[LOGO OMITTED]
BRIGHTEC (tm)
Be Brilliant
BRIGHTEC Inc.
8c Pleasant Street, First Floor
South Natick, MA 01760
508/647-9710 T
508/647-9711 F
www.brightec.com
February 28, 2007
VIA U.S. MAIL and FACSIMILE
- ---------------------------
Ms. Tia Jenkins
Division of Corporation Finance
United States Securities and Exchange Commission
100 F. Street, N.W.
Mail Stop 3561
Washington, DC 20549
Re: Advanced Lumitech, Inc.
Form 10-KSB for Fiscal Year Ended December 31, 2005
Form 10-QSB for Fiscal Quarter Ended March 31, 2006
File No. 033-55254-27
Dear Ms. Jenkins:
At the request of the Securities and Exchange Commission we are providing this
letter in response to certain comments made in the Commission's letter dated
July 25, 2006 to Advanced Lumitech, Inc. (the "Company") regarding Form 10-KSB
for Fiscal Year Ended December 31, 2005 and Form 10-QSB for Fiscal Quarter Ended
March 31, 2006.
In addition, as the result of various conversations with the SEC over the past
two to three weeks, we are providing additional information regarding certain
restatements to be included in our amended reports, not as the result of any
formal inquiry by the Securities and Exchange Commission.
Form 10-KSB for the Fiscal Year Ended December 31, 2005
- -------------------------------------------------------
Items 8A - Controls and Procedures
- ----------------------------------
COMMENT 1: Please review your disclosure to state your
conclusions regarding the effectiveness of your
disclosure controls and procedures as of the end of
the period covered by the report, and to provide the
information required by Item 308(c) of Regulation
S-B. To the extent that the identified material
weaknesses result in a conclusion that your
disclosure controls and procedures are ineffective,
describe the specific steps the company has taken, if
any, to remediate the material weaknesses.
RESPONSE: We have revised and updated our disclosure in the
Form 10-KSB relating to item 8A.
The Company carried out an evaluation of the
effectiveness of the design and operation of the
Company's disclosure controls and procedures. The
Company found that is had insufficient numbers of
internal personnel possessing the appropriate
knowledge, experience and training in applying
accounting principles generally accepted in the
United State and reporting financial information in
accordance with the requirements of the Commission.
The evaluation found insufficient controls over
dissemination of information regarding non-routine
and complex transactions, which resulted in incorrect
Ms. Tia Jenkins
Securities and Exchange Commission
Division of Corporate Finance
February 28, 2007
Page 2 of 15
treatment and lack of proper analysis of such
transactions by accounting staff.
As a result of this evaluation, the Company has
concluded that additional controls and procedures
should be implemented to assure the proper
application of appropriate accounting standards.
Specifically, the Company has hired a certified
public accountant to consult on all non-routine and
complex accounting matters to determine the proper
accounting treatment under a particular set of
circumstances.
Based on the Company's size and level of non-routine
and/or complex transactions, the Company believes
that the new controls and procedures implemented have
addressed the Company's internal control failures and
are reasonable to avoid a similar deficiency in the
future.
The Company's management necessarily applies its
judgment in assessing the costs and benefits of such
controls and procedures, which by their nature can
provide only reasonable assurance regarding
management's control objectives. Except as previously
discussed, for the quarter ended December 31, 2005,
there were no significant changes in the Company's
internal controls or in other factors that could
significantly affect these controls subsequent to the
Evaluation Date.
Financial Statements, page F-1
- ------------------------------
Audit Report, page F-1
- ----------------------
COMMENT 2: We note that the audit report does not indicate the
name of the independent accountant, and it is unclear
whether the report was signed. Please discuss with
your auditor and revise the report accordingly.
RESPONSE: The lack of a signature and the name of our auditor
on the audit report was an edgarizing error and
missed in proofreading the report prior to being
filed with the SEC. The Company did receive a signed
copy of the auditor's report on their letterhead
before filing the Form 10-KSB.
The Company was notified by our auditors that they
withdrew their audit reports for fiscal years 2004
and 2005 and have notified the SEC of said
withdrawals. We are amending the 2004 and 2005 Form
10-KSB's for the matters described below. As such,
new audit reports on the Company's 2004 and 2005
financial statements will be issued which will
include new audit report dates and an explanatory
paragraph referencing the restatements included in
the financial statements. The auditor's new reports,
when filed, will indicate their name and signature.
Note 7 - Common Stock, page F-13
- --------------------------------
COMMENT 3: We note your disclosure on page F-18 regarding the
stock options granted to a consultant. Please tell us
how you determined that a volatility assumption of
18% was appropriate.
RESPONSE: The volatility factor of 18% was originally used as
it was thought to be a more representative estimate
of the value of the options at the time of issuance.
The 18% volatility factor was determined by using the
opening values of the S&P Small Cap Market Index at
the beginning of each month from January 2002 through
December 2004.
Ms. Tia Jenkins
Securities and Exchange Commission
Division of Corporate Finance
February 28, 2007
Page 3 of 15
Management determined the volatility factor should
have been calculated based on the historical
volatility of the openly traded stock prices of the
Company for three years (the term of the option) up
through the effective date of the option. The value
of the options was recalculated based upon a
historical volatility of 430.7% and resulted in an
increase in non-cash consulting expense of
approximately $90,000. Such increase will be
reflected in the amended and restated financial
statements and the related disclosures in 2004 and
2005 will be updated accordingly.
See APPENDIX A for details regarding the revaluation
of the options granted to the consultant using
appropriate assumptions.
Note 7 - Common Stock, page F-13
- --------------------------------
COMMENT 4: We noted your disclosure on page F-18 regarding the
warrants issued to a shareholder in exchange for the
exercise by the shareholder of a previously issued
warrant. Please tell use how you accounted for the
additional warrants issued, and revise your
disclosure to discuss the accounting treatment along
with the major assumptions used to value the
warrants.
RESPONSE: With respect to the warrants issued to a shareholder
in exchange for the exercise by that shareholder of
previously issued warrants, the Company did not value
or record the warrants in its accounting records. The
additional warrants were issued as an inducement to
the stockholder to exercise older warrants as the
Company was in need of capital. The warrants were
valued at $467,825 using the Black-Scholes valuation
model. As the value of the new warrants was in excess
of the amount received from the exercise of the older
warrants ($375,000), the value of the new warrants
was first applied against additional paid-in capital
with the difference of $92,825 being charged as
financing costs in the statement of operations. Such
changes will be reflected in the amended and restated
financial statements and the related disclosures will
be updated accordingly.
See APPENDIX B for details regarding the accounting
for the warrants issued in exchange for the exercise
of previously issued warrants.
Note 7 - Common Stock, page F-13
- --------------------------------
COMMENT 5: We note that warrants to purchase 3,016,666 shares of
common stock are outstanding, and that there are no
authorized but unissued shares available at December
31, 2005. Accordingly, it would appear the fair value
of the warrants should be recorded as a liability in
the financial statements, and that the liability
should be adjusted to fair value at each subsequent
balance sheet date. Refer to paragraph 19 of EITF
00-19 and revise the financial statements
accordingly, or tell us why you believe that no
revisions are required, including the specific
accounting literature on which your conclusion is
based.
RESPONSE: The Company agrees with the comment. Such changes
will be reflected in the amended and restated
financial statements and the related disclosures will
be updated accordingly.
See APPENDIX B for details regarding the recognition
of the warrant liabilities in the financial
statements and the cumulative effect on the financial
statements for the year ended December 31, 2005.
Ms. Tia Jenkins
Securities and Exchange Commission
Division of Corporate Finance
February 28, 2007
Page 4 of 15
Form 10-QSB for the Fiscal Period Ended March 31, 2006
- ------------------------------------------------------
Financial Statements, page 1
- ----------------------------
Note 8 - Common Stock, page 9
- -----------------------------
COMMENT 6: We note your disclosure on page 10 regarding the 2.4
million warrants issued during the period. Please
revise your disclosure to discuss the accounting
treatment for each warrant issuance along with the
major assumptions used to value the warrants. We note
that since there are insufficient authorized but
unissued shares, it would appear that the warrants
should be recorded as a liability in the financial
statements as discussed above.
RESPONSE: As previously discussed, the Company did not account
for the issuance of warrants properly and pursuant to
EITF 00-19, the Company is amending its previously
filed reports to properly account for and disclose
the issuance of the warrants.
See APPENDIX C for details regarding the 2.4 million
warrants issued, their accounting treatment and the
major assumptions used to value the warrants.
Item 3 - Controls and Procedures, page 17
- -----------------------------------------
COMMENT 7: Please revise the filing as necessary, to address the
comments above with respect to disclosure controls
and procedures.
RESPONSE: As a result of these issues discussed and other
issues identified as a result, the Company is
amending all of its previously issued reports
beginning with its Form 10-KSB for the fiscal year
ended December 31, 2004 through Form 10-QSB for the
quarterly period ended March 31, 2006.
The Company will revise its controls and procedures
disclosures as necessary to address the comments
discussed here and as they relate to other issues
requiring amendment, not discussed here.
Please refer to our response to COMMENT #1 on pages 1
and 2 of this response for a discussion of the
Company's response to the identified failures of
internal control and disclosure and controls
procedures and the actions the Company's has taken to
remediate these failures.
ADDITIONAL INFORMATION
- ----------------------
In addition to the matters discussed above, we are amending all of our periodic
reports, starting with our 2004 Form 10-KSB through our first quarter 2006 Form
10-QSB, to account for certain redemption agreements entered into between the
Company and certain of our stockholders.
From December 2004 through March 31, 2006, the Company entered into various
redemption agreements with its president and director and a former director, all
of whom are stockholders of the Company, to allow the Company to redeem a
certain number of shares of common stock to be used to satisfy certain
obligations of the Company related to subscriptions for the purchase of shares
of common stock and shares of common stock to be issued in satisfaction of
certain consulting agreements. These redemption agreements specifically stated
that the Company was borrowing these shares of common stock from the
stockholders and that the stockholders would not be paid any additional
consideration beyond the reimbursement of the exact number of shares that were
borrowed.
Ms. Tia Jenkins
Securities and Exchange Commission
Division of Corporate Finance
February 28, 2007
Page 5 of 15
The Company redeemed these shares of common stock from its stockholders because
it had issued all of its authorized shares of common stock. In addition, the
Company was unable to repurchase shares of common stock in the open market due
to the lack of necessary resources to be able to effect such a transaction.
The Company had originally treated these redemptions as components of
stockholders' deficit. However, subject to a review by the Company, it was
determined that the redemptions should have been recognized as liabilities The
Company recorded the redemptions based upon the number of shares redeemed on
various dates at the average trading price for the Company's common stock on the
dates of such various redemptions. As these liabilities were owed to related
parties, the Company determined that it would not be appropriate to mark these
liabilities to market and recognize the resulting gains and/or losses resulting
from the change in fair value of the Company's common stock.
Accordingly, once the liabilities were recorded on the dates of the respective
redemption agreements, they will remain on the books until such time as the
Company has a sufficient number of shares of authorized and outstanding common
stock to reimburse the stockholders for their respective shares redeemed.
See APPENDIX D for details shares of common stock redeemed from certain
shareholders from December 2004 through March 31, 2006, their accounting
treatment and the major assumptions used to value the liabilities as the result
of the redemptions
The Company hopes that this letters serves as an adequate response to your
letter dated July 25, 2006. Please do not hesitate to contact the Company if
further clarification or additional information is required or if you wish to
discuss other issues that are being addressed by the Company but are beyond the
scope of this discussion.
The Company acknowledges that:
o We are responsible for the adequacy and accuracy of the disclosures in all
of our filings
o SEC staff comments or changes to disclosures in response to staff comments
do not foreclose the Commission from taking any action with respect to the
filing; and
o We may not assert staff comments as a defense in any proceeding initiated
by the Commission or any person under the federal securities laws of the
United States.
Sincerely,
/s/ PATRICK PLANCHE
- ---------------------------------------------------
Patrick Planche
Chief Executive Officer and Chief Financial Officer
BRIGHTEC, INC. (formerly Advanced Lumitech, Inc.)
APPENDIX A - COMMENT 3
On November 16, 2004, the Company issued to a consultant, stock options for the
purchase of 4,462,911 shares of the Company's common stock, at an exercise price
of $0.10 per share, in satisfaction of claims made by the consultant, against
the Company.(1) The original valuation of the options, including the major
assumptions, was as follows:
S&P small cap
Volatility based on: market index
--------------
VARIABLES:
1 STOCK PRICE (November 16, 2004 price) $ 0.15
2 EXERCISE PRICE 0.10
3 TERM [IN YEARS] 3.00
4 RISK-FREE RATE 3.75%
5 DIVIDEND YIELD 0.00%
6 VOLATILITY (monthly/weekly) 18.00%
OPTION VALUE $ 0.060
Number of options 4,462,911
Extended value $ 266,436
==============
On November 16, 2004, the original journal entry to record the value of these
options was as follows:
Debit Credit
-------------- --------------
Marketing & Promotion 266,436
Additional Paid-In Capital 266,436
To record stock-based compensation relative to stock options granted to
consultant
Although properly recorded on the balance sheet, after a subsequent review by
management, it was determined that certain of the major assumptions and the
original grant date used (the date of the letter informing the consultant of the
option grant - November 16, 2004) were incorrect. Within the letter, it is
specified that the effective grant date of options is September 9, 2004, the
consultant's date of termination (see APPENDIX A-1). As part of the process of
amending and restating the Company's financial statements for other matters
relating to the valuation and recording of other derivative liabilities, the
Company revalued these options, correcting the erroneous major assumptions and
using the correct grant date. The options were revalued as follows:
# of Stock Strike Expected Risk Free Annual Value per Option
Date Term options price price Life (years) Rate Volatility dividend option value
------ --------- --------- ----- ----- ------------ --------- ---------- -------- ---------- --------
9/9/04 36 months 4,462,911 $0.08 $0.10 3.0000 2.94% 430.70% $ -- $ 0.08 $356,960
As a result of the difference in valuation, additional expense was recorded to
recognize the increase in marketing and promotion expense resulting from
increased valuation of the options issued to the consultant. The journal entry
recorded as of December 31, 2004, to recognize this additional expense was as
follows:
Debit Credit
-------------- --------------
Marketing & Promotion 90,524
Additional Paid-In Capital 90,524
To record additional expense resulting from revaluation of options issued to
consultant
The effect on the financial statements for the year ended December 31, 2004 was
to increase non-cash consulting expense by $ 90,524. As of December 31, 2005,
the effect on the financial statements was to increase Additional Paid-In
Capital by $90,524 and to increase Stockholders' Deficit by $90,524.
- --------------------
(1) Form 8-K - Current Report, dated and filed November 24, 2004, incorporated
herein by reference.
A-1
BRIGHTEC, INC. (formerly Advanced Lumitech, Inc.)
APPENDIX B - COMMENT 4
Due to the Company's need for capital, on April 28, 2005, in exchange and as an
inducement for a shareholder to exercise previously issued outstanding warrants
issued on February 4, 2005 and February 5, 2005 whose exercise price was greater
than the Company's quoted market price, the Company issued to the stockholder a
new warrant for the purchase of 3.6 million shares of the Company's common
stock. None of warrants described were properly recorded by the Company in its
accounting records. Accordingly, the Company is amending and restating its
reports to recognize these warrants in its reports and accounting records and
the necessary adjustments required by paragraph 19 of EITF 00-19, as described
below.
On February 4, 2005, the Company issued warrant 05.004 for the purchase of
2,500,000 shares of the Company's common stock. The major assumptions and
valuation of this warrant were as follows:
# of Stock Strike Expected Risk Free Annual Value per Option
Date Term options price price Life (years) Rate (2) Volatility dividend option value
------ --------- --------- ----- ----- ------------ --------- ---------- -------- ---------- --------
2/4/2005 2 months 2,500,000 $0.12 $0.10 0.16667 2.34% 41.80% $ -- $ 0.022 $ 54,212
The settlement of this contract was in shares of the Company's common stock,
however, the Company did not have control of the settlement because it did not
have sufficient authorized and un-issued shares of its stock to issue upon the
exercise of the warrant. Under these circumstances, paragraph 19 of EITF 00-19
requires liability recognition for the fair value of the warrant at its
measurement date. Accordingly, the journal entry to record this warrant
liability in the Company's accounting records was as follows:
Debit Credit
-------------- --------------
Additional Paid-In Capital 54,212
Warrant liability 54,212
To record issuance of warrant 05.004 to stockholder
On February 5, 2005, the Company issued warrant 05.005 for the purchase of
2,085,000 shares of the Company's common stock. The major assumptions and
valuation of this warrant were as follows:
# of Stock Strike Expected Risk Free Annual Value per Option
Date Term options price price Life (years) Rate (3) Volatility dividend option value
------ --------- --------- ----- ----- ------------ --------- ---------- -------- ---------- --------
2/5/2005 5 months 2,085,000 $0.12 $0.12 0.41667 2.75% 41.80% $ -- $ 0.013 $ 28,129
A liability for this warrant, at its fair value as of the measurement date, was
also recognized by the Company, pursuant to paragraph 19 of EITF 00-19. The
journal entry recorded by the Company in its accounting records, to reflect this
warrant liability was as follows:
Debit Credit
-------------- --------------
Additional Paid-In Capital 28,129
Warrant liability 28,129
To record issuance of warrant 05.005 to stockholder
On March 29, 2005, the stockholder exercised 1,250,000 warrants issued under
warrant 05.004. On March 29, 2005, the Company recorded the following entry in
its accounting records to recognize the partial exercise and relieve the warrant
liability:
Debit Credit
-------------- --------------
Warrant liability 27,106
Additional Paid-In Capital 27,106
To record issuance of warrant 05.004 to stockholder
- --------------------
(2) Average of one month and three month US Treasury Note rates
(3) Six month US Treasury Note rate
B-1
BRIGHTEC, INC. (formerly Advanced Lumitech, Inc.)
APPENDIX B - COMMENT 4 (continued)
The Company is required to revalue this warrant at the end of every reporting
period. Accordingly, the major assumptions and valuation warrant 05.004, at
March 31, 2005, were as follows:
# of Stock Strike Expected Risk Free Annual Value per Option
Date Term options price price Life (years) Rate (4) Volatility dividend option value
------ --------- --------- ----- ----- ------------ --------- ---------- -------- ---------- --------
3/31/2005 4 day 1,250,000 $0.16 $0.10 0.01096 2.63% 41.80% $ -- $ 0.060 $ 75,036
The journal entry recorded by the Company in its accounting records, to adjust
the warrant liability and reflect the change in the fair value of warrant
05.004 was as follows:
Debit Credit
-------------- --------------
Loss on Value of Derivative Liabilities 47,930
Warrant liability 47,930
To record increase in fair value of warrant 05.004 liability
The major assumptions and valuation of warrant 05.005 as of March 31, 2005,
were as follows:
# of Stock Strike Expected Risk Free Annual Value per Option
Date Term options price price Life (years) Rate Volatility dividend option value
------ --------- --------- ----- ----- ------------ --------- ---------- -------- ---------- --------
3/31/2005 3 months 2,085,000 $0.16 $0.12 0.25000 2.79% 41.80% $ -- $ 0.042 $ 87,269
The journal entry recorded by the Company in its accounting records, to adjust
the warrant liability and reflect the change in the fair value of warrant
05.005 was as follows:
Debit Credit
-------------- --------------
Loss on Value of Derivative Liabilities 59,139
Warrant liability 59,139
To record increase in fair value of warrant 05.005 liability
On April 28, 2005, as previously described, the stockholder was issued a new
warrant (05.006) in exchange for the exercise of the previously issued
outstanding warrants (05.004 and 05.005). The Company received and recorded
$375,000 for the exercise of the outstanding warrants, recognized as a stock
subscription in the accounting records.
The major assumptions and valuation of warrant 05.006, on April 28, 2005, were
as follows:
# of Stock Strike Expected Risk Free Annual Value per Option
Date Term options price price Life (years) Rate (5) Volatility dividend option value
------ --------- --------- ----- ----- ------------ --------- ---------- -------- ---------- --------
4/28/2005 36 months 3,600,000 $0.13 $0.12 3.00000 3.77% 407.90% $ -- $ 0.13 $467,825
Pursuant to paragraph 19 of EITF 00-19, a liability was recognized, on the
measurement date, for the fair value of the warrant issued. In addition, since
the value of the warrant 05.006 ($467,825) exceeded the value received by the
Company from the exercise of the warrant 05.004 and 05.005 ($375,000), the
Company believes it is appropriate to record the excess as a charge to earnings.
This transaction was treated in a similar manner as costs incurred to raise
capital. Under GAAP, costs to raise capital are offset against the capital
raised; therefore, the Company determined it was appropriate to treat costs
incurred in excess of the capital raised as a charge against earnings. Under
that determination, the Company recorded the following journal entry to record
the value of warrant 05.006, the corresponding warrant liability and the costs
exceeding the amount of capital raised:
- --------------------
(4) One month US Treasury Note rate
(5) Three-year US Treasury Note
B-2
BRIGHTEC, INC. (formerly Advanced Lumitech, Inc.)
APPENDIX B - COMMENT 4 (continued)
Debit Credit
-------------- --------------
Additional Paid-In Capital 375,000
Financing costs 92,825
Warrant liability 467,825
To record the issuance of warrant 05.006
The Company is required to revalue the warrant obligation at the end of every
reporting period. The major assumptions and valuation of warrant 05.006 as of
June 30, 2005 were as follows:
# of Stock Strike Expected Risk Free Annual Value per Option
Date Term options price price Life (years) Rate Volatility dividend option value
------ --------- --------- ----- ----- ------------ --------- ---------- -------- ---------- --------
6/30/2005 34 months 3,600,000 $0.11 $0.12 2.83333 3.77% 381.30% $ -- $ 0.110 $395,477
As a result of the valuation as of June 30, 2005, the Company recorded the
following journal entry to adjust the warrant liability and to recognize the
change in the fair value of warrant 05.006:
Debit Credit
-------------- --------------
Warrant liability 72,348
Gain on value of derivative liabilities 72,348
To record change in value of warrant 05.006 for second quarter of 2005
At September 30, 2005, the major assumptions and valuation of warrant 05.006
were as follows:
# of Stock Strike Expected Risk Free Annual Value per Option
Date Term options price price Life (years) Rate (6) Volatility dividend option value
------ --------- --------- ----- ----- ------------ --------- ---------- -------- ---------- --------
9/30/2005 31 months 3,600,000 $0.08 $0.12 2.58333 4.08% 327.90% $ -- $ 0.079 $285,187
As a result of the valuation as of June 30, 2005, the Company recorded the
following journal entry to adjust the warrant liability and recognize the change
in the fair value of warrant 05.006:
Debit Credit
-------------- --------------
Warrant liability 110,290
Gain on value of derivative liabilities 110,290
To record change in value of warrant 05.006 for third quarter of 2005
In addition, on September 30, 2005, the stockholder partially exercised warrants
for the purchase of 583,334 shares of the Company's common stock. The Company
received $70,000 in cash from the stockholder and recorded a stock subscription
for the same amount. The value of the warrants exercised was determined using
the value of the warrants as of September 30, 2005. Accordingly, the Company
made the following journal entry to relieve the warrant liability for the
partial exercise of the warrant:
Debit Credit
-------------- --------------
Warrant liability 46,211
Additional Paid-In Capital 46,211
To record the partial exercise of warrant 05.006 (583,334 shares)
As a result of the partial exercise, the value of warrant 05.006 as of September
30, 2005 was $238,976.
- --------------------
(6) Average of two and three year US Treasury Note rates
B-3
The major assumptions and valuation of warrant 05.006, at December 31, 2005,
were as follows:
# of Stock Strike Expected Risk Free Annual Value per Option
Date Term options price price Life (years) Rate Volatility dividend option value
------ --------- --------- ------ ----- ------------ --------- ---------- -------- ---------- --------
12/31/2005 28 months 3,016,666 $0.085 $0.12 2.33333 4.08% 319.30% $ -- $ 0.084 $252,135
As a result of the valuation as of December 31, 2005, the Company recorded the
following journal entry to adjust the warrant liability and recognize the change
in the fair value of warrant 05.006:
Debit Credit
-------------- --------------
Loss of value of derivative liability 13,159
Warrant liability 13,159
To record change in value of warrant 05.006 for fourth quarter of 2005
As a result of all the aforementioned activity, the effect to the Company's 2005
financial statements was to reduce the net loss of the Company for the year
ended December 31, 2005 by $62,410 and to increase liabilities as of December
31, 2005 by $252,135 and reduce stockholders' equity as of December 31, 2005 by
$314,545.
B-4
BRIGHTEC, INC. (formerly Advanced Lumitech)
APPENDIX C - COMMENT 6
On January 27, 2006, the Company issued warrant 06.007 for the purchase of
2,000,000 shares of the Company's common stock in conjunction with, and in
exchange for, the purchase of shares of the Company's common stock. Since, as of
the grant date of the warrant, the Company did not have control of its
settlement due to the fact that the Company did not have sufficient authorized
and un-issued shares of common stock to effect such settlement, the fair value
of the warrant determined as of the grant date required liability recognition in
the Company's financial statements. The fair value of the warrant liability is
required to be measured at the end of every reporting, with the changes in fair
value reported reflected in income as gains (or losses, as applicable) on the
value of derivative liabilities.
The major assumptions and valuation of warrant 06.007 on January 27, 2006 were
as follows:
# of Stock Strike Expected Risk Free Annual Value per Option
Date Term options price price Life (years) Rate Volatility dividend option value
------ --------- --------- ------ ----- ------------ --------- ---------- -------- ---------- --------
01/27/2006 36 months 2,000,000 $0.05 $0.12 3.00000 4.46% 306.80% $ -- $ 0.049 $ 98,865
On January 27, 2006, the journal entry to record the warrant liability, at its
fair value, pursuant to paragraph 19 of EITF 00-19 and recognize the fair value
of warrant 06.007 was as follows:
Debit Credit
-------------- --------------
Additional Paid-In Capital 98,865
Warrant liability 98,865
To record issuance of warrant 06.007
The Company is required to revalue the warrant obligation at the end of every
reporting period. The major assumptions and valuation of warrant 06.007 as of
March 31, 2006 were as follows:
# of Stock Strike Expected Risk Free Annual Value per Option
Date Term options price price Life (years) Rate Volatility dividend option value
------ --------- --------- ------ ----- ------------ --------- ---------- -------- ---------- --------
3/31/2006 34 months 2,000,000 $0.05 $0.12 2.83333 4.46% 310.30% $ -- $ 0.049 $ 98,698
As a result of the valuation as of March 31, 2006, the Company recorded the
following journal entry to adjust the warrant liability and recognize the change
in the fair value of warrant 06.007:
Debit Credit
-------------- --------------
Warrant liability 167
Gain on value of derivative liabilities 167
To record change in fair value of warrant 06.007 as of March 31, 2006
On March 19, 2006, the Company issued warrant 06.008. The major assumptions and
valuation of warrant 06.008 were as follows:
# of Stock Strike Expected Risk Free Annual Value per Option
Date Term options price price Life (years) Rate Volatility dividend option value
------ --------- --------- ------ ----- ------------ --------- ---------- -------- ---------- --------
03/19/2006 12 months 416,667 $0.09 $0.12 1.00000 4.74% 125.50% $ -- $ 0.037 $ 15,219
As a result of the revaluation, the journal entry to adjust the warrant
liability and the fair value of warrant 06.008 were as follows:
Debit Credit
-------------- --------------
Additional Paid-In Capital 15,219
Warrant liability 15,219
To record issuance of warrant 06.008
C-1
BRIGHTEC, INC. (formerly Advanced Lumitech)
APPENDIX C - COMMENT 6 (continued)
The Company is required to revalue the warrant obligation at the end of every
reporting period. The major assumptions and valuation of warrant 06.008 as of
March 31, 2006 were as follows:
# of Stock Strike Expected Risk Free Annual Value per Option
Date Term options price price Life (years) Rate Volatility dividend option value
------ --------- --------- ------ ----- ------------ --------- ---------- -------- ---------- --------
3/31/2006 352 days 416,667 $0.05 $0.12 0.96438 4.77% 111.80% $ -- $0.010 $ 4,121
As a result of the revaluation, the journal entry to adjust the warrant
liability and the fair value of warrant 06.008 were as follows:
Debit Credit
-------------- --------------
Warrant liability 11,008
Gain on value of derivative liabilities 11,008
To record issuance of warrant 06.008
As a result of all the aforementioned activity, the effect to the Company's
financial statements as and for the three month period ended March 31, 2006 was
to reduce the net loss of the Company by $11,175, increase liabilities by
$11,175 and reduce stockholders' equity by $114,084. This does not include the
activity related to the warrants issued in 2005 that have not been exercised
through March 31, 2006.
C-2
BRIGHTEC, INC. (formerly Advanced Lumitech)
APPENDIX D - ADDITIONAL INFORMATION
On December 22, 2004, the Company entered into a Redemption Agreement with its
president, a stockholder of the Company, to redeem 77,620 shares of the
Company's common stock, to be reissued to, in conjunction with other outstanding
shares, various investors and creditors in satisfaction of various outstanding
stock subscriptions and settlements reached to be paid in shares of the
Company's common stock.
The Company valued the redemption at the average of the opening and closing
trading prices of the Company's common stock on the date of the redemption,
December 22, 2004, as follows:
OPEN CLOSE AVERAGE
- -------------------- -------------------- --------------------
$ 0.17 $ 0.17 $ 0.17
x # of shares redeemed 77,620
--------------------
Fair value of shares
on redemption date $ 13,195
====================
The journal entry recorded by the Company on December 22, 2004 to recognize the
liability for the redemption was as follows:
DEBIT CREDIT
-------------- --------------
Additional Paid-In Capital 13,195
Liability to stockholder for
shares redeemed 13,195
To record liability to shareholder for shares redeemed on December 22, 2004
As of December 31, 2004, the liability to the stockholder for 77,620 shares
redeemed was $13,195. There were no redemptions during the three months ended
March 31, 2005, therefore, as of March 31, 2005 the liability to stockholders
for shares redeemed remained at $13,195.
On April 6, 2005, the Company entered into a Redemption Agreement with a
director/stockholder of the Company, to redeem 15,767,145 shares of the
Company's common stock, to be reissued to various investors and creditors in
satisfaction of various outstanding stock subscriptions and settlements reached
to be paid in shares of the Company's common stock.
The Company valued the redemption at the average of the opening and closing
trading prices of the Company's common stock on the date of the redemption,
April 6, 2005, as follows:
OPEN CLOSE AVERAGE
- -------------------- -------------------- --------------------
$ 0.155 $ 0.155 $ 0.155
x # of shares redeemed 15,767,145
--------------------
Fair value of shares
on redemption date $ 2,443,907
====================
The journal entry recorded by the Company on April 6, 2005 to recognize the
liability for the redemption was as follows:
DEBIT CREDIT
-------------- --------------
Additional Paid-In Capital 2,443,907
Liability to stockholder for
shares redeemed 2,443,907
To record liability to shareholder for shares redeemed on April 6, 2005
As of June 30, 2005, the liability to stockholders for 15,884,765 shares
redeemed was $2,457,102.
D-1
BRIGHTEC, INC. (formerly Advanced Lumitech)
APPENDIX D - ADDITIONAL INFORMATION (continued)
On August 23, 2005, the Company entered into a Redemption Agreement with a
stockholder who is a former director of the Company (and also the brother of the
Company's president), to redeem 583,334 shares of the Company's common stock, to
be reissued to various investors and creditors in satisfaction of various
outstanding stock subscriptions and settlements reached to be paid in shares of
the Company's common stock.
The Company valued the redemption at the average of the opening and closing
trading prices of the Company's common stock on the date of the redemption,
August 23, 2005, as follows:
OPEN CLOSE AVERAGE
- -------------------- -------------------- --------------------
$ 0.10 $ 0.13 $ 0.115
x # of shares redeemed 583,334
--------------------
Fair value of shares
on redemption date $ 67,083
====================
The journal entry recorded by the Company on August 23, 2005 to recognize the
liability for the redemption was as follows:
DEBIT CREDIT
-------------- --------------
Additional Paid-In Capital 67,083
Liability to stockholder
for shares redeemed 67,083
To record liability to shareholder for shares redeemed on August 23, 2005
As of September 30, 2005, the liability to stockholders for 16,428,099 shares
redeemed was $2,524,186.
On December 21, 2005, the Company entered into a Redemption Agreement with the
same stockholder/director of the Company to redeem 500,000 shares of the
Company's common stock, to be reissued to various investors and creditors in
satisfaction of various outstanding stock subscriptions and settlements reached
to be paid in shares of the Company's common stock.
The Company valued the redemption at the average of the opening and closing
trading prices of the Company's common stock on the date of the redemption,
December 21, 2005, as follows:
OPEN CLOSE AVERAGE
- -------------------- -------------------- --------------------
$ 0.06 $ 0.06 $ 0.06
x # of shares redeemed 500,000
--------------------
Fair value of shares
on redemption date $ 30,000
====================
The journal entry recorded by the Company on August 23, 2005 to recognize the
liability for the redemption was as follows:
DEBIT CREDIT
-------------- --------------
Additional Paid-In Capital 30,000
Liability to stockholder
for shares redeemed 30,000
To record liability to shareholder for shares redeemed on December 21, 2005
As of December 31, 2005, the liability to stockholders for 16,928,099 shares
redeemed was $2,554,186.
D-2
BRIGHTEC, INC. (formerly Advanced Lumitech)
APPENDIX D - ADDITIONAL INFORMATION (continued)
On January 27, 2006, the Company entered into a Redemption Agreement with the
same stockholder who is a former director of the Company (the brother of the
Company's president) to redeem 195,834 shares of the Company's common stock, to
be reissued to various investors and creditors in satisfaction of various
outstanding stock subscriptions and settlements reached to be paid in shares of
the Company's common stock.
The Company valued the redemption at the average of the opening and closing
trading prices of the Company's common stock on the date of the redemption,
January 27, 2006, as follows:
OPEN CLOSE AVERAGE
- -------------------- -------------------- --------------------
$ 0.09 $ 0.05 $ 0.07
x # of shares redeemed 195,834
--------------------
Fair value of shares
on redemption date $ 13,708
====================
The journal entry recorded by the Company on January 27, 2006 to recognize the
liability for the redemption was as follows:
DEBIT CREDIT
-------------- --------------
Additional Paid-In Capital 13,708
Liability to stockholder
for shares redeemed 13,708
To record liability to shareholder for shares redeemed on January 27, 2006
As of March 31, 2006, the liability to stockholders for 17,123,933 shares
redeemed was $2,567,895.
D-3