UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended Sept. 30, 2000
Commission File Number 0-30573
SPECTRE INDUSTRIES, INC.
NEVADA 91-2041523231612
------------- ------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
#6 - 260 E. Esplanade
North Vancouver, BC
V7L 1A3
Tel: (604) 984-0400
Fax: (604) 990-0927
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
files by Section 12, 113 0r 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes |_| No |_|
Not applicable
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 20,454,259
----------
Transitional Small Business Format: Yes |_| No |_|
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
See Exhibit A
Item 2. Management's Discussion and Analysis or Plan of Operation.
Overview
As noted in the Company's Report of Independent Certified Public Accountants
included in the Company's Form 10-KSB for the year ended December 31, 1999, the
Company has experienced significant operating losses and an accumulated deficit
which raise doubt about the Company's ability to continue as a going concern.
The Company incurred additional net losses of $439,225 for the nine months ended
September 30, 2000 and had an accumulated deficit of $9,024,012 at September 30,
2000. The Company is continuing its efforts to increase its sales volume and
attain a profitable level of operations. However, there is no assurance that the
Company's efforts will be successful. There are many events and factors in
connection with the development of, manufacture and sale of the Company's
products over which the Company has little or no control, including without
limitation, marketing difficulties, lack of market acceptance of our products,
superior competitive products based on future technological innovation and
continued growth of e-commerce businesses. There can be no assurance that future
operations will be profitable or will satisfy future cash flow requirements.
Results of Operations-nine Months Ending September 30, 2000
During the nine months ended September 2000, total revenues amounted to $984,567
versus no revenue in the prior year.
The company's principal operating subsidiary, Grant Automotive Group, Inc., is a
manufacturers representative in the Automotive aftermarket. The Company's
revenue is primarily derived from commissions earned by Grant Auto on the sales
of its principal automotive and truck products to wholesale buyers such as
Uni-Select and NAPA in Canada.
The Company generated a gross margin of $254,873 for the nine months ended
September 30, 2000. The company had no margin in the prior year. The gross
margin percentage is 25.8% of revenue. The company believes that this trend will
be maintained for the balance of the fiscal year.
For the nine month period ended September 30, 2000, the Company reported
$984,567 in revenues, primarily from commissions earned by its operating
subsidiary on sales of approximately $25,000,000 of its principals' automotive
and heavy-duty parts products in the North American automotive aftermarket. The
Company had no revenues in the prior year.
2
<PAGE>
Net loss for the nine month period ending September 30, 2000 was $439,225 or
$.03 per share. This compares to a net loss of $1,235,656 or $.11 per share for
the same period in the prior year. Net loss for the nine month period ending
September 30, 2000 excluding $198,480 of non-cash expenses was $240,825 or $.02
per share. The non-cash expenses were $85,980 of amortization and $112,500 for
stock-based compensation paid to Grant Brothers Sales Ltd, pursuant to a
management services contract. This compares to a net loss of $229,337 or $.02
per share for the same period in the prior year, excluding $728,580 of non-cash
expenses relating to stock compensation paid to .
During the nine-month period ending September 30, 2000, the Company incurred
interest expense of $104,899 pursuant to convertible debentures in the aggregate
principal amount of $1,521,100. Effective September 1, 2000, the Company
converted all of its convertible debentures into common stock of the Company's
shares. This will eliminate $152,100 in recurring annual interest expense.
Liquidity and Sources of Capital
During the nine months ended September 30, 2000, the Company's operating cash
requirement was $240,825 attributable to a net loss of $439,225 mitigated by
non-cash charges for depreciation and amortization ($85,980) and stock based
compensation ($112,500). The net remaining shortfall was primarily funded by the
sale of common stock for $1,210,800. Partially offsetting this funding were
stock offering costs of $123,000 for net cash proceeds of $1,087,800.
During the nine months ended September 30, 1999, the Company's operating cash
deficit was $229,377 attributable to a net loss of $957,957 mitigated by
non-cash charges for stock based compensation ($728,580). The net remaining
shortfall was primarily funded by the net sale of common stock for $190,000 and
proceeds of $220,000 from the sale of convertible debentures.
The ability of the Company to satisfy its obligations depends in part on its
ability to reach a profitable level of operations and secure long-term financing
for the development and expansion of its main business. The Company currently
has available cash to meet its needs for two additional years, assuming the same
level of corporate expenditure. The Company will depends on cash receipts from
commission revenues generated from its subsidiary operations. There can be no
assurance, however, that the Company will be successful in obtaining any
additional financing through equity or debt offering, if and when needed.
As a result of the operations of GAG and the conversion of its outstanding
convertible debentures into shares of common stock in September of 2000, the
Company has no current need to raise additional capital in the near term to
survive as a going concern and to implement its business plan. Through GAG, the
Company intends to acquire small independent agents in the North American auto
parts industry. It is not anticipated that these acquisitions, should any occur,
would require substantial additional capital either in the acquisition phase or
in a later operating phase.
3
<PAGE>
The Management Services Agreement between the Company and GBS provides an option
for the Company to increase its Net Cash Flow by payment of an additional
$423,058. See Part I, Item 7 "Certain Relationships and Related Transactions."
This option doesn't expire until 2005. At that time the Company may not have
sufficient funds to cover this expense and, therefore, substantial additional
funds may be then required should the Company determine to exercise this option.
There is no certainty that the Company will be able to raise sufficient capital
in a timely manner or on terms it deems reasonable.
In light of the Company's limited resources and the competitive environment in
which it operates, any inability to obtain additional financing may cause the
Company to be forced to discontinue its proposed acquisition strategies. Debt
financing increases expenses and must be paid regardless of operating results.
Equity financing could involve dilution to the interests of the Company's
then-existing stockholders.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities
On January 1, 2000, the Company issued 450,000 shares of Common Stock to GBS for
the purchase of GAG valued at $112,500, or $0.25 per share. These shares were
exempt from the registration requirements under the Securities Act in reliance
on Section 4(2) of the Securities Act.
On January 14, 2000, the Company issued in aggregate a total of 1,210,000 shares
of Common Stock to three individuals for services valued at $340,010, or $0.281
per share. 1,200,000 shares were issued in reliance on the exemption from the
registration requirements under the Securities Act provided by Regulation S
under the Securities Act. The remaining 10,000 shares were issued in reliance on
the exemption from the registration requirements under the Securities Act
provided by Regulation D under the Securities Act.
On January 14, 2000, the Company issued 300,000 shares of Common Stock to
European investors for a total subscription price of $60,000, or $0.20 per
share. These shares were issued in reliance on the exemption from the
registration requirements under the Securities Act provided by Regulation S
under the Securities Act.
On August 29, 2000 and September 26, 2000 the Company issued 660,000 shares of
Common Stock to European investors for a total subscription price of 330,000 or
$0.50 per share. These shares were issued in reliance on the exemption from the
registration requirements under the Securities Act provided by Regulation S
under the Securities Act.
On September 11, the Company issued an aggregate of 3,802,500 shares of its
common stock in connection with the conversion of all of its outstanding
Convertible debentures. These were
4
<PAGE>
converted at $.40 per share. This was approximately 20% less than the conversion
rate that would have been required under the terms of the debenture. In
addition, an aggregate of 145,310 shares were issued on the same terms and
conditions in connection with the accrued interest owing on certain of the
debentures. The remaining accrued interest was paid in cash. The Company made
this offer to its debenture holders in order to eliminate all its outstanding
long-term indebtedness prior to maturity. These shares were issued in reliance
on the exemption from the registration requirements under the Securities Act
provided by Regulation S under the Securities Act.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
5
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on behalf by the undersigned, thereunto duly
authorized.
Spectre Industries, Inc.
__________________________________
(Registrant)
December 29, 2000 /s/ Ian S. Grant,President & CEO
Date: _____________________________ __________________________________
(Signature)*
*Print the name and title of each signing officer under his signature.
6
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and December 31, 1999
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------- --------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash$ 254,685 $ 44,566
Accounts receivable, net (Note 2) 42,167 --
Term deposit 661,542 --
---------- --------
Total Current Assets 958,394 44,566
---------- --------
OTHER ASSETS
Goodwill, net (Note 12) 487,220 --
Deposit on subsidiary acquisition (Note 8) -- 450,000
Note and interest receivable (net) (Note 5) -- --
---------- --------
Total Other Assets 487,220 450,000
---------- --------
TOTAL ASSETS $1,445,614 $494,566
========== ========
</TABLE>
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ -----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 24,913 $ --
Accounts payable - related party (Note 11) -- 337,200
Accrued expenses 11,840 102,960
Convertible debentures (Note 3) -- 1,521,000
Notes payable (Note 13) 5,676 --
------------ -----------
Total Current Liabilities 42,429 1,961,160
------------ -----------
LONG-TERM DEBT
Notes payable (Note 13) 62,943 --
------------ -----------
Total Long-Term Debt 62,943 --
------------ -----------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY 106,989 --
------------ -----------
Total Liabilities 212,361 1,961,160
------------ -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.001 par value, 100,000,000
shares authorized, 20,655,860 and 12,106,450 shares
issued and outstanding, respectively 20,655 12,106
Additional paid-in capital 10,359,965 7,109,442
Subscription receivable (120,000) --
Other comprehensive income (loss) (3,355) --
Deficit accumulated during the development stage (9,024,012) (8,588,142)
------------ -----------
Total Stockholders' Equity (Deficit) 1,233,253 (1,466,594)
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 1,445,614 $ 494,566
============ ===========
</TABLE>
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on For the
For the April 26, Nine Months
Three Months Ended 1995 Through Ended
September 30, September 30, September 30,
---------------------- ------------------------ -------------
2000 1999 2000 1999 2000
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 279,342 $ -- $ 984,567 $ -- $ 984,567
COST OF SALES 256,552 -- 729,694 -- 729,694
--------- --------- --------- ----------- -----------
Gross Margin 22,790 -- 254,873 -- 254,873
--------- --------- --------- ----------- -----------
EXPENSES
Bad debt expense -- 15,125 4,346 45,375 572,887
General and administrative 55,206 91,529 157,213 957,957 4,024,868
Amortization expense 28,660 -- 85,980 -- 85,980
Consulting expense 102,500 -- 242,858 -- 242,858
--------- --------- --------- ----------- -----------
Total Expenses 186,366 106,654 490,397 1,003,332 4,926,593
--------- --------- --------- ----------- -----------
Loss from Operations (163,576) (106,654) (235,524) (1,003,332) (4,671,720)
--------- --------- --------- ----------- -----------
OTHER INCOME (EXPENSE
Interest income 8,494 301 11,542 1,641 72,756
Interest expense (26,253) (38,650) (104,899) -- (537,563)
Loss from equity subsidiary -- -- -- -- (375,001)
--------- --------- --------- ----------- -----------
Total Other Income (Expense) (17,759) (38,349) (93,357) (232,324) (839,808)
--------- --------- --------- ----------- -----------
LOSS BEFORE EXTRAORDINARY
ITEMS AND LOSS FROM
DISCONTINUED OPERATIONS (181,335) (145,003) (328,881) (1,235,656) (5,511,528)
--------- --------- --------- ----------- -----------
EXTRAORDINARY ITEM
Loss on extinguishment of debt -- -- -- -- (1,216,250)
--------- --------- --------- ----------- -----------
Total Extraordinary Item -- -- -- -- (1,216,250)
--------- --------- --------- ----------- -----------
LOSS FROM DISCONTINUED
OPERATIONS - Net of zero tax benefit -- -- -- -- (2,189,245)
LOSS BEFORE MINORITY INTEREST
IN NET INCOME OF CONSOLIDATED
SUBSIDIARY (181,335) (145,003) (328,881) (1,235,656) (8,917,023)
--------- --------- --------- ----------- -----------
MINORITY INTEREST IN NET INCOME
OF CONSOLIDATED SUBSIDIARY 20,650 -- (106,989) -- (106,989)
--------- --------- --------- ----------- -----------
NET LOSS $(160,685) $(145,003) $(435,870) $(1,235,656) $(9,024,012)
========= ========= ========= =========== ===========
</TABLE>
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Consolidated Statements of Operations (Continued)
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on For the
For the April 26, Nine Months
Three Months Ended 1995 Through Ended
September 30, September 30, September 30,
---------------------------------- ---------------------------------- ---------------
2000 1999 2000 1999 2000
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
OTHER COMPREHENSIVE INCOME
(LOSS)
Foreign currency translation
adjustments $ (1,603) $ -- $ (3,355) $ -- $ (3,355)
--------------- --------------- --------------- --------------- ---------------
Total Other Comprehensive
Income (Loss) (1,603) -- (3,355) -- (3,355)
--------------- --------------- --------------- --------------- ---------------
TOTAL OTHER COMPREHENSIVE
INCOME (LOSS) $ (162,288) $ (145,003) $ (439,225) $ (1,235,656) $ (9,027,367)
=============== =============== =============== =============== ===============
BASIC LOSS PER SHARE
Continuing operations $ (0.01) $ (0.01) $ (0.03) $ (0.11)
Extraordinary item -- -- -- --
--------------- --------------- --------------- ---------------
Total $ (0.01) $ (0.01) $ (0.03) $ (0.11)
=============== =============== =============== ===============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 15,066,564 11,340,149 15,066,564 11,340,149
=============== =============== =============== ===============
</TABLE>
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional Currency During the
------------------------- Paid-in Subscription Translation Development
Shares Amount Capital Receivable Adjustment Stage
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, at inception -- $ -- $ -- $ -- $ -- $ --
Common stock issued for
Spectre Motor Sports Ltd.
recorded at predecessor cost 630,000 630 (630) -- -- --
Common stock issued for cash
at $11.25 per share 51,000 51 573,699 -- -- --
Stock offering costs -- -- (57,375) -- -- --
Currency translation adjustment -- -- -- -- 367 --
Net loss from inception
through December 31, 1995 -- -- -- -- -- (503,384)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 681,000 681 515,694 -- 367 (503,384)
Common stock issued
for cash at $11.25 per share 51,889 52 583,698 -- -- --
Common stock issued for
cash at $13.75 per share 72,727 73 999,927 -- -- --
Common stock issued for cash
at $10.00 per share 25,076 25 250,731 -- -- --
Stock offering costs -- -- (192,025) -- -- --
Additional shares issued under
recapitalization 8,511 8 (8) -- -- --
Currency translation adjustment -- -- -- -- (5,976) --
Net loss for the year
ended December 31, 1996 -- -- -- -- -- (1,732,866)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 839,203 $ 839 $ 2,158,017 $ -- $ (5,609) $(2,236,250)
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional Currency During the
------------------------- Paid-in Subscription Translation Development
Shares Amount Capital Receivable Adjustment Stage
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 839,203 $ 839 $ 2,158,017 $ -- $ (5,609) $(2,236,250)
Currency translation adjustment -- -- -- -- 5,609 --
Common stock issued for debt
at $0.17 per share 1,800,000 1,800 298,200 -- -- --
Additional shares issued under
recapitalization 16,003 16 (16) -- -- --
Contribution of capital by shareholder -- -- 158,264 -- -- --
Common stock issued for services
valued at $0.17 per share 42,800 43 7,083 -- -- --
Net loss for the year ended
December 31, 1997 -- -- -- -- -- (308,211)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 2,698,006 2,698 2,621,548 -- -- (2,544,461)
Common stock issued for debt
and interest at $1.37 per share 1,390,000 1,390 1,909,860 -- -- --
Common stock issued for services
valued at $1.37 per share 1,200,000 1,200 1,648,800 -- -- --
Common stock issued for cash
and services valued at $0.001
per share 4,444,444 4,444 -- -- -- --
Common stock issued for services
valued at $1.06 per share 24,000 24 25,464 -- -- --
Discount on debentures issued
below fair market value (Note 3) -- -- 137,980 -- -- --
Net loss for the year ended
December 31, 1998 -- -- -- -- -- (4,744,800)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 9,756,450 $ 9,756 $ 6,343,652 $ -- $ -- $(7,289,261)
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional Currency During the
------------------------- Paid-in Subscription Translation Development
Shares Amount Capital Receivable Adjustment Stage
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 9,756,450 $ 9,756 $ 6,343,652 $ -- $ -- $(7,289,261)
Common stock issued for cash
and services valued at $0.80
per share 200,000 200 159,800 -- -- --
Common stock issued for
services at $1.19 per share 250,000 250 296,500 -- -- --
Common stock issued for cash
and services at $0.10 per share 1,900,000 1,900 188,100 -- -- --
Discount on debentures issued
below fair market value (Note 3) -- -- 121,390 -- -- --
Net loss for the year ended
December 31, 1999 -- -- -- -- -- (1,298,881)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 12,106,450 12,106 7,109,442 -- -- (8,588,142)
Common stock issued for services
at $0.25 per share (unaudited) 450,000 450 112,050 -- -- --
Common stock issued for debt
at $0.28 per share (unaudited) 1,210,000 1,210 338,800 -- -- --
Common stock issued for cash
at $0.20 per share (unaudited) 300,000 300 59,700 -- -- --
Common stock issued for interest
expense at $0.28 per share
(unaudited) 100,000 100 19,538 -- -- --
Common stock issued for cash at
$0.50 per share (unaudited) 1,680,000 1,680 838,320 -- -- --
Common stock issued for cash at
$0.50 per share (unaudited) 861,600 861 429,939 (120,000) -- --
Common stock issued for conversion
of convertible debentures at $0.40
per share (unaudited) 3,802,500 3,803 1,517,197 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance Forward 20,510,550 $ 20,510 $10,424,986 $ (120,000) $ -- $(8,588,142)
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional Currency During the
------------------------- Paid-in Subscription Translation Development
Shares Amount Capital Receivable Adjustment Stage
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance Forward 20,510,550 $ 20,510 $10,424,986 $ (120,000) $ -- $(8,588,142)
Common stock issued for interest
expense at $0.40 per share
(unaudited) 145,310 145 57,979 -- -- --
Stock offering costs (unaudited) -- -- (123,000) -- -- --
Currency translation adjustment
(unaudited) -- -- -- -- (3,355) --
Net loss for the nine months
ended September 30, 2000
(unaudited) -- -- -- -- -- (435,870)
----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 2000
(unaudited) 20,655,860 $ 20,655 $10,359,965 $ (120,000) $ (3,355) $(9,024,012)
=========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on For the
For the April 26, Nine Months
Three Months Ended 1995 Through Ended
September 30, September 30, September 30,
---------------------- -------------------------- -------------
2000 1999 2000 1999 2000
--------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(160,685) $(145,003) $ (435,870) $(1,235,656) $(9,024,012)
Adjustments to reconcile net loss to net
cash used by operating activities:
Minority interest (20,650) -- 106,989 -- 106,989
Gain (loss) from discontinued operations -- -- -- -- (22,205)
Loss from equity subsidiary -- -- -- -- 375,001
Gain on investments (8,494) -- (11,542) -- (11,542)
Common stock issued for services and
interest -- -- 112,500 456,750 3,399,933
Bad debt expense -- 15,125 4,254 45,375 527,420
Issuance of debenture at less than fair
market value -- -- -- 121,390 259,370
Amortization expense 28,660 -- 85,980 -- 85,980
Currency translation adjustment (1,641) -- (3,355) -- (3,355)
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable 2,860 -- (46,421) -- (46,421)
Increase in interest receivable -- (15,125) -- (45,375) (13,166)
Increase (decrease) in accrued expenses 17,581 128,078 (10,548) 198,528 92,413
Increase (decrease) in accounts payable (467) -- 24,913 -- 24,913
Increase (decrease) in accounts payable
- related party -- 84,300 -- 252,900 337,200
--------- --------- ----------- ----------- -----------
Net Cash Provided (Used) by Operating
Activities (142,836) 67,375 (173,100) (206,088) (3,911,482)
--------- --------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Payments for purchase of subsidiary -- -- (50,000) (150,000) (500,000)
Payments to equity investee -- -- -- -- (508,132)
Increase in notes receivable -- -- -- -- (510,000)
Purchase of investments (100,000) -- (650,000) -- (650,000)
Cash received in acquisition of subsidiary -- -- 2,615 -- 2,615
--------- --------- ----------- ----------- -----------
Net Cash Used by Investing Activities (100,000) -- (697,385) (150,000) (2,165,517)
--------- --------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from convertible debentures -- -- -- 220,000 1,521,000
Proceeds from issuance of stock 204,600 -- 1,087,800 190,000 3,509,280
Repayment of payable -- -- (7,196) -- (81,751)
Proceeds from payable - related party -- -- -- -- 1,383,155
--------- --------- ----------- ----------- -----------
Net Cash Provided by Financing
Activities $ 204,600 $ -- $ 1,080,604 $ 410,000 $ 6,331,684
--------- --------- ----------- ----------- -----------
</TABLE>
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on For the
For the April 26, Nine Months
Three Months Ended 1995 Through Ended
September 30, September 30, September 30,
----------------------- ------------------------- -------------
2000 1999 2000 1999 2000
----------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH $ (38,236) $ 67,375 $ 210,119 $ 53,912 $ 254,685
CASH AT BEGINNING OF PERIOD 292,921 112,089 44,566 125,552 --
----------- -------- ---------- -------- ----------
CASH AT END OF PERIOD $ 254,685 $179,464 $ 254,685 $179,464 $ 254,685
=========== ======== ========== ======== ==========
CASH PAID DURING THE PERIOD FOR:
Interest $ 5,868 $ -- $ 64,672 $ -- $ 121,115
Income taxes $ -- $ -- $ -- $ -- $ --
SCHEDULE OF NON-CASH FINANCING
ACTIVITIES:
Common stock issued for debt $ 1,521,000 $ -- $1,861,010 $ -- $2,856,010
Common stock issued for services $ -- $ -- $ 112,500 $456,750 $4,134,795
Convertible debentures issued below
fair market value $ -- $ -- $ -- $121,390 $ 259,370
Common stock issued for interest
expense $ 58,124 $ -- $ 77,762 $ -- $1,294,012
Notes payable issued to acquire
subsidiary $ -- $ -- $ 75,815 $ -- $ 75,815
</TABLE>
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The consolidated financial statements include those of Spectre Industries,
Inc. (Spectre) and its wholly-owned subsidiary, Grant Automotive Group,
Inc. (GAG), and its 51% owned subsidiary Bigoni-Stiner & Associates, Inc.
(Bigoni). Collectively, they are referred to herein as "the Company".
Spectre was organized under the laws of the State of Nevada on May 13,
1986. Spectre acquired its wholly-owned subsidiaries Spectre Supersports,
Ltd. and Spectre Cars UK, Ltd. (the Subsidiaries) on April 26, 1995. The
subsidiaries were put into liquidation in 1997. The former shareholders of
the Subsidiaries controlled Spectre after the acquisition. Accordingly,
the transaction was accounted for as a recapitalization of the
Subsidiaries. The Company is accounted for as a development stage
enterprise. The Company plans to concentrate on the development of sales
of automotive aftermarket supplies.
GAG was incorporated under the laws of Ontario, Canada on December 16,
1998 for the purpose of being a wholesaler of aftermarket automotive parts
and accessories. On January 1, 2000, GAG commenced operations as a
wholesale automotive business group.
Bigoni was incorporated under the laws of the State of Washington on
August 16, 1989 under the name of Stiner-Solomon & Associates, Inc. On
March 6, 1990, the Company changed its name to Bigoni-Stiner & Associates,
Inc. Bigoni was incorporated to engage in the business of the sale of
automobile parts, accessories and hardware.
On January 1, 2000, Spectre acquired 100% of the issued and outstanding
shares of GAG and 51% of the issued and outstanding shares of Bigoni,
respectively, in a business combination (see Note 12).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's consolidated financial statements are prepared using the
accrual method of accounting. The Company has elected a December 31 year
end.
b. Basic Loss Per Share - Continuing Operations
<TABLE>
<CAPTION>
For the Nine Months Ended For the Nine Months Ended
September 30, 2000 September 30, 1999
------------------------------------------ ---------------------------------------------
Loss Shares Per share Loss Shares Per Share
(Numerator) (Denominator) Amount (Numerator) Denominator Amount
------------ -------------- ----------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
$ (435,870) 15,066,564 $ (0.03) $ (1,235,656) 11,340,149 $ (0.11)
</TABLE>
The computation of basic loss per share of common stock is based on the
weighted average number of shares outstanding during the period of the
consolidated financial statements. Fully diluted loss per share
calculations are not presented as any stock equivalents are antidilutive
in nature.
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. Provision for Taxes
As of September 30, 2000, the Company had net operating loss carryforwards
of approximately $8,900,000 which will expire by 2019. No tax benefit has
been reported in the consolidated financial statements because the
potential tax benefits of the loss carryforwards are offset by a valuation
allowance of the same amounts.
d. Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
e. Reverse Stock Split
On November 6, 1997, the Company effected a 1-for-5 stock split. All
references to common stock have been reflected retroactively back to
inception.
f. Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
g. Concentrations of Risk
Cash
At times the Company's funds exceed depository insurance limits in the
United States.
Notes Receivable
Credit losses have been provided for in the consolidated financial
statements and are based on management's expectations (Note 5).
h. Recent Accounting Pronouncements
In June 1998 the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities which requires companies to record
derivatives as assets or liabilities, measured at fair market value. Gains
or losses resulting from changes in the values those derivatives would be
accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge accounting is
that the hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June15, 1999.
management believes the adoption of this statement will have no material
impact on the Company's consolidated financial statements.
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
i. Revenue Recognition
Revenue is recognized upon shipment of goods to the customer.
j. Presentation
All amounts are reported in United States Dollars.
k. Accounts Receivable
Accounts receivable are recorded net of the allowance for doubtful
accounts of $4,346 and $-0- at September 30, 2000 and December 31, 1999,
respectively.
l. Principles of Consolidation
The consolidated financial statement include those of Spectre Industries,
Inc. (Spectre) and its wholly-owned subsidiary, Grant Automotive Group,
Inc. (GAG) and its 51% owned subsidiary, Bigoni-Stiner & Associates, Inc.
(Bigoni). All significant intercompany accounts and transactions have been
eliminated.
For the Company's foreign subsidiary, GAG, the functional currency has
been determined to be the Canadian dollar. Accordingly, assets and
liabilities are translated at period end exchange rates prevailing during
the period. The resultant cumulative translation adjustments to the assets
and liabilities are recorded as a separate component of stockholders'
equity. Exchange adjustments resulting from foreign currency transactions
are included in the determination of net income (loss). Such amounts are
immaterial for all years presented.
In accordance with Statement of Financial Accounting Standards No. 95,
"Statements of Cash Flows," cash flows from the Company's foreign
subsidiaries are calculated based upon the local currencies. As a result,
amounts related to assets and liabilities reported on the statements of
cash flows will not necessarily agree with changes in the corresponding
balances on the balance sheets.
m. Unaudited Consolidated Financial Statement
The accompanying unaudited consolidated financial statements include all
of the adjustments which, in the opinion of management, are necessary for
a fair presentation. Such adjustments are of a normal recurring nature.
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 3 - CONVERTIBLE DEBENTURES
At September 30, 2000 and December 31, 1999, the Company had the following
convertible debentures:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------- -----------
(Unaudited)
<S> <C> <C>
Ten (10) convertible debentures dated October 15,
1998, of amounts from $30,000 to $340,000, bearing
interest at 10% requiring quarterly interest payments,
due on October 15, 2001, convertible into common
stock at $0.80 per share and unsecured. $ -- $ 980,000
Convertible debenture dated December 1, 1998,
bearing interest at 10% requiring quarterly interest
payments, due on December 1, 2000, convertible
into common stock at $0.80 per share and unsecured. -- 321,000
Six (6) convertible debentures dated January 29,
1999 for amounts from $10,000 to $70,000, bearing
interest at 10% requiring quarterly interest payments,
due on January 29, 2001. Convertible into common
stock at $0.80 per share and unsecured. -- 170,000
Convertible debenture dated February 25, 1999
bearing interest at 10% requiring quarterly interest
payments, due on February 25, 2001, convertible
into common stock at $0.80 per share and unsecured. -- 50,000
---------- -----------
-- 1,521,000
Less current portion -- (1,521,000)
---------- -----------
Total Long-Term Convertible Debentures $ -- $ --
========== ===========
</TABLE>
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 3 - CONVERTIBLE DEBENTURES (Continued)
On September 11, 2000, the Company issued 3,802,500 shares of common stock
at $0.40 per share for the conversion of $1,521,000 in convertible
debentures. The debenture holders accepted these shares as full
consideration for the outstanding convertible debentures.
The Company recognized interest expense of $103,996 and $271,372 for the
nine months ended September 30, 2000 and for the year ended December 31,
1999, respectively. Of the $271,372 recognized as interest expense for
December 31, 1999, $121,390 was recognized to reflect the discount on
debentures issued below fair market value.
NOTE 4 - COMMON STOCK TRANSACTIONS
On September 26, 2000, the Company issued 660,000 shares of common stock
at $0.50 per share for $330,000 cash consideration.
On September 9, 2000, the Company issued 145,310 shares of common stock
for $0.40 per share for interest expense valued at $58,124.
On September 11, 2000, the Company issued 3,802,500 shares of common stock
at $0.40 per share for the conversion of $1,521,000 in convertible
debentures.
On August 28, 2000, the Company issued 201,600 shares of common stock at
$0.50 per share for $100,000 cash consideration.
On June 22, 2000, the Company issued 1,680,000 shares of common stock at
$0.50 per share for $840,000 cash consideration.
On March 16, 2000, the Company issued 100,000 shares of common stock at
$0.20 per share for interest expense of $19,638.
On January 14, 2000, the Company issued 300,000 shares of common stock at
$0.20 per share for cash consideration of $60,000.
On January 14, 2000, the Company issued 1,210,000 shares of common stock
at $0.28 per share in conversion of $340,010 of debt.
On January 1, 2000, the Company issued 450,000 shares of common stock at
$0.25 per share for services valued at $112,500.
On May 10, 1999, the Company issued 1,900,000 shares of common stock at
$0.10 per share for cash consideration of $190,000.
On April 6, 1999, the Company issued 200,000 shares of common stock at
$0.80 per share for the consideration of cash and services valued at
$160,000.
On February 23, 1999, the Company issued 250,000 shares of common stock
for services valued at the trading price of $1.187 per share.
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 4 - COMMON STOCK TRANSACTIONS (Continued)
On December 16, 1998, the Company issued 24,000 shares of common stock for
services valued at the trading price of $1.06 per share.
On September 3, 1998, the Company issued 1,200,000 shares of common stock
for services valued at the trading price of $1.375 per share. The shares
were issued to a company controlled by a major shareholder of the Company.
On September 3, 1998, the Company issued 1,390,000 shares of common stock
for the conversion of $695,000 of debt. The Company recognized additional
interest expense of $1,216,250 to reflect the discount from the trading
price of $1.375 per share. These shares were issued to a major shareholder
of the Company.
On January 7, 1998, the Company issued 4,444,444 shares of common stock to
ten (10) shareholders for $4,444 of cash.
NOTE 5 - NOTE AND INTEREST RECEIVABLE
The Company had the following notes receivable:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
Note receivable from DTI Technology, Inc. (DTI) dated
July 21, 1998, bearing interest at 9.00%, due on July
31, 1999, secured by assets of DTI. $ 300,000 $ 300,000
Note receivable from Dega Technology, Inc. (DEGA),
dated December 9, 1998, bearing interest at prime
plus 1% (8.75% at December 31, 1998), due on June
30, 1999, secured by assets of Dega. 200,000 210,000
--------- ---------
Total notes receivable 510,000 510,000
Less: allowance for bad debts (510,000) (510,000)
--------- ---------
$ -- $ --
========= =========
</TABLE>
The Company accrued interest of $-0- and $45,375 on these notes during the
six months ended June 30, 2000 and the year ended December 31, 1999,
respectively, accordingly, the total interest receivable due from these
notes at September 30, 2000 and December 31, 1999 was $58,541 and $58,541,
respectively.
On November 30, 1999, the Company filed a petition with the United States
Bankruptcy Court - Central District of California to force DEGA, dba DTI,
into Chapter 7 bankruptcy. Because of the doubtful nature of the
collection, the Company has established an allowance for the full amount
of the notes and interest receivable of $568,541.
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 5 - NOTE AND INTEREST RECEIVABLE (Continued)
The Company had loaned the $510,000 to DEGA with the expectation that the
money would be used for a computer based information product which could
be used by the Company. The Company and DEGA were also contemplating a
merger. The Company had no relationship with DEGA prior to the merger
negotiations and cash advances.
NOTE 6 - GOING CONCERN
The Company's consolidated financial statements are prepared using
generally accepted accounting principles applicable to a going concern
which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has incurred
significant losses from its inception through September 30, 2000. It has
not established a source of revenues to cover its operating costs and to
allow it to continue as a going concern. In January 2000, the Company
completed the purchase of Grant Automotive Group (GAG) and Bigoni-Stiner &
Associates, Inc. (Bigoni). The acquisition of GAG and Bigoni will enable
the Company to have additional avenues of cash flow which did not exist
prior to the acquisition. However, there can be no assurance that
significant cash flows will result from the acquisition of GAG and Bigoni.
NOTE 7 - INVESTMENT IN EQUITY SUBSIDIARY
In 1997, the Company received a 25% interest in Spectre Holdings Limited
(SHL), a Channel Islands company. SHL owns 100% of Spectre Cars Limited, a
Channel Islands company. The Company received the interest for
transferring its knowledge and expertise in the automobile industry to
SHL. The investment is accounted for using the equity method of
accounting. In 1998, the investment was deemed to have no value because of
the recurring losses SHL and the inability to sell the SHL shares.
Accordingly, the Company has recognized a loss from the equity subsidiary
of $-0- and $120,935 for the nine months ended September 30, 2000 and for
the year ended December 31, 1999.
NOTE 8 - DEPOSIT ON SUBSIDIARY ACQUISITION
At December 31, 1999, the Company had advanced $450,000 to Grant Brother
Sales, Limited (GBS) in connection with the purchase of Grant Automotive
Group, Inc. (GAG). This agreement became effective on January 1, 2000 (see
Note 12).
NOTE 9 - WARRANTS
On September 30, 1998, the Company issued 200,000 warrants to a
corporation controlled by a related party which were exercisable at $1.50
per share. At the date of issue, the trading price of the Company's stock
was $1.375. Accordingly, no expense was recorded for the issuance of the
warrants. On December 31, 1999, these warrants expired unexercised.
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 10 -LOSS FROM DISCONTINUED OPERATIONS
In early 1997, the former operating subsidiaries of Spectre Supersports,
Ltd. and Spectre Cars UK, Ltd. were put into liquidation. Accordingly, all
of the Company activity prior to then has been reclassified as
discontinued operations. The following is a summary of the discontinued
operations as required by APB 30.
<TABLE>
<CAPTION>
From
Inception of the
Development
Stage on
April 26, 1995
Through
December 31,
1997
----------------
<S> <C>
SALES $ 1,089,559
COST OF SALES 1,285,137
-----------
Gross Margin (195,578)
-----------
EXPENSES
Depreciation 41,977
Research and development 186,389
General and administrative 1,814,651
-----------
Total Expenses 2,043,017
-----------
Loss from Operations (2,238,595)
-----------
OTHER INCOME
Interest income 2,345
-----------
Total Other Income 2,345
-----------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY INCOME $(2,236,250)
-----------
</TABLE>
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 10 - LOSS FROM DISCONTINUED OPERATIONS (Continued)
<TABLE>
<CAPTION>
From
Inception of the
Development
Stage on
April 26, 1995
Through
December 31,
1997
----------------
<S> <C>
EXTRAORDINARY INCOME
Gain on forgiveness of debt $ 47,005
-----------
Total Extraordinary Income 47,005
-----------
INCOME TAX EXPENSE --
-----------
NET INCOME (LOSS) $(2,189,245)
===========
</TABLE>
No income tax benefit has been attributed to the loss from discontinued
operations.
NOTE 11 - ACCOUNTS PAYABLE - RELATED PARTIES
In 1999, a related party performed services which were valued at $337,200.
The Company issued 1,200,000 shares of common stock on January 14, 2000
for the conversion of this amount.
NOTE 12 - BUSINESS COMBINATIONS
On January 1, 2000, the Company entered into a share purchase agreement
with Grant Brothers Sales, Limited (GBS) to acquire 100% of the issued and
outstanding shares of GBS's wholly-owned subsidiary Grant Automotive
Group, Inc. (GAG). GAG is a wholesale automotive business group organized
under the laws of Ontario, Canada. The Company gave $500,000 cash
consideration in connection with the agreement. The excess of the total
acquisition cost over the fair value of the net assets acquired of $-0- is
being amortized over 5 years by the straight-line method.
The acquisition has been accounted for as a purchase and results of
operations of Grant Automotive Group, Inc. since the date of acquisition
are included in the consolidated financial statements.
In conjunction with the purchase of GAG on January 1, 2000, the Company
also entered into a management services agreement with GBS. This agreement
dictates that GBS is to manage the operations of GAG by providing
personnel, office space, accounting services and other similar services so
that GAG can continue to operate the business and maximize its benefits
from operations. In consideration for these services, GAG agrees to
reimburse GBS for all of its costs associated directly with its services
provided under the agreement, as well as provide GBS with a proportioned
distribution of its net cash flows.
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 12 - BUSINESS COMBINATIONS (Continued)
The distribution of the net cash flow of GAG between GAG and GBS has been
agreed upon as follows: The first $50,000 of the net cash flow of GAG for
any fiscal year is to be distributed to GAG. The second $100,000 of the
net cash flow of GAG is to be distributed to GBS. Any net cash flow of GAG
in excess of these yearly distributions is to be distributed 47.5% to GAG
and 52.5% to GBS, respectively.
In connection with this net cash flow distribution, GAG also holds the
option to purchase from GBS an increase in their net cash flow
distribution by paying GBS $423,058. This option must be exercised before
January 1, 2005. If the option is exercised, the net cash flow
distribution (after the initial distributions of $50,000 and $100,000,
respectively) will change to 95% to GAG and 5% to GBS and will become
effective in the calendar year immediately following the year in which the
payment is made to GBS.
This management service agreement became effective on January 1, 2000 and
will continue for five years. At the expiration of five years, the
agreement will automatically be renewed for successive one year periods
unless it is terminated by either GAG or GBS.
If GAG fails to exercise its option to increase its net cash flow by
failing to make the "net cash flow increase payment", GBS will be entitled
to purchase all of GAG's assets conveyed in connection with this
transaction.
In addition, on January 1, 2000, the Company acquired 51% of the
outstanding shares of Bigoni-Stiner & Associates, Inc., a distributor of
automobile parts and accessories. The total acquisition cost was $75,815
(the present value of $100,000 to be paid over 5 years). The excess of the
total acquisition cost over the fair value of the net assets acquired of
$2,615 is being amortized over 5 years by the straight-line method.
The acquisition has been accounted for as a purchase and results of
operations of Bigoni-Stiner & Associates, Inc., since the date of
acquisition, are included in the consolidated financial statements.
NOTE 13 - NOTES PAYABLE
In connection with the purchase of its 51% interest in Bigoni-Stiner &
Associates, Inc., the Company issued non-interest bearing notes payable
with a face value of $100,000 to be paid over 5 years. These notes payable
were recorded at their present value of $75,815 using a standard discount
rate of 10%. At September 30, 2000, notes payable consisted of the
following:
Total notes payable $ 68,619
Less: current maturities (5,676)
--------
Non-current notes payable $ 62,943
========
<PAGE>
SPECTRE INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 13 - NOTES PAYABLE (Continued)
Maturities of long-term debt are as follows:
Year Ending
December 31,
------------
2000 $ 5,676
2001 13,706
2002 15,075
2003 16,584
2004 17,578
2005 and thereafter --
-------
Total $68,619
=======
