Brightec, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - OPERATIONS
Brightec, Inc. (formerly Advanced Lumitech, Inc.) ("BRTE" or the "Company")
develops and markets luminescent films incorporating luminescent or
phosphorescent pigments (the "Luminescent Product"). These pigments absorb and
re-emit visible light producing a "glow" which accounts for the common
terminology "glow in the dark." The Company's anticipates that its 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. 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 September 30, 2006 Interim Consolidated Financial Statements
On May 9, 2007, the Company amended its Quarterly Report on Form 10-QSB for the
period September 30, 2006, as previously filed on November 20, 2006.
The Company determined that the stock redemption agreements between the Company
and certain stockholders were improperly marked-to-market, with the changes in
the fair value improperly reported as gains or losses in fair value of
derivative liabilities on the Company's statement of operations. As a result,
the Company increased its liability to stockholders for shares redeemed by
$1,296,098, increased additional paid-in capital by $55,745 and increased
accumulated deficit by $1,326,842 to reverse the net gains recognized resulting
from mark-to market adjustments prior to January 1, 2006. For the three and nine
month periods ending September 30, 2006, the Company reversed recognized gains
of $0 and $133,155, respectively.
The effect of these restatements was to decrease net income by $0 (less than
$0.01 per share) and $133,155 (less than $0.01 per share) for the three and nine
month periods ended September 30, 2006, respectively.
NOTE 2 - INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements at September 30,
2007 and for the three and nine month periods ended September 30, 2007 and 2006,
respectively, include the accounts of the Company and its wholly-owned Swiss
subsidiary, Brightec S.A. (the "Subsidiary"). All inter-company transactions and
balances have been eliminated in consolidation. In our opinion, these unaudited
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements included in our Annual Report on Form
10-KSB for the year ended December 31, 2006 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 consolidated financial statements should
be read in conjunction with the audited consolidated financial statements
included in our Annual Report on Form 10-KSB for the year ended December 31,
2006.
NOTE 3 - LIQUIDITY, MANAGEMENT PLANS AND GOING CONCERN
The Company has a working capital deficit of $1,358,163, an accumulated deficit
of $14,083,770 at September 30, 2007 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 2007 calendar
year; however, there can be no assurances that such financing can be obtained.
Accordingly, management believes that no adjustments or reclassifications of
recorded assets and liabilities are necessary at this time.
7
Brightec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - continued
(Unaudited)
NOTE 3 - LIQUIDITY, MANAGEMENT PLANS AND GOING CONCERN - continued
On March 30, 2007 (the "Closing Date"), the Company entered into a Standby
Equity Distribution Agreement (the "SEDA") with Cornell Capital Partners, LP
("Cornell") pursuant to which the Company may, at its discretion and under
certain circumstances, periodically sell to Cornell shares of its common stock,
par value $0.001 per share (the "Common Stock") for a total purchase price of up
to $10,000,000. See NOTE 12 - COMMON STOCK - STANDBY EQUITY DISTRIBUTION
AGREEMENT.
NOTE 4 - EARNINGS (LOSS) PER SHARE
The Company computes earnings or loss per share in accordance with Statement of
Financial Accounting Standard 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:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------------- -----------------------------
2007 2006 2007 2006
------------ ------------ ------------ -------------
Warrants (weighted average) 6,320,832 6,737,499 6,366,925 4,910,179
============ ============ ============ ============
Convertible line of credit (weighted average) 5,416,667 4,201,739 5,416,667 1,590,354
============ ============ ============ ============
Stock options (weighted average) 23,847,183 1,628,016 24,586,915 548,635
============ ============ ============ ============
|
NOTE 5 - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
value and consist of the following at September 30, 2007:
Raw materials $ 41,257
Work in process 136,014
Finished goods 74,926
------------
$ 252,197
============
|
NOTE 6 - DEFERRED FINANCING EXPENSES
In connection with the Loan and Security Agreement (the "Loan and Security
Agreement") entered into on June 8, 2006 between the Company and Ross/Fialkow
Capital Partners, LLC ("Ross/Fialkow"), Trustee of Brightec Capital Trust (see
NOTE 11 - LINE OF CREDIT), the Company agreed to pay a commitment fee of $37,500
to Ross/Fialkow and issued a warrant to Ross/Fialkow to purchase 1,500,000
shares of the Company's common stock at an exercise price of $0.12 per share.
The warrant was valued at $68,985 using the Black/Scholes method of valuing
options and warrants. These amounts are being amortized over the term of the
Loan and Security Agreement (twelve months). As of September 30, 2007, the full
amount of the deferred financing expenses had been amortized. Amortization
expense related to the deferred financing expenses, for the three and nine month
periods ended September 30, 2007 and 2006 was $0 and $26,621, $44,369 and
$35,495, respectively.
NOTE 7 - INCOME TAXES
The Company has not calculated the tax benefits of its net operating losses as
of September 30, 2007 and December 31, 2006 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, if permitted by statute. 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.
8
Brightec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - continued
(Unaudited)
NOTE 8 - RELATED PARTY TRANSACTIONS
NOTE RECEIVABLE - RELATED PARTY
As of December 31, 2006, a note was receivable from the Company's president, who
is also a director and stockholder. The note, due no later than December 31,
2011, bore interest at a fixed rate of 5.05% and was full-recourse. Interest on
the note was accrued quarterly and due annually. During the nine month period
ended September 30, 2007, the entire outstanding balance of $10,993 plus accrued
interest was paid in full. The Company recognized interest income of $0, $3,148,
$37, $6,261 for each of the three and nine month periods ended September 30,
2007 and 2006, respectively.
ADVANCES FROM RELATED PARTY
During the six month period ended June 30, 2007, the Company's president made
advances to the Company of $590,000, of which $11,030 was used to repay the
aforementioned note receivable from him. The Company did not repay any of the
outstanding advances. On June 18, 2007, the Company repaid $210,000 of the
outstanding advances through the issuance of 7,000,000 shares of the Company's
common stock at a price of $0.03 per share, the closing price of the Company's
common stock on that date. During the three month period ended September 30,
2007, he made additional advances to the Company of $212,400. Of those proceeds,
$8,220 was used to pay certain payroll taxes on $150,000 of non-cash
compensation received (5,000,000 shares of common stock issued on June 18, 2007
at $0.03 per share) which would customarily be withheld from his salary had it
been in the form of cash. As of September 30, 2007, the Company owed its
president $573,150.
All such aforementioned advances bear interest at the Internal Revenue Service
short term "Applicable Federal Rate" (4.71% at September 30, 2007) calculated
and accrued monthly. For the three and nine month periods ended September 30,
2007 and 2006, the Company incurred $5,512, $375, $10,390 and $7,095 of interest
expense on the outstanding advances.
CONSULTING CONTRACT
On September 11, 2007, the Company issued 2,000,000 shares of common stock,
valued at $60,000, as consideration for a two year consulting contract with a
significant stockholder. These shares were issued at $0.03 per share, the
closing price of the Company's common stock on the aforementioned date. For each
of the three and nine month periods ending September 30, 2007, the Company
recognized an expense of $1,642, which is recorded as stock based compensation
in the statement of operations.
NOTE 9 - LINE OF CREDIT
On June 8, 2006, the Company entered into the Loan and Security Agreement with
Ross/Fialkow, in the amount of $750,000. On June 27, 2007, the expiration date
of the Loan and Security Agreement, originally July 15, 2007, was extended until
December 31, 2007. The Company incurred a $5,000 renewal fee for the extension.
Advances from the line of credit bear interest at 20% per annum. The principal
amount of the loan plus accrued but unpaid interest, if any, is convertible at
any time prior to payment at the election of Ross/Fialkow, into the Company's
common stock at the rate of $0.12 per share. Such shares carry piggy-back
registration rights. All assets of the Company have been pledged, including the
assets of the Subsidiary.
At December 31, 2006, the Company was not in compliance with the terms of the
Loan and Security Agreement as it did not file a registration statement (the
"Registration Statement") by December 31, 2006. On March 15, 2007, the Loan and
Security Agreement was amended as follows:
1. The due date of the agreement was extended to July 15, 2007.
2. The date by which the Company was required to file the
Registration Statement on Form S-1 (or SB-2), covering the
underlying shares of common stock to potentially be issued
upon conversion, was extended to July 15, 2007.
The Company filed the required Registration Statement on Form SB-2 with the SEC
on July 6, 2007. On July 25, 2007, the Company received a comment letter from
the SEC regarding the Registration Statement. The Company is currently
9
Brightec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - continued
(Unaudited)
NOTE 9 - LINE OF CREDIT - continued
preparing its response to the SEC and anticipating filing an amended
Registration Statement to address the comments in the SEC's letter.
As of September 30, 2007, the outstanding balance of the line of credit was
$650,000. Interest expense related to the line of credit, for the three and nine
month periods ended September 30, 2007 and 2006 was to $33,222, $23,917, $99,362
and $22,946, respectively.
NOTE 10 - ACCRUED LIABILITIES
At September 30, 2007, the balance of accrued liabilities consisted of the
following:
Executive officer compensation $ 150,000
Professional fees 70,901
Employee compensation 40,000
Payroll and other taxes 596
Interest (including related party
interest of $10,390) 21,223
Other 225
------------
$ 282,945
============
|
NOTE 11 - WARRANT LIABILITY
Prior to September 25, 2006, the Company had issued all of its shares of
authorized common stock. As a result, the value of warrants issued had to be
recognized as a liability pursuant to Emerging Issues Task Force 00-19,
"Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock." The Company was required to re-value 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. For the three and nine
month periods ended September 30, 2006, the Company recognized a gain (loss) on
the value of derivative liabilities of $(162,545) and $72,942, respectively.
On September 25, 2006, at a special meeting of the Company's stockholders, the
stockholders voted to increase the number of authorized shares of common stock
from 100 million to 245 million. This resulted in the elimination of the
requirement to classify the value of the warrants as a liability. From the date
of the various issuances through September 25, 2006, the Company valued the
warrants at the end of each reporting period.
NOTE 12 - CAPITAL STOCK
NUMBER OF SHARES OF COMMON STOCK AUTHORIZED, ISSUED AND OUTSTANDING
Under the Company's charter, 245,000,000 shares of $0.001 par value common stock
are authorized. As of September 30, 2007, 143,142,837 shares of common stock
were issued and outstanding.
PREFERRED STOCK
Five million shares of "blank check" preferred stock are authorized under the
Company's Amended Articles of Incorporation. The terms, rights and features of
the preferred stock will be determined by the Board of Directors upon issuance.
Subject to the provisions of the Company's Certificate of Amendment to its
Articles of Incorporation and the limitations prescribed by law, the Board of
Directors is expressly authorized, at its discretion, to adopt resolutions to
issue shares, to fix the number of shares and to change the number of shares
constituting any series and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, including dividend
rights (including whether the dividends are cumulative), dividend rates, terms
of redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any series of the
preferred stock, in each case without any further action or vote by the
stockholders. The Board of Directors is required to make any determination to
10
Brightec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - continued
(Unaudited)
NOTE 12 - CAPITAL STOCK - continued
PREFERRED STOCK - continued
issue shares of preferred stock based on its judgment as to the best interests
of the Company and its stockholders.
ISSUANCES OF COMMON STOCK
At December 31, 2006, the Company had issued 124,698,935 shares of its common
stock.
On March 30, 2007, the Company issued 4,000,000 shares of common stock, valued
at $164,000, to Cornell as a commitment fee in connection with the signing the
SEDA on the same date. For the three months ended March 31, 2007, the Company
recognized the $164,000 as an offset to additional paid-in capital based on the
market price of $0.041 per share on the aforementioned date.
In addition, on March 30, 2007, the Company issued 243,902 shares of common
stock, valued at $10,000, to Newbridge Securities Corporation ("Newbridge"), as
consideration in connection with the Placement Agent Agreement (the "PAA") of
the same date. For the three months ended March 31, 2007, the Company recognized
the $10,000 as an offset to additional paid-in capital based on the market price
of $0.041 per share on the aforementioned date.
On June 7, 2007, the Company issued 200,000 shares of common stock, valued at
$8,000, under an agreement and in satisfaction of certain marketing and sales
fees. For the three and nine month periods ended September 30, 2007, the Company
recognized the $0 and $8,000, respectively, as selling and marketing expense
based on the market price of $0.04 per share, the market price of the Company's
stock on the date the agreement was reached.
On June 18, 2007, the Company issued 5,000,000 shares of its common stock,
valued at $150,000, to its president as payment for his current year salary
through June 30, 2007 ($75,000) and for unpaid amounts from prior years
($75,000). The number of shares issued to the president was based on the closing
market price of the Company's common stock of $0.03 per share on June 15, 2007,
the date of the Board of Directors' corporate resolution to issue the shares.
On June 18, 2007, the Company also issued 7,000,000 shares of its common stock,
valued at $210,000, to its president as repayment of certain cash advances made
by him to the Company. The number of shares of common stock issued was based on
the closing market price of the Company's common stock of $0.03 per share on
June 15, 2007, the date of the Board of Directors' corporate resolution to issue
the shares.
On September 11, 2007, the Company issued 2,000,000 shares of its common stock,
valued at $60,000, to one of its significant stockholders in satisfaction of
consulting contract entered into on the same date. The number of shares of
common stock issued was based on the closing market price of the Company's
common stock of $0.03 per share on September 11, 2007, the date of the Board of
Directors' corporate resolution to enter into the contract and issue the shares.
As of September 30, 2007, as a result of the aforementioned transactions, the
Company had issued 143,142,837 shares of its common stock.
STANDBY EQUITY DISTRIBUTION AGREEMENT
On the Closing Date, the Company entered into a SEDA with Cornell pursuant to
which the Company may, at its discretion, under certain circumstances (as
described below), periodically sell to Cornell shares of the Common Stock for a
total purchase price of up to $10,000,000. For each share of the Common Stock
purchased under the SEDA, Cornell will pay to the Company ninety-six percent
(96%) of the lowest volume weighted average price (as quoted by Bloomberg, LP)
of the Common Stock during the five (5) consecutive trading days after the
Advance Notice Date (as such term is defined in the SEDA), subject to any
reduction pursuant to the terms therein. On the Closing Date, the Company paid
to Cornell a non-refundable due diligence fee equal to $5,000 and issued
4,000,000 shares of common stock ("Commitment Shares") to Cornell as a
commitment fee, of which 2,000,000 Commitment Shares will have demand
11
Brightec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - continued
(Unaudited)
NOTE 12 - CAPITAL STOCK - continued
STANDBY EQUITY DISTRIBUTION AGREEMENT - continued
registration rights and 2,000,000 Commitment Shares will have "piggy-back"
registration rights. Cornell will retain five percent (5%) of each cash advance
under the SEDA. The Company has paid to Yorkville Advisors, LLC ("Yorkville") a
structuring fee equal to $15,000 on the Closing Date and shall pay $500 to
Yorkville on each Advance Date directly out of the gross proceeds of each
Advance (as such terms are defined in the SEDA). Cornell's obligation to
purchase shares of Common Stock under the SEDA is subject to certain conditions,
including, without limitation: (a) the Company obtaining an effective
registration statement for shares of its Common Stock sold under the SEDA
pursuant to that certain Registration Rights Agreement, dated as of the Closing
Date, by and between the Company and Cornell and (b) the amount for each Advance
as designated by the Company in the applicable Advance Notice shall not be more
than $300,000.
The Company also entered into the PAA, dated as of the Closing Date, by and
between the Company and Newbridge pursuant to which the Company engaged
Newbridge to act as it exclusive placement agent in connection with the SEDA.
Upon the execution of the PAA, the Company issued to Newbridge 243,902 shares
(the "Placement Agent Shares") of the Company's Common Stock. Newbridge is
entitled to "piggy-back" registration rights with respect to the Placement Agent
Shares.
DEFERRED OFFERING COSTS
The Company paid $15,000 to Yorkville for structuring fees, $5,000 to Cornell
for due diligence fees and $85 to record the issuance of the Cornell and
Newbridge shares with the Company's stock transfer agent. As shares of the
Company's common stock cannot be sold to Cornell until the Company files, and
has declared effective, the Registration Statement on Form SB-2, filed with the
SEC on July 6, 2007 (subject to amendment), such costs were deferred. Total
deferred offering costs at September 30, 2007 amounted to $20,085. Such costs
will be offset against equity raised.
ISSUANCES OF WARRANTS
The Company did not issue any warrants during the three or nine month periods
ended September 30, 2007. During the three and nine month periods ended
September 30, 2007, warrants for the purchase of 0 and 416,667 shares of the
Company's common stock expired.
On April 1, 2007 and June 27, 2007, the Company amended three of its previously
issued warrants to extend the exercise period of two warrants and modify the
time period (from 60 days to 61 days) in which the option holder can notify the
Company of his/her desire to exercise the options. Generally accepted accounting
principles requires that when the terms of a previously issued warrant are
modified, the modification is treated as an exchange of the original warrant.
The excess of the value of the warrant on the date the modification is effective
over the value of the warrant on the date immediately preceding the modification
date, if any, is amortized to expense over the remaining vesting period (or
recognized immediately if the warrants are vested 100%).
Accordingly, the fair value of the warrants was estimated on March 31, 2007 and
April 1, 2007 and June 26, 2007 and June 27, 2007 using the Black/Scholes
pricing model using the following assumptions: risk-free rate of return range of
4.56% to 4.91%; no dividend yield; an expected life of approximately 13 months
to 82 months; and a volatility factor ranging from 127.42% to 337.77%. As a
result of the revaluations, the Company recognized financing costs of $128,680.
As of September 30, 2007, the Company has warrants outstanding for the purchase
of 6,320,832 shares of common stock at an exercise price of $0.12 per share.
ISSUANCE OF OPTIONS
The Company did not issue any options during the three and nine month periods
ended September 30, 2007. During the three and nine month periods ended
September 30, 2007, options for the purchase of 4,462,911 and 4,462,911 shares
of the Company's common stock expired.
12
Brightec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - continued
(Unaudited)
NOTE 12 - CAPITAL STOCK - continued
ISSUANCE OF OPTIONS - continued
As of September 30, 2007, the Company has options outstanding for the purchase
of 20,000,000 shares of common stock.
2006 STOCK INCENTIVE PLAN
An aggregate of 50 million shares of common stock are reserved for issuance and
available for awards under the 2006 Plan.
OTHER OPTION GRANTS
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. For accounting purposes, these
options were not deemed granted because the Company did not have a sufficient
number of shares of authorized common stock available to issue upon the exercise
of any of the options.
As previously discussed, on September 25, 2006, at a special meeting of the
Company stockholders, the stockholders approved an increase in the amount of the
Company's authorized shares of common stock from 100 million to 245 million.
Since the required approval has been obtained from the stockholders, the Company
recognized $1,600,000 of stock based compensation for the three and nine month
periods ended September 30, 2006.
NOTE 13 - COMPREHENSIVE INCOME (LOSS)
The Company reports comprehensive income (loss) in addition to net income (loss)
from operations. Comprehensive income (loss) 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
(loss).
NOTE 14 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Stadards Board (the "FASB") issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in income taxes recognized in financial statements in
accordance with FASB No. 109, "Accounting for Income Taxes." FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. The provisions of FIN 48 are effective for fiscal years beginning
after December 15, 2006, with the cumulative effect of the change in accounting
principle recorded as an adjustment to opening retained earnings. The Company is
currently evaluating the impact of adopting FIN 48 and cannot yet determine the
impact of its adoption all of its outstanding federal and state tax reporting
obligations are fulfilled.
In September 2006, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 157, "Fair Value Measurements" ("SFAS 157"), which amends and puts
in one place, guidance on the use of fair value measurements which had been
spread through four Accounting Principles Board Opinions and thirty-seven FASB
Standards. No extensions of the use of fair value measurements are contained in
SFAS 157 and with some special industry exceptions (e.g., broker-dealers), no
significant changes in practice should ensue. SFAS 157 is to be applied to
financial statements beginning after November 15, 2007. The adoption of SFAS 157
is not expected to have a material impact on the financial position or results
of operations of the Company.
In addition, in September 2006, the FASB issued SFAS No. 158, "Employers'
Accounting for Defined Benefit Pension Plans and Other Postretirement Plans - an
amendment of FASB Statements No. 87, 88, 106 and 132(R)" ("SFAS 158"). SFAS 158
requires recognition in the balance sheet of the funded status of pension plans,
rather than footnote disclosure which is current practice. Publicly traded
companies are to reflect the new standard in financial statements ending after
December 15, 2006 and non-public companies are to apply it in statements
13
Brightec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - continued
(Unaudited)
NOTE 14 - RECENT ACCOUNTING PRONOUNCEMENTS - continued
ending after June 15, 2007. As the Company does not maintain a defined benefit
pension plan and has no current plans to do so, SFAS 158 will not have any
current impact on the Company's financial position or results of operations.
In September 2006, the SEC issued Staff Accounting Bulletin ("SAB") No. 108,
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements" ("SAB 108"), to provide
guidance on the consideration of the effects of prior year misstatements in
quantifying current year misstatements for the purpose of a materiality
assessment. Under SAB 108, companies should evaluate a misstatement based on its
impact on the current year income statement, as well as the cumulative effect of
correcting such misstatements that existed in prior years existing in the
current year's ending balance sheet. SAB 108 will become effective for the
Company in its fiscal year ending December 31, 2007. The Company is currently
evaluating the impact of the provisions of SAB 108 on its consolidated financial
statements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 allows
entities the option to measure eligible financial instruments at fair value as
of specified dates. Such election, which may be applied on an instrument by
instrument basis, is typically irrevocable once elected. SFAS 159 is effective
for fiscal years beginning after November 15, 2007, and early application is
allowed under certain circumstances. The Company does not expect the adoption of
SFAS 159 to have a material impact on its consolidated financial position or
results of operations.
14