UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(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
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 033-55254-27
ADVANCED LUMITECH, INC.
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(Name of small business issuer in its charter)
Nevada 87-0438637
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
8C Pleasant Street, First Floor, South Natick, MA 01760
-------------------------------------------------------
(Address of principal executive offices, Zip code)
(508) 647-9710
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value
------------------------------
(Title of class)
Check whether the Company (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the 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, $0.001 par value, issued and
outstanding as of June 27, 2006.
Transitional Small Business Disclosure Format: [ ] Yes [X] No
STATEMENT REGARDING THIS AMENDMENT
The Company is amending its Form 10-QSB for the period March 31, 2006, as
previously filed on June 30, 2006.
A. Subsequent to the issuance of the Company's March 31, 2006 consolidated
financial statements, and based upon a further evaluation of the factors
utilized in determining the accounting and presentation of a December 2004
redemption of certain stockholder's common stock to permit the Company to issue
a like number of shares to other investors that held subscriptions for shares of
common stock, the Company determined that the redemption, and subsequent
redemptions, should have been accounted for as liabilities; not as components of
stockholders' deficit. As a result, as of December 31, 2005, the Company
recognized the liability of $2,554,185 and reduced additional paid-in capital by
$2,554,185. During the three month period ended March 31, 2006, the Company
redeemed an additional 195,834 shares of common stock valued at $13,708. The
Company recognized the liability of $13,708 and reduced additional paid-in
capital by $13,708.
B. The Company determined that subscriptions received for the purchase of the
Company's common stock totaling $470,000, were improperly classified as a
component of stockholders' deficit and should have been recognized as a
liability.
C. The Company revalued certain options issued in 2004 to a former consultant
in satisfaction of claims made against the Company. The Company has now
determined that the measurement date and volatility factor used to value the
options under the Black/Sholes method were incorrect. In 2004, the revaluation
resulted in an increase in additional paid-in capital of $90,524 and an increase
in non-cash consulting expense of $90,524. In 2005, the revaluation resulted in
an increase in the amount of additional paid-in capital and accumulated deficit
of $90,524.
D. The Company determined that warrants issued for the purchase of the Company
common stock, originally classified as a component of stockholders' deficit,
should have been recognized as a liability. As of December 31, 2005, the
Company's liability for outstanding warrants was $252,135. During the three
month period ended March 31, 2006, the Company issued warrants initially valued
at $114,084 and warrants valued at $5,472 were exercised. During the three month
period ended March 31, 2005, the Company issued warrants initially valued at
$82,341. The Company is required to revalue this liability at the end of every
reporting period. Accordingly, for the three months ended March 31, 2006, the
Company reduced the value of the liability and recognized a gain on value of
derivative liabilities of $179,114. For the three months ended March 31, 2005,
the Company increased the value of the liability and recognized a loss on value
of derivative liabilities of $107,069.
E. In April 2005, the Company issued to a stockholder a stock warrant for
3,600,000 shares of common stock as an inducement to exercise other stock
warrants for 3,335,000 shares of common stock with an aggregate exercise price
of $375,000. The new warrants issued were not valued or recorded. The value of
the new warrants was $467,825. As the value of the new warrants was in excess of
the amount received from the exercise of the older warrants, the value of the
new warrants was first applied to additional paid-in capital with the difference
of $92,825 being charged as financing costs.
The effect of these restatements was to increase the net income of the Company
by $179,114 (less than $0.01 per share) for the three months ended March 31,
2006 and increase the net loss of the Company by $107,069 (less than $0.01 per
share) for the three months ended March 31, 2005. At March 31, 2006,
stockholders' deficit was increased by $3,219,526.
Our stockholders should refer to the financial statements and accompanying notes
for a detailed explanation of the adjustments to the financial results of the
Company that are contained in this amended Form 10-QSB/A.
In all other material respects, this amended Quarterly Report on Form 10-QSB/A
is unchanged from the Quarterly Report on Form 10-QSB previously filed by the
Company on June 30, 2006. This amendment should also be read in conjunction with
our amended Quarterly Reports on Form 10-QSB/A for the quarters ended March 31,
2005, June 30, 2005 and September 30, 2005 as well as our amended Annual Reports
on Form 10-KSB/A for the years ended December 31, 2004 and December 31, 2005.
2
INDEX
Page Number
Part I. Financial Information
---------------------
Statement Regarding Amendment 4
Introductory Statement 4 - 5
Item 1. Financial Statements
Consolidated Balance Sheet at March 31, 2006 6
Consolidated Statements of Operations and Accumulated Deficit and
Comprehensive Loss for the Three Months Ended March 31, 2006 and 2005 7
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2006 and 2005 8
Notes to Consolidated Financial Statements 9 - 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15 - 18
Item 3. Controls and Procedures 19
Part II. Other Information
-----------------
Item 1. Legal Proceedings 20
Item 2. Unregistered Sales of Equity and Use of Proceeds 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
Exhibit Index 23
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
Exhibit 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
3
Restatement of March 31, 2006 Consolidated Financial Statements
The Company is amending its Form 10-QSB for the period March 31, 2006, as
previously filed on June 30, 2006.
A. Subsequent to the issuance of the Company's March 31, 2006 consolidated
financial statements, and based upon a further evaluation of the factors
utilized in determining the accounting and presentation of a December 2004
redemption of certain stockholder's common stock to permit the Company to issue
a like number of shares to other investors that held subscriptions for shares of
common stock, the Company determined that the redemption, and subsequent
redemptions, should have been accounted for as liabilities; not as components of
stockholders' deficit. As a result, as of December 31, 2005, the Company
recognized the liability of $2,554,185 and reduced additional paid-in capital by
$2,554,185. During the three month period ended March 31, 2006, the Company
redeemed an additional 195,834 shares of common stock valued at $13,708. The
Company recognized the liability of $13,708 and reduced additional paid-in
capital by $13,708. See Note 10 - Liability to Stockholders for Redeemed Shares.
B. The Company determined that subscriptions received for the purchase of the
Company's common stock totaling $470,000, were improperly classified as a
component of stockholders' deficit and should have been recognized as a
liability. See Note 9 - Liability for Stock Subscriptions Received.
C. The Company revalued certain options issued in 2004 to a former consultant
in satisfaction of claims made against the Company. The Company has now
determined that the measurement date and volatility factor used to value the
options under the Black/Scholes method were incorrect. In 2004, the revaluation
resulted in an increase in additional paid-in capital of $90,524 and an increase
in non-cash consulting expense of $90,524. In 2005, the revaluation resulted in
an increase in the amount of additional paid-in capital and accumulated deficit
of $90,524.
D. The Company determined that warrants issued for the purchase of the Company
common stock, originally classified as a component of stockholders' deficit,
should have been recognized as a liability. As of December 31, 2005, the
Company's liability for outstanding warrants was $252,135. During the three
month period ended March 31, 2006, the Company issued warrants initially valued
at $114,084 and warrants valued at $5,472 were exercised. During the three month
period ended March 31, 2005, the Company issued warrants initially valued at
$82,341. The Company is required to revalue this liability at the end of every
reporting period. Accordingly, for the three months ended March 31, 2006, the
Company reduced the value of the liability and recognized a gain on value of
derivative liabilities of $179,114. For the three months ended March 31, 2005,
the Company increased the value of the liability and recognized a loss on value
of derivative liabilities of $107,069. See Note 8 - Warrant Liability.
E. In April 2005, the Company issued to a stockholder a stock warrant for
3,600,000 shares of common stock as an inducement to exercise other stock
warrants for 3,335,000 shares of common stock with an aggregate exercise price
of $375,000. The new warrants issued were not valued or recorded. The value of
the new warrants was $467,825. As the value of the new warrants was in excess of
the amount received from the exercise of the older warrants, the value of the
new warrants was first applied to additional paid-in capital with the difference
of $92,825 being charged as financing costs. See Note 8 - Warrant Liability and
Note 9 - Liability for Stock Subscriptions Received.
The effect of these restatements was to increase the net income of the Company
by $179,114 (less than $0.01 per share) for the three months ended March 31,
2006 and increase the net loss of the Company by $107,069 (less than $0.01 per
share) for the three months ended March 31, 2005. At March 31, 2006,
stockholders' deficit was increased by $3,219,526.
Note Regarding Forward Looking Statements:
This Form 10-QSB/A and other reports filed by the Company from time to time with
the Securities and Exchange Commission, as well as the Company's press releases,
contain or may contain forward-looking statements, within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The information provided is based upon beliefs of, and information
currently available to, the Company's management, as well as estimates and
assumptions made by the Company's management. The Company is including this
cautionary statement in this Form 10-QSB/A to make applicable and to take
advantage of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 for any forward-looking statements made by or on behalf of
us. Statements that are not statements of historical fact may be deemed to be
forward-looking statements. Forward-looking statements can be identified by the
use of forward-looking terminology such as "believes", "may", "should",
"anticipates", "estimates", "expects", "future", "intends", "hopes", "plans" or
the negative thereof. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that could cause actual results of the
Company to vary
4
Note Regarding Forward Looking Statements: - continued
materially from historical results or from any future results expressed or
implied in such forward-looking statements.
Any statements contained in this Form 10-QSB/A 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 3, Quantitative and Qualitative Disclosures About Market
Risk, 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.
The Company will provide copies of its quarterly and annual reports, including
interim unaudited and audited financial statements to its security holders. We
also file periodic reports with the Securities and Exchange Commission as well
as reports on Form 8-K, proxy or information statements and other reports
required of publicly held reporting companies. The public may read and copy any
materials the Company files with the SEC at the SEC's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC also maintains an Internet site that contains the
reports, proxy and information statements, and other information that the
Company files electronically with the SEC, which is available on the Internet at
www.sec.gov. Further information about the Company and its subsidiaries may be
found at www.brightec.com.
5
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Advanced Lumitech, Inc. and Subsidiary
Consolidated Balance Sheet
March 31, 2006 (As Restated)
(Unaudited)
ASSETS
Current assets
Cash $ 21,172
Inventory 54,128
Prepaid expenses 2,042
------------
TOTAL CURRENT ASSETS 77,342
------------
Office and photographic equipment 23,511
Less accumulated depreciation (23,511)
------------
Office and photographic equipment, net --
------------
Interest receivable from related party 52,329
Note receivable from related party 250,000
------------
302,329
------------
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
Warrant liability 181,633
Liability for stock subscriptions received 470,000
Liability to stockholders for shares redeemed 2,567,893
------------
TOTAL CURRENT LIABILITIES 4,245,051
------------
Stockholders' deficit
Common stock 100,000
Additional paid-in capital 6,528,202
Accumulated deficit (10,693,779)
Accumulated other comprehensive income (loss) 200,197
------------
TOTAL STOCKHOLDERS' DEFICIT (3,865,380)
------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 379,671
============
The accompanying notes are an integral part of these financial statements.
6
Advanced Lumitech, Inc. and Subsidiary
Consolidated Statements of Operations and
Accumulated Deficit and Comprehensive Income (Loss)
(Unaudited)
For the Three Months Ending March 31,
2006 2005
------------- -------------
(As Restated) (As Restated)
Sales $ 3,576 $ 35,442
Cost of sales 1,760 34,103
------------- -------------
Gross profit 1,816 1,339
------------- -------------
Operating expenses
Research and development 22,788 18,594
Selling and marketing 2,466 33,452
General and administrative 78,486 112,295
------------- -------------
103,740 164,341
------------- -------------
Operating loss (101,924) (163,002)
------------- -------------
Other income (expense), net
Gain (loss) on value of derivative liabilities 179,114 (107,069)
Other 2,018 (138)
------------- -------------
181,132 (107,207)
------------- -------------
Net income (loss) 79,208 (270,209)
Accumulated deficit - beginning (10,772,987) (9,999,219)
------------- -------------
Accumulated deficit - ending $ (10,693,779) $ (10,269,428)
============= =============
Basic and diluted income (loss) per share $ -- $ --
============= =============
Basic and diluted weighted average
common shares outstanding 100,000,000 100,000,000
============= =============
COMPREHENSIVE INCOME (LOSS):
Net income (loss) $ 79,208 $ (270,209)
Foreign translation adjustment 3,976 (2,787)
------------- -------------
Comprehensive income (loss) $ 83,184 $ (272,996)
============= =============
The accompanying notes are an integral part of these financial statements.
7
Advanced Lumitech, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended March 31,
2006 2005
-------------- --------------
(As Restated) (As Restated)
Cash flows from operating activities
Net income (loss) $ 79,208 $ (270,209)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Accrued interest on note receivable - related party (1,998) (1,516)
Loss on value of derivative liabilities (179,114) 107,069
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
-------------- --------------
Net cash used for operating activities (94,549) (255,573)
-------------- --------------
Cash flows from financing activities
Cash received for sale of common stock, exercise of
warrants and stock subscribed 118,500 412,000
Repayment of advances from related party (9,200) (32,000)
Principal payments on long-term debt -- (2,593)
Principal payments on note payable - related party -- (50,000)
-------------- --------------
Net cash provided by financing activities 109,300 327,407
-------------- --------------
Effects of changes in foreign exchange rates 3,976 (2,787)
-------------- --------------
Net increase in cash 18,727 69,047
Cash - beginning 2,445 4,310
-------------- --------------
Cash - ending $ 21,172 $ 73,357
============== ==============
Supplemental disclosures of cash flows information:
Cash paid during the period for interest $ -- $ 9,766
============== ==============
Non-cash activities
Liability to stockholder for shares redeemed and
cancelled $ 13,708 $ --
============== ==============
Issuance of warrants relating to private placements $ 114,084 $ 82,341
============== ==============
Exercise of warrants classified as liabilities $ (25,450) $ (27,106)
============== ==============
The accompanying notes are an integral part of these financial statements.
8
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2006 (As Restated)
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.
Restatement of March 31, 2006 Interim Consolidated Financial Statements
The Company is amending its Form 10-QSB for the period March 31, 2006, as
previously filed on June 30, 2006.
A. Subsequent to the issuance of the Company's March 31, 2006 consolidated
financial statements, and based upon a further evaluation of the factors
utilized in determining the accounting and presentation of a December 2004
redemption of certain stockholder's common stock to permit the Company to issue
a like number of shares to other investors that held subscriptions for shares of
common stock, the Company determined that the redemption, and subsequent
redemptions, should have been accounted for as liabilities; not as components of
stockholders' deficit. As a result, as of December 31, 2005, the Company
recognized the liability of $2,554,185 and reduced additional paid-in capital by
$2,554,185. During the three month period ended March 31, 2006, the Company
redeemed an additional 195,834 shares of common stock valued at $13,708. The
Company recognized the liability of $13,708 and reduced additional paid-in
capital by $13,708. See Note 10 - Liability to Stockholders for Redeemed Shares.
B. The Company determined that subscriptions received for the purchase of the
Company's common stock totaling $470,000, were improperly classified as a
component of stockholders' deficit and should have been recognized as a
liability. See Note 9 - Liability for Stock Subscriptions Received.
C. The Company revalued certain options issued in 2004 to a former consultant
in satisfaction of claims made against the Company. The Company has now
determined that the measurement date and volatility factor used to value the
options under the Black/Scholes method were incorrect. In 2004, the revaluation
resulted in an increase in additional paid-in capital of $90,524 and an increase
in non-cash consulting expense of $90,524. In 2005, the revaluation resulted in
an increase in the amount of additional paid-in capital and accumulated deficit
of $90,524.
D. The Company determined that warrants issued for the purchase of the Company
common stock, originally classified as a component of stockholders' deficit,
should have been recognized as a liability. As of December 31, 2005, the
Company's liability for outstanding warrants was $252,135. During the three
month period ended March 31, 2006, the Company issued warrants initially valued
at $114,084 and warrants valued at $5,472 were exercised. During the three month
period ended March 31, 2005, the Company issued warrants initially valued at
$82,341. The Company is required to revalue this liability at the end of every
reporting period. Accordingly, for the three months ended March 31, 2006, the
Company reduced the value of the liability and recognized a gain on value of
derivative liabilities of $179,114. For the three months ended March 31, 2005,
the Company increased the value of the liability and recognized a loss on value
of derivative liabilities of $107,069. See Note 8 - Warrant Liability.
E. In April 2005, the Company issued to a stockholder a stock warrant for
3,600,000 shares of common stock as an inducement to exercise other stock
warrants for 3,335,000 shares of common stock with an aggregate exercise price
of $375,000. The new warrants issued were not valued or recorded. The value of
the new warrants was $467,825. As the value of the new warrants was in excess of
the amount received from the exercise of the older warrants, the value of the
new warrants was first applied to additional paid-in capital with the difference
of
9
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2006 (As Restated)
1. OPERATIONS - continued
Restatement of March 31, 2006 Interim Consolidated Financial Statements -
continued
$92,825 being charged as financing costs. See Note 8 - Warrant Liability and
Note 9 - Liability for Stock Subscriptions Received.
The effect of these restatements was to increase the net income of the Company
by $179,114 (less than $0.01 per share) for the three months ended March 31,
2006 and increase the net loss of the Company by $107,069 (less than $0.01 per
share) for the three months ended March 31, 2005. At March 31, 2006,
stockholders' deficit was increased by $3,219,526.
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 and 10-KSB/A 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
and 10-KSB/A for the year ended December 31, 2005.
3. LIQUIDITY, MANAGEMENT PLANS AND GOING CONCERN
The Company has a working capital deficit of $4,167,709 and an accumulated
deficit of $10,693,779 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.
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 anti-dilutive:
(Unaudited) (Unaudited)
March 31, 2006 March 31, 2005
-------------- --------------
(As Restated) (As Restated)
Warrants (weighted average) 4,288,968 --
============== ==============
10
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2006 (As Restated)
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
------------
$ 54,128
============
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.
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. 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. At March 31, 2006, the
Company owed the president $86,772.
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 stockholders have made unsecured, non-interest bearing cash advances to
the Company, without specific repayment terms. As of December 31, 2005, one
stockholder made a cash advance of $8,500. During the three month period ended
March 31, 2006, another stockholder 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 stockholders, included on the balance
sheet under "Advances from related parties" was $27,000.
8. WARRANT LIABILITY
During the quarters ended March 31, 2006 and 2005, the Company issued warrants
initially valued at $114,084 and $82,341, respectively. As the Company had
already issued all of its shares of authorized common stock, the value of the
warrants had to be recognized as a liability pursuant to EITF 00-19, Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock. In addition, warrants valued at $5,472 and $27,106 were
exercised during the quarters ended March 31, 2006 and 2005, respectively.
The Company is required to revalue the warrants at the end of every reporting
period with the change in value reported on the statement of operations as "Gain
(Loss) on Value of Derivative Liabilities" in the period in which the change
occurred. As of March 31, 2006, the value of the remaining balance of
outstanding warrants was $181,633. For the three months ended March 31, 2006 and
2005, the Company recognized a gain (loss) on the value of derivative
liabilities of $179,114 and ($107,069), respectively.
11
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2006 (As Restated)
8. WARRANT LIABILITY - continued
In 2006, the fair value of the warrants was estimated at the date of grant using
the Black/Scholes option pricing model with the following assumptions: risk-free
interest rate of 4.46% to 4.82%; no dividend yield; an expected life of the
options of 25 months to 34 months; and a volatility factor of 111.8% to 310.3%.
In 2005, the fair value of the warrants was estimated at the date of grant using
the Black/Scholes option pricing model with the following assumptions: risk-free
interest rate of 2.34% to 2.79%; no dividend yield; an expected life of 2 to 5
months; and a volatility factor of 41.8%.
9. LIABILITY FOR STOCK SUBSCRIPTIONS RECEIVED
Liability for stock subscribed represents amounts received for equity
investments for which shares of common stock remain unissued at March 31, 2006.
As discussed in Note 1, the Company has determined that subscriptions received
for the purchase of the Company's common stock should have been classified as a
liability; not as a component of stockholders' deficit. When the Company
received the stock subscriptions, it had already issued all of its common shares
authorized under its charter. When a contract (the subscription agreement) is to
be settled in shares of stock and the share settlement is not within the control
of the Company as a result of the Company requiring stockholder approval to
increase the number of authorized shares in order to settle the contract,
liability classification is required.
As of December 31, 2005, the Company had received $375,000 to purchase 3,335,000
shares of common stock. 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.
10. LIABILITY TO STOCKHOLDERS FOR REDEEMED SHARES
In December 2004 and at various times during 2005, the Company's president other
stockholders agreed to allow the Company to redeem shares of their respective
common stock in order to allow the Company to fulfill its obligations to certain
consultants and investors. This was as a result of the Company having already
issued all of its shares of authorized common stock. The agreement states that
the Company will reissue to its president and the other stockholders the same
number of shares redeemed as soon as is reasonably practical and that the
president/stockholder will receive no additional compensation beyond the
re-issuance of the number of shares of common stock redeemed.
As of December 31, 2005, the fair value of the Company's liability to its
stockholders was $2,554,185. During the first quarter of 2006, one of the
stockholders agreed to allow the Company to redeem an additional 195,834 shares
of his common stock, initially valued at $13,708.
As of March 31, 2006, the liability representing the Company's obligation to its
stockholders for the common stock shares redeemed was $2,567,893, which will be
the carrying value. If and when authorized shares are sufficient to reissue the
shares, the amount will be reclassified to additional paid-in capital.
11. COMMON STOCK
Number of Shares of Common Stock Authorized, Issued and Outstanding
Under the Company's charter, 100,000,000 shares of $0.001 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 stockholders to redeem 17,123,933 shares of common stock in order to
permit the Company to issue a like number of shares of
12
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2006 (As Restated)
11. COMMON STOCK - continued
Number of Shares of Common Stock Authorized, Issued and Outstanding - continued
Common Stock to other investors who held subscriptions for shares of Common
Stock. Under the agreement, the stockholders 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 are stock
subscriptions 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.
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 $0.12. 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 $0.12. The warrant expires on March 18, 2007.
See NOTE 8 - WARRANT LIABILITY.
12. 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 stockholder 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.
13
Advanced Lumitech, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
For the Three Months Ended March 31, 2006 (As Restated)
12. STOCK OPTIONS - continued
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.
13. COMPREHENSIVE INCOME
The Company reports comprehensive income (loss) in addition to net income from
operations. Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income.
14. RECENT ACCOUNTING PRONOUNCEMENTS
In February 2006, the FASB issued SFAS Statement No. 155, Accounting for Certain
Hybrid Financial Instruments, which amends SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities 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 instrument. 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.
15. SUBSEQUENT EVENT
In June 2006, the Company entered into a Loan and Security Agreement (the
"Agreement") with Ross/Fialkow Capital Partners LLP, Trustee of Brightec Capital
Trust ("Ross") in the amount of $750,000. Some of the significant terms of the
Agreement are as follows:
1. A credit line of up to $750,000.
2. Principal and accrued interest are due on May 31, 2007, unless extended by
Ross in writing at its sole discretion.
3. At Ross' option to be exercised in writing prior to May 31, 2007, all or any
portion of the loan as may be outstanding as of the date of such exercise
may be converted at any time into common stock at a purchase price of $0.12
per share.
4. There is a commitment fee of five (5%) percent of the credit line ($37,500).
5. Interest on the outstanding balances will be equal to a per annum rate of
twenty (20%) percent, which shall be payable monthly in arrears on the
eighth day of each month, commencing on January 8, 2006.
6. The Company issued a warrant to purchase up to 1,500,000 shares of common
stock at a price of $0.12 per share.
7. The Company has granted a security interest in substantially all of its
assets.
14
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/A and our Annual Report on Form 10-KSB and 10-KSB/A for
the year ended December 31, 2005. This Quarterly Report on Form 10-QSB/A
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, account receivable reserves and inventories, are described in the
Annual Report on Form 10-KSB and 10-KSB/A 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.
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.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
RESULTS OF OPERATIONS - continued
THREE MONTHS ENDED MARCH 31, 2006 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2005 - continued
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 losses 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.
GAIN (LOSS) ON VALUE OF DERIVATIVE LIABILITIES:
Gain (loss) on value of derivative liabilities of $179,114 and ($107,069) for
the three month periods ended March 31, 2006 and 2005, respectively, related to
the warrant liability. The derivative liability is required to be
marked-to-market under accounting principles generally accepted in the United
States. See a further discussion in Note 8 - Warrant Liability and Note 10 -
Liability to Stockholders for Redeemed Shares.
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.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
RESULTS OF OPERATIONS - continued
THREE MONTHS ENDED MARCH 31, 2006 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2005 - continued
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 $4,167,709 compared
to a deficit of $4,150,075 as of December 31, 2005.
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, 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 stockholder.
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 net of
repayments of advances from related parties of $9,200.
In June 2006, the Company entered into a Loan and Security Agreement (the
"Agreement") with RossFialkow Capital Partners LLP, Trustee of Brightec Capital
Trust ("RossFialkow") in the amount of $750,000. Some of the significant terms
of the Agreement are as follows:
1. A credit line of up to $750,000.
2. Principal and accrued interest are due on May 31, 2007, unless extended by
RossFialkow in writing at its sole discretion.
3. At RossFialkow's option to be exercised in writing prior to May 31, 2007,
all or any portion of the loan as may be outstanding as of the date of such
exercise may be converted at any time into common stock at a purchase price
of $0.12 per share.
4. There is a commitment fee of five (5%) percent of the credit line ($37,500).
5. Interest on the outstanding balances will be equal to a per annum rate of
twenty (20%) percent, which shall be payable monthly in arrears on the
eighth day of each month, commencing on June 8, 2006.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued
RESULTS OF OPERATIONS - continued
THREE MONTHS ENDED MARCH 31, 2006 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2005 - continued
LIQUIDITY AND CAPITAL RESOURCES AS OF MARCH 31, 2006 - continued
6. The Company issued a warrant to purchase up to 1,500,000 shares of common
stock at a price of $0.12 per share.
7. The Company has granted a security interest in substantially all of its
assets.
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 $10,693,779. At March 31, 2006, the Company's
current liabilities exceed its current assets by $4,167,709. 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.
18
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.
As of June 30, 2006, the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer, Chief Financial Officer and Treasurer, of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Rule 13a-14 under the Securities and
Exchange of 1934, as amended.
During the calendar years ended December 31, 2004 and 2005, as well as during
the six months ended June 30, 2006, the Company 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 treatment and lack of proper analysis of such transactions by
accounting staff. This weakness resulted in material adjustments proposed by our
independent registered accountants with respect to our financial statements for
our calendar years ended December 31, 2005 and 2004. As a result, the figures
for the three and six months ended March 31, 2006, which are presented in this
document, required restatement from their previous filing. Management believes
this issue to be material and therefore, deemed the design and operation of
internal control in place at December 31, 2004 and 2005 and for the three- and
six months periods ended June 30, 2006, to be ineffective.
In late 2005, the Company hired a CPA to oversee the accounting department and
coordinate the efforts of analysis and dissemination. These efforts include
design changes and related monitoring of the internal control system. While
there has been a tremendous improvement in the internal control system in the
first six months of 2006, the system is still undergoing change in order to
satisfy the requirements of appropriate internal controls. It is management's
intention to address accounting issues on a timely basis, and prevent
misstatement based on errors and/or lack of understanding.
The Company's management and board of directors are fully committed to the
review and evaluation of the procedures and policies designed to assure
effective internal control over financial reporting. It is management's opinion
that this new addition to the internal accounting staff will assist in the
establishment of an effective design and operation of the internal control
system and therefore, improve the quality of future period financial reporting.
19
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 Francois Planche, one of the Company's
stockholders 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
20
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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED LUMITECH, INC.
Date: February 28, 2007 By: /s/ PATRICK PLANCHE
-------------------------------------
Patrick Planche
President and Chief Executive Officer
22
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
23