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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From to
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Commission File number 0-024828
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SPECTRE INDUSTRIES, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEVADA 98-0226032
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
45 Parker Avenue, Suite A
Irvine, California 92618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(949) 855-6688
(ISSUER'S TELEPHONE NUMBER)
------------------
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
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.
Yes |_| No |X|
As of August 16, 2004 there were 3,976,868. shares of Common Stock outstanding.
Transitional Small Business Disclosure Format
Yes |_| No |X|
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INDEX
PART I. FINANCIAL INFORMATION............................................. 1
Item 1. Consolidated Financial Statements: (unaudited).................... 1
Consolidated Balance Sheet as of June 30, 2004 (unaudited)........ 1
Consolidated Statements of Operations for the three months
ended June 30, 2004 and 2003 (unaudited).......................... 2
Consolidated Statements of Operations for the six months
ended June 30, 2004 and 2003 (unaudited).......................... 3
Consolidated Statements of Changes in Stockholder's Equity
(Deficiency) for the six months ended June 30, 2004 (unaudited)... 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 2004 and 2003 (unaudited).......................... 5
Notes to Consolidated Financial Statements (unaudited)............ 6
Item 2. Management's Discussion and Analysis or Plan of Operations........ 18
Item 3. Controls and Procedures........................................... 26
PART II. OTHER INFORMATION................................................. 27
Item 1. Legal Proceeding.................................................. 27
Item 2. Changes In Securities and Small Business Issuer Purchases of
Equity Securities................................................. 27
Item 3. Defaults Upon Senior Securities................................... 27
Item 4. Submission Of Maters To a vote Of Security Holders................ 27
Item 5. Other Information................................................. 27
SIGNATURES.................................................................. 28
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SPECTRE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
June 30, 2004 (unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 40,087
Accounts receivable 117,904
Inventories, net 212,446
Prepaid expenses and other current assets 45,666
Assets of subsidiary held for disposition 89,111
-----------
TOTAL CURRENT ASSETS 505,214
PROPERTY AND EQUIPMENT 373,913
INVESTMENT IN AFFILIATED ENTITY --
OTHER ASSETS 54,112
-----------
$ 933,239
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 442,683
Lines of credit 132,984
Due to shareholder 13,000
Due to investors 367,002
Notes payable to related party 222,666
Current portion of obligations under capital leases 7,372
Liabilities of subsidiary held for disposition 525,690
-----------
TOTAL CURRENT LIABILITIES 1,711,397
LONG TERM LIABILITIES:
Obligations under capital leases 38,014
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock: At June 30, 2004, $.001 par
value;
6,666,667 shares authorized, 3,976,868
shares issued and outstanding 3,977
Additional paid in capital 4,054,109
Deferred compensation (196,020)
Accumulated deficit (4,678,238)
-----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (816,172)
-----------
$ 933,239
===========
See accompanying notes to consolidated financial statements.
1
SPECTRE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For Three Months Ended June 30,
2004 2003
----------- -----------
REVENUE $ 196,197 $ 98,068
COST OF SALES 104,976 60,104
----------- -----------
GROSS PROFIT 91,221 37,964
OPERATING EXPENSES: 375,855 123,337
----------- -----------
LOSS FROM OPERATIONS (284,634) (85,373)
OTHER INCOME (LOSS):
Interest and dividend income -- 2
Miscellaneous income 15,922 73
Loss from assets held for disposal (29,216) --
----------- -----------
TOTAL OTHER INCOME (LOSS) (13,294) 75
----------- -----------
LOSS BEFORE PROVISION FOR
INCOME TAXES (297,928) (85,298)
PROVISION FOR INCOME TAXES 800 800
----------- -----------
NET LOSS $ (298,728) $ (86,098)
=========== ===========
NET INCOME PER COMMON SHARE -
Basic and diluted $ (0.10) $ (0.03)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING -
Basic and diluted 3,048,862 2,466,868
=========== ===========
See accompanying notes to consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For Six Months Ended June 30,
2004 2003
----------- -----------
REVENUE $ 303,476 $ 214,751
COST OF SALES 205,533 157,933
----------- -----------
GROSS PROFIT 97,943 56,818
OPERATING EXPENSES: 615,919 301,033
----------- -----------
LOSS FROM OPERATIONS (517,976) (244,215)
OTHER INCOME (LOSS):
Interest income -- 3
Miscellaneous income 15,922 131
Loss from assets held for disposal (29,216) --
----------- -----------
TOTAL OTHER INCOME (LOSS) (13,294) 134
----------- -----------
LOSS BEFORE PROVISION FOR
INCOME TAXES (531,270) (244,081)
PROVISION FOR INCOME TAXES 800 800
----------- -----------
NET LOSS $ (532,070) $ (244,881)
=========== ===========
LOSS PER COMMON SHARE -
Basic and diluted $ (0.19) $ (0.10)
=========== ===========
WEIGHTED AVERAGE COMMON AND
DILUTIVE COMMON EQUIVALENT SHARES OUTSTANDING :
Basic and diluted 2,816,883 2,466,868
=========== ===========
See accompanying notes to consolidated financial statements.
3
SPECTRE INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIENCY)
For Six Months Ended June 30, 2004
(Unaudited)
ADDITIONAL
COMMON STOCK PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
------------- ----------- ------------ ------------- ------------- -------------
Balance, January 1, 2004 2,584,905 $ 2,585 $ 4,212,864 $ (220,770) $ (4,146,168) $ (151,489)
Transfer of Spectre stock at time of
merger and recapitalization 1,391,872 1,392 (408,755) -- -- (407,363)
Intrinsic value of common stock warrants
issued with notes payable -- -- 250,000 -- -- 250,000
Amortization of deferred compensation -- -- -- 24,750 -- 24,750
Net loss for six months
ended June 30, 2004 -- -- -- (532,070) (532,070)
------------- ----------- ------------ -------------- ------------- -------------
Balance, June 30, 2004 3,976,777 $ 3,977 $ 4,054,109 $ (196,020) $ (4,678,238) $ (816,172)
============= =========== ============ ============== ============= =============
See accompanying notes to consolidated financial statements.
4
SPECTRE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For Six Months Ended June 30,
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES 2004 2003
--------- ---------
Net loss $(532,070) $(244,881)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 57,363 56,910
Amortization of discount cost on notes payable 218,446 --
Amortization of deferred compensation 24,750 --
Net loss from assets held for disposal 29,216 --
Changes in operating assets and liabilities:
Accounts receivable (50,366) (33,823)
Inventories (12,914) 5,017
Accounts payable and accrued expenses 80,050 80,379
Prepaid expenses and other current assets (41,559) (7,164)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (227,084) (143,562)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (51,927) --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Line of credit -- 124,100
Advances from shareholder and others 13,000 23,663
Proceeds from investor 250,000 --
Capital leases 45,386 --
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 308,386 147,763
--------- ---------
NET INCREASE IN CASH 29,375 4,201
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 10,712 5,716
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 40,087 $ 9,917
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 6,110 $ 2,588
Taxes $ 800 $ 800
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligations incurred in purchase of equipment $ 45,386 $ --
Merger
Fair value of assets $ 118,327 $ --
Less: liabilities assumed 525,690 --
---------
Merger, net $(407,363) --
=========
See accompanying notes to consolidated financial statements.
5
SPECTRE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION AND DESCRIPTION OF BUSINESS
On May 24, 2004, Spectre Industries, Inc., (Spectre) a Nevada public
corporation, entered into an agreement and plan of merger (the Merger)
with Advanced Custom Sensors, Inc. (ACSI, the Company and accounting
acquirer). Spectre (the legal acquirer) issued 38,773,581 pre-split
shares of common stock (2,584,905 post-split shares) and warrants to
purchase up to 79,535,549 pre-split shares of common stock (5,302,370
post-split shares) to the shareholders of ACSI (see Note 12) and
transferred all of its assets to ACSI, ACSI assumed all of Spectre's
liabilities, and ACSI became a wholly owned subsidiary of Spectre.
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 ACSI, was accounted for
as a recapitalization. The consolidated financial statements as of
June 30, 2004, and for the periods then ended are those of ACSI for
all periods presented and those of Spectre since the date of merger
and recapitalization.
ACSI, incorporated in the State of California on June 21, 1996, 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 six months ended June 30, 2004, the Company
suffered a loss of $532,070 and utilized cash in operating activities
of $227,084, and has a working capital deficiency of $1,206,183 and a
stockholders' deficiency of $816,172 as of June 30, 2004. 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
June 30, 2004, 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 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.
6
SPECTRE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
(C) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles 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.
(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 the sale of its products, and the
concentration of credit risk includes a customer base located
throughout North America and Asia.
Approximately 90% the Company's sales were to customers in North
America in the three and six months ended June 30, 2004 and 2003,
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.
7
SPECTRE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
(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
The Company believes that the carrying value of its cash, accounts
receivable, accounts payable, accrued liabilities, line of credit, due
to investors, due to shareholder, and notes payable to related party
as of June 30, 2004, 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 to the presentation of the current
year financial statements.
(K) STOCK BASED COMPENSATION
As described in Note 12, 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 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 June 30, 2004, the Company had granted employee stock options
for 146,500 shares of common stock in ACSI and warrants to purchase
565,666 shares of common stock in ACSI 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 2004 and
2003 because the result of their inclusion would be anti-dilutive.
8
SPECTRE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
(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
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 a 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 Statement of Financial Accounting
Standards (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.
9
SPECTRE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
O. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of and for the three and six
months ended June 30, 2004 and 2003 are unaudited. In the opinion of
management, such consolidated financial statements include all
adjustments (consisting only of normal recurring adjustments)
considered necessary for the fair presentation of the consolidated
financial position and the consolidated results of operations have
been included. The consolidated results of operations for the three
and six months ended June 30, 2004 are not necessarily indicative of
the results to be expected for the full year.
NOTE 2 INVENTORIES
Inventories consist of the following as of June 30, 2004:
Cable $ 15,984
Raw materials 127,264
Work in process 10,850
Finished goods 58,348
---------
$ 212,446
=========
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of June 30, 2004:
Machinery and equipment $ 587,417
Office equipment 2,636
Furniture and fixtures 17,398
Leasehold improvements 143,637
Property held under capital leases 47,365
---------
798,453
Less accumulated depreciation and amortization
(including $1,578 for property held under capital leases) 424,540
---------
$ 373,913
=========
Depreciation expense of $57,363 is reflected in the accompanying
Statement of Operations for the six months ended June 30, 2004.
10
SPECTRE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
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 initially invested
$200,000 in TransOptix in 2000, and discontinued using applying the
equity method at December 31, 2002 when cumulative losses reduced the
Company's investment in TransOptix to zero. Accordingly, the Company
did not record any loss from TransOptix for the three and six months
periods ended June 30, 2004 and 2003. The Company did not receive any
distribution from TransOptix in 2004 or 2003. The Company and
TransOptix share the same office and facility (see Note 10). During
the six months ended June 30, 2004, the Company advanced approximately
$24,000 to TransOptix. There were no other transactions between the
Company and TransOptix in 2004 or 2003.
Summarized condensed unaudited financial information for TransOptix,
Inc. is as follows:
BALANCE SHEETS
DECEMBER 31,
(Unaudited)
2003
---------
Current assets $ 366,314
Fixed assets, net 351,023
Due from Advanced Custom Sensors, Inc. 298
---------
$ 717,635
=========
Current liabilities $ 51,108
Note payable - stockholder 37,494
Note payable 809,334
Stockholders' equity (180,301)
----------
$ 717,635
=========
2003
---------
Revenues $ 94,099
Cost of revenues 26,893
---------
Gross profit 67,206
Operating expenses 1,002,704
---------
(935,498)
Other income (expenses) 213
---------
Net loss $(935,285)
=========
11
SPECTRE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
NOTE 5 SUPPLIERS
As of June 30, 2004, 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.
NOTE 6 LINES OF CREDIT
The Company has the following lines of credit at June 30, 2004:
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 June 30,
2004:
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
negotiated a settlement in September, 2004, 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, secured by accounts receivable and certain
assets of the Company, interest at 10%, due on February 11,
2005. In connection with this loan, the Company issued
warrants to purchase 250,000 shares of ACSI's common stock
at $.50 per share. The intrinsic value of the warrants was
valued at $250,000 in accordance with APB No. 25. (a) 250,000
Note payable-debt discount cost (a) (157,998)
---------
$ 367,002
=========
12
SPECTRE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
NOTE 8 NOTES PAYABLE TO RELATED PARTY
The Company has the following notes payable to related party at June
30, 2004:
Note payable, related party (a) 190,665
Other operating advances (b) 100,000
Note payable-debt discount cost (c) (67,999)
---------
$ 222,666
=========
(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).
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 were valued
at $290,665 in accordance with APB No. 25
NOTE 9 CAPITAL LEASE OBLIGATIONS
The Company is the lessee of machinery under capital leases, which
expire in March 2009. The assets and liabilities under the capital
leases are recorded at the lower of the present value of the minimum
lease payments or the fair market value of the asset. The assets are
depreciated over their estimated useful lives. Depreciation of the
assets is included in depreciation expense.
13
SPECTRE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
Minimum future lease payments under the capital leases are as follows.
Year Ended June 30,
2005 $ 12,732
2006 12,732
2007 12,732
2008 12,732
2009 9,909
---------
Total minimum lease payments 60,837
Less amount representing interest 15,451
---------
Present value of net minimum lease payments $ 45,386
=========
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 June 30, 2004 are as follows:
Year Ended June 30,
2005 $ 102,977
2006 105,033
2007 117,255
---------
$ 325,265
=========
The total lease commitment as of June 30, 2004 for which the Company
could be contingently liable in the event of default of TransOptix is
approximately $753,000. Rent expense for the six months ended June 30,
2004 was $68,548.
14
SPECTRE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
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 June 30, 2004:
Deferred tax asset, net operating loss carryforwards. $ 850,000
Less valuation allowance (850,000)
---------
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 June 30, 2004.
NOTE 12 STOCKHOLDERS' DEFICIENCY
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.
Retroactive effect has been given to all share and per share amounts
that are presented in the accompanying financial statements.
STOCK OPTION PLAN
ACSI has a stock option plan, which provides for the granting of
options to employees, independent representatives and directors of the
Company. ACSI 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.
The Company has applied the disclosure provisions of Statement of
Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - An Amendment of FASB
Statement No. 123," for the six months period ended June 30, 2004.
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
15
SPECTRE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
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 six
months ended June 30, 2004, 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 it intrinsic value calculated in accordance with
APB No. 25. Accordingly, no supplemental pro forma disclosures are
presented. For the six months period ended June 30, 2004, the 10,000
of incentive stock options issued for ACSI 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 to
purchase ACSI shares of common stock at June 30, 2004:
AVERAGE
EXERCISE
SHARES PRICE
---------- ---------
Balance at January 1, 2004 136,500 $ .50
Granted 10,000 $ .50
Exercised --
Cancelled --
---------- ---------
Balance at June 30, 2004 146,500 $ .50
========== =========
Options exercisable at June 30, 2004 74,250 $ .50
========== =========
WARRANTS
During the period ended June 30, 2004, in conjunction with the
issuance of certain notes payable (see Note 7) the board of directors
approved the issuance of warrants to purchase a total of 250,000
shares of ACSI'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 $250,000, 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, 2004 315,666
Issued during the period ended June 30, 2004 250,000
Exercised during the period ended June 30, 2004 --
---------
Outstanding at June 30, 2004 565,666
=========
16
SPECTRE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
At June 30, 2004, 2004, all warrants issued had an exercise price of
$.50 per share. The warrants expired on various dates through February
2009.
In connection with the Merger, the Company agreed to adopt a plan at a
later date that would provide an equivalent value to the warrant and
option holders at the date of Merger.
NOTE 13 ASSETS AND LIABILITIES OF SUBSIDIARY HELD FOR DISPOSITION
The Company has agreed that they will "spin-off" certain assets and
liabilities that were acquired in connection with the Merger on May
24, 2004. These assets and liabilities will be rolled over to Spectre
Holdings, Inc. (Specter Holdings, a new subsidiary) and a distribution
in the form of a dividend of 1,391,872 post split shares (20,878,082
pre split shares) of common stock in Spectre Holdings will be made to
the shareholders of record of Spectre as of May 21, 2004 (prior to the
Merger).
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
STATEMENTS IN THIS REPORT ON FORM 10-QSB THAT ARE FORWARD-LOOKING ARE BASED ON
CURRENT EXPECTATIONS. ACTUAL RESULTS MAY DIFFER MATERIALLY. FORWARD-LOOKING
STATEMENTS INVOLVE NUMEROUS RISKS AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED
TO, THE POSSIBILITY THAT THE DEMAND FOR OUR PRODUCTS MAY DECLINE AS A RESULT OF
POSSIBLE CHANGES IN GENERAL AND INDUSTRY SPECIFIC ECONOMIC CONDITIONS, THE
EFFECTS OF COMPETITIVE PRICING AND SUCH OTHER RISKS AND UNCERTAINTIES AS ARE
DESCRIBED IN THIS REPORT ON FORM 10-QSB AND OTHER DOCUMENTS PREVIOUSLY FILED OR
HEREAFTER FILED BY US FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE
COMMISSION. ALL FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE MADE, AND
WE UNDERTAKE NO OBLIGATION TO UPDATE THESE FORWARD-LOOKING STATEMENTS.
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and the notes thereto, included as part of
this Quarterly Report.
OVERVIEW
On May 24, 2004, we acquired all of the issued and outstanding equity
interests of Advanced Custom Sensors, Inc ("ACSI"). Until we acquired ACSI, we
had only nominal assets and liabilities and limited business operations.
Although ACSI became our wholly-owned subsidiary following the acquisition,
because the acquisition resulted in a change of control, the acquisition was
recorded as a "reverse merger" whereby ACSI is considered to be the accounting
acquirer. As such, the following results of operations are those of ACSI.
ACSI was founded by an engineering management team with over 50 years of
Micro-electro-mechanical-systems or "MEMS" transducer experience. Its objective
is to provide high quality sensors and transducers at an economical price by
employing innovative designs and creative manufacturing methods. ACSI offers a
variety of Digital Pressure Gauges, Pressure Transducers, Pressure Sensors,
Force Beams, Load Cells, Strain Gauges and Sensor Kits.
ACSI commenced operations as a private company in September of 1996. ACSI
is headquartered in Irvine, California where ACSI occupies a 25,000 square foot
facility fully equipped with fabrication capability. ACSI has fifteen (15)
employees in the United States, and utilizes a network of independent
contractors and consultants throughout the United States and Asia. ACSI produces
or supplies a family of nearly thirty (30) distinctive products. ACSI set up a
volume production line with an ISO 9000 partner in Taiwan in 2002. This allows
ACSI to penetrate high-volume consumer markets that are very price sensitive.
18
ACSI's MEMS sensor technology is the result of a technology development
work done at Rosemount and Endevco. ACSI believes that its technology will
enable it to become a global supplier of advanced MEMS/Microelectronic products
in myriad developing markets. ACSI's strategic plan is to focus on developing
custom MEMS pressure sensor devices and forming strategic partnerships where its
strategic partners dominate the sales channels in industries accepting MEMS
sensor applications.
In addition to its core operational assets dedicated to the MEMS sensor
markets, ACSI owns approximately 12% of TransOptiX, Inc., ("TransOptiX"), a
business dedicated to the development and production of high performance optical
switches.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2004 AND 2003
REVENUES
We generated revenues of $196,197 for the three months ended June 30,
2004, which was $98,129 or a 100% increase from $98,068 for the three months
ended June 30, 2003. The increase is the result of the hiring of a full-time
sales manager and sales representatives, and an increase in our manufacturing
capacity.
GROSS PROFIT
Gross profit for the three months ended June 30, 2004, was $91,221 or
46.5% of revenues, compared to $37,964 or 38.7% for the three months ended June
30, 2003. The $53,257 increase in gross profit was generated by a decrease in
cost of sales percentage of 7.7%, which was the result of increased productivity
and management's efforts to reduce expenses by implementing salary reductions,
offshore vendor qualification and production tooling improvements.
NET LOSS
Net loss from operations increased to ($284,634) for the three months
ended June 30, 2004 compared to ($85,373) for the three months ended June 30,
2003. The loss as a percentage of income increased to 145.0% for the three
months ended June 30, 2004 compared to 87.0% for the three months ended June 30,
2003, primarily as a result of $157,834 in notes payable - debt discount costs.
The difference between the exercise price of the warrants and the most recent
issue price is being amortized over the term of the notes.
19
INTEREST EXPENSE
Interest expense for the three months ended June 30, 2004, increased to
$18,864 compared to $1,802 for the three months ended June 30, 2003, primarily
due to the accrual of interest on following promissory notes.
$190,665.44 note to Tina Young with a due date of December 31, 2004
$100,000 note to Tina Young with a due date of September 16, 2004
$25,000 note to Pei Hen Hsu with a due date of October 2, 2004
$250,000 note to Sino-American with a due date of February 11, 2005
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
REVENUES
We generated revenues of $303,476 for the six months ended June 30, 2004,
which was a $88,725 or a 41.3% increase from $214,751 for the six months ended
June 30, 2003. The increase is the result of the hiring of a full-time sales
manager, the addition of new sales representatives and the introduction of new
products.
GROSS PROFIT
Gross profit for the six months ended June 30, 2004, was $97,943 or 32.2%
of revenues, compared to $56,818 or 26.5% for the six months ended June 30,
2003. The $41,125 increase in gross profit was generated by a decrease in cost
of sales percentage of 5.7%, which was the result of increased productivity and
management's efforts to reduce operating expenses by salary reductions, offshore
vendor qualifications, and production tooling improvements
NET LOSS
Net loss increased to ($532,070) for the six months ended June 30, 2004
compared to ($244,881) for the six months ended June 30, 2003. The loss as a
percentage of income increased to 175.3% for the six months ended June 30, 2004
from 114.0% for the six months ended June 30, 2003, primarily as a result of
$218,446 of notes payable - debt discount costs. The difference between the
exercise price of the warrants and the most recent issue price is being
amortized over the term of the notes.
INTEREST EXPENSE
Interest expense for the six months ended June 30, 2004, increased to
$33,078 compared to $2,588 for the six months ended June 30, 2003, primarily due
to the accrual of interest on following promissory notes.
$190,665.44 note to Tina Young with a due date of December 31, 2004
$100,000 note to Tina Young with a due date of September 16, 2004
$25,000 note to Pei Hen Hsu with a due date of October 2, 2004
$250,000 note to Sino-American with a due date of February 11, 2005
20
FINANCIAL CONDITION, LIQUIDITY, CAPITAL RESOURCES
We have relied primarily on cash flow from operations, bank loans, and
advances and investments from our shareholders for our capital requirements
since inception.
At June 30, 2004, cash was $40,087 as compared to $9,917 at June 30,
2003. The increase is due to the net cash from promissory notes. We have a
substantial working capital deficit. We require $3,000,000 to continue
operations for the next three years. We are in the process of raising capital in
the form of equity and/or debt. However, there is no guarantee that we will
raise sufficient funds to execute our business plan. To the extent we are unable
to raise sufficient funds, our business plan will be required to be
substantially modified, the operations curtailed or protection under
bankruptcy/reorganization laws sought.
We are addressing our liquidity requirements by the following actions:
Continue our programs for selling products; continue to seek investment capital
through the public and private markets. However, there is no guarantee that
these strategies will enable us to meet our obligations for the foreseeable
future.
COMMITMENTS AND CONTINGENCIES
We have the following material contractual obligations and capital
expenditure commitments:
On February 11, 2004, ACSI signed a promissory note with Sino-American to
form a joint venture for a sensor production facility in Wuhan, China. The
promissory note is for $500,000 payable in two installments of $250,000. The
first payment was made on February 12, 2004. The second payment of $250,000 is
due on July 30, 2004.
We signed an exclusive sensor supplier contract for a new product line
with a large company in commercial cleaning and sanitizing. We will deliver
10,000 sensors annually in 2006.
We signed a development and production contract with a major automotive
parts supplier in China. This is to develop manifold pressure sensor modules for
diesel engine. We will transfer their production to our joint venture in China.
INFLATION AND CHANGING PRICES
We doe not foresee any adverse effects on our earnings as a result of
inflation or changing prices.
GOING CONCERN
We have incurred operating losses since our inception and have a working
capital deficit and a significant stockholders' deficit. These conditions raise
substantial doubt about our ability to continue as a going concern. We need $3M
capital to sustain operations and continue our business plan for the next 3
years.
21
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make judgments, assumptions and estimates that
affect the amounts reported in the condensed consolidated financial statements
and the accompanying notes. The amount of assets and liabilities reported on the
balance sheet and the amounts of revenues and expenses reported for each of the
fiscal periods are affected by estimates and assumptions, which are used for,
but not limited to, the accounting for revenue recognition, accounts receivable,
doubtful accounts and inventories. Management periodically evaluates the
estimates and assumptions made. Management bases its estimates and assumptions
on historical experience and on various factors that are believed to be
reasonable under the circumstances. Actual results could differ from these
estimates as a result of different assumptions or conditions.
The following critical accounting policies are significantly affected by
judgments, assumptions and estimates used in the preparation of the financial
statements:
REVENUE RECOGNITION
We recognize revenue when goods are shipped and invoiced to the
customer
CONCENTRATION OF CREDIT RISK
Our financial instruments that are exposed to concentrations of
credit risk consist principally of cash and trade receivables. We place
our cash in what it believes to be credit-worthy financial institutions.
However, cash balances may have exceeded FDIC 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 the sale of its products,
and the concentration of credit risk includes a customer base located
throughout North America and Asia.
Approximately 90% our sales were to customers in North America in
the three and six months ended June 30, 2004 and 2003, respectively.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
22
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.
INCOME TAXES
We account 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
We believe that the carrying value of our cash, accounts receivable,
accounts payable, accrued liabilities, line of credit, due to investors,
due to shareholder, and notes payable to related party as of June 30,
2004, approximates their respective fair values due to the demand or
short-term nature of those instruments.
RECLASSIFICATIONS
We have reclassified certain accounts in the prior year financial
statements to conform to the presentation of the current year financial
statements.
STOCK BASED COMPENSATION
As described in Note 12, we have 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 SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure".
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 June 30, 2004, we had granted employee stock options for 146,500 shares
of common stock in ACSI and warrants to purchase 315,666 shares of common
stock in ACSI 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 2004 and 2003 because the result of their
inclusion would be anti-dilutive.
23
NOTE PAYABLE-DEBT DISCOUNT COST
We have 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.
OTHER SIGNIFICANT ACCOUNTING POLICIES
Other significant accounting policies not involving the same level
of measurement uncertainties as those discussed above, are nevertheless
important to an understanding of the financial statements. The policies
related to consolidation and loss contingencies require difficult
judgments on complex matters that are often subject to multiple sources of
authoritative guidance. Certain of these matters are among topics
currently under reexamination by accounting standards setters and
regulators. Although no specific conclusions reached by these standards
setters appear likely to cause a material change in our accounting
policies, outcomes cannot be predicted with confidence.
NEW ACCOUNTING PRONOUNCEMENTS
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 a 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. We are not
currently participating in, or invested in any VIEs, as defined in FIN
46R.
In April 2003, the FASB issued Statement of Financial Accounting
Standards (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
24
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. We do not expect that the adoption of SFAS
No. 150 will have a significant effect on our financial statement
presentation or disclosures.
25
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
Our Chief Executive Officer and Principal Accounting Officer, after
evaluating our disclosure controls and procedures (as defined in the rules and
regulation of the Securities and Exchange Commission under the Exchange Act as
of the end of the period covered by this Quarterly Report on Form 10-QSB, have
concluded that as of such date, our disclosure controls and procedures were
effective to ensure that information we are required to disclose in reports that
we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms.
(b) Changes in Internal Controls.
During the period covered by the Quarterly Report on Form 10-QSB, there
were no significant changes in our internal controls over financial reporting or
in other factors that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
26
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES.
On May 24, 2004, the Registrant acquired all of the issued and
outstanding equity interests of ACSI. As consideration for the shares of ACSI,
the Registrant 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 ACSI. The shares
were issued pursuant to an exemption provided by Section 4(2) of the Securities
Act of 1933, as amended. A report on Form 8-K related to this matter was filed
with the Securities and Exchange Commission on June 9, 2004.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On, the Board of Directors approved a one (1) for fifteen (15) reverse
stock split of the Company's outstanding shares of common stock. The stock split
was effected on June 8, 2004.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K
June 9, 2004 - Items 1, 2, 5, and 7
27
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 thereunto duly authorized.
SPECTRE INDUSTRIES, INC.
Dated: September 17, 2004
/s/ Michael Young
------------------------------------
Name: Michael Young
Title: Chief Executive Officer and
Principal Accounting Officer
28