements
-5-
Advanced Lumitech, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended March 31,
2006 2005
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Cash flows from operating activities
Net loss $ (99,906) $ (163,140)
Adjustments to reconcile net loss to net cash used for
operating activities:
Accrued interest on note receivable - related party (1,998) (1,516)
Stock based compensation - 30,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 3,183 (31,912)
Inventory 3,977 (1,176)
Prepaid expenses 6,064 -
Increase (decrease) in:
Accounts payable (45,782) (111,290)
Accrued liabilities 39,913 23,461
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Net cash used for operating activities (94,549) (255,573)
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Cash flows from financing activities
Cash received for sale of common stock, exercise of
warrants and stock subscribed 118,500 412,000
Advances received from related parties 47,800 -
Repayment of advances from related party (57,000) (32,000)
Principal payments on long-term debt - (2,593)
Principal payments on note payable - related party - (50,000)
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Net cash provided by financing activities 109,300 327,407
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Effects of changes in foreign exchange rates 3,976 (2,787)
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Net increase in cash 8,727 69,047
Cash - beginning 2,445 4,310
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Cash - ending $ 21,172 $ 73,357
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Supplemental disclosures of cash flows information:
Cash paid during the period for interest $ - $ 9,766
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The accompanying notes are an integral part of these financial statements
-6-
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2006
1. OPERATIONS
Advanced Lumitech, Inc. d/b/a Brightec ("ADLU" or "Company") develops and markets luminescent films
incorporating luminescent or phosphorescent pigments (the "Luminescent Product"). These pigments
absorb and reemit visible light producing a "glow" which accounts for the common terminology "glow
in the dark." The Company's Luminescent Product will be sold primarily as a printable luminescent
film designed to add luminescence to existing or new products. The Company uses third parties for
manufacturing, and markets and sells graphic quality printable luminescent films (the "Luminescent
Product"). 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.
2. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements at March 31, 2006 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, 2005, 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 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, 2005.
3. LIQUIDITY, MANAGEMENT PLANS AND GOING CONCERN
The Company has a working capital deficit of $948,183 and an accumulated deficit of $10,751,954 at
March 31, 2006, 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 2006 calendar year; however, there can be no assurances
that such financing can be obtained. See Note 11 - Subsequent Event.
-7-
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2006
4. EARNINGS (LOSS) PER SHARE
The Company computes earnings or loss per share in accordance with SFAS No. 128, `Earnings per
Share'. Basic earnings per share is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding. Diluted earnings per share reflect the
potential dilution that could occur if securities or other agreements to issue common stock were
exercised or converted into common stock, only in the periods in which the effect is dilutive. The
following securities have been excluded from the calculation of net loss per share, as their effect
would be antidilutive:
2006 2005
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Warrants (weighted average) 4,288,968 -
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, 2006:
Raw materials $ 20,475
Work in process 32,052
Finished goods 1,601
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$ 54,128
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6. INCOME TAXES
The Company has not calculated the tax benefits of its net operating losses as of March 31, 2006 and
December 31, 2005 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. 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.
7. RELATED PARTY TRANSACTIONS
As of March 31, 2006, a ten year note of $250,000 was receivable from the Company's president, who
is also a director and stockholder. The note, due no later than December 31, 2011, bears interest at
a fixed rate of 5.05% and is full-recourse. Interest on the note is accrued quarterly and due
annually. No interest payments on such note have been received to date. The Company recognized
interest income of $3,113 for each of the three month periods ended March 31, 2006 and 2005.
-8-
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2006
7. RELATED PARTY TRANSACTIONS - continued
At December 31, 2005, the Company owed the president $114,472 in connection with advances made by
him to the Company during 2005 and in prior years. During the three-month period ended March 31,
2006, he made advances to the Company of $9,300 and the Company repaid $37,000 of the outstanding
advances due. As such, the balance owed at March 31, 2006 was $86,772. All such advances bear
interest at the Internal Revenue Service short term "Applicable Federal Rate" (4.49% at March 31,
2006) calculated and accrued monthly. For the three months ended March 31, 2006 and 2005, the
Company incurred $1,095 and $3,380 of interest expense on the outstanding advances.
The Company offsets the amount of interest expense recognized on outstanding cash advances due
against the amount of interest income recognized on the outstanding note receivable. As of March 31,
2006, net interest receivable from the Company's president was $51,634. In addition to the amounts
described above, certain shareholders have made unsecured, non-interest bearing cash advances to the
Company, without specific repayment terms. As of December 31, 2005, one shareholder made a cash
advance of $8,500. During the three month period ended March 31, 2006, another shareholder made cash
advances of $38,500 and the Company repaid $20,000 of those advances. As of March 31, 2006, the
amount of outstanding cash advances due to these shareholders, included on the balance sheet under
"Advances from related parties" was $27,000.
8. COMMON STOCK
NUMBER OF SHARES OF COMMON STOCK AUTHORIZED, ISSUED AND OUTSTANDING
Under the Company's charter, 100,000,000 shares of $.001 par value common stock are authorized. As
of March 31, 2006, all of the shares of common stock were issued and outstanding.
On various dates through March 31, 2006, the Company entered into agreement with various
shareholders to redeem 17,123,933 shares of common stock in order to permit the Company to issue a
like number of shares of Common Stock to other investors who held subscriptions for shares of Common
Stock. Under the agreement, the shareholders are to receive no compensation for the redemption of
their respective securities.
The Company had entered into agreements with various vendors to issue shares of common stock in
satisfaction of amounts payable for services rendered to the Company during 2005 and in prior years.
In addition, there is stock subscribed representing equity investments for which shares of common
stock have not been issued (see below). The total number of shares to be issued at March 31, 2006
amounted to 7,016,668.
In total, as of March 31, 2006, the Company was committed to issue an additional 24,140,601 shares
of common stock. It is anticipated that a vote of the Company's stockholders to increase the number
of shares of common stock will occur during 2006.
ISSUANCES OF COMMON STOCK
On January 27, 2006, a stockholder partially exercised warrants to purchase 195,834 shares of the
Company's common stock at an exercise price of $0.12 per share, for an aggregate exercise price of
$23,500.
-9-
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2006
8. COMMON STOCK - continued
STOCK SUBSCRIBED
Stock subscribed represents amounts received for equity investments for which shares of common stock
remain unissued at March 31, 2006.
As of December 31, 2005, 3,335,000 shares of the Company's common stock with an aggregate purchase
price of $375,000 were subscribed but remained unissued. On February 17, 2006, March 10, 2006 and
March 19, 2006, the Company received stock subscriptions for 83,334, 291,667 and 416,667 shares of
common stock, respectively, with aggregate purchase prices of $10,000, $35,000 and $50,000,
respectively. These shares remain unissued as of March 31, 2006.
As a result of the above transactions, 4,126,668 shares with an aggregate purchase price of $470,000
are subscribed but unissued as of March 31, 2006.
LIABILITY FOR SHARES TO BE ISSUED
Liability for shares to be issued represents commitments to issue shares of common stock in exchange
for services provided or the settlement of debt. As of March 31, 2006, 2,890,000 shares with an
aggregate value of $403,000 were committed but unissued.
During the three month period ended March 31, 2006, there were no commitments entered into by the
Company, for the issuance of shares of common stock in satisfaction of amounts payable for services
rendered to the Company.
REDEMPTION OF SHARES
As of December 31, 2005, the Company's president and other stockholders agreed to allow the Company
to redeem 16,928,099 shares of their common stock for no consideration in order to allow the Company
to fulfill its commitments to issue shares to various investors, consultants and vendors.
On January 27, 2006, one of these shareholders and relative of the Company's president, agrees to
allow the Company to redeem an additional 195,834 shares of his common stock for no consideration,
in order to fulfill the Company's obligation to another shareholder under the partial exercise of a
stock warrant, for the same number of shares.
The Company will use its best efforts to increase the number of authorized shares of its common
stock as soon as reasonably practicable and, upon such event, it will issue 17,123,933 replacement
shares (adjusted for any recapitalization transactions) for no additional consideration.
ISSUANCES OF WARRANTS
On January 27, 2006, the Company issued the Jeffrey Stern Revocable Trust a warrant to purchase
2,000,000 shares of common stock at $.12. The warrant expires on January 26, 2009.
On March 19, 2006, the Company issued to an investor, a warrant to purchase 416,667 shares of common
stock at $.12. The warrant expires on March 18, 2007.
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Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2006
9. STOCK OPTIONS
In the second quarter of 2005, the Company's Board of Directors granted options to employees and/or
directors to purchase 20,000,000 shares of common stock at an exercise price of $0.12 per share, to
be fully vested as of April 28, 2005 and exercisable for a period of ten years. However, these
options cannot be exercised because the number of potential common shares to be issued upon exercise
of the options exceeds the number of shares authorized under the Company's charter. Any increase to
the number of shares of common stock the Company is authorized to issue requires the approval of the
Stockholders, which has not yet occurred. Awards made that are subject to shareholder approval are
not deemed to be granted for accounting purposes until that approval is obtained. Accordingly, any
obligation related to these options has not yet been estimated for disclosure in accordance with the
Company's accounting policies.
Effective January 1, 2006, the Company adopted SFAS Statement No. 123(R) "Share Based Payment"
("SFAS 123(R)) utilizing the "modified prospective" method as described in SFAS 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 123(R), prior period amounts were not restated. SFAS 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. There was no effect to the Company's financial position or results of operations as a
result of the adoption of this Standard.
Prior to the effective date, the Company accounted for stock-based employee compensation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations.
There were no stock options granted to employees of the Company during the fiscal quarter ended
March 31, 2006.
Stock options and warrants granted to non-employees are recorded at their fair value, as determined
in accordance with SFAS 123(R) and Emerging Issues Task Force Consensus No. 96-18 and recognized
over the related service period.
-11-
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2006
10. RECENT ACCOUNTING PRONOUNCEMENTS
In February 2006, the FASB issued SFAS Statement No. 155, "Accounting for Certain Hybrid Financial
Instruments", which amends SFAS No. 133 and SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities". SFAS 155 amends SFAS 133 to narrow the scope
exception for interest-only and principal-only strips on debt instruments to include only such
strips representing rights to receive a specified portion of the contractual interest or principle
cash flows. SFAS 155 also amends SFAS 140 to allow qualifying special-purpose entities to hold a
passive derivative financial instrument pertaining to beneficial interests that itself is a
derivative instruments. The adoption of the provisions of SFAS 155 is not expected to have a
material impact on the Company's financial position or results of operations.
11. SUBSEQUENT EVENT
On June 8, 2006, Advanced Lumitech, Inc., a Nevada corporation (the "Registrant") entered into a
loan and security agreement (the "Loan Agreement") with Ross/Fialkow Capital Partners LLP, as
trustee of Brightec Capital Trust, a Massachusetts nominee trust, as lender ("RFCP"), pursuant to
which the Registrant may borrow up to $750,000 for a term expiring June 8, 2007. On June 8, 2006,
the Registrant drew $350,000 of the loan, out of which it paid the commitment fee described below.
All amounts borrowed under the Loan Agreement will be due on June 8, 2007 (subject to acceleration
at the discretion of RFCP in the event of a default). The loan is evidenced by a convertible note
(the "Convertible Note" or the "Note"). The principal terms of the Loan Agreement and the
Convertible Note are as follows:
a. Due date: June 8, 2007, subject to acceleration upon an Event of Default (as defined in the Loan
Agreement) at the discretion of RFCP.
b. Interest rate: 20% per year.
c. Interest payment dates: Monthly commencing July 8, 2006. d. Commitment fee paid to RFCP: $37,500.
e. Conversion right: 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 RFCP, into the Registrant's common
stock at the rate of $0.12 per share. If the full principal amount of the loan were advanced and
converted, the number of shares of common stock issuable upon conversion would be 6,250,000 (such
shares, the "Conversion Shares"). The Conversion Shares carry piggy-back registration rights.
f. Common stock purchase warrant (the "Warrant") has been issued to RFCP to purchase up to 1,500,000
shares (the "Warrant Shares") of the Registrant's common stock at an exercise price of $0.12 per
share, expiring on May 31, 2009. The Warrant Shares carry piggy-back registration rights.
g. Collateral and other security: All assets of the Registrant, including all assets of the
Registrant's wholly owned subsidiary, Brightec, S.A., a Swiss corporation (the "Subsidiary"), and
including a pledge of the capital stock of the Subsidiary; the Subsidiary has fully guaranteed the
payment and performance of the Loan Agreement, the Convertible Note and the Warrant.
h. Representations and covenants: The Loan Agreement contains customary representations by the
Registrant as borrower, including a prohibition on the payment of dividends or other distributions
on the Registrant's common stock. i. Events of Default: The Loan Agreement and the Convertible Note
contain customary Events of Default which, if not waived by RFCP, would entitle RFCP to accelerate
the due date of the Note.
EVENTS OF DEFAULT: The Events of Default include a change in the in the condition or affairs
(financial or otherwise) of the Registrant which in the reasonable opinion of RFCP materially
impairs RFCP's security or materially increases RFCP's risk. The Events of Default also include the
failure of the Registrant to file a registration statement on Form S-1 with the Securities and
Exchange Commission on or before December 31, 2006, for common stock having an aggregate offering
price of at least $10,000,000.
-12-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of the Company should
be read in conjunction with the Condensed 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, 2005. This Quarterly Report on Form 10-QSB contains forward-looking
statements based on our current expectations, assumptions, estimates and projections about the
Company and our industry. These forward-looking statements are usually accompanied by words such as
"believes", "anticipates", "plans", "expects" and similar expressions. Forward-looking statements
involve risks and uncertainties and our actual results may differ materially from the results
anticipated in these forward-looking statements as a result of certain factors, as more fully
described in this section under the caption "Risk Factors".
CRITICAL ACCOUNTING POLICIES
Certain of the Company's accounting policies are particularly important to the portrayal and
understanding of its financial position and results of operations and require the application of
significant judgment by management. As a result, these policies are subject to an inherent degree of
uncertainty. In applying these policies, the Company uses its judgment in making certain assumption
and estimates. The Company's critical accounting policies, which consist of revenue recognition,
accounts receivable reserves and inventories, are described in the Annual Report on Form 10-KSB for
the year ended December 31, 2005. There have been no material changes to the Company's critical
accounting policies as of and for the three months ended March 31, 2006.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2006 COMPARED WITH THREE MONTHS ENDED MARCH 31, 2005
REVENUES:
The Company's revenue, net of returns, allowances and discounts, for the three month period ended
March 31, 2006, was $3,576 compared to $35,442 for the comparable three months of 2005. This
decrease in revenue is primarily due to the fact that in the comparable period of 2005, the Company
made commercial sales of the Company's luminescent product, which was sold to a major poster board
and inkjet paper marketer that introduced a "Glow-in-the-Dark Sign Kit" that includes two sheets of
Brightec's glow-in-the dark paper in an 11"x14" poster board format and two "Inkjet Glow in the Dark
Photo Quality Paper Packs" one including five sheets of Brightec glow-in-dark paper in an 4"x6"
format and the second including three sheets of Brightec glow-in-dark paper in an 8.5"x11" format.
The Company was unable to make additional sales of its product because it had not achieved
sufficient cost reductions to make the Luminescent Product commercially viable and realize the
margins that the Company sought to realize. The cost to produce the Luminescent Product was at a
level that drove the retail price point higher and did not allow the Company to introduce its
product in the retail market at a price which retail customers were willing to pay. The Company is
still making significant efforts to reduce its production costs in order to compete favorably in the
marketplace.
GROSS PROFIT:
The Company's gross profit percentage was 50.78% the three month period ended March 31, 2006,
compared to a gross profit percentage of 3.78% for the comparable three month period in fiscal 2005.
The increase in the level of the gross profit margin was primarily due to continued improvement in
the manufacturing cost of the Company's products for the three month period ended March 31, 2006. In
order to continue to increase its gross profit percentage and compete favorably in the marketplace,
the Company will need to continue lower its manufacturing costs.
In addition, during the comparable period of 2005, the Company was required to reduce its sales
price to the marketer to which it made the commercial sale, in order for that marketer to maintain
its own profit margins.
-13-
GROSS PROFIT: - CONTINUED
Sales occurring during the three months ended March 31, 2006, were made directly to online customers
through the Company's website. These sales did not require any reductions in sales price, thereby
resulting in the increased gross profit margin achieved.
RESEARCH AND DEVELOPMENT EXPENSES:
Research and development expenses increased by $4,194 for the three months ended March 31, 2006 to
$22,788 from $18,594 for the comparable three months of 2005. The increase in research and
development expenses for the three months ended March 31, 2006 was primarily due to 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 2005, there was no
testing of new raw materials to be used to manufacture the Company's Luminescent Product.
SELLING AND MARKETING EXPENSES:
Selling and marketing expenses decreased by $30,986 for the three months ended March 31, 2006 to
$2,466 from $33,452 for the comparable three months of 2005. The decrease in selling and marketing
expenses was primarily due to a decrease in professional fees and consulting services, which
consisted primarily of terminating the services of a marketing consultant, a marketing and corporate
branding consultant and a public relation firm.
In addition, because the Company's cost to manufacture its Luminescent Product have not been reduced
to a sufficient level to compete favorably in the marketplace and to permit the Company to realize
its desired margins, it has decreased its selling and marketing efforts, concentrating more on its
efforts to reduce its manufacturing costs in order to make the Luminescent Product commercially
viable.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses consisted primarily of the compensation of the executive
officer, payroll and related taxes and benefits, rent, as well as legal and accounting fees. General
and administrative expenses decreased by $33,809 for the three months ended March 31, 2006 to
$78,486 from $112,295 for the comparable three months of 2005. The decrease in 2006 was primarily
due to a decrease in legal and accounting fees relating to the completion of the Company's annual
audit and Form 10-KSB filing with the Securities and Exchange Commission. The decrease in 2006 was
offset by increased payroll costs for current employees who were not employed by the Company during
the comparable period in 2005.
OTHER INCOME (EXPENSE):
For the three months ended March 31, 2006 and 2005, interest income, net of interest expense was
$2,018 and ($267), respectively. Interest expense and interest income are dependent on the level of
loans due to and from affiliates parties. For the three months ended March 31, 2005, Other income
(expense) also includes $129 from foreign currency translation gains relating to the amount of U.S.
dollars required to purchase Swiss francs in order to pay its interest obligation on long-term debt
versus the amount accrued, in U.S. dollars, when the interest was due. As of December 31, 2005, the
president of the Company assumed personal liability for the repayment of this long-term debt.
Accordingly, for the three months ended March 31, 2006, there has been no interest expense neither
incurred nor accrued.
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.
-14-
LIQUIDITY AND CAPITAL RESOURCES AS OF MARCH 31, 2006:
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 has generated, from inception through March 31, 2006, cumulative net cash
proceeds from the sale of its equity of approximately $4.92 million. The Company's net working
capital deficit at March 31, 2006 was $948,183.
The Company's authorized capital stock consists of 100,000,000 shares of common stock, of which all
of its shares were issued and outstanding at March 31, 2006. As of March 31, 2006, the Company had
also made commitments to issue an additional 24,140,601 shares of common stock, (which does not
include the 7,750,000 shares issueable under the convertable note and Warrant described below), none
of which the Company can issue. The 24,140,601 additional shares of common stock can be issued at
such time as the Company is able to increase the number of authorized shares of its common stock.
The number of shares committed excludes shares of common stock to be issued upon the exercise of
outstanding options and warrants. Amounts received for certain of these additional committed shares,
which were purchased for cash, are reflected on the Company's balance sheet as "Stock Subscribed."
Amounts received for the remaining additional committed shares, that are to be issued in exchange
for consulting services or in exchange for settlement of obligations owed by the Company, are
reflected in the Company's balance sheet, as "Liability for Shares to be Issued."
At various times in 2004 and 2005, the Company's principal stockholder and other stockholders of the
Company agreed to allow the Company to redeem 16,928,099 shares of their common stock for no
consideration to allow the Company to fulfill its commitments to issue shares to consultants and
investors of the Company. On January 27, 2006, a stockholder and former director of the Company,
agreed to allow the Company to redeem an additional 195,834 shares of his common stock in order to
allow the Company to fulfill its obligation under the partial exercise of an outstanding stock
warrant by another shareholder.
Upon the increase in the number of authorized shares of its common stock, the Company will issue
17,123,933 replacement shares (adjusted for any re-capitalization transactions) for no additional
consideration.
Cash increased to $21,172 at March 31, 2006 from $2,445 at December 31, 2005.
Net cash used for operating activities for the three months ended March 31, 2006 was $94,549. The
primary reason for the decrease was to fund the loss for the period. Net cash provided by financing
activities for the three months ended March 31, 2006 was $109,300. The net cash provided was the
result of cash received of $118,500 from the sale and subscription of common stock and the exercise
of warrants and advances made by related parties of $47,800, net of repayment of advances from
related parties of $57,000.
On June 8, 2006, Advanced Lumitech, Inc., a Nevada corporation (the "Registrant") entered into a
loan and security agreement (the "Loan Agreement") with Ross/Fialkow Capital Partners LLP, as
trustee of Brightec Capital Trust, a Massachusetts nominee trust, as lender ("RFCP"), pursuant to
which the Registrant may borrow up to $750,000 for a term expiring June 8, 2007. On June 8, 2006,
the Registrant drew $350,000 of the loan, out of which it paid the commitment fee described below.
All amounts borrowed under the Loan Agreement will be due on June 8, 2007 (subject to acceleration
at the discretion of RFCP in the event of a default). The loan is evidenced by a convertible note
(the "Convertible Note" or the "Note"). The principal terms of the Loan Agreement and the
Convertible Note are as follows:
a. Due date: June 8, 2007, subject to acceleration upon an Event of Default (as defined in the Loan
Agreement) at the discretion of RFCP.
b. Interest rate: 20% per year.
c. Interest payment dates: Monthly commencing July 8, 2006. d. Commitment fee paid to RFCP: $37,500.
e. Conversion right: 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 RFCP, into the Registrant's common
stock at the rate of $0.12 per share. If the full principal amount of the loan were advanced and
converted, the number of shares of common stock issuable upon conversion would be 6,250,000 (such
shares, the "Conversion Shares"). The Conversion Shares carry piggy-back registration rights.
f. Common stock purchase warrant (the "Warrant") has been issued to RFCP to purchase up to 1,500,000
shares (the "Warrant Shares") of the Registrant's common stock at an exercise price of $0.12 per
share, expiring on May 31, 2009. The Warrant Shares carry piggy-back registration rights.
g. Collateral and other security: All assets of the Registrant, including all assets of the
Registrant's wholly owned subsidiary, Brightec, S.A., a Swiss corporation (the "Subsidiary"), and
including a pledge of the capital stock of the Subsidiary; the Subsidiary has fully guaranteed the
payment and performance of the Loan Agreement, the Convertible Note and the Warrant.
h. Representations and covenants: The Loan Agreement contains customary representations by the
Registrant as borrower, including a prohibition on the payment of dividends or other distributions
on the Registrant's common stock. i. Events of Default: The Loan Agreement and the Convertible Note
contain customary Events of Default which, if not waived by RFCP, would entitle RFCP to accelerate
the due date of the Note.
-15-
EVENTS OF DEFAULT: The Events of Default include a change in the in the condition or affairs
(financial or otherwise) of the Registrant which in the reasonable opinion of RFCP materially
impairs RFCP's security or materially increases RFCP's risk. The Events of Default also include the
failure of the Registrant to file a registration statement on Form S-1 with the Securities and
Exchange Commission on or before December 31, 2006, for common stock having an aggregate offering
price of at least $10,000,000.
ABILITY TO CONTINUE AS A GOING CONCERN:
At March 31, 2006, the Company has generated minimal revenues from commercial sales of the Company's
products. To date, the Company's operations have generated accumulated losses of $10,751,954. At
March 31, 2006, the Company's current liabilities exceed its current assets by $948,183. The
Company's ability to remedy this condition is uncertain due to the Company's current financial
condition. These conditions raise substantial doubt about the Company's ability to continue as a
going concern. The Company believes it has the ability to obtain additional funds from its principal
stockholders or through the issuance of additional debt or equity securities. In June 2006, the
Company entered into a $750,000 Agreement as described above. The Company is continuing discussions
with investors in its effort to obtain additional financing. However, there can be no assurances
that the Company will be able to raise the funds it requires, or that if such funds are available,
that they will be available on commercially reasonable terms.
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 market and produce
Brightec products, 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 be successful in generating the necessary financing to fund the Company's operations through
the 2006 calendar year. Accordingly, management believes that no adjustments or reclassifications of
recorded assets and liabilities are necessary at this time.
CREDIT AVAILABILITY:
The Company had no line-of-credit facilities as of March 31, 2006. In June 2006, the Company entered
into a $750,000 Agreement as described above.
COMMITMENTS:
The Company had no material capital expenditure commitments as of March 31, 2006.
EFFECTS OF INFLATION:
Management believes that financial results have not been significantly impacted by inflation and
price changes.
-16-
ITEM 3. CONTROLS AND PROCEDURES
During the last five years, the Company did not have an accounting department, but instead relied on
outside bookkeeping services to record financial activity and consultants to assist in the
preparation of its financial statements. Upon the completion of audit of the December 31, 2005
financial statements, the Company received a letter from its independent registered public
accounting firm indicating that the Company has material weaknesses with respect to (1) accurately
recording day-to-day transactions, (2) the lack of segregation of duties, (3) the approval of
significant transactions in a timely manner by the Company's Board of Directors and (4) the
preparation of its financial statements, in an accurate and timely fashion. The Company's management
agrees with the assessment of the Company's independent registered public accounting firm and is
developing a plan to address these material weaknesses.
No changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f)
under the Exchange Act) occurred during the three months ended March 31, 2006, that have materially
affected, or are reasonably likely to materially affect, the Company's internal control over
financial reporting.
-17-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Company is a party or to which any of
its properties are subject.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following equity transactions occurred during the period January 1, 2006 to March 31, 2006 and
were not registered under the Securities Act of 1933, as amended (the "Securities Act").
On January 27, 2006, the Jeffrey Stern Revocable Trust partially exercised warrants to purchase
195,834 shares of the Company's common stock for an aggregate purchase price of $23,500.
On January 27, 2006, in order to issue shares of the Company's common stock under the partial
warrant exercised by the Jeffrey Stern Revocable Trust, the Company entered into an agreement with
Francios Planche, one of the Company's shareholders and brother of the Company's president, to
borrow 195,834 shares of common stock he held. Shares under the partially exercised warrant could
not be issued since the Company had sold the maximum number of shares of common stock authorized
under its charter. Under the agreement, Mr. Planche is to receive no compensation for the redemption
of his securities. Upon amendment of the Company's Articles of Incorporation, the Company will
reissue the exact number of shares borrowed from Mr. Planche.
On February 17, 2006, the Company received a stock subscription from an investor to purchase 83,334
shares of the Company's common stock for an aggregate purchase price of $10,000.
On March 10, 2006, the Company received a stock subscription from the Elaine Z. Stern Trust to
purchase 291,667 shares of the Company's common stock for an aggregate purchase price of $35,000
On March 19, 2006, the Company received a stock subscription from an investor to purchase 416,667
shares of the Company's common stock for an aggregate purchase price of $50,000.
All shares of common stock issued by the Company were issued without registration pursuant to the
exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended. All
purchasers of shares of the Company's common stock who purchased such shares of common stock for
cash represented that they were acquiring the securities for investment and for their own account.
All purchasers of the Company's common stock who are United States residents and purchased such
securities for cash also represented to the Company that they were accredited investors as of the
date of such investment. A legend was placed on the stock certificates representing all securities
purchased stating that the securities have not been registered under the Securities Act and cannot
be sold or otherwise transferred without an effective registration or an exemption there from.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
-18-
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.
-19-
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.
ADVANCED LUMITECH, INC.
Date: June 30, 2006 By: /s/ Patrick Planche
---------------------------------------
Patrick Planche
President and Chief Executive Officer
-20-
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
-21-
E-1
Exhibit 31
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302
I, Patrick Planche, certify that:
1. I have reviewed this Quarterly Report of Advanced Lumitech, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the small business issuer as of, and for, the periods
presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under my supervision, to ensure that
material information relating to the small business issuer, including its
consolidated subsidiaries, is made known to me by others within those entities,
particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's internal
control over financial reporting that occurred during the small business issuer's
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the small business issuer's internal control over financial
reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the small business issuer's audit
committee of the board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely
affect the small business issuer's ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees
who have a significant role in the small business issuer's internal control over
financial reporting.
Date: June 30, 2006 /s/Patrick Planche
-------------------------------------------------------
Patrick Planche, President, Chief Executive
Officer, Treasurer and Chief Financial Officer
E-2
Exhibit 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Advanced Lumitech, Inc. (the "Company") on Form 10-QSB
for the quarterly period ended March 31, 2006, as filed with the Securities and Exchange Commission
on the date hereof (the "Report'), I, Patrick Planche, President, Chief Executive Officer, Treasurer
and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and result of operations of the Company.
/s/ Patrick Planche
- ---------------------------------------
Patrick Planche, President,
Chief Executive Officer, Treasurer and
Chief Financial Officer
June 30, 2006
