UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MAY 24, 2004
------------------------
SPECTRE INDUSTRIES, INC.
(Exact Name Of Registrant Specified In Charter)
NEVADA 0-30573 98-0226032
(State Of Incorporation) (COMMISSION FILE NUMBER) (IRS Employer
Identification No.)
45 Parker, Suite A, Irvine, California 92618
(Address Of Principal Executive Offices) (Zip Code)
(949) 855-6688
(Registrant's Telephone Number, Including Area Code)
-----------------------------------------------------------------
(Former Name or Former Address, is Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
The financial statements required by this item 9.01(a) are set forth at
the end of this filing.
(b) Pro Forma Financial Statements None.
(c) Exhibits None
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SPECTRE INDUSTRIES, INC.
Date: October 1, 2004 By
---------------------------------------
Name: Michael Young
Title: Chief Executive Officer
3
ADVANCED CUSTOM SENSORS, INC.
CONTENTS
PAGE 1 INDEPENDENT AUDITORS' REPORT
PAGE 2 BALANCE SHEETS AS OF DECEMBER 31, 2003 AND 2002
PAGE 3 STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 2003 AND 2002
PAGE 4 STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY) FOR THE YEARS ENDED DECEMBER 31,
2003 AND 2002
PAGE 5 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2003 AND 2002
PAGES 6 - 17 NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31,
2003 AND 2002
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Advanced Custom Sensors, Inc.
We have audited the accompanying balance sheets of Advanced Custom Sensors, Inc.
as of December 31, 2003 and 2002, and the related statements of operations,
change in stockholders' equity (deficiency), and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Custom Sensors, Inc.
as of December 31, 2003 and 2002, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company suffered a loss of $961,355 and utilized cash
in operating activities of $501,699 for the year ended December 31, 2003, and
has a working capital deficiency of $584,950 and a stockholders' deficiency of
$151,489 as of December 31, 2003, that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton , Florida
August 25, 2004
ADVANCED CUSTOM SENSORS, INC.
BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
ASSETS
2003 2002
----------- -----------
CURRENT ASSETS
Cash $ 10,712 $ 5,716
Accounts receivable 67,538 43,479
Inventories, net 199,532 168,199
Prepaid expenses and other current assets 4,107 106
----------- -----------
Total Current Assets 281,889 217,500
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $367,177 and $253,250,
respectively 379,349 491,987
INVESTMENT IN AFFILIATED ENTITY -- --
OTHER ASSETS 54,112 54,112
----------- -----------
$ 715,350 $ 763,599
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 362,633 $ 174,068
Lines of credit 132,984 --
Due to investors 259,890 --
Notes payable to related party 111,332 190,665
Due to vendor -- 160,000
----------- -----------
Total Current Liabilities 866,839 524,733
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock, no par value, 10,000,000 shares authorized, 1,788,195 and 1,711,043
issued and outstanding in 2003 and 2002, respectively 3,639,513 3,433,679
Treasury stock, 9,900 shares, at cost (10,000) (10,000)
Additional paid-in capital 585,936 198,000
Deferred compensation (220,770) (198,000)
Accumulated deficit (4,146,168) (3,184,813)
----------- -----------
Total Stockholders' Equity (Deficiency) (151,489) 238,866
----------- -----------
$ 715,350 $ 763,599
=========== ===========
See accompanying notes to financial statements.
4
ADVANCED CUSTOM SENSORS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
----------- -----------
REVENUE $ 436,071 $ 423,177
COST OF SALES 401,697 348,905
----------- -----------
GROSS PROFIT 34,374 74,272
OPERATING EXPENSES 995,987 667,130
----------- -----------
LOSS FROM OPERATIONS (961,613) (592,858)
----------- -----------
OTHER INCOME (LOSS)
Interest income 7 2,283
Other income 251 --
Gain on sale of equipment -- 67,000
Loss from investment in affiliated entity -- (142,000)
----------- -----------
Total Other Income (Loss) 258 (72,717)
----------- -----------
NET LOSS $ (961,355) $ (665,575)
=========== ===========
Loss per common share:
Basic and diluted $ (0.56) $ (0.39)
=========== ===========
Weighted average common and
dilutive common equivalent shares outstanding:
Basic and diluted 1,727,116 1,711,043
=========== ===========
See accompanying notes to financial statements.
5
ADVANCED CUSTOM SENSORS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Additional
Common Stock Treasury Paid-in Deferred Accumulated
Shares Amount Stock Capital Compensation Deficit Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, January
1, 2002 1,711,043 $ 3,433,679 $ (10,000) $ -- $ -- $(2,519,238) $ 904,441
Issuance of stock
options -- -- -- 198,000 (198,000) -- --
Net loss for the
year -- -- -- -- -- (665,575) (665,575)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December
31, 2002 1,711,043 3,433,679 (10,000) 198,000 (198,000) (3,184,813) 238,866
Issuance of stock
for settlement of
amount due to
vendor 54,235 160,000 -- -- -- -- 160,000
Issuance of stock
for settlement of
accounts payable 22,917 45,834 -- -- -- -- 45,834
Intrinsic value of
common stock
warrants issued
with note payables
-- -- -- 315,666 -- -- 315,666
Issuance of stock
options -- -- -- 72,270 (72,270) -- --
Amortization of
deferred
compensation -- -- -- -- 49,500 -- 49,500
Net loss for the
year -- -- -- -- -- (961,355) (961,355)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE,
December 31,
2003 1,788,195 $ 3,639,513 $ (10,000) $ 585,936 $ (220,770) $(4,146,168) $ (151,489)
=========== =========== =========== =========== =========== =========== ===========
See accompanying notes to financial statements.
6
ADVANCED CUSTOM SENSORS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(961,355) $(665,575)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 113,927 73,784
Amortization of discount cost on notes payable 121,223 --
Amortization of deferred compensation 49,500 --
Loss on investment in affiliated entity -- 142,000
Changes in operating assets and liabilities:
Accounts receivable (24,059) (21,634)
Inventories, net (31,333) 40,118
Prepaid expenses and other current assets (4,001) 5,511
Accounts payable and accrued expenses 234,399 (35,697)
--------- ---------
Net Cash Used In Operating Activities (501,699) (461,493)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,289) (355,543)
Increase in other assets -- (50,000)
--------- ---------
Net Cash Used In Investing Activities (1,289) (405,543)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Lines of credit 132,984 --
Proceeds from investors 275,000 --
Increase in credit facility from vendor -- 160,000
Proceeds from related party 100,000 190,665
--------- ---------
Net Cash Provided By Financing Activities 507,984 350,665
--------- ---------
NET INCREASE (DECREASE) IN CASH 4,996 (516,371)
CASH - BEGINNING OF YEAR 5,716 522,087
--------- ---------
CASH - END OF YEAR $ 10,712 $ 5,716
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 7,175 $ --
========= =========
Taxes $ 800 $ 800
========= =========
NON CASH FINANCING ACTIVITIES
Issuance of stock for settlement of amount due to vendor $ 160,000 $ --
Issuance of stock for settlement of accounts payable 45,834 --
Intrinsic value of common stock warrants issued with notes payable 316,666 --
Issuance of stock options 72,270 198,000
See accompanying notes to financial statements.
7
ADVANCED CUSTOM SENSORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Organization and Description of Business
Advanced Custom Sensors Inc. (the Company) was incorporated in the State of
California on June 21, 1996. The Company is a manufacturer and assembler of
sensors and micro systems, and its products include thin film sensors, thin
film pressure sensors and micro-machined pressure sensors, and micro
systems that may include sensors, signal conditioning circuits, LCD
display, computer interface and molded housing specifically designed to the
customers needs.
(B) Basis of Presentation
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America,
which contemplate continuation of the Company as a going concern. However,
for the year ended December 31, 2003, the Company suffered a loss of
$961,355 and utilized cash in operating activities of $501,699, and has a
working capital deficiency of $584,950 and a stockholders' equity
deficiency of $151,489 as of December 31, 2003. These factors raise
substantial doubt about the Company's ability to continue as a going
concern. Without realization of additional capital, it would be unlikely
for the Company to continue as a going concern. These financial statements
do not include any adjustments relating to the recoverability and
classification of recorded asset amounts, or amounts and classification of
liabilities that might result from this uncertainty.
Management believes that actions are presently being taken to revise the
Company's operating and financial requirements in order to improve the
Company's financial position and operating results. However, given the
levels of its cash resources and working capital deficiency at December 31,
2003, management believes cash to be generated by operations will not be
sufficient to meet anticipated cash requirements for operations, working
capital, and capital expenditures during 2004. The Company completed a
reverse merger on May 20, 2004, with Spectre Industries, Inc., a public
company, to gain access to the United States and European capital markets,
but there can be no assurances that the Company will ultimately be
successful in this regard.
(C) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
8
ADVANCED CUSTOM SENSORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
(D) Revenue Recognition
The Company recognizes revenue when goods are shipped and invoiced to the
customer.
(E) Concentration of Credit Risk
The Company's financial instruments that are exposed to concentrations of
credit risk consist principally of cash and trade receivables. The Company
places its cash in what it believes to be credit-worthy financial
institutions. However, cash balances may have exceeded federally insured
levels at various times during the year. The Company has not experienced
any losses in such accounts and believes it is not exposed to any
significant risk in cash. The Company's trade receivables result primarily
from the sale of its products, and the concentration of credit risk
includes a customer base located throughout North America and Asia.
The Company had two customers in 2003 and two customers in 2002 that
accounted for 33% and 44% of sales in the years ended December 31, 2003 and
2002, respectively. Approximately 90% and 10% of the Company's sales in the
year ended December 31, 2003 were to customers in North America and other
geographic areas, and 90% and 10% in the year ended December 31, 2002,
respectively.
(F) Inventories
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
(G) Property and Equipment
Property and equipment is stated at cost. Depreciation is provided at the
time property and equipment is placed in service using the straight-line
method over the estimated useful lives of the assets, which range from
three to seven years.
(H) Income Taxes
The Company accounts for income taxes using the asset and liability method
whereby deferred income taxes are recognized for the tax consequences of
temporary differences by applying statutory tax rates applicable to future
years to the differences between the financial statement carrying amounts
and the tax bases of certain assets and liabilities. Changes in deferred
tax assets and liabilities include the impact of any tax rate changes
enacted during the year.
(I) Fair Value of Financial Instruments
9
ADVANCED CUSTOM SENSORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
The Company believes that the carrying value of its cash, accounts
receivable, accounts payable, accrued liabilities, line of credit, due to
investors, and notes payable to related party as of December 31, 2003
approximates their respective fair values due to the demand or short-term
nature of those instruments.
(J)Reclassifications
The Company has reclassified certain accounts in the prior year financial
statements to conform with the presentation of the current year financial
statements.
(K) Stock Based Compensation
As described in Note 13, the Company has elected to follow Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," for stock-based compensation and to furnish the pro forma
disclosures required under Statement of Financial Accounting Standards
(SFAS) No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure."
(L) Earnings (loss) per share
Basic earnings (loss) per common share (EPS) are based on the weighted
average number of common shares outstanding during each period. Diluted
earnings per common share are based on shares outstanding (computed as
under basic EPS) and potentially dilutive common shares. As of December 31,
2003, the Company had granted employee stock options for 136,500 shares of
common stock and warrants to purchase 315,666 shares of common stock that
are potentially dilutive common shares. As of December 31, 2002, the
Company had granted employee stock options for 100,000 shares of common
stock that are potentially dilutive common shares. The dilutive effect of
common stock options and warrants were not used to compute dilutive loss
per share for 2003 and 2002 because the result of their inclusion would be
anti-dilutive.
(M) Note payable-debt discount cost
The Company has issued warrants to an investor and a related party. The
warrants are being treated as additional consideration for notes payable.
The deferred cost of the warrants was determined as the difference between
the exercise price of the warrants and the most recent issue price and is
being amortized over the term of the related notes payable (See notes 7 and
8).
(N) New Accounting Pronouncements
10
ADVANCED CUSTOM SENSORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest
Entities," which clarifies the application of Accounting Research Bulletin
No. 51, "Consolidated Financial Statements," relating to consolidation of
certain entities. In December 2003, the FASB issued a revised FIN 46 "46R"
that replaced the original FIN 46. FIN 46R requires identification of a
company's participation in variable interest entities (VIEs), which are
defined as entities with a level of invested equity that is not sufficient
to fund future activities to permit it to operate on a standalone basis.
For entities identified as VIE, FIN 46R sets forth a model to evaluate
potential consolidation based on an assessment of which party to the VIE
(if any) bears a majority of the exposure to its expected losses, or stands
to gain from a majority of its expected returns. FIN 46R also sets forth
certain disclosures regarding interests in VIEs that are deemed
significant, even if consolidation is not required. The Company is not
currently participating in, or invested in any VIEs, as defined in FIN 46R.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments
embedded in other contracts and for hedging activities under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." It is
effective for contracts entered into or modified after June 30, 2003,
except as stated within the statement, and should be applied prospectively.
Management believes the provisions of this Standard currently have no
effect on our financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
SFAS No. 150 establishes standards for how an issuer classifies and
measures in its statement of financial position certain financial
instruments with characteristics of both liabilities and equity. SFAS No.
150 requires that an issuer classify a financial instrument that is within
its scope as a liability (or an asset in some circumstances) because that
financial instrument embodies an obligation of the issuer. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31,
2003 and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. SFAS No. 150 is to be implemented by
reporting the cumulative effect of a change in accounting principle for
financial instruments created before the issuance date of SFAS No. 150 and
still existing at the beginning of the interim period of adoption.
Restatement is not permitted. The Company does not expect that the adoption
of SFAS No. 150 will have a significant effect on the Company's financial
statement presentation or disclosures.
11
ADVANCED CUSTOM SENSORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
NOTE 2 INVENTORIES
Inventories consists of the following as of December 31, 2003 and 2002:
2003 2002
-------- --------
Cable $ 8,324 $ --
Raw materials 95,937 70,506
Work in process 5,012 8,998
Finished goods 90,259 88,695
-------- --------
$199,532 $168,199
======== ========
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 2003
and 2002:
2003 2002
--------- ---------
Machinery and equipment $ 584,202 $ 584,202
Office equipment 1,289 --
Furniture and fixtures 17,398 17,398
Leasehold improvements 143,637 143,637
--------- ---------
746,526 745,237
Less accumulated depreciation and amortization (367,177) (253,250)
--------- ---------
$ 379,349 $ 491,987
========= =========
Depreciation expense of $113,927 and $73,784 is reflected in the
accompanying Statement of Operations for the years ended December 31, 2003
and 2002, respectively.
NOTE 4 INVESTMENT IN AFFILIATED ENTITY
The Company owns 14.3% of TransOptix, Inc. (TransOptix, formerly Advanced
Optical Mems, Inc.), a company that is involved in the manufacture and
distribution of computer peripheral equipment. The Company's Chief
Executive Officer is also the Chief Executive Officer of TransOptix and the
officer also owns 15% of TransOptix. As a result of the combined equity
holdings of TransOptix by the Company and its Chief Executive Officer, the
Company accounts for this investment under the equity method of accounting.
The Company recorded a loss from TransOptix of $142,000 to reflect its
pro-rata share of the TransOptix net loss for the year ended December 31,
2002. The Company initially invested $200,000 in TransOptix in 2000. The
loss recorded in 2002 reduced the Company's investment in TransOptix to
zero at December 31, 2002. Accordingly, the Company discontinued applying
the equity method at December 31, 2002 and did not record any loss from
TransOptix in 2003. The Company did not receive any distribution from
TransOptix in 2003 or 2002. The Company and TransOptix share the same
office and facility (see Note 10). During 2002, the Company recorded sales
of $17,000 to TransOptix. TransOptix has also advanced funds to the Company
amounting to $190,665 (see Note 8). There were no other transactions
between the Company and TransOptix in 2003 or 2002.
12
ADVANCED CUSTOM SENSORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Summarized condensed unaudited financial information for TransOptix, Inc.
is as follows:
BALANCE SHEETS
DECEMBER 31,
(Unaudited)
2003 2002
----------- -----------
Current assets $ 366,314 $ 530,561
Fixed assets, net 351,023 433,968
Due from Advanced Custom Sensors, Inc. 298 154,551
----------- -----------
$ 717,635 $ 1,119,080
=========== ===========
Current liabilities $ 51,108 $ 14,096
Note payable - stockholder 37,494 350,000
Note payable 809,334 --
Stockholders' equity (deficiency) (180,301) 754,984
----------- -----------
$ 717,635 $ 1,119,080
=========== ===========
STATEMENTS OF OPERATIONS
DECEMBER 31,
(Unaudited)
2003 2002
----------- -----------
Revenues $ 94,099 $ 48,522
Cost of revenues 26,893 13,773
----------- -----------
Gross profit 67,206 34,749
Operating expenses 1,002,704 1,021,195
----------- -----------
(935,498) (986,446)
Other income (expenses) 213 14,902
----------- -----------
Net loss $ (935,285) $ (971,544)
=========== ===========
NOTE 5 SUPPLIERS
As of December 31, 2003 and 2002, the Company maintained net assets
consisting of tooling of approximately $160,000, at their main supplier
located in Taiwan. Although this country is considered politically and
economically stable, it is possible that unanticipated events in this
foreign country could disrupt the operations of the Company because their
main supplier is located there, has possession of the tooling assets, and
manufactures the products.
13
ADVANCED CUSTOM SENSORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
NOTE 6 LINES OF CREDIT
The Company has the following lines of credit at December 31, 2003:
Loan agreement, bank that includes two lines of credit, secured by accounts
receivable and certain assets of the Company, interest at
7.25% per annum, due on demand. $ 92,984
Line of credit with a bank, secured by accounts receivable and
certain assets of the Company, interest at 7.0972% per annum, due on
demand... 40,000
--------
$132,984
========
NOTE 7 NOTES PAYABLE TO INVESTORS
The Company has the following notes payable to investors at December 31,
2003:
Note payable, convertible to common stock, secured by accounts
receivable and certain assets of the Company, interest at 10% per
annum, due March 9, 2004. The Company is currently negotiating a
settlement whereby the Company will repay the lender $90,000 and
issue 200,000 shares of common stock to the lender in satisfaction
of this loan. $250,000
Note payable, secured by accounts receivable and certain assets of the
Company, interest 10% per annum, due on October 2, 2004. In 2003, in
connection with this loan, the Company issued warrants to purchase 25,000
shares of ACSI's common stock at $.50 per share. The intrinsic value of the
warrants was valued at $25,000 in accordance
with APB No. 25. (a). 25,000
Note payable-debt discount cost (a) (15,110)
---------
$259,890
=========
14
ADVANCED CUSTOM SENSORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
NOTE 8 NOTES PAYABLE TO RELATED PARTY
The Company has the following notes payable to related party as of December
31, 2003 and 2002:
2003 2002
--------- ---------
Advance for lease deposit and lease improvements(a) $ -- $ 190,655
Note payable, related party (a)(c) 190,665 --
Other operating advances (b)(c) 100,000 --
Note payable-debt discount cost (c) (179,333) --
--------- ---------
$ 111,332 $ 190,665
========= =========
a) The Company was advanced $190,665 by TransOptix in 2002 to pay for the
Company's lease deposit of $50,000 and for leasehold improvements of
$140,665 to its leased facility (see Note 10). Subsequent to December 31,
2002, TransOptix assigned its $190,665 receivable to a related party of the
Company. During 2003, the advances made by TransOptix in 2002 were combined
into a promissory note payable to the assignee dated July 1, 2003, with
interest at 9.25% per annum due December 31, 2004. The note is secured by
substantially all assets of the Company.
b) Other operating advances of $100,000 were made by the above related
party note holder to the Company as of September 17, 2003. These advances
are evidenced by a promissory note dated September 17, 2003, with interest
at 10% per annum, due September 16, 2004.
c) In connection with the above notes payable, the Company issued warrants
to purchase 290,665 shares of ACSI's common stock at $.50 per share. The
intrinsic value of the warrants which were valued in accordance with APB
No. 25, was $290,665 and is being accounted for as debt discount cost.
15
ADVANCED CUSTOM SENSORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
NOTE 9 DUE TO VENDOR
In 2002, the Company entered into an agreement with a manufacturing vendor
whereby the vendor provided an unsecured line of credit of up to $1,000,000
to the Company for the purchase of raw materials and equipment. At December
31, 2002, the Company had utilized $160,000 of that credit line. The
agreement also gave the vendor the option of converting the amounts due
them into shares of common stock of the Company based upon an agreed upon
formula, up to 18% of the Company's common shares. On October 16, 2003, the
vendor converted the $160,000 due to them for 54,235 shares of the
Company's common stock (See Note 12).
During 2002, the Company sold to this vendor $124,657 of equipment that had
a cost basis of $57,557. The resulting gain of $67,100 has been reflected
as other income in the 2002 Statement of Operations.
NOTE 10 COMMITMENT AND CONTINGENCIES
Operating Leases
The Company leases its office and facility through 2007 under a long term
operating lease agreement. Under terms of the lease, the Company pays the
cost of repairs and maintenance. The office and warehouse facility is
shared with TransOptix. (see Note 4), who signed the lease as co-tenant
with the Company. The Company and TransOptix have entered into an agreement
stipulating each entities share of the rent, however, in event of default
by TransOptix, the Company could contingently be liable for the full amount
of the rent.
Future minimum lease commitments for the Company's share under this lease
at December 31, 2003 are as follows:
Year Ended December 31,
2004 $102,270
2005 103,684
2006 106,382
2007 64,064
--------
$376,400
========
The total lease commitment as of December 31, 2003 for which the Company
could be contingently liable in the event of default of TransOptix is
$862,000. Rent expense for the years ended December 31, 2003 and 2002 was
$116,588 and $79,300 respectively.
16
ADVANCED CUSTOM SENSORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
NOTE 11 INCOME TAXES
As of December 31, 2003, the Company had federal net operating loss
carryforwards of approximately $2,499,000 expiring in various years through
2023, which can be used to offset future taxable income, if any. No
deferred tax asset benefit for these operating losses has been recognized
in the financial statements due to the uncertainty as to their realization
in future periods.
The Company's net deferred tax assets (using a federal corporate income
rate of 34%) consisted of the following at December 31, 2003 and 2002:
2003 2002
--------- ---------
Deferred tax asset, net operating loss carryforwards
$ 850,000 $ 810,000
Less valuation allowance (850,000) (810,000)
--------- ---------
Net deferred income tax asset $ -- $ --
========= =========
As a result of the Company's significant operating loss carryforward and
the corresponding valuation allowance, no federal income tax expense
(benefit) has been recorded at December 31, 2003 and 2002.
NOTE 12 COMMON STOCK
On October 16, 2003, the Company issued 22,917 shares of its common stock
to an employee in satisfaction for services rendered and accrued as of
December 31, 2002. The shares were valued at $2.00 per share, or $ 45,834
in total, based upon the price from the most recent sale of the Company's
common stock. The Company also converted a loan payable to a vendor in the
amount of $160,000 for 54,235 shares of stock in connection with an
agreement as discussed on Note 9.
NOTE 13 OPTIONS AND WARRANTS
Stock Option Plan
The Company has a stock option plan, which provides for the granting of
options to employees, independent representatives and directors of the
Company. The Company is authorized to issue 200,000 shares of common stock.
The exercise price is fixed by the plan administrator. Under a formula
contained in the plan's provisions, the options vest over four years upon
the completion of service. The options expire ten years from the date of
grant.
17
ADVANCED CUSTOM SENSORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
NOTE 13 OPTIONS AND WARRANTS (CONTINUED)
The Company has applied the disclosure provisions of SFAS No. 148,
"Accounting for Stock-Based Compensation -- Transition and Disclosure -- An
Amendment of FASB Statement No. 123," for the year ended December 31, 2003.
Issued in December 2002, SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation" to provide alternative methods of transition for
a voluntary change to the fair value based method of accounting for
stock-based compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on
reported results. For the years ended December 31, 2003 and 2002, as there
was no active public market or other indication of the value of the shares
underlying the options, the Company has not assigned any additional fair
market value to the options in excess of its intrinsic value calculated in
accordance with APB No. 25. Accordingly, no supplemental pro forma
disclosures are presented. For the years ended December 31, 2003 and 2002,
the 136,500 of incentive stock options issued for common stock did not have
any fair value using the Black-Scholes valuation model and therefore there
are no pro forma compensation costs presented.
The following schedule summarizes the status of options outstanding at
December 31, 2003 and 2002:
Average
Exercise
Shares Price
------- -------
Balance at January 1, 2002 --
Granted 100,000 $ .50
Exercised --
Cancelled --
------- -------
Balance at December 31, 2002 100,000 $ .50
Granted 36,500 $ .50
Exercised --
Cancelled --
------- -------
Balance at December 31, 2003 136,500 $ .50
======= =======
Options exercisable at December 31, 2002 -- $ .50
======= =======
Options exercisable at December 31, 2003 25,000 $ .50
======= =======
18
ADVANCED CUSTOM SENSORS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Warrants
During 2003, in conjunction with the issuance of certain notes payable (see
Notes 7 and 8) the board of directors approved the issuance of warrants to
purchase a total of 315,666 shares of the Company's common stock. The
warrants are exercisable at $.50 per share, are fully vested upon issuance
and expire in five years from issuance. The warrants had a total fair value
of $315,666, which is being accounted for as notes payable-debt discount
cost and is being amortized over the life of the related debt
Outstanding at January 1, 2003 --
Issued during the year ended December 31, 2003 315,666
Exercised during the year ended December 31, 2003 --
-------
Outstanding at December 31, 2003 315,666
=======
NOTE 14 SUBSEQUENT EVENTS
On February 11, 2004, the Company signed a promissory note in the maximum
amount of $500,000, of which $250,000 was borrowed when the note was
executed. The note bears interest at 10% per annum, and is due on February
11, 2005. In connection with the loan, the Company issued 250,000 warrants
to purchase the Company's common stock at a price of $.50 per share. The
warrants are fully vested and expire on February 11, 2009.
On February 14, 2004, the board of directors approved an agreement and a
plan of merger between the Company and Spectre Industries, Inc., (Spectre)
a Nevada corporation. On May 24, 2004, Spectre entered into an agreement
and plan of merger (the Merger) with the Company (the accounting acquirer).
Spectre (the legal acquirer) issued 38,773,581 shares of common stock and
warrants to purchase up to 79,535,549 shares of common stock to the
shareholders of the Company in exchange for 100% of their common stock and
transferred all of its assets to the Company. The Company assumed all of
Spectre's liabilities, and the Company became a wholly owned subsidiary of
Spectre. Subsequent to the Merger, the Company's stockholders became 65%
owners of Spectre, which resulted in a change of control, and therefore,
the Company is treated as the accounting acquirer. Immediately prior to the
Merger, Spectre had nominal assets and limited business operation and
accordingly, the Merger, which is similar to a reverse acquisition of
Spectre by the Company, was accounted for as a recapitalization. Subsequent
to the Merger, on June 8, 2004, the Company had a 1 for 15 reverse stock
split that was approved by the board of directors.
On March 1, 2004, the Company granted stock options to an employee to
purchase 10,000 shares of the Company's common stock for $.50 per share.
The shares will vest over 4 years.
19