As
filed
with the U.S. Securities and Exchange Commission on June
16,
2006
Registration
No. 333-131829
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
AMENDMENT
NO. 1 TO
FORM
SB-2 REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Nevada
|
Sensor
System Solutions, Inc.
|
98-0226032
|
(State
or Other Jurisdiction of Incorporation
|
(Name
of Registrant in Our Charter)
|
(I.R.S.
Employer Identification No.)
|
or
Organization)
|
|
|
|
|
Michael
Young
|
45
Parker Avenue, Suite A
|
|
45
Parker Avenue, Suite A
|
Irvine,
California 92618
|
|
Irvine,
California 92618
|
(949)
855-6688
|
7389
|
(949)
855-6688
|
(Address
and telephone number of Principal
|
(Primary
Standard Industrial
|
(Name,
address and telephone number
|
Executive
Offices and Principal Place of Business)
|
Classification
Code Number)
|
of
agent for service)
|
Copies
to:
|
Clayton
E. Parker, Esq.
Kirkpatrick
& Lockhart Nicholson Graham LLP
201
S. Biscayne Boulevard, Suite 2000
Miami,
Florida 33131
Telephone: (305)539-3300
Telecopier: (305)358-7095
|
Ronald
S. Haligman, Esq.
Kirkpatrick
& Lockhart Nicholson Graham LLP
201
S. Biscayne Boulevard, Suite 2000
Miami,
Florida 33131
Telephone: (305)539-3300
Telecopier: (305)358-7095
|
Approximate
date of commencement of proposed sale to the public: As
soon as practicable after this registration statement becomes
effective.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933
check the following box. x
If
this
Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of
the
earlier effective registration statement for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act of
1933
registration statement number of the earlier effective registration statement
for the same offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. o
CALCULATION
OF REGISTRATION FEE
|
|
|
|
|
|
|
|
|
|
Title
Of Each Class Of
Securities
To Be Registered
|
|
Amount
To Be
Registered
|
|
Proposed
Maximum
Offering
Price
Per
Share (1)
|
|
Proposed
Maximum
Aggregate
Offering
Price
(1)
|
|
Amount
Of
Registration
Fee
(3)
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|
Common
Stock, par value $0.001 per share
|
|
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20,636,866
shares
(2)
|
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$
|
0.08
|
|
$
|
1,650,949
|
|
$
|
176.65
|
|
TOTAL
|
|
|
20,636,866
shares
(2)
|
|
$
|
0.08
|
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$
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1,650,949
|
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$
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176.65
|
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(1)
|
Estimated
solely for the purpose of calculating the registration fee pursuant
to
Rule 457(c) under the Securities Act of 1933. For the purposes
of this table, we have used the average of the closing bid and asked
prices as of a recent date.
|
(2)
|
Of
these shares, 17,850,000 shares
are
being registered under secured convertible debentures, 1,471,429
shares were received as a one-time commitment fee under a now-terminated
Standby Equity Distribution Agreement, 28,571 shares are being registered
as a placement agent fee issued in connection with a now-terminated
Standby Equity Distribution Agreement, and 1,286,866 shares are being
registered upon the exercise of
warrants.
|
(3)
|
A
registration fee was previously
paid as part of the Registration Statement filed with the U. S. Securities
and Exchange Commission (the “Commission”)
on February 14, 2006.
|
The
Registrant hereby amends this Registration Statement on such date or dates
as
may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission,
acting
pursuant to said Section 8(a), may determine.
PROSPECTUS
Subject
to completion, dated June ___, 2006
SENSOR
SYSTEM SOLUTIONS, INC.
20,636,866
shares of Common Stock
This
Prospectus relates to the sale of up to 20,636,866 shares of common stock of
Sensor System Solutions, Inc. (“Sensor
System”
or
the
“Company”)
by
certain persons who are, or will become, stockholders of the Company including
Cornell Capital Partners, LP (“Cornell
Capital Partners”).
The
selling stockholders consist of:
|
·
|
Cornell
Capital Partners, which may sell up to (i) 17,850,000 shares of common
stock underlying secured convertible debentures, (ii) 1,471,429 shares
of
common stock received from the Company on October 6, 2005 as a one-time
commitment fee under that certain Standby Equity Distribution Agreement,
dated October 6, 2005, and subsequently terminated on December 23,
2005
and (iii) 1,200,000 shares of common stock to be issued upon the
exercise
of warrants;
|
|
·
|
Monitor
Capital, Inc., which may sell up to 28,571 shares of common stock
received
by the Company on October 6, 2005 as a placement agent fee under
a
now-terminated Standby Equity Distribution Agreement; and
|
|
·
|
Trenwith
Securities, Inc., which may sell up to 86,866 shares of common stock
under
a warrant previously issued by the Company to Trenwith Securities,
Inc. on
November 16, 2005.
|
Please
refer to “Selling Stockholders” beginning on page 13. Sensor System is not
selling any shares of common stock in this offering and therefore will not
receive any proceeds from this offering. However, Sensor System may receive
proceeds from the exercise of warrants which underlying shares of common stock
are being registered in the accompanying Registration Statement. Sensor System
received gross proceeds in the total principal amount of $1,000,000, which
have
been used to repay outstanding debt and for general working capital. All costs
associated with this registration will be borne by the Company.
The
shares of common stock are being offered for sale by the selling stockholders
at
prices established on the Over-the-Counter Bulletin Board (“OTCBB”)
during
the term
of this offering. On June 5, 2006, the last reported sale price of our common
stock was $0.10 per share. Our common stock is quoted on the OTCBB under the
symbol “SSYO.OB.” The price per share of our common stock will fluctuate based
on the demand for the shares of common stock.
On
December 23, 2005, the Company entered into a Securities Purchase Agreement
with
Cornell Capital Partners, pursuant to which the Company issued to Cornell
Capital Partners secured convertible debentures in the principal amount of
$1,000,000. The convertible debentures are secured by substantially all of
the
Company’s assets, have a one year term and accrue interest at 10% per
annum.
Cornell
Capital Partners is
entitled, at its option, to convert and sell all or any part of the principal
amount of the convertible debentures, plus any and all accrued interest, into
shares of the Company’s common stock at a price equal to the lesser of (i) $0.35
and (ii) ninety percent (90%) of the lowest volume weighted average price of
the
common stock during the fifteen (15) trading days immediately preceding the
date
of conversion as quoted by Bloomberg, LP. In this registration statement, we
are
registering 17,850,000 shares of common stock under the secured convertible
debentures.
Brokers
or dealers effecting transactions in these shares should confirm that the shares
are registered under the applicable state law or that an exemption from
registration is available.
These
securities are speculative and involve a high degree of
risk.
Please
refer to “Risk Factors” beginning on page 6.
No
underwriter or person has been engaged to facilitate the sale of shares of
common stock in this offering. This offering will terminate 24 months after
the
companying registration statement is declared effective by the
Commission.
The
information in this Prospectus is not complete and may be changed. The selling
stockholders may not sell these securities until the registration statement
filed with the Commission is effective. This prospectus is not an offer to
buy
these securities in any state where the offer or sale is not permitted.
The
Commission and state securities regulators have not approved or disapproved
of
these securities, or determined if this Prospectus is truthful or complete.
Any
representation to the contrary is a criminal offense.
The
date
of this Prospectus is June 16, 2006
TABLE
OF CONTENTS
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|
PROSPECTUS
SUMMARY
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1
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THE
OFFERING
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3
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SUMMARY
FINANCIAL DATA
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4
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RISK
FACTORS
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6
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FORWARD-LOOKING
STATEMENTS
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12
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SELLING
STOCKHOLDERS
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13
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USE
OF PROCEEDS
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16
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PLAN
OF DISTRIBUTION
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17
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
|
|
AND
RESULTS OF OPERATIONS
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18
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
|
|
AND
FINANCIAL DISCLOSURE
|
24
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DESCRIPTION
OF BUSINESS
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25
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MANAGEMENT
|
29
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PRINCIPAL
STOCKHOLDERS
|
33
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MARKET
PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY
|
|
AND
OTHER STOCKHOLDER MATTERS
|
34
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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37
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DESCRIPTION
OF CAPITAL STOCK
|
38
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EXPERTS
|
41
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VALIDITY
OF SECURITIES
|
41
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INTERESTS
OF NAMED EXPERT AND COUNSEL LEGAL MATTERS
|
41
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HOW
TO GET MORE INFORMATION
|
41
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INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
|
F-i
|
PROSPECTUS
SUMMARY
The
following is only a summary of the information, financial statements and the
notes included in this prospectus. You should read the entire prospectus
carefully, including “Risk
Factors”
and our
Financial Statements and the notes to the Financial Statements before making
any
investment decision.
Our
Company
Sensor
System 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. Sensor System offers a variety of Digital Pressure
Gauges, Pressure Transducers, Pressure Sensors, Force Beams, Load Cells, Strain
Gauges and Sensor Kits. Sensor System produces or supplies a family of nearly
thirty (30) distinctive products. Sensor
System set up a volume production line with an ISO 9000 partner in Taiwan in
2002 to penetrate high-volume consumer markets that are price sensitive. On
April 12, 2005, we entered into a Joint Venture Agreement with China
Automotive Systems, Inc. (“CAAS”),
pursuant
to which the parties agreed to develop, produce and sale sensor and related
electronic products throughout China. To that end, in 2005, the parties
established Universal Sensors, Inc.
(“USI”)
in the
Wuhan East lake development zone, in Hubei, China. Pursuant to the Joint Venture
Agreement, the parties agreed to invest $10,000,000, out of which we will invest
$3,000,000 in technology and assets. USI has been in operations since 2005,
and
we have been in the process of transferring technology to them for the
production and development of sensor products.
Sensor
System is a supplier of thin-film and micro-machined force and pressure sensors
to the medical, chemical, oil, and gas industries. Sensor System believes that
its technology will enable it to become a global supplier of advanced
MEMS/Microelectronic products in myriad developing markets. Sensor System’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.
Going
Concern
Our
auditors included an explanatory paragraph in connection with our 2005 financial
statements, stating that we have incurred a net loss of $2,729,273 and a
negative cash flow from operations of $928,809 for the year ended
December 31, 2005, and had a working capital deficiency of $2,004,770 and a
stockholders’ deficiency of $1,695,890 at December 31, 2005, there is
substantial doubt about our ability to continue as a going concern.
We
incurred a net loss of $523,284 and a negative cash flow from operations of
$408,443 for three months ended March 31, 2006, and had a working capital
deficiency of $2,231,972 and a stockholders’ deficiency of $2,028,542 at
March 31, 2006. These matters raise substantial doubt about our ability to
continue as a going concern. Without realization of additional capital, it
would
be unlikely for us to continue as a going concern. Management believes that
actions are presently being taken to revise our operating and financial
requirements in order to improve our financial position and operating results.
We are seeking an additional $1,000,000 in bridge financing to further develop
into a fully-equipped public company; however, no assurance can be given that
such funds will be available or the term thereof. Given the levels of our cash
resources and working capital deficiency at March 31, 2006, 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 2006.
Since
its
inception, we have had a substantial working capital deficit. On October 6,
2005, we secured a total of $15,600,000 in financing with Cornell Capital
Partners to support our continued development and growth. Cornell Capital
Partners committed to provide up to $15 million of funding in the form of a
Standby Equity Distribution Agreement to be drawn down over a 24-month period
at
our discretion. In addition, we sold an aggregate of $600,000 of fixed price
secured convertible debentures to Cornell Capital Partners. The Standby Equity
Distribution Agreement was subsequently terminated on December 23, 2005. We
did
not register any shares in connection with the Standby Equity Distribution
Agreement, and did not draw down any advances thereunder. On December 23,
2005, we entered into a Securities Purchase Agreement with Cornell Capital
Partners pursuant to which it sold an aggregate of $1,000,000 of secured
convertible debentures to Cornell Capital Partners. Out of the total principal
amount of $1,000,000, $610,000 was used to repay the principal amount and
accrued interest on the secured convertible debentures issued to Cornell Capital
Partners in October 2005.
Our
ability to implement our strategic plan related to acquisitions and production
of new products as well as to continue operations will require additional
capital. Therefore, we are actively seeking additional funds in the form of
debt
or equity or combination thereof. However, no assurance can be given that such
funds will be available or the terms thereof. To the extent we are unable to
raise sufficient funds, our business plan will be required to be substantially
modified, our operations curtailed or protection under bankruptcy/reorganization
laws
sought.
About
Us
Our
principal executive offices are located at 45
Parker
Avenue, Suite A, Irvine, California 92618.
Our
telephone number is (949)
855-6688. Our website is www.corp3s.com.
THE
OFFERING
The
selling stockholders consist of:
|
·
|
Cornell
Capital Partners, which may sell up to (i) 17,850,000 shares of common
stock underlying secured convertible debentures, (ii) 1,471,429 shares
of
common stock received from the Company on October 6, 2005 as a one-time
commitment fee under that certain Standby Equity Distribution Agreement,
dated October 6, 2005, and subsequently terminated on December 23,
2005
and (iii) 1,200,000 shares of common stock to be issued upon the
exercise
of warrants;
|
|
·
|
Monitor
Capital, Inc., which may sell up to 28,571 shares of common stock
received
by the Company on October 6, 2005 as a placement agent fee under
a
now-terminated Standby Equity Distribution Agreement; and
|
|
·
|
Trenwith
Securities, Inc., which may sell up to 86,866 shares of common stock
under
a warrant previously issued by the Company to Trenwith Securities,
Inc. on
November 16, 2005.
|
Common
Stock Offered
|
20,636,866
shares by selling stockholders
|
|
|
Offering
Price
|
Market
price
|
|
|
Common
Stock Outstanding Before the Offering1
|
76,586,112
shares as of June 5, 2006
|
|
|
Use
of Proceeds
|
Sensor
System will not receive any proceeds from the shares offered by the
selling stockholders. However, Sensor System may receive proceeds
from the
exercise of warrants which underlying shares of common stock are
being
registered in the accompanying Registration Statement.
|
|
|
Risk
Factors
|
The
securities offered hereby involve a high degree of risk and immediate
substantial dilution. See “Risk Factors” and
“Dilution.”
|
|
|
Over-the-Counter
Bulletin Board Symbol
|
SSYO.OB
|
1
|
Excludes
up
to 17,850,000 shares of common stock issuable upon the conversion
of
convertible debentures, and up to 1,286,866 shares issuable upon
the
exercise of warrants.
|
SUMMARY
FINANCIAL DATA
The
following selected financial data as of December 31, 2005 and for the years
ended December 31, 2005 and 2004 have been derived from the Company’s
consolidated financial statements which have been audited by Weinberg &
Company,
P.A.,
an independent registered public accounting firm, as of and for the years ended
December 31, 2005 and 2004 and which audit reports are on file with the
Company’s 2005 and 2004 10-KSB filings with the Commission. The financial data
as of March 31, 2006 and for the three months ended March 31, 2006,
and March 31, 2005, are derived from our unaudited consolidated financial
statements, which are included elsewhere in this prospectus. The unaudited
condensed consolidated financial statements have been prepared on the same
basis
as our audited consolidated financial statements and include all adjustments,
consisting of normal and recurring adjustments, that we consider necessary
for a
fair presentation of our financial position and operating results for the
unaudited periods. The summary historical financial and operating data as of
and
for the three months ended March 31, 2006, are not necessarily indicative
of the results that may be obtained for a full year. The following data should
be read in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in this Prospectus and the Consolidated
Financial Statements and notes thereto included in this Prospectus.
|
|
For
Three Months Ended
March 31,
|
|
For
The Year Ended
December
31,
|
|
|
|
2006
|
|
2005
|
|
2005
|
|
2004
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales,
net
|
|
$
|
530,098
|
|
$
|
205,015
|
|
$
|
1,324,872
|
|
$
|
661,340
|
|
Cost
of goods sold
|
|
|
332,993
|
|
|
147,274
|
|
|
878,216
|
|
|
579,790
|
|
Gross
profit
|
|
|
197,105
|
|
|
57,741
|
|
|
446,656
|
|
|
81,550
|
|
Operating
expenses
|
|
|
544,817
|
|
|
330,555
|
|
|
1,869,896
|
|
|
1,292,072
|
|
Amortization
of discount on notes payable and finance costs
|
|
|
132,448
|
|
|
155,121
|
|
|
531,033
|
|
|
651,868
|
|
Stock-based
compensation costs
|
|
|
60,029
|
|
|
--
|
|
|
775,000
|
|
|
1,800,000
|
|
Total
operating expenses
|
|
|
737,294
|
|
|
485,676
|
|
|
3,175,929
|
|
|
3,743,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of equipment to related party
|
|
|
16,905
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(523,284
|
)
|
$
|
(427,935
|
)
|
$
|
(2,729,273
|
)
|
$
|
(3,662,390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share, basic and fully diluted
|
|
$
|
(.01
|
)
|
$
|
(.01
|
)
|
$
|
(0.05
|
)
|
$
|
(0.46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding, basic and diluted including effects of
in-kind
stock splits
|
|
|
66,228,292
|
|
|
59,279,241
|
|
|
59,809,253
|
|
|
7,920,079
|
|
SENSOR
SYSTEM SOLUTIONS, INC. AND SUBSIDIARY
SUMMARY
OF CONDENSED CONSOLIDATED BALANCE SHEETS
As
of March 31, 2006 (Unaudited)
and
December 31, 2005
|
|
March 31,
2006
(Unaudited)
|
|
December
31, 2005
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
|
|
$
|
38,038
|
|
$
|
172,732
|
|
Accounts
receivable
|
|
|
416,851
|
|
|
230,440
|
|
Inventory
|
|
|
254,127
|
|
|
302,171
|
|
Prepaids
and other current assets
|
|
|
9,900
|
|
|
46,634
|
|
Total
current assets
|
|
|
718,916
|
|
|
751,977
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
151,167
|
|
|
233,862
|
|
Other
assets
|
|
|
104,112
|
|
|
104,112
|
|
Total
assets
|
|
$
|
974,195
|
|
$
|
1,089,951
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,331,136
|
|
$
|
1,313,134
|
|
Notes
payable
|
|
|
1,228,564
|
|
|
1,060,171
|
|
Notes
payable, related parties
|
|
|
376,025
|
|
|
368,565
|
|
Current
portion of capital lease obligations
|
|
|
9,163
|
|
|
8,877
|
|
Current
portion of deferred rent concession
|
|
|
6,000
|
|
|
6,000
|
|
Total
current liabilities
|
|
|
2,950,888
|
|
|
2,756,797
|
|
|
|
|
|
|
|
|
|
Total
long-term liabilities
|
|
|
51,849
|
|
|
29,094
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ deficiency
|
|
|
(2,028,542
|
)
|
|
(1,695,890
|
)
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ deficiency
|
|
$
|
974,195
|
|
$
|
1,089,951
|
|
RISK
FACTORS
We
are subject to various risks that may materially harm our business, financial
condition and results of operations. You should carefully consider the risks
and
uncertainties described below and the other information in this filing before
deciding to purchase our common stock. If any of these risks or uncertainties
actually occurs, our business, financial condition or operating results could
be
materially harmed. In that case, the trading price of our common stock could
decline and you could lose all or part of your
investment.
Risks
Related To Our Business
Our
Obligations Under The Secured Convertible Debentures Are Secured By All of
Our
Assets Which Cause Our Operations To Cease If We Default
Our
obligations under the secured convertible debentures issued to Cornell Capital
Partners are secured by all of our assets. As a result, if we default under
the
terms of the secured convertible debentures, Cornell Capital Partners could
foreclose its security interest and liquidate all of our assets. This would
cause us to cease operations.
We
Have Been The Subject Of A Going Concern Opinion From Our Independent Auditors,
Raising A Substantial Doubt About Our Ability To Continue As A Going
Concern
Our
auditors included an explanatory paragraph in connection with our 2005 financial
statements stating that we have incurred a net loss of $2,729,273 and a negative
cash flow from operations of $928,809 for the year ended December 31, 2005,
and had a working capital deficiency of $2,004,770 and a stockholders’
deficiency of $1,695,890 at December 31, 2005, there is substantial doubt about
our ability to continue as a going concern. We incurred a net loss of $523,284
and a negative cash flow from operations of $408,443 for three months ended
March 31, 2006, and had a working capital deficiency of $2,231,972 and a
stockholders’ deficiency of $2,028,542 at March 31, 2006. These factors,
along with others, may indicate that we will be unable to continue as a going
concern for a period of twelve months or less. We will have to raise additional
funds to meet our current obligations and to cover operating expenses through
the year ending December 31, 2006. If we are not successful in raising
additional capital we may not be able to continue as a going concern for a
period of twelve months or less.
We
Have
Had Negative Cash Flows
From
Operations And Our Business Operations May Fail If Our Actual Cash Requirements
Exceed Our Estimates, And We Are Not Able To Obtain Further
Financing
We
have
had negative cash flows from operations. To date, we have incurred significant
expenses in product development and administration in order to ready our
products for market. Our business plan calls for additional significant expenses
necessary to bring our products to market. We believe we do not have sufficient
funds to satisfy our short-term cash requirements. There is no assurance that
actual cash requirements will not exceed our estimates, in which case we will
require additional financing to bring our products into commercial operation,
finance working capital and pay for operating expenses and capital requirements
until we achieve a positive cash flow. In particular, additional capital may
be
required in the event that:
|
·
|
we
incur unexpected costs in completing the development of our technology
or
encounter any unexpected technical or other
difficulties;
|
|
·
|
we
incur delays and additional expenses as a result of technology
failure;
|
|
·
|
we
are unable to create a substantial market for our product and services;
or
|
|
·
|
we
incur any significant unanticipated
expenses.
|
If
we are
unable to obtain such additional capital, our financial condition and results
of
operations may be adversely affected and we may cease operations. If we require,
but are unable to obtain, additional financing in the future, we may be unable
to implement our business plan and our growth strategies, respond to changing
business or economic conditions, withstand adverse operating results, and
compete effectively.
We
May Not Be Able To Obtain Financing On Terms Acceptable To Us, Resulting In
Our
Business Operations Being Scaled Down Or Terminated
We
need
additional equity or debt financing, but such financing may not be available
to
us on acceptable terms On October 6, 2005, we secured a total of $15,600,000
in
financing with Cornell Capital Partners to support our continued development
and
growth. Cornell Capital Partners had committed to provide up to $15 million
of
funding in the form of a Standby Equity Distribution Agreement to be drawn
down
over a 24-month period at our discretion. In addition, we sold an aggregate
of
$600,000 of fixed price secured convertible debentures to Cornell Capital
Partners. The Standby Equity Distribution Agreement was subsequently terminated
on December 23, 2005. We did not register any shares in connection with the
Standby Equity Distribution Agreement, and did not draw down any advances
thereunder. On December 23, 2005, we entered into a Securities Purchase
Agreement with Cornell Capital Partners pursuant to which we sold an aggregate
of $1,000,000 of fixed price secured convertible debentures to Cornell Capital
Partners. Out of the total principal amount of $1,000,000, $610,000 was used
to
repay the principal amount and accrued interest on the secured convertible
debentures issued to Cornell Capital Partners in October 2005.
Additional
funding may not be available to us, and, even if it is available, such financing
may be (i) extremely costly, (ii) dilutive to existing stockholders and/or
(iii)
restrictive to our ongoing operations. If we are unable to raise further
financing on satisfactory terms to us at such times when we require it, our
continued operations may have to be scaled down or even ceased and our ability
to generate revenues would be negatively affected.
We
Have A Working Capital Deficit, Which Means That Our Current Assets On
March 31, 2006 Were Not Sufficient To Satisfy Our Current Liabilities On
That Date
We
had a
working capital deficit of $2,231,972 at March 31, 2006, which means that
our current liabilities exceeded our current assets on March 31, 2006 by
that amount. Current assets are assets that are expected to be converted into
cash within one year and, therefore, may be used to pay current liabilities
as
they become due. Our working capital deficit means that our current assets
on
March 31, 2006 were not sufficient to satisfy all of our current
liabilities on that date.
We
Have A Limited Operating History Upon Which You Can Evaluate Our
Business
We
are
subject
to the inherent challenges and risks of establishing a new business enterprise.
We may not be successful in addressing such risks. Our limited operating history
makes the prediction of future results of operations difficult or impossible.
We
introduced our first sensor product in 1997 and have continued to add sensor
components to our product portfolio since then. We now have more than thirty
sensor products in production. However, 2005
is
the first year that we introduced sensor solution modules containing sensing
elements, signal conditioning circuitry, software for calibration and interface,
and capability of wireless and/or networking. We do not have any feedback on
how
the market will accept them.
Fluctuations
Or Decreases In The Trading Price Of Our Common Stock May Adversely Affect
The
Liquidity Of The Stock’s Trading Market And Our Ability To Raise Capital Through
Future Offerings Of Capital Stock
The
stock
market from time to time experiences extreme price and volume fluctuations
which
are often unrelated to the operating performance of particular companies. The
market price of our common stock has been volatile, and it may continue to
be
volatile in the future. Fluctuations or decreases in the trading price of our
common stock may adversely affect the liquidity of the stock’s trading market
and our ability to raise capital through future offerings of capital stock.
Recently, when the market price of a stock has been volatile, holders of that
stock have often instituted securities class action litigation against the
company that issued the stock. If any of our stockholders brought such a class
action lawsuit against us, we could incur substantial costs defending the
lawsuit. Such a lawsuit could also divert the time and attention of our
management.
Unless
We
Can Establish Significant Sales Of Our Current Products, Our Potential Revenues
May Be Significantly Reduced
We
expect
that a substantial portion, if not all, of our future revenue will be derived
from the sale of our sensor products. We expect that these product offerings
and
their extensions and derivatives will account for a majority, if not all, of
our
revenue for the foreseeable future. The successful introduction and broad market
acceptance of our sensor products - as well as the development, introduction
and
market acceptance of any future enhancements - are, therefore, critical to
our
future success and our ability to generate revenues. Unfortunately, there can
be
no assurance that we will be successful in marketing our current product
offerings, or any new product offerings, applications or enhancements. Failure
to achieve broad market acceptance of our sensor products, as a result of
competition, technological change, or otherwise, would significantly harm our
business.
Our
Projected International Revenues Are Subject To Risks Inherent In International
Business Activities
Currently,
we have about 10% of our revenue stream from foreign accounts. However, we
expect in the future sales of our products and services in foreign countries
to
account for a greater portion of our revenues. These sales are subject to risks
inherent in international business activities, including:
|
·
|
any
adverse change in the political or economic environments in these
countries;
|
|
·
|
any
adverse change in tax, tariff and trade or other
regulations;
|
|
·
|
the
absence or significant lack of legal protection for intellectual
property
rights;
|
|
·
|
exposure
to exchange rate risk for revenues which are denominated in currencies
other than U.S. dollars; and
|
|
·
|
difficulties
in managing joint venture businesses spread over various
jurisdictions.
|
Our
revenues could be substantially less than we expect if these risks affect our
ability to successfully sell our products in the international market.
Our
Products May Be Perceived Poorly By Consumers, Which Could Have An Adverse
Affect On Our Business
Our
success depends substantially on our ability to design and develop sensor
modules with wireless capability. Although we believe that our products offer
advantages over existing sensor products, our products may also possess
characteristics that consumers could perceive as too difficult to incorporate.
If we do not attract and maintain our customers, we could be forced to curtail
or cease our business operations.
Third
Parties May Infringe Our Patents, New Products That We Develop May Not Be
Covered By Our Existing Patents And We Could Suffer An Adverse Determination
In
A Patent Infringement Proceeding, Which Could Allow Our Competitors To Duplicate
Our Products Without Having Had To Incur The Research And Development Costs
We
Have Incurred And Therefore Allow Them To Produce And Market Those Products
More
Profitably Than Sensor System
Our
ability to compete effectively will depend, in part, on our ability to protect
our proprietary technology incorporated in our products. We have taken limited
action to protect our proprietary technology and proprietary computer software.
If any of our competitors copies or otherwise gains access to our proprietary
technology or software or develops similar technologies independently, we would
not be able to compete as effectively. Even if we obtain patents on our
proprietary technology, the duration of patents is limited, may not be validly
held and others may try to circumvent or infringe those patents. We also rely
on
trade secrets and proprietary know-how that we try to protect in part by
confidentiality agreements with our manufacturers, joint venture partners,
employees and consultants. These agreements have limited terms and these
agreements may be breached, we may not have adequate remedies for any breach
and
our competitors may learn our trade secrets or independently develop them.
It is
necessary for us to litigate from time to time to enforce patents issued or
licensed to us, to protect our trade secrets or know-how and to determine the
enforceability, scope and validity of the proprietary rights of
others.
We
believe that we own or have the rights to use all of the technology that we
expect to incorporate into our products, but an adverse determination in
litigation or infringement proceedings to which we are or may become a party
could subject us to significant liabilities and costs to third parties or
require us to seek licenses from third parties. Although patent and intellectual
property disputes are often settled through licensing or similar arrangements,
costs associated with those arrangements could be substantial and could include
ongoing royalties. Furthermore, we may not obtain the necessary licenses on
satisfactory terms or at all. We could incur substantial costs attempting to
enforce our licensed patents against third party infringement, or the
unauthorized use of our trade secrets and proprietary know-how or in defending
ourselves against claims of infringement by others. Accordingly, if we suffered
an adverse determination in a judicial or administrative proceeding or failed
to
obtain necessary licenses, it would prevent us from manufacturing or licensing
others to manufacture some of our products.
Further,
the laws of foreign countries may provide inadequate protection of such
intellectual property rights. We may need to bring legal claims to enforce
or
protect such intellectual property rights. Any litigation, whether successful
or
unsuccessful, could result in substantial costs and diversions of resources.
In
addition, notwithstanding any rights we have secured in our intellectual
property, other persons may bring claims against us that we have infringed
on
their intellectual property rights, including claims based upon the content
we
license from third parties or claims that our intellectual property right
interests are not valid. Any claims against us, with or without merit, could
be
time consuming and costly to defend or litigate, divert our attention and
resources, result in the loss of goodwill associated with our service marks
or
require us to make changes to our website or other of our
technologies.
Our
Products
May
Become Obsolete And Unmarketable If We Are Unable To Respond Adequately To
Rapidly Changing Technology And Customer Demands
Our
industry is characterized by rapid changes in technology and customer demands.
As a result, our products may quickly become obsolete and unmarketable. Our
future success will depend on our ability to adapt to technological advances,
anticipate customer demands, develop new products and enhance our current
products on a timely and cost-effective basis. Further, our products must remain
competitive with those of other companies with substantially greater resources.
We may experience technical or other difficulties that could delay or prevent
the development, introduction or marketing of new products or enhanced versions
of existing products. Also, we may not be able to adapt new or enhanced products
to emerging industry standards, and our new products may not be favorably
received.
Risks
Related To This Offering
Future
Sales By Our Stockholders May Adversely Affect Our Stock Price And Our Ability
To Raise Funds In New Stock Offerings
Sales
of
our common stock in the public market following this offering could lower the
market price of our common stock. Sales may also make it more difficult for
us
to sell equity securities or equity-related securities in the future at a time
and price that our management deems acceptable or at all. Of the 76,586,112 shares
of
common stock outstanding as of June 5, 2006, 4,554,280 shares are, or will
be, freely tradable without restriction, unless held by our “affiliates.” The
remaining 72,031,832 shares of common stock, which will be held by existing
stockholders, including the officers and directors, are “restricted securities”
and may be resold in the public market only if registered or pursuant to an
exemption from registration. Some of these shares may be resold under Rule
144.
Existing
Shareholders Will Experience Significant Dilution From The Conversion Of The
Secured Convertible Debentures
Cornell
Capital Partners may convert the secured convertible debentures described herein
into shares of Sensor System’s common stock, at a conversion price which is the
lower of (i) $0.35 or (ii) a 10% discount to the market price. The subsequent
sale of such shares by Cornell Capital Partners could cause significant downward
pressure on the price of Sensor System’s common stock. This is especially the
case if the shares being placed into the market exceed the market’s demand for
the shares of Sensor System’s common stock. As the stock price of Sensor
System’s common stock declines, Cornell Capital Partners will be entitled to
receive an increasing number of shares under the convertible debentures. The
sale of such increasing number of shares by Cornell Capital Partners could
cause
further downward pressure on the stock price to the detriment and dilution
of
existing investors, as well as investors in this offering.
Further,
there is no maximum number of shares Sensor System might be required to issue
under securities with market-price based conversion or exercise prices, such
as
securities issued in connection with the secured convertible debentures, except
for the 4.99% limitation on Cornell Capital Partners’ ownership interest in
Sensor System at any one time. However, Cornell Capital Partners may acquire
and
sell a number of shares that far exceeds this limit, through the continual
conversion and sale of shares.
As
a
result, our net income per share could decrease in future periods, and the
market price of our common stock could decline. In addition, the lower our
stock
price, the more shares of common stock we will have to issue upon conversion
of
the secured convertible debentures. If our stock price is lower, then our
existing stockholders would experience greater dilution.
The
Selling Stockholders May Sell Their Shares Of Common Stock In The Market, Which
Sales May Cause Our Stock Price To Decline
The
selling stockholders may sell in the public market up to 20,636,866 shares
of
common stock being registered in this offering. That means that up to 20,636,866
shares may be sold pursuant to this registration statement. Such sales may
cause
our stock price to decline. The officers and directors of the Company
and
those shareholders who are significant shareholders as defined by the Commission
will continue to be subject to the provisions of various insider trading and
rule 144 regulations.
The
Sale Of Material Amounts Of Common Stock Under The Accompanying Registration
Statement Could Encourage Short Sales By Third Parties
In
many
circumstances the issuance of convertible securities for companies that are
traded on the OTCBB the potential to cause a significant downward pressure
on
the price of common stock. This is especially the case if the shares being
placed into the market exceed the market’s ability to take up the increased
stock or if Sensor System has not performed in such a manner to show that the
debt raised will be used to grow Sensor System. Such an event could place
further downward pressure on the price of common stock.
Any
outstanding amounts under the secured convertible debentures are convertible
at
the lower of (i) $0.35 or (ii) 10% discount to the market price of our common
stock. As a result, the opportunity exists for short sellers and others to
contribute to the future decline of the Company’s stock price. Persons engaging
in short sales first sell shares that they do not own, and thereafter, purchase
shares to cover their previous sales. To the extent the stock price declines
between the time the person sells the shares and subsequently purchases the
shares, the person engaging in short sales will profit from the transaction,
and
the greater the decline in the stock, the greater the profit to the person
engaging in such short-sales.
If
there
are significant short sales of our stock, the price decline that would result
from this activity will cause our share price to decline more so which in turn
may cause long holders of our stock to sell their shares thereby contributing
to
sales of stock in the market. If there is an imbalance on the sell side of
the
market for our stock the price will decline. It is not possible to predict
if
the circumstances where by a short sales could materialize or to what our share
price could drop. In some companies that have been subjected to short sales
their stock price has dropped to near zero. We cannot provide any assurances
that this situation will not happen to us.
The
Price You Pay In This Offering Will Fluctuate And May Be Higher Or Lower Than
The Prices Paid By Other People Participating In This
Offering
The
price
in this offering will fluctuate based on the prevailing market price of the
common stock on the OTCBB. Accordingly, the price you pay in this offering
may
be higher or lower than the prices paid by other people participating in this
offering.
Our
Common Stock Is Deemed To Be “Penny Stock,” Which May Make It More Difficult For
Investors To Sell Their Shares Due To Suitability
Requirements
Our
common stock is deemed to be “penny
stock”
as that
term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act
of
1934, as amended (the “1934
Act”).
Penny
stocks are stock:
|
·
|
With
a price of less than $5.00 per
share;
|
|
·
|
That
are not traded on a “recognized”
national exchange;
|
|
·
|
Whose
prices are not quoted on the Nasdaq automated quotation system;
|
|
·
|
(Nasdaq
listed stock must still have a price of not less than $5.00 per share);
or
|
|
·
|
In
issuers with net tangible assets less than $2.0 million (if the issuer
has
been in continuous operation for at least three years) or $5.0 million
(if
in continuous operation for less than three years), or with average
revenues of less than $6.0 million for the last three
years.
|
Broker/dealers
dealing in penny stocks are required to provide potential investors with a
document disclosing the risks of penny stocks. Moreover, broker/dealers are
required to determine whether an investment in a penny stock is a suitable
investment for a prospective investor. These requirements may reduce the
potential market for our common stock by reducing the number of potential
investors. This may make it more difficult for investors in our common stock
to
sell shares to third parties or to otherwise dispose of them. This could cause
our stock price to decline.
FORWARD-LOOKING
STATEMENTS
Information
included or incorporated by reference in this prospectus may contain
forward-looking statements. This information may involve known and unknown
risks, uncertainties and other factors which may cause our actual results,
performance or achievements to be materially different from the future results,
performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and describe
our future plans, strategies and expectations, are generally identifiable by
use
of the words “may,” “should,” “expect,” “anticipate,” “estimate,” “believe,”
“intend” or “project” or the negative of these words or other variations on
these words or comparable terminology.
This
prospectus contains forward-looking statements, including statements regarding,
among other things, (a) our projected sales and profitability, (b) our
growth strategies, (c) anticipated trends in our industry, (d) our
future financing plans and (e) our anticipated needs for working capital.
These statements may be found under “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and “Description of Business,” as
well as in this prospectus generally. Actual events or results may differ
materially from those discussed in forward-looking statements as a result of
various factors, including, without limitation, the risks outlined under “Risk
Factors” and matters described in this prospectus generally. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
statements contained in this prospectus will in fact occur.
SELLING
STOCKHOLDERS
The
following table presents information regarding the selling stockholders. A
description of each selling shareholder’s relationship to Sensor
System
and how
each selling shareholder acquired the shares to be sold in this offering is
detailed in the information immediately following this table.
Selling
Stockholder
|
|
Shares
Beneficially Owned Before Offering
|
|
Percentage
of Outstanding Shares Beneficially Owned Before Offering
(1)
|
|
Shares
to be Sold in the Offering
|
|
Percentage
of Shares Beneficially Owned After Offering (1)
|
|
Cornell
Capital Partners
|
|
|
3,821,647
|
(2)
|
|
4.99
|
%
|
|
20,521,429
|
(3)
|
|
0
|
%
|
Trenwith
Securities, Inc.
|
|
|
86,866
|
|
|
0%*
|
|
|
86,866
|
|
|
0
|
%
|
Monitor
Capital, Inc.
|
|
|
28,571
|
|
|
0%*
|
|
|
28,571
|
|
|
0%*
|
|
Total
|
|
|
3,937,084
|
|
|
5.14
|
%
|
|
20,636,866
|
|
|
0
|
%
|
(1)
|
Applicable
percentage of ownership is based on 76,586,112 shares of common stock
outstanding as of June 5, 2006, together with securities exercisable
or
convertible into shares of common stock within 60 days of June 5,
2006,
for each stockholder. Beneficial ownership is determined in accordance
with the rules of the Commission and generally includes voting or
investment power with respect to securities. Shares of common stock
subject to securities exercisable or convertible into shares of common
stock that are currently exercisable or exercisable within 60 days
of June
5, 2006 are deemed to be beneficially owned by the person holding
such
securities for the purpose of computing the percentage of ownership
of
such person, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person. Note that
affiliates are subject to Rule 144 and Insider trading regulations
-
percentage computation is for form purposes
only.
|
(2)
|
Includes
1,471,429 shares of common stock received by Cornell Capital Partners
as a
one-time commitment fee under a now-terminated Standby Equity Distribution
Agreement and 2,350,218 shares of common stock to be issuable upon
the
conversion of the secured convertible debentures
held by Cornell Capital Partners that are convertible into shares
of
common stock within 60 days of June 5, 2006, such that the number
of
shares beneficially owned by Cornell Capital Partners, upon giving
effect
to the conversion under the Secured Convertible Debentures, would
not
cause the aggregate number of shares beneficially owned by Cornell
Capital
Partners and its affiliates to exceed 4.99% of the total outstanding
shares of Sensor System.
|
(3)
|
Includes
1,471,429 shares of common stock received as a one-time commitment
fee
under a now-terminated Standby Equity Distribution Agreement, dated
October 6, 2005; 17,850,000
shares of common stock underlying secured convertible
debentures;
and
1,200,000 shares to be issued upon the exercise of warrants issued
to
Cornell Capital Partners.
|
(4)
|
Includes
86,866 shares of common stock to be issuable upon the exercise of
a
warrant issued to Trenwith Securities, Inc., which may be redeemed
into
shares of common stock within 60 days of June 5,
2006.
|
The
following information contains a description of each selling shareholder’s
relationship to Sensor
System
and how
each selling shareholder acquired the shares to be sold in this offering is
detailed below. None of the selling stockholders have held a position or office,
or had any other material relationship, with the Company,
except
as follows:
Shares
Acquired In Financing Transactions With Sensor System
Cornell
Capital Partners, LP. Cornell
Capital Partners is the holder of shares of common stock, secured convertible
debentures and warrants. All investment decisions of,
and
control of,
Cornell
Capital Partners are held
by its
general partner, Yorkville Advisors, LLC. Mark Angelo, the managing member
of
Yorkville Advisors, makes the investment decisions on behalf of
and
controls
Yorkville Advisors. Cornell Capital Partners acquired all shares being
registered in this offering in financing transactions with Sensor
System.
Those
transactions are explained below:
|
·
|
Standby
Equity Distribution Agreement. On
October 6, 2005, we entered into a Standby Equity Distribution Agreement
with Cornell Capital Partners. Pursuant to the Standby Equity Distribution
Agreement, we could have, at our discretion, periodically sold to
Cornell
Capital Partners shares of common stock for a total purchase price
of up
to $15 million. In connection with the Standby Equity Distribution
Agreement, Cornell Capital Partners received a one-time commitment
fee in
the form of 1,471,429 shares of common stock. On December 23, 2005,
the
Company entered into a Termination Agreement with Cornell Capital
Partners, pursuant to which the Standby Equity Distribution Agreement,
as
well as the related Registration Rights Agreement and the Placement
Agent
Agreement, each dated as of October 6, 2005, were terminated. The
1,471,429 shares of common stock issued as a one-time commitment
in
connection with the Standby Equity Distribution Agreement have not
been
cancelled and have piggy-back registration rights. These shares are
being
registered in this registration statement.
|
|
·
|
Secured
Convertible Debentures. On
October 6, 2005, we entered into a Securities Purchase Agreement
pursuant
to which we could sell to Cornell Capital Partners convertible debentures
in the aggregate principal amount of $600,000, plus accrued interest,
which is convertible, at Cornell Capital Partners’ discretion, into
our
common
stock. Out of this amount, $400,000 was funded on October 13, 2005,
and $200,000 was funded in November 2005. The convertible debentures
were
convertible, in whole or in part, at any time and from time to time
before
maturity at the option of the holder at a fixed price of $0.245 per
share,
subject to certain limitations as provided therein. The convertible
debentures had a term of a one-year, possess registration rights,
accrued
interest at a rate equal to 10% per year, and were secured by Sensor
System’s assets. On December 23, 2005, the Company repaid to Cornell
Capital Partners a total amount of $610,000, representing principal
amount
and accrued interest.
|
|
·
|
Warrant.
On
October 6, 2005, in connection with the issuance of the secured
convertible debentures, we issued a warrant to Cornell Capital Partners
to
purchase 600,000 shares of our common stock, at a fixed exercise
price of
$0.27 per share, or as subsequently adjusted pursuant to the terms
of the
warrant. The warrant expires four years from the date of issuance.
We are
registering 600,000 shares in this registration
statement.
|
|
·
|
Secured
Convertible Debentures. On
December 23, 2005, we entered into a Securities Purchase Agreement
pursuant to which we shall sell to Cornell Capital Partners convertible
debentures in the aggregate principal amount of $1,000,000, plus
accrued
interest, which is convertible, at Cornell Capital Partners’ discretion,
into shares of our common stock. Out of the total principal amount
of
$1,000,000, in December 2005, we received gross proceeds of $800,000,
and
the remaining $200,000, representing the second tranche of the gross
proceeds, was received in February, 2006. In December 2005, we received
$143,000 representing the net proceeds from the issuance of secured
convertible debentures to Cornell Capital Partners under the Securities
Purchase Agreement, dated December 23, 2005. The total net proceeds
take
into account estimated expenses in the amount of $47,000 and the
payment
of $610,000 to Cornell Capital Partners for the repayment of the
secured
convertible debentures issued to Cornell Capital Partners on October
6,
2005. In February 2006, we received the second tranche of the proceeds
in
the net amount of $164,037. The secured convertible debentures are
secured
by substantially all of our assets, have a one year term and accrue
interest at 10% per annum. Cornell Capital Partners is
entitled, at its option, to convert and sell all or any part of the
principal amount of the convertible debentures, plus any and all
accrued
interest, into shares of common stock at a price equal to the lesser
of
(i) $0.35 and (ii) ninety percent (90%) of the lowest volume weighted
average price of the common stock during the fifteen (15) trading
days
immediately preceding the date of conversion as quoted by Bloomberg,
LP.
We are registering 17,850,000 shares of common stock in this registration
statement under the secured convertible debentures.
|
|
·
|
Warrant.
On
December 23, 2005, we issued a warrant to Cornell Capital Partners to
purchase 600,000 shares of our common stock, at a fixed exercise
price of
$0.2878 per share, or as subsequently adjusted pursuant to the terms
of
the warrant. The warrant expires five years from the date of issuance.
We
are registering 600,000 shares in this registration
statement.
|
There
are
certain risks related to sales by Cornell Capital Partners,
including:
|
·
|
The
outstanding shares will be issued based on discount to the market
rate. As
a result, the lower the stock price around the time Cornell Capital
Partners is issued shares, the greater chance that Cornell Capital
Partners gets more shares. This could result in substantial dilution
to
the interests of other holders of common
stock.
|
|
·
|
To
the extent Cornell Capital Partners sells its common stock, the common
stock price may decrease due to the additional shares in the market.
This
could allow Cornell Capital Partners to sell greater amounts of common
stock, the sales of which would further depress the stock
price.
|
|
·
|
The
significant downward pressure on the price of the common stock as
Cornell
Capital Partners sells material amounts of common stocks could encourage
short sales by third parties. This could place further downward pressure
on the price of the common stock.
|
Other
Selling Shareholders
Trenwith
Securities, Inc. Trenwith
Securities, Inc. (“Trenwith”)
is an
unaffiliated registered broker-dealer that has been retained by us. Doug Ivan
makes the investment decisions on behalf of and controls Trenwith. The
Company and Trenwith entered into an engagement agreement, dated August 10,
2005, (the “Engagement
Agreement”)
pursuant to which we engaged Trenwith as a Placement Agent in connection with
a
private placement offering of up to $20,000,000 shares of the Company’s common
stock. In
consideration of Trenwith’s performances as managing placement agent, and upon
the closing of the private placement transaction, the Company agreed to issue
to
Trenwith warrants for the purchase of the Company’s Common Stock subject to the
terms and conditions of the Engagement Agreement.
In
connection with the Engagement Agreement, and the entry into the Standby Equity
Distribution Agreement and the Securities Purchase Agreement, each dated as
of
October 6, 2005, with Cornell Capital Partners, on November 16, 2005, the
Company issued to Trenwith a warrant (the “November
Trenwith Warrant”)
to
purchase up to 511,607 of the Company’s common stock. Out of these shares,
Trenwith was entitled to purchase up to 42,857 shares of the Company’s common
stock at any time until 11:59 pm Eastern Time on October 6, 2009, at an exercise
price of $0.35 per share. Trenwith was also entitled to purchase up to the
remaining 468,750 shares of the Company’s common stock at any time until 11:59
pm Eastern Time on October 6, 2008, at an exercise price of $0.80 per share.
The
November Warrant was cancelled on December 27, 2005.
On
December 27, 2005, in connection with the Securities Purchase Agreement, dated
December 23, 2005, the Company issued to Trenwith a new warrant (the
“New
Warrant”)
to
purchase up 86,866 shares of the Company’s Common Stock at an exercise price of
$0.2878 per share. The New Warrant expires on December 23, 2009. In this
registration statement, the Company is registering 86,866 shares under the
New
Warrant.
Monitor
Capital, Inc. Monitor
Capital, Inc. is an unaffiliated registered broker-dealer that
has
been retained by us. Hsiao-Wen Kao, Monitor Capital, Inc.’s President, makes the
investment decisions on behalf of
and
controls
Monitor
Capital, Inc. For its services in connection with a now-terminated Standby
Equity Distribution Agreement, dated October 6, 2005, between Sensor
System
and
Cornell Capital Partners, Monitor Capital, Inc. received a fee of 28,571 shares
of unregistered common stock, on October 6, 2005. These shares are being
registered in this offering. Monitor Capital, Inc. is not participating as
an
underwriter in this offering.
With
respect to the sale of unregistered securities referenced above, all
transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933 (the “1933
Act”),
and
Regulation D promulgated under the 1933 Act. In each instance, the purchaser
had
access to sufficient information regarding the Company
so as to
make an informed investment decision. More specifically, we had a reasonable
basis to believe that each purchaser was an “accredited investor” as defined in
Regulation D of the 1933 Act and otherwise had the requisite sophistication
to
make an investment in our securities.
USE
OF PROCEEDS
This
Prospectus relates to shares of our common stock that may be offered and sold
from time to time by certain selling stockholders. There will be no proceeds
to
us from the sale of shares of common stock in this offering. However, we receive
proceeds from the exercise of warrants which underlying shares of common stock
are being registered in the accompanying Registration Statement.
Out
of
the total principal amount of $1,000,000, in December 2005, we received gross
proceeds of $800,000, and the remaining $200,000, representing the second
tranche of the gross proceeds, was received in February, 2006. In December
2005,
we received $143,000 representing the net proceeds from the issuance of secured
convertible debentures to Cornell Capital Partners under the Securities Purchase
Agreement, dated December 23, 2005. The total net proceeds take into account
estimated expenses in the amount of $47,000 and the payment of $610,000 to
Cornell Capital Partners for the repayment of the secured convertible debentures
issued to Cornell Capital Partners on October 6, 2005. In February 2006, we
received the second tranche of the proceeds in the net amount of
$164,037.
We
have
represented to Cornell Capital Partners that the net proceeds under the secured
convertible debentures will be used for general corporate and working capital
purposes only.
PLAN
OF DISTRIBUTION
The
selling stockholders have advised us that the sale or distribution of our common
stock owned by the selling stockholders may be effected directly to purchasers
by the selling stockholders as principals or through one or more underwriters,
brokers, dealers or agents from time to time in one or more transactions (which
may involve crosses or block transactions) (i) on the on
the
Over-the-Counter Bulletin Board or
in any
other market on which the price of our shares of common stock are quoted or
(ii) in transactions otherwise than on the Over-the-Counter
Bulletin Board or in
any
other market on which the price of our shares of common stock are quoted. Any
of
such transactions may be effected at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, at varying prices
determined at the time of sale or at negotiated or fixed prices, in each case
as
determined by the selling stockholders or by agreement between the selling
stockholders and underwriters, brokers, dealers or agents, or purchasers. If
the
selling stockholders effect such transactions by selling their shares of common
stock to or through underwriters, brokers, dealers or agents, such underwriters,
brokers, dealers or agents may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of common stock for whom they may act as agent (which discounts,
concessions or commissions as to particular underwriters, brokers, dealers
or
agents may be in excess of those customary in the types of transactions
involved).
Cornell
Capital Partners was formed in February 2000 as a Delaware limited partnership.
Cornell Capital Partners is a domestic hedge fund in the business of investing
in and financing public companies. Cornell Capital Partners does not intend
to
make a market in our stock or to otherwise engage in stabilizing or other
transactions intended to help support the stock price. Prospective investors
should take these factors into consideration before purchasing our common
stock.
Under
the
securities laws of certain states, the shares of common stock may be sold in
such states only through registered or licensed brokers or dealers. The selling
stockholders are advised to ensure that any underwriters, brokers, dealers
or
agents effecting transactions on behalf of the selling stockholders are
registered to sell securities in all fifty states. In addition, in certain
states the shares of common stock may not be sold unless the shares have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with.
We
will
pay all the expenses incident to the registration, offering and sale of the
shares of common stock to the public hereunder other than commissions, fees
and
discounts of underwriters, brokers, dealers and agents. If
any of
these other expenses exists, Sensor
System
expects
the selling stockholders to pay these expenses. We
have
agreed to indemnify Cornell Capital Partners and its controlling persons against
certain liabilities, including liabilities under the 1933 Act. We estimate
that
the expenses of the offering to be borne by us will be approximately $85,000.
The estimated offering expenses consist of: (i) a SEC registration fee of
$600.00, which was paid on February 14, 2006; (ii) printing expenses of $2,500;
(iii) accounting fees of $20,000, (iv) legal fees of $50,000; and (v)
miscellaneous expenses of $11,900.00. We will not receive any proceeds from
the
sale of any of the shares of common stock by the selling stockholders.
The
selling stockholders are subject to applicable provisions of the Securities
Exchange Act of 1934, as amended, and its regulations, including, Regulation
M.
Under Registration M, the selling stockholders or their agents may not bid
for, purchase, or attempt to induce any person to bid for or purchase, shares
of
our common stock while such selling stockholders are distributing shares covered
by this prospectus. Pursuant to the requirements of Item 512 of Regulation
S-B
and as stated in Part II of this Registration Statement, the Company
must
file a post-effective amendment to the accompanying Registration Statement
once
informed of a material change from the information set forth with respect to
the
Plan of Distribution.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s
discussion and analysis of results of operations and financial condition are
based on our financial statements. These statements have been prepared in
accordance with accounting principles generally accepted in the United States
of
America. These principles require management to make certain estimates,
judgments and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates based on
historical experience and various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The following discussion
should be read in conjunction with the Company’s
Financial Statements and Notes thereto, included elsewhere within this
registration statement.
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. We changed our company name to Sensor System Solutions,
Inc. in December 2004 to better represent our new focus. As such, the following
results of operations are those of ACSI.
Sensor
System 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. Sensor System offers a variety of Digital Pressure
Gauges, Pressure Transducers, Pressure Sensors, Force Beams, Load Cells, Strain
Gauges and Sensor Kits.
Sensor
System commenced operations as a private company in September of 1996. Sensor
System is headquartered in Irvine, California where Sensor System occupies
a
25,000 square foot facility fully equipped with fabrication capability.
Sensor
System has 17 full-time employees in the United States, and utilizes a network
of independent contractors and consultants throughout the United States and
Asia. Sensor System produces or supplies a family of nearly 30 distinctive
products. Sensor System set up a volume production line with an ISO 9000 partner
in Taiwan in 2002 to penetrate high-volume consumer markets that are price
sensitive. On April 12, 2005, we entered into a Joint Venture Agreement with
CAAS
pursuant
to which the parties agreed to develop, produce and sale sensor and related
electronic products throughout China. To that end, in 2005, the parties
established USI in the Wuhan East lake development zone, in Hubei, China.
Pursuant to the Joint Venture Agreement, the parties agreed to invest
$10,000,000, out of which we will invest $3,000,000 in technology. USI has
been
in operations since 2005, and we have been in the process of transferring
technology to them for the production and development of sensor
products.
Sensor
System is a supplier of thin-film and micro-machined force and pressure sensors
to the medical, chemical, oil, and gas industries. Sensor System believes that
its technology will enable it to become a global supplier of advanced
MEMS/Microelectronic products in myriad developing markets. Sensor System’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.
Critical
Accounting Assumptions
Revenue
Recognition
The
Company recognizes revenue when risk of loss and title to the product is
transferred to the customer, which occurs at shipment.
Stock-Based
Compensation
The
Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment”
(SFAS 123R), which revises SFAS No. 123 in the first quarter of 2006.
SFAS 123R also supersedes APB No. 25 and amends SFAS No. 95,
“Statement of Cash Flows”. In general, the accounting required by SFAS 123R is
similar to that of SFAS No. 123. However, SFAS No. 123 gave companies
a choice to either recognize the fair value of stock options in their income
statements or disclose the pro forma income statement effect of the fair value
of stock options in the notes to the financial statements. SFAS 123R eliminates
that choice and requires the fair value of all share-based payments to
employees, including the fair value of grants of employee stock options, be
recognized in the income statement, generally over the option vesting
period.
Inventories
Inventories
are stated at the lower of cost (first-in, first-out method) or
market.
Recent
Accounting Pronouncements
During
the first quarter of 2006, the Company adopted Statement of Financial Accounting
Standards No. 151, “Inventory Costs”. This Statement amends the guidance in ARB
No. 43 Chapter 4 Inventory Pricing, to require items such as idle facility
costs, excessive spoilage, double freight and rehandling costs to be expensed
in
the current period, regardless if they are abnormal amounts or not. The adoption
of SFAS No. 151 did not have a material impact on our financial condition,
results of operations, or cash flows.
In
May
2005, the FASB issued Statement No. 154 (“SFAS
154”)
“Accounting Changes and Error Corrections - a replacement of APB Opinion
No. 20 and FASB Statement No. 3.” SFAS 154 changes the requirements
for the accounting for and reporting of a change in accounting principle. APB
Opinion 20 previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period of the change
the cumulative effect of changing to the new accounting principle. SFAS 154
requires retrospective application to prior periods’ financial statements of
changes in accounting principle, unless it is impracticable to determine either
the period-specific effects of the cumulative effect of the change. In the
event
of such impracticality, SFAS 154 provides for other means of application. In
the
event the Company changes accounting principles, it will evaluate the impact
of
SFAS 154.
Plan
of Operation
We
plan
to grow our business in four areas:
Increase
the revenue of existing sensor component business. The
majority of our sensor component manufacturing will be moved to our joint
venture in China to help reduce the cost of our products. We will invest to
increase our production capacity and will qualify offshore suppliers to meet
the
increasing demands. Substantial efforts will be invested in sales and marketing
in order to expand our customer base and to secure more OEM
projects.
Develop
sensor solution business. With
the
rapid advance in technology and huge investment in wireless and
telecommunication in the last decades, we can now offer total sensor solutions
at a very affordable price. These sensor solutions are modules containing
sensing elements, signal conditioning circuitry, software for calibration and
interface, and capability of wireless and/or networking. These sensor solutions
will provide information continuously to decision makers in all phases of
business operation.
Penetrate
automotive sensor market through China. By
leveraging the marketing channel of our joint venture partner, we will have
access to the automotive market in China immediately. We plan use the next
three
years to build up our production capacity, product offerings, and technical
team
there. We plan to import automotive sensors produced by our joint venture to
North America and Europe around 2008.
Strategic
acquisitions. Being
a
public company and having better access to the capital markets that this
affords, provides us with the means to grow our business through acquisitions
as
well as through internal growth. We will actively seek equity or debt funding
to
bring in the necessary resources to execute this plan.
Results
Of Operations
Results
of Operations For The Three-Month Period Ended March 31, 2006 Compared To
The Same Period Ended March 31, 2005
Revenues
We
generated revenues of $530,098 for the three months ended March 31, 2006,
which was $325,083 or a 159% increase from $205,015 for the three months ended
March 31, 2005. 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 three months ended March 31, 2006, was $197,105 or 37.2% of
revenues, compared to $57,741 or 28.2% for the three months ended March 31,
2005. The $139,364 increase in gross profit was generated by a decrease in
cost
of sales percentage, which was the result of increased productivity and
management’s efforts to reduce operating expense, and production tooling
improvement.
Total
Operating Expenses
Operating
expenses
Operating
expenses increased to $544,817 for the three months ended March 31, 2006
compared to $330,555 for the three months ended March 31, 2005. The
expenses increased $214,262, primarily as a result of an increase in interest
expense, rent, additional investment in R&D personnel and development, and
professional fees for a public company.
Amortization
of discount on notes payable
Amortization
of discount on notes payable decreased to $132,448 for the three months ended
March 31, 2006 compared to $155,121 for the three months ended
March 31, 2005. The expense decreased $22,673, or 15%, primarily due to the
lack of the Sino-America, Inc. convertible loan in 2006.
Stock-based
compensation costs
During
the three months ended March 31, 2006, the Company recorded $22,635 in
stock-based compensation costs for options issued to employees during the
quarter. Another $37,394 was recorded for compensatory stock issued to
non-employees for services rendered. There were no stock-based compensation
costs in the three months ended March 31, 2005.
Net
Loss
Net
loss
increased to ($523,284) for the three months ended March 31, 2006 compared
to ($427,935) for the three months ended March 31, 2005. The $95,349
increase in net loss is primarily due to the increase in operating expenses
exceeding the increase in gross profit and is partially offset by the $16,905
gain on sale of equipment to related party.
Results
of Operations For The Year Ended December 31, 2005, As Compared To The Year
Ended December 31, 2004
We
generated revenues of $1,324,872 for the year ended December 31, 2005, which
was
a $663,532 or a 100.3% increase from $661,340 for the year ended December 31,
2004. The increase is the result of the hiring of a full-time sales manager
and
his success in securing several OEM accounts.
Gross
Profit
Gross
profit for the twelve months ended December 31, 2005, was $446,656 or 33.7%
of
revenues, compared to $81,550 or 12.3% of revenues for the year ended December
31, 2004. The $365,106 increase in gross profit was a result of the decrease
in
cost of sales percentage, which in turn was the result of increased productivity
and management’s efforts to reduce operating expense, and production tooling
improvement.
Total
Operating Expenses
Operating
Expense
Operating
expense increased to $1,869,896 for the year ended December 31, 2005 compared
to
$1,292,072 for the year ended December 31, 2004. The expense increased $577,824,
or 44.7%, from 2004, primarily as a result of an increase in payroll costs,
professional fees, rent and interest expense.
Amortization
of discount on notes payable
Amortization
of discount on notes payable decreased to $531,033 for the year ended December
31, 2005 compared to $651,868 for the year ended December 31, 2004. The expense
decreased $120,835, or 18.5%, primarily due to the large amount of discount
associated with the convertible loans from Sino-America, Inc. and Tina Young
in
the prior year, partially offset by the Cornell Capital Partners expense in
2005.
Non-cash
compensation costs
On
May
24, 2004, the Company issued 2,584,905 shares of its common stock and warrants
(the Merger Warrants) to purchase up to 47,802,373 shares of its common stock,
to the shareholders of ACSI in exchange for all the issued and outstanding
shares of ACSI. On May 24, 2004, the OTCBB closing price for the Company’s
common stock was $3.15 per share, resulting in a valuation of $12,527,134 (the
Merger Valuation) for the 3,976,868 shares of common stock outstanding
immediately following the Merger. On December 4, 2004, the Company granted
7,500,000 shares of its common stock to five shareholders in Spectre, including
two individuals who are also Directors of the Company, for providing services
to
the Company. 1,500,000 shares were treated as compensatory stock with a fair
value $1.20 per share, representing the most recent OTCBB closing price prior
to
that date, for a total of $1,800,000 and was recognized as stock-based
compensation expense in the accompanying financial statements. The remaining
6,000,000 shares were treated as a stock dividend. In 2005, 1,500,000 shares
of
common stock and warrants to purchase 86,866 shares of common stock were issued
as compensation for borrowing arrangements. These had a market value of
$775,000.
Net
Loss
Net
loss
decreased to ($2,729,273) for the year ended December 31, 2005 compared to
($3,662,390) for the year ended December 31, 2004. The loss decreased $933,117,
or 25.5%, from 2004, as a result of an increase of $365,106 in gross profit,
a
decrease of $1,145,835 in stock-based compensation expense and amortization
of
discount on notes payable offset by the $577,824 increase in operating
expenses.
Liquidity
and Capital Resources
Going
Concern
The
Company incurred a net loss of $523,284 and a negative cash flow from operations
of $408,443 for three months ended March 31, 2006, and had a working
capital deficiency of $2,231,972 and a stockholders’ deficiency of $2,028,542 at
March 31, 2006. These matters raise substantial doubt about its ability to
continue as a going concern.
Our
auditors included an explanatory paragraph in their report in connection with
our 2005 financial statements, stating that because the Company has incurred
a
net loss of $2,729,273 and a negative cash flow from operations of $928,809
for
the year ended December 31, 2005, and had a working capital deficiency of
$2,004,770 and a stockholders’ deficiency of $1,695,890 at December 31, 2005
there is substantial doubt about the Company’s ability to continue as a going
concern.
The
Company has relied primarily on cash flow from operations, bank loans, and
advances and investments from shareholders for the Company’s capital
requirements since inception. The Company received $800,000 from the issuance
of
a convertible debenture to Cornell Capital Partners in December 2005 and
$200,000 in February 2006 bringing the total amount owed to Cornell Capital
Partners to $1,000,000. This allowed the company to pay off some of the debt
and
continue its operations. Current cash on hand will allow the Company to continue
its operations for a short period of time; a combination of additional equity
and debt offerings will be necessary to continue beyond the short
term.
At
December 31, 2005, cash was $172,732 as compared to $17,115 at December 31,
2004. The increase was due to the excess of net cash provided by financing
activities over the net cash used in operations. At March 31, 2006, cash
was $38,038 as compared to $172,732 at December 31, 2005. The decrease was
due
to the negative cash flow from operations, primarily due to funding an increase
in accounts receivable of $186,411 created by the increase in sales. The cash
flows from investing and financing activities totaling $273,749 was not enough
to fund the $408,443 in net cash used in operations.
The
Company has a substantial working capital deficit. It would require
approximately $3,000,000 to continue operations for the next three years. The
Company is in the process of raising capital in the form of equity and/or debt.
However, there is no guarantee that it will raise sufficient funds to execute
its business plan. To the extent the Company is unable to raise sufficient
funds, its business plan will be required to be substantially modified, its
operations curtailed or protection under bankruptcy/ reorganization laws
sought.
On
October 6, 2005, the Company secured a total of $15,600,000 in financing with
Cornell Capital Partners to support the continued development and growth of
the
Company. Cornell Capital Partners committed to provide up to $15 million of
funding in the form of a Standby Equity Distribution Agreement to be drawn
down over a 24-month period at Sensor System’s discretion. In addition, Sensor
System sold an aggregate of $600,000 of fixed price secured convertible
debentures to Cornell Capital Partners. The Standby Equity Distribution
Agreement was subsequently terminated on December 23, 2005. The Company did
not
register any share in connection with the Standby Equity Distribution Agreement,
and did not draw down any advances thereunder. On December 23, 2005, the
Company entered into a Securities Purchase Agreement with Cornell Capital
Partners pursuant to which it sold an aggregate of $1,000,000 of secured
convertible debentures to Cornell Capital Partners. The Company received the
first tranche of $143,000 representing the net proceeds from the issuance of
the
convertible debentures Cornell Capital Proceeds in December 2005, and the second
tranche of $164,037 in net proceeds was received in February, 2006.
The
Company is seeking an additional $1,000,000 in bridge financing to further
develop into a fully-equipped public company. However, no assurance can be
given
that such funds will be available or that the term thereof will be satisfactory
to the Company.
The
Company is addressing the liquidity requirements by continuing its programs
for
selling products and continuing to seek investment capital through the public
markets. However, there is no guarantee that these strategies will enable it
to
meet its obligations for the foreseeable future.
Commitments
and Contingencies
We
have
the following material contractual obligations and capital expenditure
commitments:
The
Company leases certain equipment under two capital leases with monthly payments
of $360 and $701, respectively, including interest at 12.75% per
annum.
Future
minimum annual rental payments for capitalized leases are as
follows:
As
of March 31, 2006
|
|
Amount
|
|
2006
(nine months)
|
|
$
|
9,549
|
|
2007
|
|
|
12,732
|
|
2008
|
|
|
12,732
|
|
2009
|
|
|
3,903
|
|
|
|
|
38,916
|
|
Amount
representing interest
|
|
|
(6,832
|
)
|
Present
value of minimum lease payments
|
|
|
32,084
|
|
Less:
current portion
|
|
|
(9,163
|
)
|
Non-current
portion
|
|
$
|
22,921
|
|
The
Company leases its office and facility through July 31, 2007 under a long-term
operating lease agreement. Under terms of the lease, the Company pays the cost
of repairs and maintenance.
Future
minimum lease commitments for the Company’s share under this lease at
March 31, 2006 are as follows:
2006
(nine months)
|
|
$
|
189,625
|
|
2007
|
|
|
151,095
|
|
|
|
$
|
340,720
|
|
Inflation
And Changing Prices
We
do not
foresee any adverse effects on our earnings as a result of inflation or changing
prices.
On
October 6, 2005, we entered into a Securities Purchase Agreement pursuant to
which we issued to Cornell Capital Partners convertible debentures in the
aggregate principal amount of $600,000. The principal amount, plus accrued
interest, was able to be convertible, at Cornell Capital Partners’ discretion,
into our common stock. The convertible debentures were convertible, in whole
or
in part, at any time and from time to time before maturity at the option of
the
holder at a fixed price of $0.245 per share, subject to certain limitations
as
provided therein. The convertible debentures had a term of a one-year, possess
registration rights, accrued interest at a rate equal to 10% per year, and
were
secured by Sensor System’s assets. The
Company repaid to Cornell Capital Partners a total amount of $610,000,
representing principal amount and accrued interest, on December 23,
2005.
On
December 23, 2005, the Company entered into a Securities Purchase Agreement
with
Cornell Capital Partners, pursuant to which the Company issued to Cornell
Capital Partners secured convertible debentures in the principal amount of
$1,000,000. Out of the total principal amount of $1,000,000, in December 2005,
we received gross proceeds of $800,000, and the remaining $200,000, representing
the second tranche of the gross proceeds, was received in February, 2006. In
December 2005, we received $143,000 representing the net proceeds from the
issuance of secured convertible debentures to Cornell Capital Partners under
the
Securities Purchase Agreement, dated December 23, 2005. The total net proceeds
take into account estimated expenses in the amount of $47,000 and the payment
of
$610,000 to Cornell Capital Partners for the repayment of the secured
convertible debentures issued to Cornell Capital Partners on October 6, 2005.
In
February 2006, we received the second tranche of the proceeds in the net amount
of $164,037. The Convertible Debentures are secured by substantially all of
the
Company’s assets, have a one year term and accrue interest at 10% per annum.
Cornell Capital Partners is
entitled, at its option, to convert and sell all or any part of the principal
amount of the Convertible Debentures, plus any and all accrued interest, into
shares of Common Stock at a price equal to the lesser of (i) $0.35 and (ii)
ninety percent (90%) of the lowest volume weighted average price of the Common
Stock during the fifteen (15) trading days immediately preceding the date of
conversion as quoted by Bloomberg, LP.
CHANGES
IN AND DISAGREEMENTS
WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
DESCRIPTION
OF BUSINESS
The
Company
Sensor
System was incorporated in Nevada in April 1982 under the name The Enchanted
Village, Inc. As the result of the March 13, 2004 acquisition of Advanced Custom
Sensors, Inc., a California corporation, Sensor System is now in the business
of
design and manufacturing sensors and signal conditioning modules.
Acquisition
of Advanced Custom Sensors. Pursuant
to an Agreement and Plan of Merger dated as of March 13, 2004, by and among
the
Company, Spectre Merger Sub, Inc., a California corporation and wholly owned
subsidiary of the Company (“Merger
Sub”),
Ian
S. Grant and Advanced Custom Sensors, Inc. (“ACSI”),
on
May 24, 2004, Merger Sub merged with and into ACSI.
As a
result of this merger, ACSI became a subsidiary of the Company. As consideration
for the merger, the Company issued 2,584,906 shares of common stock and warrants
to purchase up to 47,802,373 shares of common stock to the shareholders of
ACSI.
The terms of the Merger were determined through arms-length negotiations between
the management of the Company and management of ACSI. We changed our company
name to ‘Sensor System Solutions, Inc.’ in December 2004 to better represent our
new focus. As such, the following results of operations are those of
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. Also, as a result of the acquisition, we have had
a
change of our financial position and our business. Sensor System is now a
holding company and after the Spin-Off, defined below, will have no significant
operations or assets other than its interest in ACSI. Since the acquisition
of
ACSI, the Company has been engaged in the development, manufacturing, marketing
and distribution of high quality sensors and transducers at an economical price
by employing innovative designs and creative manufacturing methods.
Spin-Off
of Spectre Holdings. On
December 15, 2004, in consideration for making and guaranteeing certain
representations, warranties and obligation in connection with the Agreement
and
Plan of Merger dated March 13, 2004 by and between the Company and ACSI, the
Company transferred 20,878,081 shares of common stock (the “Shares”),
which
are all of the issued and outstanding shares of Spectre Holdings, Inc., our
wholly-owned subsidiary to Ian Grant. After the distribution of the Shares,
the
Company no longer owns any stock of Spectre Holdings, Inc. In addition, we
will
not have any common board members after the distribution.
Advanced
Custom Sensors. ACSI
was
founded by an engineering management team with over 50 years of
micro-electro-mechanical-systems transducer experience. Its objective is to
provide high quality sensors and transducers at an economical price by employing
innovative designs and creative manufacturing methods. Through ACSI, Sensor
System offers a variety of Digital Pressure Gauges, Pressure Transducers,
Pressure Sensors, Force Beams, Load Cells, Strain Gauges and Sensor Kits.
Sensor
System produces or supplies a family of nearly thirty (30) distinctive products.
Sensor System has a volume production line with an ISO 9000 certified partner
in
Taiwan in 2002. This allows Sensor System to penetrate high-volume consumer
markets that are very price sensitive. On April 12, 2005, we entered into a
Joint Venture Agreement with CAAS
pursuant
to which the parties agreed to develop, produce and sale sensor and related
electronic products throughout China. To that end, in 2005, the parties
established USI in the Wuhan East lake development zone, in Hubei, China.
Pursuant to the Joint Venture Agreement, the parties agreed to invest
$10,000,000, out of which we will invest $3,000,000 in technology. USI has
been
in operations since 2005, and we have been in the process of transferring
technology to them for the production and development of sensor
products.
Sensor
System is a supplier of thin-film and micro-machined force and pressure sensors
to the medical, chemical, oil, and gas industries. Sensor System believes that
its technology will enable it to become a global supplier of advanced
MEMS/Microelectronic products in myriad developing markets. Sensor System’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:
We
plan
to grow our business in four areas.
|
·
|
Increase
the revenue of our existing sensor component business.
Once
finalized, the majority of our sensor component manufacturing will
be
moved to our joint venture in China to help reduce the cost of our
products. We will invest to increase our production capacity and
will
qualify offshore suppliers to meet the increasing demands. Substantial
efforts will be invested in sales and marketing in order to expand
our
customer base and to secure additional OEM
projects.
|
|
·
|
Develop
sensor solution business. By
leveraging the advances in technology and the large industry-wide
investments in wireless and telecommunication in the last decade,
we can
now offer total sensor solutions at a very affordable price. These
sensor
solutions are modules containing sensing elements, signal conditioning
circuitry, software for calibration and interface, and capability
of
wireless communication and/or networking. These sensor solutions
will
provide information continuously to decision makers in all phases of
business operation.
|
|
·
|
Penetrate
the automotive sensor market in China and India.
By
leveraging the marketing channel of USI, our joint venture partner,
and
X-Lab Global, a leading technology advisory and strategic consulting
firm,
we will have access to the automotive market in China and India
immediately. We plan to use the next two years to build up our production
capacity, product offerings and technical team there. We expect to
import
automotive sensors produced by our joint venture to North America
and
Europe around 2008.
|
|
·
|
Strategic
acquisition. Being
a public company gives us an additional tool to grow our business
through
acquisition besides internal growth. We will actively seek equity
or debt
funding to bring in the necessary resources to execute this
plan.
|
Industry
Overview. Micro-Electro-Mechanical
Systems, or MEMS, is the integration of mechanical elements, sensors, actuators,
and electronics on a common silicon substrate through the utilization of
microfabrication technology. MEMS is an enabling technology, allowing the
development of smart products by augmenting the computational ability of
microelectronics with the perception and control capabilities of microsensors
and microactuators. MEMS is also an extremely diverse and fertile technology,
both with regard to applications, and the methodology of how electronic devices
are designed and manufactured.
Microelectronic
integrated circuits (“ICs”)
can be
thought of as the “brains” of systems and MEMS augments this decision-making
capability with “eyes” and “arms”, to allow microsystems to sense and control
the environment. In its most basic form, the sensors gather information from
the
environment through measuring mechanical, thermal, biological, chemical,
optical, and magnetic phenomena; the electronics process the information derived
from the sensors and through some decision making capability direct the
actuators to respond by moving, positioning, regulating, pumping, and filtering,
thereby, controlling the environment for some desired outcome or purpose. Since
MEMS devices are manufactured using batch fabrication techniques, similar to
ICs, unprecedented levels of functionality, reliability, and sophistication
can
be placed on a small silicon chip at a relatively low cost.
Market
Size and Viability. The
total
MEMS market size is about $2.7 billion with following distribution in 1991,
according to an MIRC market study report. MEMS pressure sensor, currently the
focus of Sensor System’s operations, owns the largest market share of $6 billion
in 2000. According to MIRC, MEMS Silicon Pressure Sensors will grow to about
80%
of the total market and become the main stream of this industry. The
applications of MEMS Pressure Sensors can be separated into five categories:
Automotive, Process Control, Medical, Consumer /Appliances and Aerospace.
Currently, the market in Consumer Electronics is enjoying the fast growth.
Due
to its versatility, MEMS is taking the lead in the various fast-growing
electronic applications in addition to its excellent performance and price
ratio. The total MEMS sensor market was $800 millions in 1990 with an annual
growth rate of 20%. It is expected to grow to $1 billion by 2005.
Products.
Our
future technology strategy is to develop and/or acquire core intellectual
property that will place it in a leadership position to manufacture and market
MEMS sensors. Sensor System has filed two (2) provisional patents with the
United States Patent and Trademark Office (“USPTO”).
In
addition, we have developed many proprietary techniques/processes. These serve
as the foundation to further develop our MEMS business.
We
produce or supply a family of nearly thirty (30) distinctive products. These
products employ or utilize the latest state-of-the-art technologies. The
products are primarily electro-mechanical sensing devices and are identified
under the following categories: Pressure Transducers, Pressure Transmitters,
Pressure Switches, Force Sensors, Load Cells, Strain Gages, and MEMS Sensors.
It
is expanding its product offering to include intelligent embedded systems that
combine the attributes of both intelligent sensor and host systems.
We
use
sputtered thin film, bonded foil, semi-conductor gages and piezoresistive strain
gage technologies primarily in the design, development and manufacture of its
general sensor products, although other technology options are also available.
All of our products employ proven technologies with little, or no risk
involved with their manufacture. What sets our products apart from their
competitors is their ability to optimize the performance of their products
by
efficient application of their diverse technologies into unique design concepts
and utilizing sophisticated materials in construction and packaging techniques.
Customers.
We
supply
our sensors mainly to the medical and automation industries. In general
customers are divided into three groups: original equipment manufacturers
(“OEMs”),
end
users and catalogs. OEM’s accounted for 56% of our revenue in 2005, with end
users and catalogs splitting the rest.
Our
revenue mainly was from end users before the hiring of our sales manager in
March 2004. We moved our focus to OEM account since then. The success is obvious
since we started 2005 with an OEM backlog of around $600K.
We
have
established a wide presence in the catalog houses through our Model 1200 in
2004. This penetration will allow us to increase our revenue by moving other
products through the same channel.
Sales
and Marketing. We
use
sales representatives to promote our product since sensors are quite complicated
devices. We have a network of nine sales representatives to cover North America
and six international representatives. In addition to our sales reps network,
we
also have a network of distributors to handle products that do not require
much
technical support. Both networks are managed by our Vice-President of Marketing
and Sales.
We
are
seeking new distribution channels for our Sensor Modules and we are working
to
leverage existing market intelligence. We hired a Vice-President of Marketing
and Sales in January 2006 to assist us in exploring the market for our sensor
modules.
Research
and Development. We
hired
two key engineers in October of 2004. Together, they have sixty years of
combined experience in designing creative sensor modules. To date, two series
of
sensor modules have been designed, models have been constructed and beta-site
tested. We began production in the first quarter of 2006. One additional product
that we filed a provisional patent for will be ready for production in the
third
quarter of 2006. The unit price of these modules will be at least ten times
higher than our current sensor component’s sale price. We expect an increase in
our sales from these new product lines.
Our
Goals. Our
goal
is to become the market leader in innovative sensor system solutions, and a
supplier with a competitive pricing and performance mix. To accomplish this
objective, we plan to integrate proprietary techniques and processes developed
by Sensor System that serve as the foundation to develop the Company’s MEMS
business. These MEMS core competences include MEMS front-end wafer design and
processing, volume assembly and testing, application-specific environmental
protection, and cost modeling. Combined with Sensor System’s expansion plans to
increase marketing and sales efforts, these technologies present the Company
with opportunities to further grow the business in international markets such
as
China. We formed a joint venture in China with China Automotive Systems, Inc.
in
April 2005 to address our production requirements. Sensor System also has
MEMS wafer fabrication partners in China and Taiwan, allowing the Company to
maintain sensor wafer supplies as well as to continue MEMS device research.
We
intend
to upgrade from sensor component business to system solution business. It will
be focused on providing complete data management solutions that can accommodate
the needs of a wide range of industries and businesses. These solutions include
a comprehensive set of products and services that establish the infrastructure
necessary for manufacturing process partners to proactively participate in
sustaining and optimizing the operation.
We
are
striving to be a provider of sensor solutions with built-in network connectivity
to supply critical data continuously for enterprises to monitor and
control:
|
·
|
Manufacturing
processes
|
We
plan
to develop and integrate various core intellectual properties in the areas
of
MEMS sensors, intelligent sensor interface electronics, intelligent embedded
control systems and meters, wireless communication network interfaces, data
appliances and mobile devices that facilitate machine-to-business data sharing,
software & hardware to support web-based device diagnostics and data
collection/data distribution, and web-based data management.
We
are
actively seeking funding to expand its design, development and marketing of
MEMS
based thin-film and micro-machined force and pressure sensors to the medical,
chemical, oil, and gas industries. The Company believes that MEMS is an enabling
technology allowing the development of smart products by augmenting the
computational ability of microelectronics with the sensing and control
capabilities of microsensors and microactuators.
Our
strategy includes the hiring of engineering and sales and marketing team coupled
with off-shore joint ventures, such as the one entered into with CAAS.
Strategy.
Our goals
include:
|
·
|
Penetrate
automotive and appliance markets through the Joint Venture with CAAS
in
China;
|
|
·
|
Leverage
the cost performance of above alliance to penetrate industrial and
medical
markets in North America and
Europe;
|
|
·
|
Complete
development of sensor-based systems;
and
|
|
·
|
Seek
complementary merger and acquisition
candidates.
|
Competition.
Our
products and services are affected by varying degrees of competition. We compete
with other companies in most markets we serve, many of which have far greater
sales volumes and financial resources. The principal competitive factors in
the
commercial markets in which we participate are product performance, service
and
price. Part of product performance requires expenditures in research and
development that lead to product improvement. The market for many of our
products may be affected by rapid and significant technological changes and
new
product introduction. Our principal competitors include Honeywell, GE and MSI
in
our sensor component segment, and Delphi, Bosch, and Denso in automotive sensor
segment. There is no major competitor in the market in which Sensor System
Solutions operates at the current time.
Employees
and employment agreements. We
currently employ 17 full-time employees. There are no employment agreements
with
any of the employees.
Description
Of
Property
Our
headquarters are located 45 Parker Avenue, Suite A, Irvine, California 92618.
The facilities include 25,000 square feet of office, production and warehouse,
which we lease from Irvine Company under a five year lease, starting in 2002.
Annual rental payments for this lease are listed in the MD&A Section. We
believe that these facilities have the capacity to meet its manufacturing and
assembly needs for the foreseeable future.
Legal
Proceedings
We
are
not a party to any pending litigation and none is contemplated or threatened.
MANAGEMENT
Executive
Officers
The
following table sets forth the names, ages and positions of each of the
Company’s executive officers. Subject to rights under any employment agreements,
officers of the Company serve at the pleasure of the Board of
Directors.
Name
|
|
Age
|
|
Position
|
Michael
Young
|
|
47
|
|
Chief
Executive Officer, Acting Chief Financial Officer and
Chairman
|
Hanlin
Chen
|
|
48
|
|
Director
|
All
directors have a term of office expiring at the next annual general meeting,
unless re-elected or earlier vacated in accordance with the Bylaws. All officers
have a term of office lasting until their removal or replacement by the Board
of
Directors.
The
following is a biographical summary of the experience of each of the executive
officers:
Michael
Young
founded
Sensor System in 1986 and has served for seven years as CEO of Sensor System.
His
responsibilities
include
overseeing day-to-day operations and developing and implementing the Company’s
overall strategy including the development of strategic partnerships and
funding. His career in this industry has spun over 20 years. He has previously
been with Rosemount, Endevco, Hughes Aircraft and other firms, and has been
involved with MEMS design, fabrication, packaging and applications development.
He is responsible for leading Sensor System given his technical expertise and
a
broad range of business experiences with Sensor System. He holds a Master of
Science degree in Mechanical Engineering from Stanford University.
Hanlin
Chen
began
serving as the Chairman and CEO of China Automotive Systems, Inc. in 2003.
Prior
to this appointment, Mr. Chen was the general manager of Jiulong Power
Steering Company Limited from 1992 to 1997. Mr. Chen holds a MBA from
Barrington University and serves as a board member of Political Consulting
Committee of Jingzhou city and vice president of Foreign Investors Association.
Committees
Of The Board Of Directors
Currently,
the Board does not have any committees.
Compensation
Of Directors
All
directors receive no compensation from the Company.
Family
Relationships
There
are
no family relationships on the Board of Directors.
Involvement
in Certain Legal Proceedings
Michael
Young served as the CEO of TransOptiX from August, 2000 to August, 2005. On
August 6, 2005, TransOptiX filed Chapter 7 bankruptcy. To our knowledge, during
the past five years other than this event, our officers and directors have
not
filed a petition under the federal bankruptcy laws or any state insolvency
law,
nor had a receiver, fiscal agent or similar officer appointed by a court for
the
business or present of such a person, or any partnership in which he was a
general partner at or within two years before the time of such filing, or any
corporation or business association of which he was an executive officer within
two years before the time of such filing; were not convicted in a criminal
proceeding or named subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses); were not the subject of any order,
judgment or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, permanently or temporarily enjoining him from
or otherwise limiting their respective activities.
Compliance
with Section 16 (a) of the Exchange Act
Based
solely upon a review of Forms 3 and 4 and amendments thereto furnished to us
pursuant to Rule 16a-3(e) under the Securities Exchange Act of 1934 during
our most recent fiscal year and Forms 5 and amendments thereto furnished to
us
with respect to our most recent fiscal year, all officers, directors and owners
of 10% or more of our outstanding shares have filed all Forms 3, 4 and 5
required by Section 16(a) of the Securities Exchange Act of 1934.
Code
Of Ethics
We
have
adopted a corporate code of ethics on February 13, 2004. We believe our code
of
ethics is reasonably designed to deter wrongdoing and promote honest and ethical
conduct; provide full, fair, accurate, timely and understandable disclosure
in
public reports; comply with applicable laws; ensure prompt internal reporting
of
code violations; and provide accountability for adherence to the
code.
Executive
Compensation
The
following table sets forth certain information with respect to the compensation
of the Named Executive Officers. The “Named Executive Officers” include, (i) the
Company’s Chief Executive Officer (ii) the Company’s executive officers as of
December 31, 2005 (iii) two additional individuals who were not executive
officers as of the year ended December 31, 2005. The Company did not grant
any restricted stock awards or stock appreciation rights or make any long-term
incentive plan payouts during the periods set forth below.
Summary
Compensation Table
|
|
|
|
Annual
Compensation
|
|
Long-Term
Compensation Awards
|
|
Name
and
Principal
Position
|
|
Fiscal
year
Ended
December 31
|
|
Salary
($)*
|
|
Bonus
($)
|
|
Other
Annual
Compensation
($)
|
|
Securities
Underlying
Options
(#)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Young, CEO
|
|
|
2005
|
|
|
108,500
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
|
2004
|
|
|
75,000
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
|
2003
|
|
|
61,506
|
|
|
--
|
|
|
--
|
|
|
--
|
|
In
March
2006, the Board of Directors approved a stock option plan (the “2006
Option Plan”),
pursuant to which the Company allocated five million (5,000,000) shares of
common stock for issuances under the 2006 Option Plan. In March 2006, the
Company granted to Michael Young options to purchase 250,000 shares of common
stock under the 2006 Option Plan.
Option/SAR
Grants
No
individual grants of stock options, whether or not in tandem with stock
appreciation rights (“SARs”)
and
freestanding SARs have been made to any executive officer or any director prior
to March 2006. Accordingly, no stock options have been exercised by any of
the
officers or directors in fiscal 2005. Under the 2006 Option Plan, Michael Young
was granted options to purchase 250,000 shares of the Company’s common
stock.
Long-Term
Incentive Plan Awards
We
do not
have any long-term incentive plans that provide compensation intended to serve
as incentive for performance to occur over a period longer than one fiscal
year,
whether such performance is measured by reference to our financial performance,
our stock price, or any other measure.
Compensation
of Directors
The
directors did not receive any other compensation for serving as members of
the
board of directors. The Board has not implemented a plan to award options.
There
are no contractual arrangements with any member of the board of
directors.
We
do not
intend to pay any additional compensation to our directors. As of the date
hereof, we have not entered into employment contracts with any of our officers
and we do not intend to enter into any employment contracts until such time
as
it profitable to do so.
Indemnification
Nevada
corporation law provides that:
A
corporation may indemnify any person who was or is a party or is threatened
to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, except
an
action by or in the right of the corporation, by reason of the fact that he
is
or was a director, officer, employee or agent of the corporation, or is or
was
serving at the request of the corporation as a director, officer, employee
or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys’ fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he acted in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests
of
the corporation, and, with respect to any criminal action or proceeding, had
no
reasonable cause to believe his conduct was unlawful;
A
corporation may indemnify any person who was or is a party or is threatened
to
be made a party to any threatened, pending or completed action or suit by or
in
the right of the corporation to procure a judgment in its favor by reason of
the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid
in
settlement and attorneys’ fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted
in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom,
to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action
or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court
deems
proper; and
To
the
extent that a director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding, or in defense of any claim, issue or matter therein, the corporation
shall indemnify him against expenses, including attorneys’ fees, actually and
reasonably incurred by him in connection with the defense.
Our
bylaws provide that we will advance all expenses incurred to any person who
was
or is a party or is threatened to be made a party to any threatened, pending
or
completed action, suite or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was our director or
officer, or is or was serving at our request as a director or executive officer
of another company, partnership, joint venture, trust or other enterprise,
prior
to the final disposition of the proceeding, promptly following request. This
advanced of expenses is to be made upon receipt of an undertaking by or on
behalf of such person to repay said amounts should it be ultimately determined
that the person was not entitled to be indemnified under our bylaws or
otherwise.
Our
bylaws also provide that no advance shall be made by us to any officer in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, if a determination is reasonably and promptly made: (a) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to the proceeding; or (b) if such quorum is not obtainable,
or,
even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate clearly
and convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to our best
interests.
Insofar
as indemnification for liabilities arising under the 1933 Act may be permitted
to directors, officers and controlling persons of our company under Nevada
law
or otherwise, we have been advised the opinion of the Commission is that such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event a claim for indemnification against
such
liabilities (other than payment by us for expenses incurred or paid by a
director, officer or controlling person of our company in successful defense
of
any action, suit, or proceeding) is asserted by a director, officer or
controlling person in connection with the securities being registered, we will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction, the question of
whether such indemnification by it is against public policy in said Act and
will
be governed by the final adjudication of such issue.
Employment
Agreements And Arrangements
The
Board
of Directors adopted on September 1, 2005 a resolution setting forth Michael
Young’s compensation. The terms of the arrangement included a three-year tenure,
with a base salary of $150,000 per annum, a $20,000 signing bonus, a $1,000,000
life insurance policy and a $1,000 per month automobile expense. If Michael
Young is terminated without cause, the Company would be obligated to pay him
$300,000 cash compensation. As of June 5, 2006, no employment agreement has
been
executed between the Company and Michael Young.
PRINCIPAL
STOCKHOLDERS
The
following table sets forth certain information with respect to the beneficial
ownership of each class of the Company’s voting securities as of June
5,
2006,
by (i)
each person or company known by the Company to be the beneficial owner of more
than 5% of the Company’s outstanding shares, (ii) each director of the
Company or any nominee for directorship, (iii) the Chief Executive Officer
of
the Company and each of the other Named Executive Officers and (iv) all
directors and Named Executive Officers of the Company as a group.
Name
of Beneficial Owner
and
Address(1)
|
|
Amount
and Nature Beneficial Owner
|
|
Position
|
|
Percent
of
Class
(1)
|
|
|
|
|
|
|
|
|
|
Officers
and Directors
|
|
|
|
|
|
|
|
|
|
|
Michael
Young
|
|
|
10,620,186(2)
|
|
Chief
Executive Officer and Chairman |
|
|
14
|
%
|
Hanlin
Chen
|
|
|
--
|
|
Director |
|
|
0
|
%
|
Officers
and Directors as a Group (2 persons)
|
|
|
10,620,186
|
|
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Principal
Shareholders
|
|
|
|
|
|
|
|
|
|
|
Future
Front Int’l Co. Ltd.(3)
|
|
|
14,479,093
|
|
|
|
|
|
19
|
%
|
*
|
Indicates
ownership of less than 1%.
|
(1)
|
Applicable
percentage of ownership is based on 76,586,112 shares
of common stock outstanding as of June
5, 2006,
together with securities exercisable or convertible into shares of
common
stock within 60 days of June
5, 2006,
for each stockholder. Beneficial ownership is determined in accordance
with the rules of the Commission and generally includes voting or
investment power with respect to securities. Shares of common stock
subject to securities exercisable or convertible into shares of common
stock that are currently exercisable or exercisable within 60 days
of
June
5, 2006 are
deemed to be beneficially owned by the person holding such securities
for
the purpose of computing the percentage of ownership of such person,
but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person. Note that affiliates are subject to
Rule
144 and Insider trading regulations - percentage computation is for
form
purposes only.
|
(2)
|
Michael
Young’s address is 45 Parker Avenue, Suite A, Irvine, CA
92618.
|
(3)
|
The
address is 6 G/F, Johnston Road, Wanchai, Hong
Kong.
|
MARKET
PRICE OF AND DIVIDENDS ON THE REGISTRANT’S
COMMON
EQUITY AND OTHER STOCKHOLDER MATTERS
The
Company’s common stock is currently listed on the OTCBB published by the
National Quotation Bureau, Inc. The Company’s common stock trades under the
symbol “SSYO.OB” For the periods indicated, the following table presents the
range of high and low closing sale prices for the Company’s common stock.
|
|
High
($)
|
|
Low
($)
|
|
|
|
|
|
|
|
Year
ended December 31, 2006:
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
0.37
|
|
$
|
0.14
|
|
Second
Quarter (To June 5, 2006)
|
|
$
|
0.16
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2005:
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
2.40
|
|
$
|
1.20
|
|
Second
Quarter
|
|
$
|
2.10
|
|
$
|
0.55
|
|
Third
Quarter
|
|
$
|
1.25
|
|
$
|
0.30
|
|
Fourth
Quarter
|
|
$
|
0.51
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2004:
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
3.15
|
|
$
|
0.45
|
|
Second
Quarter
|
|
$
|
2.40
|
|
$
|
1.20
|
|
Third
Quarter
|
|
$
|
2.40
|
|
$
|
1.20
|
|
Fourth
Quarter
|
|
$
|
2.75
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2003:
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
2.25
|
|
$
|
1.35
|
|
Second
Quarter
|
|
$
|
1.50
|
|
$
|
1.05
|
|
Third
Quarter
|
|
$
|
1.05
|
|
$
|
0.30
|
|
Fourth
Quarter
|
|
$
|
0.90
|
|
$
|
0.60
|
|
Quotations
since the Company’s stock began trading on the OTCBB may reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
The
number of stockholders of record of the Company’s common stock at June 5, 2006
was 139. This number does not include shares held by brokerage clearing houses,
depositories or otherwise in unregistered form.
Dividends
We
have
not declared any cash dividends, nor do we intend to do so. We are not subject
to any legal restrictions respecting the payment of dividends, except that
they
may not be paid to render us insolvent.
Securities
Authorized For Issuance Under Equity Compensation Plans
In
December 2001, the Company adopted a Stock Option Plan/Stock Issuance
Plan (the “2001
Option Plan”)
whereby the Board of Directors can issue both incentive stock options and
nonqualified options to directors, employees, and consultants as an
incentive of them to continue in the employ and service of the
Company. Under the 2001 Option Plan, 200,000 shares of the
Company's stock were reserved for options to be issued, at a price
fixed by the plan administrator. The 2001 Option Plan was terminated
in March 2006 when the Company adopted the 2006 Option Plan whereby the
Board of Directors can issue both incentive stock options and nonqualified
options to directors, employees, and consultants as an incentive of them to
continue in the employ and service of the Company. Under the 2006 Option
Plan, five million (5,000,000) shares of the Company’s common stock are reserved
for options to be issued, at a price fixed by the plan administrator. As
of June 5, 2006, there are 1,480,000 options outstanding at an average exercise
price of $0.21. The 76,000 options outstanding under the 2001 Option Plan
were converted to 760,000 options under the 2006 Stock
Compensation Plan and are included in the 1,480,000 total.
Sales
Of Unregistered Securities
During
the past three years the registrant has issued the following securities without
registration under the 1933 Act:
On
May 1
2006, the Company issued 342,000 shares of common stock pursuant to Rule 144
to
Tung Ho Liu for a loan conversion exercised by Liu in April 2006.
On
March
3, 2006, the Company issued 14,479,093 shares of common stock pursuant to Rule
144 to Future Front International Co. Ltd (“FFI”).
FFI
purchased the right to the 14,479,093 shares of common stock from Sino-America,
Inc. in March 2006. Sino-America, Inc. received the right to the 14,479,093
shares in March 2005 upon a loan conversion and exercise of a
warrant.
On
March
3, 2006, the Company issued 30,000 shares of common stock pursuant to Rule
144
to Ann Jones and 30,000 shares of common stock pursuant to Rule 144 to Donna
Dolan as compensation for their public relations services.
On
February 14, 2006, the Company issued a note payable to Cornell Capital Partners
for $200,000, secured by all assets of the Company, interest at 10% per annum,
payable on February 14, 2007. The note is convertible, with some limitations,
at
the holder’s option at a conversion price equal to the lesser of $0.35 or 90% of
the lowest volume weighted average price of the common stock for the 15 trading
days immediately preceding the conversion date.
On
February 22, 2006, the Company issued a note payable to Jun Jye Huang for
$200,000, secured by all assets of the Company, interest at 8% per annum,
payable on August 21, 2006. The note is convertible at the holder’s option at a
conversion price equal to the 75% of the average closing bid price of the common
stock for the month of February 2006. The note has 3-year warrants attached
that
allow the holder, if he converts, to purchase an identical number of shares
at
85% of the average bid price of the common stock for the 30 trading days
preceding exercise.
On
December 23, 2005, the Company issued to Cornell Capital Partners secured
convertible debentures in the principal amount of $1,000,000. The Convertible
Debentures are secured by substantially all of the Company’s assets, have a one
year term and accrue interest at 10% per annum. Cornell Capital
Partners is
entitled, at its option, to convert and sell all or any part of the principal
amount of the Convertible Debentures, plus any and all accrued interest, into
shares of Common Stock at a price equal to the lesser of (i) $0.35 and (ii)
ninety percent (90%) of the lowest volume weighted average price of the Common
Stock during the fifteen (15) trading days immediately preceding the date of
conversion as quoted by Bloomberg, LP. Out
of
the total principal amount of $1,000,000, in December 2005, we received gross
proceeds of $800,000, and the remaining $200,000, representing the second
tranche of the gross proceeds, was funded in February 2006. In December 2005,
we
received $143,000 representing the net proceeds from the issuance of secured
convertible debentures to Cornell Capital Partners under the Securities Purchase
Agreement, dated December 23, 2005. The total net proceeds take into account
estimated expenses in the amount of $47,000 and the payment of $610,000 to
Cornell Capital Partners for the repayment of the secured convertible debentures
issued to Cornell Capital Partners on October 6, 2005. In February 2006, we
received the second tranche of the proceeds in the net amount of
$164,037.
On
October 6, 2005, the Company entered into a Standby Equity Distribution
Agreement with Cornell Capital Partners. Pursuant to the Standby Equity
Distribution Agreement, we could have, at our discretion, periodically sold
to
Cornell Capital Partners shares of common stock for a total purchase price
of up
to $15 million. Pursuant to the Standby Equity Distribution Agreement, Cornell
Capital Partners was entitled to purchase shares of Sensor System’s common stock
at a total discount equal to 10%. For each share of common stock purchased
under
the Standby Equity Distribution Agreement, Cornell Capital Partners would have
paid us 95% of or a 5% discount to, the lowest closing bid price of our common
stock on the Over-the-Counter Bulletin Board or other principal market on which
our common stock is traded for the five days immediately following the notice
date. Further, Cornell Capital Partners would have retained 5% of each advance
under the Standby Equity Distribution Agreement. In connection with the Standby
Equity Distribution Agreement, Cornell Capital Partners received a one-time
commitment fee in the form of 1,471,429 shares of common stock. On December
23,
2005, the Company entered into a Termination Agreement with Cornell Capital
Partners, pursuant to which the Standby Equity Distribution Agreement, as well
as the related Registration Rights Agreement and the Placement Agent Agreement,
were terminated.
On
October 6, 2005, we entered into a Securities Purchase Agreement pursuant to
which we issued to Cornell Capital Partners convertible debentures in the
aggregate principal amount of $600,000. The principal amount, plus accrued
interest, was able to be convertible in whole or in part, at Cornell Capital
Partners’ discretion, into our common stock at any time and from time to time
before maturity at a fixed price of $0.245 per share, subject to certain
limitations as provided therein. The convertible debentures had a term of a
one-year, possess registration rights, accrued interest at a rate equal to
10%
per year, and were secured by Sensor System’s assets. The
Company repaid to Cornell Capital Partners a total amount of $610,000,
representing principal amount and accrued interest, on December 23,
2005.
On
October 20, 2005, the Company issued 200,000 shares of Rule 144 stock to Duke
Capital as a compensation for its consulting service in the merger transaction
between ACSI and Spectre Industries, Inc.
On
October 20, 2005, the Company issued 725,778 shares of Rule 144 stock to Pei
Jen
Hsu for a warrant exercise and loan conversion exercised by Hsu in March
2005.
On
February 10, 2005, the Company issued 3,000,000 shares of S-8 stock as
compensation to ex-directors, Ian Grant and Matthew Markin.
On
January 25, 2005, the Company issued 4,500,000 shares of Rule 144 stock to
Quantum Economic Development, Inc., Frank
Demille, Foxir Communications Inc, Ian Grant and Matthew Markin for their
services in connection with the merger transaction pursuant to the merger
agreement.
On
January 25, 2005, the Company issued 47,802,373 shares of Rule 144 stock for
the
warrant exercise of ACSI shareholders per its merger agreement with Spectre
Industries, Inc.
On
May
24, 2004, the Company issued 2,584,906 shares of Rule 144 stock to the
shareholders of ACSI Merger
Agreement, dated March 13, 2004, between Spectre Industries, Inc., Spectre
Merger Sub, Inc., Ian S. Grant and Advanced Custom Sensors, Inc.
On
April
5, 2004, the Company issued 13,334 shares Olof Hildebrand.
On
May
30, 2003, the Company issued 1,367 shares to Markus Hugelshofer.
On
November 15, 2002, the Company issued 667 shares to Margrit
Oppliger.
On
September 24, 2002, the Company issues 67 shares to Andrew
Yachnowitz.
On
August
26, 2002, the Company issued 3,334 shares to Ken Grant.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Hanlin
Chen, a Director of the Company is the Chief Executive Officer of CAAS. On
April
12, 2005, we entered into a Joint Venture Agreement with CAAS pursuant to which
the parties would develop, produce and sale sensor and related electronic
products throughout China. To that end, in 2005, the parties established USI
in
the Wuhan East lake development zone, in Hubei, China. Pursuant to the Joint
Venture Agreement, the parties agreed to invest $10,000,000, out of which we
will invest $3,000,000 in technology. USI has been in operation since 2005,
and
we have been in the process of transferring technology to them for the
production and development of sensor products.
DESCRIPTION
OF CAPITAL
STOCK
Common
Stock
Sensor
System is authorized to issue 180,000,000 shares of common stock $0.001 par
value, of which 76,586,112
were
issued and outstanding at June
5,
2006.
The
securities being offered hereby are common stock, with one vote per share on
all
matters to be voted on by shareholders, without any right to accumulate their
votes. Shareholders have no preemptive rights and have no liability for further
calls or assessments on their shares. The shares of common stock are not subject
to repurchase by the Company or conversion into any other security. All
outstanding shares of common stock are fully paid and non
assessable.
Shareholders
are entitled to receive such dividends as may be declared by the Board of
Directors of the Sensor System out of funds legally available therefore and,
upon the liquidation, dissolution or winding up of the Company, are entitled
to
share ratably in all net assets available for distribution to such holders
after
satisfaction of all of our obligations, including stock preferences. It is
not
anticipated that we will pay any dividends in the foreseeable future since
we
intend to follow the policy of retaining its earnings to finance the growth
of
its business. Future dividend policies will depend upon the Company’s earnings,
financial needs and other pertinent factors.
Preferred
Stock
The
Board
of Directors has the authority, without further action by stockholders, to
issue
up to 20,000,000 shares of preferred stock in one or more series and to fix
the
powers, designations, rights, preferences, privileges, qualifications and
restrictions thereof, including dividend rights, conversion rights, voting
rights, rights and terms of redemption, liquidation preferences and sinking
fund
terms, any or all of which may be greater than the rights of the common stock.
The Board of Directors, without stockholder approval, can issue preferred stock
with voting, conversion, and other rights which could adversely affect the
voting power and other rights of the holders of Common Stock. The issuance
of
preferred stock in certain circumstances may have the effect of delaying,
deferring or preventing a change of control of the Company
without
further action by the stockholders, may discourage bids for the Company’s
common
stock at a premium over the market price of the common stock, and may adversely
affect the market price of the common stock.
Warrants
During
the 2003, 2004 and 2005 fiscal years, the Company issued the following warrants
under the terms specified below:
Loan
|
|
Amount
|
|
Date
|
|
Maturity
Date
|
|
Warrant
Terms
|
1. Tina
Young
|
|
$190,666.00
|
|
7/1/2003
|
|
9/17/2008
|
|
Warrants
to purchase 190,666 shares of ACSI common stock at $0.50 per
share. (the ACSI warrants are convertible into 5,372,940 shares of
the Company's common stock.)
|
2. Tina
Young
|
|
$110,000.00
|
|
9/16/2003
|
|
9/17/2008
|
|
Warrants
to purchase 100,000 shares of ACSI common stock at $0.50 per share
(the
ACSI warrants are convertible into 2,817,215 shares of the Company's
common stock.) plus warrants that, once the note is converted, are
callable for three years and allow the holder to purchase the Company's
common stock at 85% average trading
price.
|
Loan
|
|
Amount
|
|
Date
|
|
Maturity
Date
|
|
Warrant
Terms
|
3. Edwin
Liou
|
|
$60,000.00
|
|
10/18/2004
|
|
10/17/2008
|
|
Warrants
that, once the note is converted, are callable for three years and
allow
the holder to purchase the Company's common stock at 85% average
trading
price.
|
4. Tung
Ho Liu
|
|
$50,000.00
|
|
2/3/2005
|
|
2/2/2009
|
|
Warrants
that, once the note is converted, are callable for three years and
allow
the holder to purchase the Company's common stock at 85% average
trading
price
|
5. Evan
Chuang
|
|
$30,000.00
|
|
12/20/2004
|
|
12/19/2008
|
|
Warrants
that, once the note is converted, are callable for three years and
allow
the holder to purchase the Company's common stock at 85% average
trading
price
|
6. Jun
Jye Huang
|
|
$200,000.00
|
|
2/22/2005
|
|
2/21/2009
|
|
Warrants
that, once the note is converted, are callable for three years and
allow
the holder to purchase the Company's common stock at 85% average
trading
price
|
7. Jay
Liang
|
|
$20,000.00
|
|
11/12/2004
|
|
11/11/2008
|
|
Warrants
that, once the note is converted, are callable for three years and
allow
the holder to purchase the Company's common stock at 85% average
trading
price
|
8.
Cornell Capital Partners
|
|
$600,000.00
|
|
10/6/2005
|
|
10/6/2009
|
|
Warrant
to purchase 600,000 shares of the Company's common stock, at $0.35
per
share.
|
9.
Cornell Capital Partners
|
|
$600,000.00
|
|
12/23/2005
|
|
12/23/2010
|
|
Warrant
to purchase 600,000 shares of the Company's common stock, at $0.2878
per
share.
|
10.
Trenwith Securities Inc.
|
|
$25,000.00
|
|
12/27/2005
|
|
12/23/2009
|
|
Warrant
to purchase 86,866 shares of the Company's common stock, at $0.2878
per
share.
|
Options
In
December 2001, the Company adopted the 2001 Option Plan whereby the Board
of Directors can issue both incentive stock options and nonqualified options
to
directors, employees, and consultants as an incentive of them to
continue in the employ and service of the Company. Under the 2001
Option Plan, 200,000 shares of the Company's stock were reserved for
options to be issued, at a price fixed by the
plan administrator. The 2001 Option Plan was terminated in March 2006
when the Company adopted the 2006 Option Plan whereby the Board of
Directors can issue both incentive stock options and nonqualified options to
directors, employees, and consultants as an incentive of them to continue in
the
employ and service of the Company. Under the 2006 Option Plan, five
million (5,000,000) shares of the Company’s common stock are reserved for
options to be issued, at a price fixed by the plan administrator. As of
June 5, 2006, there are 1,480,000 options outstanding at an average exercise
price of $0.21. The 76,000 options outstanding under the 2001 Option Plan
were converted to 760,000 options under the 2006 Stock
Compensation Plan and are included in the 1,480,000 total.
Transfer
Agent
Our
transfer agent is Worldwide
Stock Transfer, LLC.
Its
address is 885 Queen Anne Road, Teaneck, NJ, 07666 and its telephone number
is
(201) 357-4809.
Reports
To
Shareholders
We
intend
to furnish our shareholders with annual reports which will describe the nature
and scope of our business and operations for the prior year and will contain
a
copy of the Company’s audited financial statements for its most recent fiscal
year.
Limitation
Of Liability: Indemnification
The
Company’s
Articles of Incorporation limits the liability of directors to the maximum
extent permitted by Nevada law. Nevada law provides that directors of a company
will not be personally liable for monetary damages for breach of their fiduciary
duties as directors, except for liability for (i) any breach of their duty
of
loyalty to the company or its stockholders, (ii) acts or omissions not in good
faith or involving intentional misconduct or a knowing violation of law, (iii)
unlawful payment of dividends or unlawful stock repurchases or redemptions
as
under Nevada law, or (iv) any transaction from which the director derived an
improper personal benefit.
The
Company’s
Bylaws
provide that the Company
shall
indemnify its officers, directors, employees and other agents to the maximum
extent permitted by Nevada law. The Company’s
Bylaws
also permit it to secure insurance on behalf of any officer, director, employee
or other agent for any liability arising out of his or her actions in such
capacity, regardless of whether the Bylaws would permit
indemnification.
The
Company
believes
that the provisions in its Articles of Incorporation and its Bylaws are
necessary to attract and retain qualified persons as officers and
directors.
Insofar
as indemnification for liabilities arising under the 1933 Act may be permitted
to directors, officers and controlling persons of Sensor System pursuant to
the
foregoing, or otherwise, the Company has been advised that in the opinion of
the
Commission such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable.
Anti-Takeover
Effects of Provisions of
The
Articles of
Incorporation
The
Company’s
Certificate of Incorporation and Bylaws include a number of provisions which
may
have the effect of discouraging persons from pursuing non-negotiated takeover
attempts. These provisions include limitations on stockholder action initiated
by Interested Stockholders, a prohibition on the call of special meetings of
stockholders by persons other than the Board of Directors, and a requirement
of
advance notice for the submission of stockholder proposals or director
nominees.
EXPERTS
The
audited financial statements included in this prospectus and elsewhere in the
registration statement for the fiscal year ended December 31, 2005 and
December 31, 2004 has been audited by Weinberg & Company, P.A. The
reports of Weinberg & Company, P.A. are included in this prospectus in
reliance upon the authority of this firm as experts in accounting and auditing.
The report of Weinberg & Company, P.A. contained elsewhere in this
prospectus contain an explanatory paragraph regarding its ability to continue
as
a going concern.
VALIDITY
OF SECURITIES
The
validity of the shares offered herein will be opined on for us by Burton,
Bartlett & Glogovac, which has acted as our outside legal counsel in
relation to certain, restricted tasks.
INTERESTS
OF NAMED EXPERT AND COUNSEL
LEGAL
MATTERS
The
validity of the shares of common stock offered hereby as to their being fully
paid, legally issued and non-assessable will be passed upon for us by Burton,
Bartlett & Glogovac, Reno, Nevada. Burton, Bartlett & Glogovac does not
have any interests in Sensor
System
and has
never been employed by Sensor
System
on a
contingent basis.
The
audited consolidated financial statements of the Company for the year ended
December 31, 2005 and December 31, 2004 has
been
audited by Weinberg & Company, P.A. and Weinberg
& Company, P.A.
does
not have any interests in Sensor
System
and have
never been employed by Sensor
System
on a
contingent basis.
HOW
TO GET MORE INFORMATION
We
have
filed with the Commission a registration statement on Form SB-2 under the 1933
Act with respect to the securities offered by this prospectus. This prospectus,
which forms a part of the registration statement, does not contain all the
information set forth in the registration statement, as permitted by the rules
and regulations of the Commission. For further information with respect to
us
and the securities offered by this prospectus, reference is made to the
registration statement. Statements contained in this prospectus as to the
contents of any contract or other document that we have filed as an exhibit
to
the registration statement are qualified in their entirety by reference to
the
to the exhibits for a complete statement of their terms and conditions. The
registration statement and other information may be read and copied at the
Commission’s Public Reference Room at 100 F. Street, N.E., Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. The Commission
maintains a web site at http://www.sec.gov that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Commission.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
|
|
FINANCIAL
STATEMENTS FOR MARCH 31, 2006
|
|
Condensed
Consolidated Balance Sheets as of March 31, 2006 (unaudited) and
December 31, 2005
|
F-1
|
Condensed
Consolidated Statements of Operations for the three months ended
March 31, 2006 and March 31, 2005 (unaudited)
|
F-2
|
Condensed
Consolidated Statement of Changes in Stockholders Deficiency for
the three
months ended March 31, 2006 (unaudited)
|
F-3
|
Condensed
Statements of Cash Flows for the three months ended March 31, 2006
and March 31, 2005 (unaudited)
|
F-4
|
Notes
to Condensed Consolidated Financial Statements (unaudited)
|
F-5
|
|
|
FINANCIAL
STATEMENTS FOR DECEMBER 31, 2005
|
|
Report
of Independent Registered Public Accounting Firm
|
F-11
|
Consolidated
Balance Sheets as of December 31, 2005
|
F-12
|
Consolidated
Statements of Operations for the years ended December 31, 2005 and
2004
|
F-13
|
Consolidated
Statement of Changes in Stockholders’ Deficiency of Stockholders’ Equity
(Deficit) for the years ended December 31, 2005 and 2004
|
F-14
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2005 and
2004
|
F-15
|
Notes
to Consolidated Financial Statements
|
F-16
|
SENSOR
SYSTEM SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED
CONSOLIDATED BALANCE SHEETS
As
of
March 31, 2006 (Unaudited)
and
December 31, 2005
|
|
March 31,
2006
|
|
December
31,
2005
|
|
|
|
(Unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
|
|
$
|
38,038
|
|
$
|
172,732
|
|
Accounts
receivable
|
|
|
416,851
|
|
|
230,440
|
|
Inventory
|
|
|
254,127
|
|
|
302,171
|
|
Prepaids
and other current assets
|
|
|
9,900
|
|
|
46,634
|
|
Total
current assets
|
|
|
718,916
|
|
|
751,977
|
|
Property
and equipment, net
|
|
|
151,167
|
|
|
233,862
|
|
Other
assets
|
|
|
104,112
|
|
|
104,112
|
|
Total
assets
|
|
$
|
974,195
|
|
$
|
1,089,951
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,331,136
|
|
$
|
1,313,134
|
|
Notes
payable
|
|
|
1,228,564
|
|
|
1,060,171
|
|
Notes
payable, related parties
|
|
|
376,025
|
|
|
368,565
|
|
Current
portion of capital lease obligations
|
|
|
9,163
|
|
|
8,877
|
|
Current
portion of deferred rent concession
|
|
|
6,000
|
|
|
6,000
|
|
Total
current liabilities
|
|
|
2,950,888
|
|
|
2,756,747
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
|
|
|
|
|
Non-current
portion of notes payable
|
|
|
26,656
|
|
|
--
|
|
Capital
lease obligations, net of current portion
|
|
|
22,921
|
|
|
25,322
|
|
Deferred
rent concession, net of current portion
|
|
|
2,272
|
|
|
3,772
|
|
|
|
|
51,849
|
|
|
29,094
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
DEFICIENCY
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value, 20,000,000 shares authorized, none
outstanding
|
|
|
--
|
|
|
--
|
|
Common
stock, $.001 par value, 180,000,000 shares authorized,
|
|
|
|
|
|
|
|
76,244,112
and 61,705,019 shares issued and outstanding
|
|
|
76,244
|
|
|
61,705
|
|
Common
stock to be issued (71,875 and 14,479,093 shares)
|
|
|
20,594
|
|
|
550,000
|
|
Additional
paid-in capital
|
|
|
16,135,735
|
|
|
15,456,834
|
|
Deferred
compensation
|
|
|
--
|
|
|
(26,598
|
)
|
Accumulated
deficit
|
|
|
(18,261,115
|
)
|
|
(17,737,831
|
)
|
Total
stockholders’ deficiency
|
|
|
(2,028,542
|
)
|
|
(1,695,890
|
)
|
Total
liabilities and stockholders’ deficiency
|
|
$
|
974,195
|
|
$
|
1,089,951
|
|
See
accompanying notes to condensed consolidated financial
statements.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
For
the
three months ended March 31, 2006 and 2005 (Unaudited)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Sales,
net
|
|
$
|
530,098
|
|
$
|
205,015
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
332,993
|
|
|
147,274
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
197,105
|
|
|
57,741
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
544,817
|
|
|
330,555
|
|
|
|
|
|
|
|
|
|
Amortization
of discount on notes payable
|
|
|
132,448
|
|
|
155,121
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation costs
|
|
|
60,029
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
737,294
|
|
|
485,676
|
|
|
|
|
|
|
|
|
|
Gain
on sale of equipment to related party
|
|
|
16,905
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(523,284
|
)
|
$
|
(427,935
|
)
|
|
|
|
|
|
|
|
|
Loss
per common share, basic and diluted
|
|
$
|
(.01
|
)
|
$
|
(.01
|
)
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding, basic and diluted
|
|
|
66,228,292
|
|
|
59,279,241
|
|
See
accompanying notes to condensed consolidated financial
statements.
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY
For
the
three months ended March 31, 2006 (Unaudited)
|
|
Common
Stock
|
|
Common
Stock to be Issued
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional
Paid-In capital
|
|
Deferred
Compensation
|
|
Accumulated
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
January 1, 2006
|
|
|
61,705,019
|
|
$
|
61,705
|
|
|
14,479,093
|
|
$
|
550,000
|
|
$
|
15,456,834
|
|
$
|
(26,598
|
)
|
$
|
(17,737,831
|
)
|
$
|
(1,695,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation
of stock options
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(26,598
|
)
|
|
26,598
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option expense
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
22,635
|
|
|
--
|
|
|
--
|
|
|
22,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensatory
stock issued
|
|
|
60,000
|
|
|
60
|
|
|
--
|
|
|
--
|
|
|
16,740
|
|
|
--
|
|
|
--
|
|
|
16,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued with notes payable
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
130,603
|
|
|
--
|
|
|
--
|
|
|
130,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for exercise of warrants
|
|
|
14,479,093
|
|
|
14,479
|
|
|
(14,479,093
|
)
|
|
(550,000
|
)
|
|
535,521
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensatory
stock to be issued
|
|
|
--
|
|
|
--
|
|
|
71,875
|
|
|
20,594
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
20,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(523,284
|
)
|
|
(523,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
March 31, 2006
|
|
|
76,244,112
|
|
$
|
76,244
|
|
|
71,875
|
|
$
|
20,594
|
|
$
|
16,135,735
|
|
$
|
--
|
|
$
|
(18,261,115
|
)
|
$
|
(2,028,542
|
)
|
See
accompanying notes to condensed consolidated financial
statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For
three
months ended March 31, 2006 and 2005 (Unaudited)
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(523,284
|
)
|
$
|
(427,935
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Stock-based
compensation costs
|
|
|
60,029
|
|
|
--
|
|
Depreciation
and amortization
|
|
|
20,400
|
|
|
25,916
|
|
Amortization
of discount on notes payable
|
|
|
132,448
|
|
|
155,121
|
|
Amortization
of deferred compensation
|
|
|
--
|
|
|
11,942
|
|
Gain
on sale of property and equipment
|
|
|
(16,905
|
)
|
|
--
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(186,411
|
)
|
|
(30,535
|
)
|
Inventory
|
|
|
48,044
|
|
|
7,923
|
|
Prepaids
and other current assets
|
|
|
36,734
|
|
|
19,680
|
|
Deferred
rent
|
|
|
(1,500
|
)
|
|
(1,500
|
)
|
Accounts
payable and accrued expenses
|
|
|
22,002
|
|
|
21,852
|
|
Net
Cash Used In Operating Activities
|
|
|
(408,443
|
)
|
|
(217,536
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Proceeds
from sale of property and equipment
|
|
|
79,200
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from notes payable
|
|
|
400,000
|
|
|
250,000
|
|
Principal
payments on notes payable
|
|
|
(203,336
|
)
|
|
--
|
|
Principal
payments on capital leases
|
|
|
(2,115
|
)
|
|
(1,863
|
)
|
Net
Cash Provided By Financing Activities
|
|
|
194,549
|
|
|
248,137
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(134,694
|
)
|
|
30,601
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
172,732
|
|
|
17,115
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
38,038
|
|
$
|
47,716
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
6,762
|
|
$
|
5,179
|
|
Taxes
|
|
$
|
--
|
|
$
|
800
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Cancellations
and forfeitures of stock options
|
|
$
|
26,598
|
|
$
|
99,000
|
|
Accrued
interest added to notes payable principal
|
|
|
4,000
|
|
|
51,013
|
|
Discount
related to warrants and convertible notes
|
|
|
130,603
|
|
|
160,714
|
|
Exercise
of warrants for debt outstanding
|
|
|
--
|
|
|
262,500
|
|
Conversion
of notes payable
|
|
|
--
|
|
|
316,012
|
|
See
accompanying notes to condensed consolidated financial
statements.
SENSOR
SYSTEMS SOLUTIONS, INC.
FOR
THREE MONTHS ENDED MARCH 31, 2006 AND 2005 (UNAUDITED)
NOTE
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
financial information included herein is unaudited. The interim consolidated
financial statements have been prepared on the same basis as the annual
financial statements and, in the opinion of management, reflect all adjustments,
which include only normal recurring adjustments, considered necessary for a
fair
presentation of the Company’s consolidated financial position and results of
operations for the periods presented. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been omitted. These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and accompanying
notes presented in the Company’s Form 10-KSB for the year ended December 31,
2005. Interim operating results are not necessarily indicative of operating
results expected for the entire year.
Description
of business
The
Company is a manufacturer and assembler of sensors and micro systems, and its
products include thin film sensors, thin film pressure sensors and
micro-machined pressure sensors, and micro systems that may include sensors,
signal conditioning circuits, LCD display, computer interface and molded housing
specifically designed to the customers needs.
Going
concern
The
Company incurred a net loss of $523,284 and a negative cash flow from operations
of $408,443 for three months ended March 31, 2006, and had a working
capital deficiency of $2,231,972 and a stockholders’ deficiency of $2,028,542 at
March 31, 2006. These matters raise substantial doubt about its 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. 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 March 31, 2006, 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
2006.
Principles
of consolidation
The
consolidated financial statements for the three months ended March 31, 2006
and 2005 include the accounts and operations of Sensor Systems Solutions Inc.
and its wholly-owned subsidiary. Intercompany accounts and transactions have
been eliminated in consolidation.
Use
of estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Concentration
of credit risk
Financial
instruments that are exposed to concentrations of credit risk consist
principally of cash and accounts receivable. 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 be any significant risk in cash.
The
Company had two customers that accounted for 54% of sales and three customers
that accounted for 59% of sales in the three months ended March 31, 2006 and
2005, respectively.
SENSOR
SYSTEMS SOLUTIONS, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS
FOR
THREE MONTHS ENDED MARCH 31, 2006 AND 2005 (UNAUDITED)
NOTE
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-based
compensation
The
Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment”
(SFAS 123R), which revises SFAS No. 123 in the first quarter of 2006. SFAS
123R also supersedes APB No. 25 and amends SFAS No. 95, “Statement of Cash
Flows”. In general, the accounting required by SFAS 123R is similar to that of
SFAS No. 123. However, SFAS No. 123 gave companies a choice to either recognize
the fair value of stock options in their income statements or disclose the
pro
forma income statement effect of the fair value of stock options in the notes
to
the financial statements. SFAS 123R eliminates that choice and requires the
fair
value of all share-based payments to employees, including the fair value of
grants of employee stock options, be recognized in the income statement,
generally over the option vesting period.
Had
compensation cost for all stock option grants been determined based on their
fair value at the grant dates in the preceding years, consistent with the method
prescribed by SFAS 148 and SFAS 123, the Company’s net loss and loss per
share would have been adjusted to the pro forma amounts indicated below:
|
|
Three
Months Ended March 31, 2005
|
|
|
|
|
|
Net
loss
|
|
$
|
(427,935
|
)
|
Add:
Stock-based expense included in net loss
|
|
|
11,942
|
|
Deduct:
Fair value based stock-based
|
|
|
(14,720
|
)
|
Pro
Forma net loss
|
|
$
|
(430,713
|
)
|
Basic
and diluted earnings per share:
|
|
|
|
|
As
reported
|
|
$
|
(.01
|
)
|
|
|
|
|
|
Pro
forma under SFAS No. 123
|
|
$
|
(.01
|
)
|
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 March 31, 2006 and 2005, the
Company had granted stock options for 1,480,000 and 96,500 shares of common
stock, respectively, that are potentially dilutive common shares but are not
included in the computation of loss per share because their effect would be
anti-dilutive. As of March 31, 2006 and 2005, the Company had granted
warrants for 9,477,021 and 8,190,155 shares of common stock, respectively,
that
are potentially dilutive common shares but are not included in the computation
of loss per share because their effect would be anti-dilutive.
Recent
Accounting Pronouncements
During
the first quarter of 2006, the Company adopted Statement of Financial Accounting
Standards No. 151, “Inventory Costs”. This Statement amends the guidance in ARB
No. 43 Chapter 4 Inventory Pricing, to require items such as idle facility
costs, excessive spoilage, double freight and rehandling costs to be expensed
in
the current period, regardless if they are abnormal amounts or not. The adoption
of SFAS No. 151 did not have a material impact on our financial condition,
results of operations, or cash flows.
SENSOR
SYSTEMS SOLUTIONS, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS
FOR
THREE MONTHS ENDED MARCH 31, 2006 AND 2005 (UNAUDITED)
NOTE
2 INVENTORY
Inventory
consists of the following at:
|
|
March 31,
2006 (Unaudited)
|
|
December
31, 2005
|
|
Raw
materials
|
|
$
|
158,443
|
|
$
|
204,748
|
|
Finished
goods
|
|
|
95,684
|
|
|
97,423
|
|
|
|
$
|
254,127
|
|
$
|
302,171
|
|
NOTE
3 NOTES PAYABLE
Notes
payable consist of the following at March 31, 2006 and December 31, 2005:
|
|
March 31,
2006 (Unaudited)
|
|
December
31, 2005
|
|
Two
lines of credit, unsecured, interest payable monthly at 10.75% and
11.5%
per annum, due on demand.
|
|
$
|
92,983
|
|
$
|
92,983
|
|
|
|
|
|
|
|
|
|
Note
payable, unsecured, converted to three-year note in 2006 with monthly
principal payments of $1,112 plus interest at 1% over prime (currently
a
total of 8.5%).
|
|
|
36,664
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
Note
payable, unsecured, interest payable monthly at 10% per annum, payable
as
a percentage of any future private or public stock
offerings.
|
|
|
90,000
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
Four
notes payable, secured by all assets of the Company, interest at
8% per
annum, payable at various maturities through May 31, 2006. One note
for
$200,000 was due February 21, 2006 and was converted into a note
due
August 21, 2006. Two notes for $64,800 and $32,400 were due on April
18,
2006 and April 20, 2006, respectively. The Company is currently
negotiating an extension of these notes. The fourth note, for $49,707,
is
due May 31, 2006. At maturity, the notes are convertible at the holder’s
option at a conversion price equal to 70% of the weighted average
price of
the common stock for the 30 trading days immediately preceding the
conversion date. In addition, each note has warrants attached that,
once
the note is converted into stock, allow the holder to purchase stock
at
85% of the weighted average price of the common stock for the 30
trading
days immediately preceding the conversion date. The aggregate intrinsic
value of the beneficial conversion feature of these notes and warrants,
valued at $329,679, has been recorded as loan discount costs and
is being
amortized over the life of the respective note as additional interest
cost.
|
|
|
346,907
|
|
|
346,907
|
|
|
|
|
|
|
|
|
|
Note
payable, secured by all assets of the Company, interest at 10% per
annum,
payable on December 23, 2006. The note is convertible, with some
limitations, at the holder’s option at a conversion price equal to the
lesser of $0.35 or 90% of the lowest volume weighted average price
of the
common stock for the 15 trading days immediately preceding the conversion
date. In addition, the note has detachable warrants that allow the
holder
to buy 600,000 shares of common stock at $0.2878 per share and another
600,000 shares at $0.35 per share.
|
|
|
800,000
|
|
|
800,000
|
|
SENSOR
SYSTEMS SOLUTIONS, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS
FOR
THREE MONTHS ENDED MARCH 31, 2006 AND 2005 (UNAUDITED)
NOTE
3 NOTES PAYABLE (continued)
|
|
March 31,
2006 (Unaudited)
|
|
December
31, 2005
|
|
Note
payable, secured by all assets of the Company, interest at 10% per
annum,
payable on February 14, 2007. The note is convertible, with some
limitations, at the holder’s option at a conversion price equal to the
lesser of $0.35 or 90% of the lowest volume weighted average price
of the
common stock for the 15 trading days immediately preceding the conversion
date.
|
|
|
200,000
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Less,
remaining debt discount
|
|
|
(311,334
|
)
|
|
(309,719
|
)
|
|
|
|
1,255,220
|
|
|
1,060,171
|
|
Less,
non-current portion of notes
|
|
|
(26,656
|
)
|
|
--
|
|
|
|
|
1,228,564
|
|
$
|
1,060,171
|
|
NOTE
4 NOTES PAYABLE, RELATED PARTIES
Notes
payable to related parties consist of the following at March 31, 2006 and
December 31, 2005:
|
|
March 31,
2006 (Unaudited)
|
|
December
31, 2005
|
|
Note
payable to the sister of the Company’s Chief Executive Officer, secured by
all assets of the Company, interest at 14.25% per annum, due December
31,
2004. The note payable was originally issued by Advanced Custom Sensors,
Inc. (ACSI), which merged with the company in 2004. In connection
with the
note payable, ACSI issued warrants expiring September 17, 2008, to
purchase 190,665 shares of ACSI’s common stock at $.50 per share (The ACSI
warrant is convertible into 5,372,940 shares of the Company’s stock). The
Intrinsic value of the warrant ($190,665) has been recorded as loan
discount costs and is being amortized over the life of the note as
additional interest cost. The Company is currently negotiating an
extension of this note.
|
|
$
|
190,665
|
|
$
|
190,665
|
|
SENSOR
SYSTEMS SOLUTIONS, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS
FOR
THREE MONTHS ENDED MARCH 31, 2006 AND 2005 (UNAUDITED)
NOTE
4 NOTES PAYABLE, RELATED PARTIES (continued)
Notes
payable to related parties consist of the following at March 31, 2006 and
December 31, 2005:
|
|
March 31,
2006 (Unaudited)
|
|
December
31, 2005
|
|
Note
payable to the sister of the Company’s Chief Executive Officer, secured by
all assets of the Company, interest at 10.0% per annum, due March
15,
2005. The note payable was originally issued by ACSI in 2003, at
which
time ACSI issued a warrant expiring September 17, 2008, to purchase
100,000 shares of stock at $.50 per share (the ACSI warrant is convertible
into 2,817,215 shares of the Company’s common stock). The intrinsic value
of the original warrant ($100,000) was recorded as a loan discount
cost,
and was amortized over the life of the original note as additional
interest cost. The original note was due September 16, 2004. On September
16, 2004, a new note was issued to replace the original note. At
maturity,
the new note is convertible at the holder’s option at a conversion price
equal to 80% of the weighted average price of the common stock for
the 30
trading days immediately preceding the conversion date. In addition,
the
note has warrants attached that, once the note is converted into
stock,
allow the holder to purchase stock at 85% of the weighted average
price of
the common stock for the 30 trading days immediately preceding the
conversion date. The intrinsic value of the beneficial conversion
feature
of the note and warrants, valued at $48,125, has been recorded as
loan
discount costs and is being amortized over the life of the note as
additional interest cost. The Company is currently negotiating an
extension of this note.
|
|
|
110,000
|
|
|
110,000
|
|
|
|
|
|
|
|
|
|
Note
payable to an employee of the Company, secured by all assets of the
Company, interest at 8.0% per annum, due May 31, 2006. At maturity,
the
note is convertible at the holder’s option at a conversion price equal to
70% of the weighted average price of the common stock for the 30
trading
days immediately preceding the conversion date. In addition, the
note has
warrants attached that, once the note is converted into stock, allow
the
holder to purchase stock at 85% of the weighted average price of
the
common stock for the 30 trading days immediately preceding the conversion
date. The intrinsic value of the beneficial conversion feature of
the note
and warrants, valued at $13,886, has been recorded as loan discount
costs
and is being amortized over the life of the note as additional interest
cost.
|
|
|
21,600
|
|
|
21,600
|
|
|
|
|
|
|
|
|
|
Note
payable to shareholder, secured by all assets of the Company, interest
at
8.0% per annum at 8.0% per annum, due April 3, 2006. At maturity
the note
is convertible at the holder’s option at a conversion price equal to 70%
of the weighted average price of the common stock for the 30 trading
days
immediately preceding the conversion date. In addition, the note
has
warrants attached that, once the note is converted into stock, allow
the
holder to purchase stock at 85% of the weighted average price of
the
common stock for the 30 trading days immediately preceding the conversion
date. The intrinsic value of the beneficial conversion feature of
the note
and warrants, valued at $32,143, has been recorded as loan discount
costs
and is being amortized over the life of the note as additional interest
cost. This note and accrued interest was converted into 342,000 shares
of
common stock at maturity.
|
|
|
54,000
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
Less,
remaining debt discount
|
|
|
(240
|
)
|
|
(3,700
|
)
|
|
|
$
|
376,025
|
|
$
|
368,565
|
|
SENSOR
SYSTEMS SOLUTIONS, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS
FOR
THREE MONTHS ENDED MARCH 31, 2006 AND 2005 (UNAUDITED)
NOTE
5 INVESTMENT IN AFFILIATED ENTITIES
Universal
Sensors, Inc.
In
April
2005, the Company, China Automotive Systems, Inc.
(CAAS)
and Shanghai Hongxi Investment Inc.
(HX)
formed Universal Sensors, Inc.
(USI),
a
joint venture in the People’s Republic of China to develop, produce and market
sensor and related electronic products. The ownership percentages of USI are
30%, 60% and 10% to the Company, CAAS and HX, respectively. CAAS and HX will
contribute cash, land and building and the Company will contribute technology.
As there was no cash contributed by the Company and the technology it will
contribute is not recorded as an asset on the Company’s books, the Company’s
investment in USI is recorded at zero. USI is in a start-up mode and had not
begun operations as of March 31, 2006. USI has incurred cumulative losses
at March 31, 2006 of approximately $347,000, including $115,000 for the
three months then ended. The Company has not recorded any loss from USI since
its investment is zero. The Company will not record any income in the future
until such time as USI is cumulatively profitable. The Company has no liability
for future cash payments to USI if necessary to fund its operations or pay
its
debts.
During
the three months ended March 31, 2006, the Company sold some of its tooling
equipment to USI. The equipment had an original cost and remaining book value
of
approximately $118,000 and $62,000, respectively. The Company recorded a gain
on
the sale of $16,905.
NOTE
6 STOCKHOLDERS’ EQUITY
On
March
3, 2006, the Company issued 14,079,093 shares of Rule 144 stock to Future Front
International Co. Ltd. (“FFI”) for a warrant exercise and loan conversion
exercised by FFI in March 2005.
On
March
3, 2006, the Company issued 30,000 shares of Rule 144 stock to Ann Jones and
30,000 shares of Rule 144 stock to Donna Dolan as compensation for their public
relations services.
NOTE
7 SUBSEQUENT EVENTS
On
May 1,
2006, the Company issued 342,000 shares of Rule 144 stock to Tung Ho Liu for
a
loan conversion exercised by Liu in April 2006.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors of Sensor System Solutions, Inc.:
We
have
audited the accompanying consolidated balance sheet of Sensor System Solutions,
Inc.
and
subsidiary as of December 31, 2005, and the related consolidated statements
of operations, changes in stockholders’ deficiency, and cash flows for the years
ended December 31, 2005 and 2004. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with auditing standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Sensor System Solutions,
Inc.
and
subsidiary as of December 31, 2005, and the results of their operations and
their cash flows for the years ended December 31, 2005 and 2004, in conformity
with accounting principles generally accepted in the United States of
America.
The
accompanying consolidated 2005 financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the
consolidated financial statements, the Company incurred a net loss of $2,729,273
and a negative cash flow from operations of $928,809 for the year ended December
31, 2005, and had a working capital deficiency of $2,004,770 and a stockholders’
deficiency of $1,695,890 at December 31, 2005. These matters raise substantial
doubt about its ability to continue as a going concern. Management’s plans in
regard to these matters are also described in Note 1. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
WEINBERG
& COMPANY, P.A.
Boca
Raton, Florida
May
11,
2006
SENSOR
SYSTEM SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEET
As
of December 31, 2005
ASSETS
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
Cash
|
|
$
|
172,732
|
|
Accounts
receivable
|
|
|
230,440
|
|
Inventory
|
|
|
302,171
|
|
Prepaids
and other current assets
|
|
|
46,634
|
|
Total
current assets
|
|
|
751,977
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
233,862
|
|
|
|
|
|
|
Other
assets
|
|
|
104,112
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,089,951
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,313,134
|
|
Notes
payable
|
|
|
1,060,171
|
|
Notes
payable, related parties
|
|
|
368,565
|
|
Current
portion of capital lease obligations
|
|
|
8,877
|
|
Current
portion of deferred rent concession
|
|
|
6,000
|
|
Total
current liabilities
|
|
|
2,756,747
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
|
|
Capital
lease obligations, net of current portion
|
|
|
25,322
|
|
Deferred
rent concession, net of current portion
|
|
|
3,772
|
|
Total
long-term liabilities
|
|
|
29,094
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
DEFICIENCY
|
|
|
|
|
Preferred
stock, $.001 par value, 20,000,000 shares authorized, none
outstanding
|
|
|
--
|
|
Common
stock, $.001 par value, 180,000,000 shares authorized, 61,705,019
shares
issued and outstanding
|
|
|
61,705
|
|
Common
stock to be issued (14,479,093 shares)
|
|
|
550,000
|
|
Additional
paid-in capital
|
|
|
15,456,834
|
|
Deferred
compensation
|
|
|
(26,598
|
)
|
Accumulated
deficit
|
|
|
(17,737,831
|
)
|
Total
stockholders’ deficiency
|
|
|
(1,695,890
|
)
|
|
|
|
|
|
Total
liabilities and stockholders’ deficiency
|
|
$
|
1,089,951
|
|
See
accompanying notes to consolidated financial statements.
SENSOR
SYSTEM SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the years ended December 31, 2005 and 2004
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Sales,
net
|
|
$
|
1,324,872
|
|
$
|
661,340
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
878,216
|
|
|
579,790
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
446,656
|
|
|
81,550
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
1,869,896
|
|
|
1,292,072
|
|
|
|
|
|
|
|
|
|
Amortization
of discount on notes payable
|
|
|
531,033
|
|
|
651,868
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation costs
|
|
|
775,000
|
|
|
1,800,000
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
3,175,929
|
|
|
3,743,940
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,729,273
|
)
|
$
|
(3,662,390
|
)
|
|
|
|
|
|
|
|
|
Loss
per common share, basic and diluted
|
|
$
|
(.05
|
)
|
$
|
(0.46
|
)
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding, basic and diluted
|
|
|
59,809,253
|
|
|
7,920,079
|
|
See
accompanying notes to consolidated financial statements.
Sensor
System Solutions, Inc.
Consolidated
Statements of Changes in Stockholders' Deficiency
For
the years ended December 31, 2005 and 2004
|
|
Sensor
Common stock
|
|
ACSI
|
|
Common
stock to be issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Treasury
stock
|
|
Additional
paid-in capital
|
|
Deferred
compensation
|
|
Accumulated
deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
January 1, 2004
|
|
|
|
|
|
|
|
|
2,584,895
|
|
$
|
3,639,513
|
|
|
|
|
|
|
|
$
|
(10,000
|
)
|
$
|
585,936
|
|
$
|
(220,770
|
)
|
$
|
(4,146,168
|
)
|
$
|
(151,489
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock of Sensor outstanding when
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced
Custom Sensors, Inc was merged
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
into
Sensor, Inc.
|
|
|
1,391,962
|
|
$
|
1,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,392
|
)
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
of Advanced Custom Sensors, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock for Sensor, Inc. common stock
|
|
|
2,584,906
|
|
|
2,585
|
|
|
(2,584,895
|
)
|
|
(3,639,513
|
)
|
|
|
|
|
|
|
|
10,000
|
|
|
3,626,928
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options issued to employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,800
|
|
|
(19,800
|
)
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic
value of common stock warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued
with notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
636,518
|
|
|
|
|
|
|
|
|
636,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,170
|
|
|
|
|
|
54,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
to be issued for settlement of note payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensatory
stock to be issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000
|
|
|
1,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
dividend to be issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000,000
|
|
|
7,200,000
|
|
|
|
|
|
|
|
|
|
|
|
(7,200,000
|
)
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,662,390
|
)
|
|
(3,662,390
|
)
|
Balance
December 31, 2004
|
|
|
3,976,868
|
|
|
3,977
|
|
|
--
|
|
|
--
|
|
|
7,700,000
|
|
|
9,300,000
|
|
|
--
|
|
|
4,867,790
|
|
|
(186,400
|
)
|
|
(15,008,558
|
)
|
|
(1,023,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture
of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(122,100
|
)
|
|
122,100
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensatory
stock issued
|
|
|
1,500,000
|
|
|
1,500
|
|
|
|
|
|
|
|
|
(1,500,000
|
)
|
|
(1,800,000
|
)
|
|
|
|
|
1,798,500
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
dividend issued
|
|
|
6,000,000
|
|
|
6,000
|
|
|
|
|
|
|
|
|
(6,000,000
|
)
|
|
(7,200,000
|
)
|
|
|
|
|
7,194,000
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
exercised by shareholders from merger
|
|
|
47,802,373
|
|
|
47,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,802
|
)
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,702
|
|
|
|
|
|
37,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
to be issued for settlement of note payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,479,093
|
|
|
550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued for settlement of notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
exercise of warrants
|
|
|
925,778
|
|
|
926
|
|
|
|
|
|
|
|
|
(200,000
|
)
|
|
(300,000
|
)
|
|
|
|
|
327,586
|
|
|
|
|
|
|
|
|
28,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued with notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
665,360
|
|
|
|
|
|
|
|
|
665,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued as compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued as compensation for a Standby
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Distribution Agreement
|
|
|
1,500,000
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
763,500
|
|
|
|
|
|
|
|
|
765,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,729,273
|
)
|
|
(2,729,273
|
)
|
Balance
December 31, 2005
|
|
|
61,705,019
|
|
$
|
61,705
|
|
|
--
|
|
$
|
--
|
|
|
14,479,093
|
|
$
|
550,000
|
|
$
|
--
|
|
$
|
15,456,834
|
|
$
|
(26,598
|
)
|
$
|
(17,737,831
|
)
|
$
|
(1,695,890
|
)
|
See
accompanying notes to consolidated financial statements.
SENSOR
SYSTEM SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the years ended December 31, 2005 and 2004
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,729,273
|
)
|
$
|
(3,662,390
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Stock-based
compensation costs
|
|
|
775,000
|
|
|
1,800,000
|
|
Costs
related to settlement of note payable
|
|
|
--
|
|
|
140,000
|
|
Depreciation
and amortization
|
|
|
93,355
|
|
|
109,954
|
|
Amortization
of discount on notes payable
|
|
|
531,033
|
|
|
651,868
|
|
Amortization
of deferred compensation
|
|
|
37,702
|
|
|
54,170
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(129,910
|
)
|
|
(32,992
|
)
|
Inventory
|
|
|
(81,726
|
)
|
|
(20,913
|
)
|
Prepaids
and other current assets
|
|
|
(22,082
|
)
|
|
(20,445
|
)
|
Accounts
payable and accrued expenses
|
|
|
653,091
|
|
|
370,685
|
|
Other
assets
|
|
|
(50,000
|
)
|
|
--
|
|
Deferred
rent (amortization) concession
|
|
|
(5,999
|
)
|
|
15,770
|
|
Net
cash used in operating activities
|
|
|
(928,809
|
)
|
|
(594,293
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(6,500
|
)
|
|
(3,957
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from notes payable
|
|
|
1,648,745
|
|
|
590,000
|
|
Principal
payments on notes payable
|
|
|
(600,000
|
)
|
|
--
|
|
Proceeds
from notes payable, related parties
|
|
|
50,000
|
|
|
20,000
|
|
Principal
payments on capital leases
|
|
|
(7,819
|
)
|
|
(5,347
|
)
|
Net
cash provided by financing activities
|
|
|
1,090,926
|
|
|
604,653
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
155,617
|
|
|
6,403
|
|
Cash
and cash equivalents, beginning of the year
|
|
|
17,115
|
|
|
10,712
|
|
Cash
and cash equivalents, end of the year
|
|
$
|
172,732
|
|
$
|
17,115
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
50,637
|
|
$
|
14,458
|
|
Taxes
|
|
$
|
800
|
|
$
|
800
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Acquisition
of equipment through capital lease obligations
|
|
$
|
--
|
|
$
|
47,365
|
|
(Cancellation)
issuance of stock options
|
|
|
(122,100
|
)
|
|
19,800
|
|
Accrued
interest added to notes payable principal
|
|
|
60,774
|
|
|
12,500
|
|
Discount
related to warrants and convertible notes
|
|
|
665,360
|
|
|
636,518
|
|
Common
stock issued and to be issued in settlement of note
payable
|
|
|
578,512
|
|
|
160,000
|
|
Stock
dividend
|
|
|
--
|
|
|
7,200,000
|
|
See
accompanying notes to consolidated financial statements.
SENSOR
SYSTEM SOLUTIONS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2005 AND 2004
NOTE
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF
BUSINESS
Sensor
System Solutions, Inc.
(the
“Company”) is a manufacturer and assembler of sensors and micro systems, and its
products include thin film sensors, thin film pressure sensors and micro
machined pressure sensors, and micro systems that may include sensors, signal
conditioning circuits, LCD display, computer interface and molded housing
specifically designed to the customers needs. The Company was incorporated
in
Nevada in April 1982 under the name The Enchanted Village, Inc.
Merger
On
May
24, 2004, Sensor System Solutions (formerly known as Spectre Industries, Inc.,)
a Nevada corporation, entered into an agreement and plan of merger (the Merger)
with Advanced Custom Sensors, Inc.
(ACSI).
Sensor issued 2,584,906 shares of its common stock and warrants (the Merger
Warrants) to purchase up to 47,802,373 shares of its common stock to the
shareholders of ACSI in exchange for all the issued and outstanding shares
of
ACSI. The transaction was accounted for as a recapitalization with ACSI deemed
to be the accounting acquirer and Spectre the legal acquirer. All financial
information included in these financial statements prior to the Merger is that
of ACSI, as if ACSI had been the registrant. The financial information since
the
Merger is that of ACSI and Sensor consolidated.
All
references to “Sensor”, “Spectre” and “ACSI”, mean Spectre or ACSI separately
prior to the Merger and Sensor (the Company) after the Merger.
The
Company agreed that it would “spin-off” certain assets and liabilities included
in Spectre in connection with the Merger on May 24, 2004. These assets and
liabilities were transferred to Spectre Holdings, Inc.
(Spectre
Holdings), a wholly-owned subsidiary of the Company. On December 15, 2004,
in
consideration for making and guaranteeing certain representations, warranties
and obligations in connection with the Agreement and Plan of Merger dated March
13, 2004 by and between the Company and ACSI, the Company transferred 20,878,081
shares of common stock, which are all of the issued and outstanding shares
of
Spectre Holdings to Ian Grant, a Director of the Company and shareholder in
Spectre. As the Company never had direct or indirect control of those assets
and
liabilities, Spectre Holdings was not considered owned at the date of the
Merger.
Going
concern
The
Company incurred a net loss of $2,729,273 and a negative cash flow from
operations of $928,809 for the year ended December 31, 2005, and had a working
capital deficiency of $2,004,770 and a stockholders’ deficiency of $1,695,890 at
December 31, 2005. These matters raise substantial doubt about its 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. Management believes
that actions are presently being taken to revise the Company’s operating and
financial requirements in order to improve the Company’s financial position and
operating results. However, given the levels of its cash resources and working
capital deficiency at December 31, 2005, 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
2006. The Company completed a merger and recapitalization on May 20, 2004,
with
Spectre Industries, Inc., a public company, to gain access to the United States
and European capital markets, but there can be no assurances that the Company
will ultimately be successful in this regard. The accompanying consolidated
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
Principles
of consolidation
The
2005
and 2004 consolidated financial statements include the accounts and operations
of Sensor System Solutions Inc.
and
its
wholly-owned subsidiary. Intercompany accounts and transactions have been
eliminated in consolidation.
SENSOR
SYSTEM SOLUTIONS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2005 AND 2004
NOTE
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS
(continued)
Use
of estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Accounts
receivable
The
Company performs ongoing credit evaluations of its customers and generally
does
not require collateral. An appropriate allowance for doubtful accounts is
included in accounts receivable.
Inventory
Inventory
is stated at the lower of cost (first-in, first-out method) or
market.
Property
and equipment
Property
and equipment are stated at cost less accumulated depreciation and amortization.
Expenditures for additions, renewals and improvements are capitalized. Costs
of
repairs and maintenance are expensed when incurred. Depreciation is provided
using the straight-line method over the estimated useful lives of the assets,
which range from three to seven years. Leasehold improvements are amortized
over
the shorter of the lease term or the asset’s useful life.
Impairment
of long-lived assets
Property
and equipment and other long-lived assets are evaluated for impairment whenever
events or conditions indicate that the carrying value of an asset may not be
recoverable. If the sum of the expected undiscounted cash flows is less than
the
carrying value of the related asset or group of assets, a loss is recognized
for
the difference between the fair value and carrying value of the asset or group
of assets. Such analyses necessarily involve significant judgment. There were
no
impairment losses recorded in 2005 or 2004.
Note
payable debt discount cost
The
Company has issued warrants to investors and related parties in conjunction
with
notes payable. The discounts allocated to the warrants are being treated as
additional consideration for notes payable and are being amortized over the
life
of the note as additional interest cost using the straight-line
method.
Revenue
recognition
The
Company recognizes revenue when risk of loss and title to the product is
transferred to the customer, which occurs at shipment.
Income
taxes
The
Company accounts for income taxes under the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized and measured
using enacted tax rates at the balance sheet date. Deferred tax expense or
benefit is the result of changes in deferred tax assets and liabilities.
Valuation allowances are established when necessary to reduce net deferred
taxes
to amounts that are more likely than not to be realized.
SENSOR
SYSTEM SOLUTIONS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2005 AND 2004
NOTE
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS
(continued)
Stock -
based compensation
The
Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 148, “Accounting for Stock-Based Compensation -
Transition and Disclosures” as well as those outlined in SFAS No. 123,
“Accounting for Stock-Based Compensation”. As permitted by SFAS 148 and
SFAS 123, the Company continues to apply the provisions of Accounting
Principles Board Opinion (APB) No. 25, “Accounting for Stock issued to
Employees” and related interpretations in accounting for the Company’s stock
option plan. Accordingly, compensation cost for stock options is measured as
the
excess, if any, of the estimated fair value of the Company’s stock at the date
of the grant, over the amount an employee must pay to acquire the stock. Stock
based awards for non-employees are accounted for at fair value equal to the
excess of the estimated fair value of the Company’s stock over the option price
using an estimated interest rate to calculate the fair value of the option.
There were no stock based awards to non-employees in 2005 or 2004.
Had
compensation cost for all stock option grants been determined based on their
fair value at the grant dates, consistent with the method prescribed by
SFAS 148 and SFAS 123, our net loss and loss per share would have
been adjusted to the pro forma amounts indicated below:
|
|
Year
ended
December
31,
|
|
|
|
2005
|
|
2004
|
|
Net
loss
|
|
$
|
(2,729,273
|
)
|
$
|
(3,662,390
|
)
|
Add:Stock
based compensation costs included in net loss
|
|
|
37,702
|
|
|
54,170
|
|
Stock-based
compensation costs
|
|
|
(52,160
|
)
|
|
(58,880
|
)
|
Pro
forma net loss
|
|
$
|
(2,743,731
|
)
|
$
|
(3,667,100
|
)
|
Basic
and diluted earnings per share:
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(0.05
|
)
|
$
|
(0.46
|
)
|
Pro
forma under SFAS No. 123
|
|
$
|
(0.05
|
)
|
$
|
(0.46
|
)
|
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 (see Note 9). Diluted earnings
per common share are based on shares outstanding (computed as under basic EPS)
and potentially dilutive common shares. As of December 31, 2005 and 2004, the
Company had granted stock options for 76,000 and 96,500 shares of common stock,
respectively, that are potentially dilutive common shares but are not included
in the computation of loss per share because their effect would be
anti-dilutive.
Comprehensive
income (loss)
The
Company has no items of other comprehensive income (loss) for the years ended
December 31, 2005 and 2004.
Fair
value of financial instruments
The
Company believes that the carrying value of its cash, accounts receivable,
accounts payable, accrued liabilities, notes payable and notes payable to
related parties as of December 31, 2005 approximates their respective fair
values due to the demand or short-term nature of those instruments. The carrying
value of long-term obligations approximates the fair value based on the
effective interest rates compared to current market rates.
SENSOR
SYSTEM SOLUTIONS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2005 AND 2004
NOTE
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS
(continued)
Concentration
of credit risk
Financial
instruments that are exposed to concentrations of credit risk consist
principally of cash and accounts receivable. 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 had two customers that accounted for 45% of sales and four customers
that accounted for 29% of sales in the years ended December 31, 2005 and 2004,
respectively. Approximately 90% of the Company’s sales in the years ended
December 31, 2005 and 2004 were to customers in North
America.
Reclassification
Certain
prior year amounts have been reclassified to conform to the current year
presentation.
Recent
accounting pronouncements
In
November 2004, the FASB issued Statement of Financial Accounting Standards
No.
151, “Inventory Costs”. This Statement amends the guidance in ARB No. 43 Chapter
4 Inventory Pricing, to require items such as idle facility costs, excessive
spoilage, double freight and rehandling costs to be expensed in the current
period, regardless if they are abnormal amounts or not. This Statement will
become effective for us in the first quarter of 2006. The adoption of
SFAS No. 151 is not expected to have a material impact on the Company’s
consolidated financial statement.
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard (“SFAS”) No. 123 (R),
“Share-Based Payment” (“SFAS 123(R)”). SFAS No. 123 (R) revises
SFAS 123, “Accounting for Stock-Based Compensation” and supersedes
Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued
to Employees.” SFAS 123 (R) focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. SFAS 123 (R) requires companies to recognize in the statement
of operations the cost of employee services received in exchange for awards
of
equity instruments based on the grant-date fair value of those awards (with
limited exceptions).SFAS 123 (R) is effective as of the first interim or
annual reporting period of the first fiscal year that begins after June 15,
2005
for small business issuers. Accordingly, the Company will adopt
SFAS 123 (R) in its quarter ending March 31, 2006.
As
permitted by SFAS 123, the Company currently accounts for share-based
payments to employees using APB 25’s intrinsic value method. Accordingly,
adoption of SFAS 123R’s fair value method will have an effect on results of
operations, although it will have no impact on overall financial position.
The
impact of adoption of SFAS 123R cannot be predicted at this time because it
will depend on levels of share-based payments granted in the future. However,
had SFAS 123R been adopted in prior periods, the effect would have
approximated the SFAS 123 pro forma net loss and loss per share disclosures
as shown above. SFAS 123R also requires the benefits of tax deductions in
excess of recognized compensation cost to be reported as a financing cash flow,
rather than as an operating cash flow as currently required, thereby reducing
net operating cash flows and increasing net financing cash flows in periods
after adoption.
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
Corrections.” This Statement replaces APB No. 20, “Accounting Changes” and FASB
No. 3, “Reporting Accounting Changes in Interim Financial Statements”, and
changes the requirements for the accounting for and reporting of a change in
accounting principle. This Statement applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement includes specific
transition provisions. When a pronouncement includes specific transition
provisions, those provisions should be followed. This Statement requires
retrospective application to prior periods’ financial statements of changes in
accounting principle, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change. The adoption
of
SFAS No. 154 did not have an impact on the Company’s consolidated financial
statements.
SENSOR
SYSTEM SOLUTIONS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2005 AND 2004
NOTE
2 INVENTORY
Inventory
consists of the following as of December 31, 2005:
Raw
materials
|
|
$
|
204,748
|
|
Finished
goods
|
|
|
97,423
|
|
|
|
$
|
302,171
|
|
NOTE
3 PROPERTY AND EQUIPMENT
Property
and equipment consists of the following as of December 31, 2005:
Machinery
and equipment
|
|
$
|
593,312
|
|
Office
equipment
|
|
|
2,636
|
|
Furniture
and fixtures
|
|
|
17,398
|
|
Equipment
under capital leases
|
|
|
47,365
|
|
Leasehold
improvements
|
|
|
143,637
|
|
|
|
|
804,348
|
|
Less,
accumulated depreciation and amortization
|
|
|
(570,486
|
)
|
|
|
$
|
233,862
|
|
Depreciation
and amortization expense of $93,355 and $109,954 is reflected in Operating
Costs
in the accompanying Consolidated Statements of Operations for the years ended
December 31, 2005 and 2004, respectively.
As
of
December 31, 2005 the Company maintained tooling assets with a net book value
of
approximately $90,000 at its main supplier located in Taiwan. During the first
quarter of 2006, these tooling assets were sold for approximately $88,000 to
Universal Sensors, Inc., a joint venture in which the Company owns 30% (see
Note
4).
NOTE
4 INVESTMENT IN AFFILIATED ENTITIES Universal Sensors,
Inc.
In
April
2005, the Company, China Automotive Systems, Inc. (CAAS) and Shanghai Hongxi
Investment Inc. (HX) formed Universal Sensors, Inc. (USI), a joint venture
in
the People’s Republic of China to develop, produce and market sensor and related
electronic products. The ownership percentages of USI are 30%, 60% and 10%
to
the Company, CAAS and HX, respectively. CAAS and HX will contribute cash, land
and building and the Company will contribute technology. As there was no cash
contributed by the Company and the technology it contributed is not recorded
as
an asset on the Company’s books, the Company’s investment in USI is recorded at
zero. USI is in a start-up mode and had not begun operations as of December
31,
2005. USI has incurred cumulative losses at December 31, 2005 of approximately
$232,000. The Company has not recorded any loss from USI since its investment
is
zero. The Company will not record any income in the future until such time
as
USI is cumulatively profitable. During 2005, the Company had sales of
approximately $93,000 to USI.
SENSOR
SYSTEM SOLUTIONS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2005 AND 2004
TransOptix,
Inc.
The
Company had an investment in TransOptix, Inc. (TransOptix), that, when combined
with the Company’s Chief Executive Officer’s ownership interest in TransOptix,
resulted in the Company accounting for its investment in TransOptix under the
equity method of accounting. The Company discontinued applying the equity method
in 2002 when its share of losses of TransOptix exceeded its investment in
TransOptix. There were no transactions between the Company and TransOptix in
2005 and 2004 and the Company did not record any income or loss from TransOptix
in 2005 or 2004. The Company and TransOptix shared the same office and facility
lease. TransOptix declared bankruptcy in August 2005 and the Company took over
TransOptix’s share of the facility lease (see Note 11).
NOTE
5 NOTES PAYABLE
Notes
payable consist of the following at December 31, 2005:
Two
lines of credit, unsecured, interest payable monthly at 10.25% and
11.5%
per annum, due on demand.
|
|
$
|
92,983
|
|
|
|
|
|
|
Note
payable, unsecured, interest payable monthly at Prime + 3% per annum
(prime rate at December 31, 2005 was 7.25%), due on demand.
|
|
|
40,000
|
|
|
|
|
|
|
Note
payable, unsecured, interest payable monthly at 10% per annum, payable
as
a percentage of any future private or public stock offerings.
|
|
|
90,000
|
|
|
|
|
|
|
Four
notes payable, secured by all assets of the Company, interest at
8% per
annum, payable at various maturities through May 31, 2006. One note
for
$200,000 was due February 21, 2006 and was converted into a note
due
August 21, 2006. Two notes for $64,800 and $32,400 were due on April
18,
2006 and April 20, 2006, respectively. The Company is currently
negotiating an extension of these notes. The fourth note, for $49,707,
is
due May 31, 2006. At maturity, the notes are convertible at the holder’s
option at a conversion price equal to 70% of the weighted average
price of
the common stock for the 30 trading days immediately preceding the
conversion date. In addition, each note has warrants attached that,
once
the note is converted into stock, allow the holder to purchase stock
at
85% of the weighted average price of the common stock for the 30
trading
days immediately preceding the conversion date. Two of these notes
were
originally scheduled to mature in the fourth quarter of 2005. The
notes
and the accrued interest were rolled over into the new notes. The
intrinsic value of the beneficial conversion feature of the notes
and
warrants, valued at $223,012, has been recorded as loan discount
costs and
is being amortized over the life of the respective notes as additional
interest cost.
|
|
|
346,907
|
|
|
|
|
|
|
Note
payable, secured by all assets of the Company, interest at 10% per
annum,
payable on December 23, 2006. The note is convertible, with some
limitations, at the holder’s option at a conversion price equal to the
lesser of $0.35 or 90% of the lowest volume weighted average price
of the
common stock for the 15 trading days immediately preceding the conversion
date. In addition, the note has detachable warrants that allow the
holder
to buy 600,000 shares of common stock at $0.2878 per share and another
600,000 shares at $0.35 per share.
|
|
|
800,000
|
|
|
|
|
|
|
Less,
remaining debt discount
|
|
|
(309,719
|
)
|
|
|
$
|
1,060,171
|
|
SENSOR
SYSTEM SOLUTIONS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2005 AND 2004
NOTE
6 NOTES PAYABLE, RELATED PARTIES
Notes
payable to related parties consist of the following at December 31,
2005:
Note
payable to the sister of the Company’s Chief Executive Officer, secured by
all assets of the Company, interest at 14.25% per annum, due December
31,
2004. The note payable was originally issued by ACSI, which merged
with
the company in 2004. In connection with the note payable, ACSI issued
warrants expiring September 17, 2008, to purchase 190,665 shares
of ACSI’s
common stock at $.50 per share (the ACSI warrant is convertible into
5,372,940 shares of the Company’s stock). The intrinsic value of the
warrants ($190,665) was recorded as loan discount costs and was amortized
over the life of the original note as additional interest cost. The
Company is currently negotiating an extension of this note.
|
|
$
|
190,665
|
|
|
|
|
|
|
Note
payable to the sister of the Company’s Chief Executive Officer, secured by
all assets of the Company, interest at 10.0% per annum, due March
15,
2005. The note payable was originally issued by ACSI in 2003, at
which
time ACSI issued a warrant expiring September 17, 2008, to purchase
100,000 shares of stock at $.50 per share (the ACSI warrant is convertible
into 2,817,215 shares of the Company’s common stock. The intrinsic value
of the original warrant ($100,000) was recorded as loan discount
costs and
was amortized over the life of the original note as additional interest
cost. The original note was due September 16, 2004. On September
16, 2004,
a new note was issued to replace the original note. At maturity,
the new
note is convertible at the holder’s option at a conversion price equal to
80% of the weighted average price of the common stock for the 30
trading
days immediately preceding the conversion date. In addition, the
note has
warrants attached that, once the note is converted into stock, allow
the
holder to purchase stock at 85% of the weighted average price of
the
common stock for the 30 trading days immediately preceding the
conversion date. The intrinsic value of the beneficial conversion
feature
of the note and warrants, valued at $48,125, has been recorded as
loan
discount costs and is being amortized over the life of the note as
additional interest cost. The Company is currently negotiating an
extension of this note.
|
|
|
110,000
|
|
|
|
|
|
|
Note
payable to an employee of the Company, secured by all assets of the
Company, interest at 8.0% per annum, due May 31, 2006. At maturity,
the
note is convertible at the holder’s option at a conversion price equal to
70% of the weighted average price of the common stock for the 30
trading
days immediately preceding the conversion date. In addition, the
note has
warrants attached that, once the note is converted into stock, allow
the
holder to purchase stock at 85% of the weighted average price of
the
common stock for the 30 trading days immediately preceding the conversion
date. The intrinsic value of the beneficial conversion feature of
the note
and warrants, valued at $13,886, has been recorded as loan discount
costs
and is being amortized over the life of the note as additional interest
cost. This note was due November 12, 2005, and the principal and
accrued
interest were converted into a new note due May 31, 2006.
|
|
|
21,600
|
|
|
|
|
|
|
Note
payable to shareholder, secured by all assets of the Company, interest
at
8.0% per annum, due February 3, 2006. The principal and accrued interest
($4,000) were converted into a new note due April 3, 2006. That note
was
converted at maturity into 342,000 shares of the Company’s common stock at
a conversion price equal to 70% of the weighted average price of
the
common stock for the 30 trading days immediately preceding the conversion
date. In addition, the note has warrants attached that, once the
note is
converted into stock, allow the holder to purchase stock at 85% of
the
weighted average price of the common stock for the 30 trading days
immediately preceding the conversion date. The intrinsic value of
the
beneficial conversion feature of the note and warrants, valued at
$32,143,
has been recorded as loan discount costs and is being amortized over
the
life of the note as additional interest cost.
|
|
|
50,000
|
|
|
|
|
|
|
Less,
remaining debt discount
|
|
|
(3,700
|
)
|
|
|
$
|
368,565
|
|
SENSOR
SYSTEM SOLUTIONS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2005 AND 2004
NOTE
7 CAPITAL LEASE OBLIGATIONS
The
Company leases certain equipment under two capital leases with monthly payments
of $360 and $701, respectively, including interest at 12.75% per annum. Future
minimum annual rental payments for capitalized leases are as
follows:
Years
ending December 31,
|
|
Amount
|
|
2006
|
|
$
|
12,732
|
|
2007
|
|
|
12,732
|
|
2008
|
|
|
12,732
|
|
2009
|
|
|
3,903
|
|
|
|
|
42,099
|
|
Amount
representing interest
|
|
|
(7,900
|
)
|
Present
value of minimum lease payments
|
|
|
34,199
|
|
Less:
current portion
|
|
|
(8,877
|
)
|
Non-current
portion
|
|
$
|
25,322
|
|
NOTE
8 INCOME TAXES
There
is
no income tax provision due to continuing tax losses. Significant components
of
the Company’s deferred income tax assets at December 31, 2005 and 2004 are as
follows:
|
|
2005
|
|
2004
|
|
Deferred
income tax asset:
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
$
|
2,090,000
|
|
$
|
1,716,000
|
|
Valuation
allowance
|
|
|
(2,090,000
|
)
|
|
(1,716,000
|
)
|
Net
deferred income tax asset
|
|
$
|
--
|
|
$
|
--
|
|
Reconciliation
of the effective income tax rate to the U.S. statutory rate is as
follows:
|
|
2005
|
|
2004
|
|
Tax
expense at the U.S. statutory income tax rate
|
|
|
(34.0
|
)%
|
|
(34.0
|
)%
|
Increase
in the valuation allowance
|
|
|
34.0
|
|
|
34.0
|
|
Effective
income tax rate
|
|
|
--
|
%
|
|
--
|
%
|
Deferred
taxes are recorded to give recognition to temporary differences between the
tax
bases of assets or liabilities and their reported amounts in the financial
statements. Deferred tax assets generally represent items that can be used
as a
tax deduction or credit in future years. Deferred tax liabilities generally
represent items that we have taken a tax deduction for, but have not yet
recorded in the Consolidated Statements of Operations.
Net
operating loss carryforwards totaling approximately $4.7 million federal and
$1.7 million state amounts at December 31, 2005 are being carried forward.
The
net operating loss carryforwards expire at various dates through 2025 for
federal purposes and 2015 for state purposes. A full valuation allowance has
been established due to the lack of earnings as support for recognition of
the
deferred tax assets recorded.
SENSOR
SYSTEM SOLUTIONS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2005 AND 2004
NOTE
9 STOCKHOLDERS’ EQUITY
On
October 6, 2005, the Company secured financing through, among others, a Standby
Equity Distribution Agreement (SEDA) with Cornell Capital Partners, LP
(Cornell) to support the continued development and growth of the Company. In
connection with the SEDA the Company issued 1,471,429 shares of the Company’s
common stock to Cornell Capital Partners and 28,571 shares of the Company’s
common stock to Monitor Capital for fees. The fair value of the shares issued
was determined to be $0.51 per share based on the OTC Bulletin Board (OTCBB)
closing price for the Company’s stock on October 6, 2005, for a total fair
value of $765,000. Also on October 6, 2005, the Company sold an aggregate of
$600,000 of convertible debentures to Cornell Capital Partners and issued a
warrant to Cornell Capital Partners to purchase 600,000 shares of the Company’s
common stock, at $0.35 per share, expiring October 6, 2009.
On
December 23, 2005, the Company and Cornell Capital Partners terminated the
SEDA
and related agreements. The Company recorded the fair value of the shares of
common stock issued to Cornell Capital Partners in relation to the SEDA as
stock-based compensation expense in the accompanying financial statements.
Also
on December 23, 2005, the Company agreed to sell an aggregate of $1,000,000
of
convertible debentures to Cornell Capital Partners, of which $610,000 of the
initial $800,000 proceeds was used to repay the convertible debentures issued
to
Cornell Capital Partners on October 6, 2005 plus accrued interest thereon of
$10,000. On February 14, 2006, Cornell Capital Partners advanced an additional
$200,000 on a convertible note payable to bring the total borrowing from Cornell
Capital Partners to $1,000,000. Cornell Capital Partners is entitled, at its
option, to convert and sell all or any part of the principal amount of the
$1,000,000 convertible debentures, plus any and all accrued interest, into
shares of the Company’s common stock at a price equal to the lesser of
(i) $0.35 or (ii) 90% of the lowest volume weighted average price of the
common stock, as defined, during the fifteen trading days immediately preceding
the date of conversion as quoted by Bloomberg, LP. Also on December 23, 2005,
the Company issued a warrant to Cornell Capital Partners to purchase 600,000
shares of the Company’s common stock, at $0.2878 per share, expiring December
23, 2010.
On
October 19, 2005, the Company issued 725,778 shares of common stock to a lender
for warrants exercised by the lender in March 2005.
On
May
24, 2004 (the date of the Merger, see Note 1), the Company issued 2,584,905
shares of its common stock and warrants to purchase up to 47,802,373 shares
of
its common stock, to the shareholders of ACSI in exchange for all the issued
and
outstanding shares of ACSI. In January 2005, the warrants were exercised and
the
47,802,373 shares of common stock were issued.
On
December 4, 2004, the Company granted 7,500,000 shares of its common stock
to
five shareholders in Spectre, including two individuals who are also Directors
of the Company, for providing services to the Company. 1,500,000 shares were
treated as compensatory stock with a fair value $1.20 per share, representing
the most recent OTCBB closing price prior to that date, for a total of
$1,800,000 and was recognized as stock-based compensation expense in the
accompanying financial statements. The remaining 6,000,000 shares were treated
as a stock dividend. All share and per share amounts included herein have been
restated to reflect the effects of the grant as if it had occurred at the date
of the Merger. The 7,500,000 shares of common stock were issued in January
2005.
Effective
June 8, 2004 the Board of Directors initiated a fifteen for one reverse split
of
the common stock. It also increased the authorized number of common stock shares
from 100,000,000 to 180,000,000. All share and per share amounts included herein
have been restated to reflect the effects of the split as if had occurred at
the
beginning of the period.
On
September 3, 2004, the Company negotiated a settlement of an unsecured note
payable for $250,000 that was due March 9, 2004. Terms of the settlement require
the Company to pay $90,000 plus interest at 10% per annum, payable from future
stock offerings. In addition, the Company agreed to issue 200,000 shares of
common stock to the lender. The fair value of the shares to be issued was
determined to be $1.50 per share based on the OTC Bulletin Board (OTCBB) closing
price for the Company’s stock on September 3, 2004, for a total fair value of
$300,000. The Company recorded the difference between the net carrying amount
of
the extinguished note ($250,000) and the settlement price ($390,000) as
settlement costs on note payable of $140,000 as operating expenses in the
accompanying financial statements. 200,000 shares of the Company’s common stock
were issued to the lender on October 20, 2005.
SENSOR
SYSTEM SOLUTIONS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2005 AND 2004
NOTE
10 STOCK OPTIONS AND WARRANTS
Stock
Option Plan
The
Company has a stock option plan, which provides for the granting of options
to
employees, independent representatives and directors of the Company. The Company
is authorized to issue 200,000 shares of common stock. The exercise price is
fixed by the plan administrator. The shares vest over 4 years upon the
optionee’s completion of service. The options expire ten years from the date of
grant.
For
the
year ended December 31, 2004, in accordance with APB No. 25, the intrinsic
value
of the 10,000 stock options granted under this plan was $19,800 and was recorded
as deferred compensation and additional paid-in capital in the accompanying
financial statements (and is being amortized over the vesting periods of the
options). No options were granted in 2005. Amortization of the deferred
compensation related to stock options totaled $37,702 and $54,170 in 2005 and
2004, respectively.
At
December 31, 2005, options outstanding are as follows:
|
|
Shares
|
|
Average
Exercise Price
|
|
Balance
at January 1, 2005
|
|
|
96,500
|
|
$
|
.50
|
|
Granted
|
|
|
--
|
|
|
|
|
Exercised
|
|
|
--
|
|
|
|
|
Cancelled
|
|
|
(20,500
|
)
|
|
.50
|
|
Balance
at December 31, 2005
|
|
|
76,000
|
|
$
|
.50
|
|
Additional
information regarding options outstanding as of December 31, 2005 is as
follows:
|
|
Options
outstanding
|
|
Options
|
|
Exercise
price
|
|
Number
outstanding
|
|
Weighted
average remaining contractual life (years)
|
|
Weighted
average exercise price
|
|
Number
exercisable
|
|
Weighted
average exercise price
|
|
$0.50
|
|
|
76,000
|
|
|
0.5
|
|
$
|
0.50
|
|
|
76,000
|
|
$
|
0.50
|
|
Subsequent
to year end, the board of directors approved a new stock option plan. The above
options were converted to 10 options for the Company’s shares for each ACSI
option outstanding and were repriced at the closing price of the Company’s
shares on March 3, 2006.
Warrants
During
2004, in conjunction with the issuance of a note payable, the board of directors
approved the issuance of warrants to purchase a total of 500,000 shares of
ACSI’s common stock. The warrants were exercised in 2005 and upon conversion of
the note payable into the Company’s stock, 14,479,093 shares of the Company’s
common stock were recorded as common stock to be issued.
On
May
24, 2004, as part of the merger between the Company and ACSI, the Company issued
warrants to purchase up to 47,802,373 shares of its common stock. The warrants
were exercised in 2005 at $.0001 per share.
During
2005, in conjunction with the issuance of a note payable, the board of directors
approved the issuance of warrants to purchase a total of 1,286,866 shares of
the
Company’s common stock at prices between $0.2878 and $0.35 per share. The
warrants expire between October 2009 and December 2010.
SENSOR
SYSTEM SOLUTIONS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2005 AND 2004
NOTE
10 STOCK OPTIONS AND WARRANTS (continued)
At
December 31, 2005, stock purchase warrants outstanding were as
follows:
|
|
Shares
|
|
Average
Exercise Price
|
|
Balance
at January 1, 2005
|
|
|
48,618,039
|
|
$
|
.0080
|
|
Granted
|
|
|
1,286,866
|
|
|
.3168
|
|
Exercised
|
|
|
(48,327,373
|
)
|
|
.0055
|
|
Converted
to the Company’s shares from ACSI shares
|
|
|
7,899,489
|
|
|
.0177
|
|
Balance
at December 31, 2005
|
|
|
9,477,021
|
|
$
|
.0584
|
|
Additional
information regarding stock purchase warrants outstanding as of December 31,
2005 is as follows:
|
|
Warrants
outstanding
|
|
Warrants
exercisable
|
|
Exercise
price
|
|
Number
outstanding
|
|
Weighted
average remaining contractual life (years)
|
|
Weighted
average exercise price
|
|
Number
exercisable
|
|
Weighted
average exercise price
|
|
$0.0177
|
|
|
8,190,155
|
|
|
2.7
|
|
$
|
0.0177
|
|
|
8,190,155
|
|
$
|
0.0177
|
|
$0.2878
|
|
|
686,866
|
|
|
4.9
|
|
$
|
0.2878
|
|
|
686,866
|
|
$
|
0.2878
|
|
$0.35
|
|
|
600,000
|
|
|
4.8
|
|
$
|
0.35
|
|
|
600,000
|
|
$
|
0.35
|
|
NOTE
11 COMMITMENT AND CONTINGENCIES
Operating
Leases
The
Company leases its office and facility through July 31, 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 was formerly
shared with TransOptix, but since the bankruptcy of TransOptix the Company
is
liable for the entire lease obligation.
Future
minimum lease commitments at December 31, 2005 are as follows:
Years
ending December 31,
|
|
Amount
|
|
2006
|
|
$
|
250,900
|
|
2007
|
|
|
151,095
|
|
|
|
$
|
401,995
|
|
Rent
expense for the years ended December 31, 2005 and 2004 was $185,924 and $122,907
respectively.
SENSOR
SYSTEM SOLUTIONS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2005 AND 2004
NOTE
12 SUBSEQUENT EVENTS
In
January 2006, a note payable for $40,000 was converted from an interest only,
due on demand note into a three-year note with even principal payments due
monthly plus interest.
On
February 3, 2006, a note payable for $50,000 and accrued interest of $4,000
was
converted into a new note for $54,000, due April 3, 2006 with interest payable
at 8% per annum. The note was secured by all assets of the Company. At maturity,
the note was converted into 342,000 shares of the Company’s common
stock.
On
February 14, 2006, Cornell Capital Partners advanced an additional $200,000
on a
new convertible note payable in one year bringing the total borrowing from
Cornell Capital Partners to $1,000,000.
On
February 22, 2006, a note payable for $200,000 was issued to replace a note
that
matured on February 21, 2006. The note is secured by all assets of the Company,
interest is payable at 8% per annum, and the note matures on August 21, 2006.
At
maturity, the note is convertible at the holder’s option at a conversion price
equal to 75% of the average closing bid price of the Company’s common stock for
the month of February 2006. In addition, the note has warrants attached that,
once the note is converted into stock, allow the holder to purchase stock at
85%
of the weighted average price of the common stock for the 30 trading days
immediately preceding the date of notice of exercising.
We
have not authorized any dealer, salesperson or other person to provide
any
information or make any representations about Sensor System Solutions,
Inc. except the information or representations contained in this
prospectus. You should not rely on any additional information or
representations if made.
|
|
|
|
|
|
|
|
|
|
|
|
This
prospectus does not constitute an offer to sell, or a solicitation
of an
offer to buy any securities:
n except
the
common stock offered by this prospectus;
n in
any jurisdiction in which the offer or solicitation is not
authorized;
n in
any jurisdiction where the dealer or other salesperson is not qualified
to
make the offer or solicitation;
n to
any person to whom it is unlawful to make
the offer or solicitation; or
n to
any person who is not a United States
resident or who is outside the jurisdiction of the United
States.
The
delivery of this prospectus or any accompanying sale does not imply
that:
n there
have been no changes in the affairs of Sensor System Solutions, Inc.
after
the date of this prospectus; or
n the
information contained in this prospectus is correct after the date
of this
prospectus.
|
|
PROSPECTUS
20,636,866 Shares
of Common Stock
SENSOR
SYSTEM SOLUTIONS, INC.
June
___, 2006
|
|
|
|
|
|
|
|
|
|
Until
_________, 2006, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may
be
required to deliver a prospectus. This is in addition to the obligation
of
dealers to deliver a prospectus when acting as
underwriters.
|
|
|
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The
Company’s Articles of Incorporation limits the liability of directors to the
maximum extent permitted by Nevada law. Nevada law provides that directors
of a
company will not be personally liable for monetary damages for breach of their
fiduciary duties as directors, except for liability for (i) any breach of their
duty of loyalty to the company or its stockholders, (ii) acts or omissions
not
in good faith or involving intentional misconduct or a knowing violation of
law,
(iii) unlawful payment of dividends or unlawful stock repurchases or redemptions
as provided under Nevada law, or (iv) any transaction from which the director
derived an improper personal benefit.
The
Company’s Bylaws provide that the Company shall indemnify its officers,
directors, employees and other agents to the maximum extent permitted by
Delaware law. The Company’s Bylaws also permit it to secure insurance on behalf
of any officer, director, employee or other agent for any liability arising
out
of his or her actions in such capacity, regardless of whether the Bylaws would
permit indemnification.
The
Company believes that the provisions in its Articles of Incorporation and its
Bylaws are necessary to attract and retain qualified persons as officers and
directors.
Insofar
as indemnification for liabilities arising under the 1933 Act may be permitted
to directors, officers and controlling persons of Sensor System pursuant to
the
foregoing, or otherwise, the Company has been advised that in the opinion of
the
Commission such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable.
ITEM
25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following table sets forth estimated expenses incurred in connection with the
issuance and distribution of the securities being registered. Sensor System
will
pay all expenses in connection with this offering.
Securities
and Exchange Commission Registration Fee
|
|
$
|
600.00
|
|
Printing
and Engraving Expenses
|
|
$
|
2,500.00
|
|
Accounting
Fees and Expenses
|
|
$
|
20,000.00
|
|
Legal
Fees and Expenses
|
|
$
|
50,000.00
|
|
Miscellaneous
|
|
$
|
11,900.00
|
|
|
|
|
|
|
TOTAL
|
|
$
|
85,000.00
|
|
ITEM
26. SALES OF UNREGISTERED SECURITIES
During
the past three years the registrant has issued the following securities without
registration under the 1933 Act:
2006
On
May 1
2006, the Company issued 342,000 shares of common stock pursuant to Rule 144
to
Tung Ho Liu for a loan conversion exercised by Liu in April 2006.
On
March
3, 2006, the Company issued 14,479,093 shares of common stock pursuant to Rule
144 to Future Front International Co. Ltd (“FFI”).
FFI
purchased the right to the 14,479,093 shares of common stock from Sino-America,
Inc. in March 2006. Sino-America, Inc. received the right to the 14,479,093
shares in March 2005 upon a loan conversion and exercise of a
warrant.
On
March
3, 2006, the Company issued 30,000 shares of common stock pursuant to Rule
144
to Ann Jones and 30,000 shares of common stock pursuant to Rule 144 to Donna
Dolan as compensation for their public relations services.
On
February 14, 2006, the Company issued a note payable to Cornell Capital Partners
for $200,000, secured by all assets of the Company, interest at 10% per annum,
payable on February 14, 2007. The note is convertible, with some limitations,
at
the holder’s option at a conversion price equal to the lesser of $0.35 or 90% of
the lowest volume weighted average price of the common stock for the 15 trading
days immediately preceding the conversion date.
On
February 22, 2006, the Company issued a note payable to Jun Jye Huang for
$200,000, secured by all assets of the Company, interest at 8% per annum,
payable on August 21, 2006. The note is convertible at the holder’s option at a
conversion price equal to the 75% of the average closing bid price of the common
stock for the month of February 2006. The note has 3-year warrants attached
that
allow the holder, if he converts, to purchase an identical number of shares
at
85% of the average bid price of the common stock for the 30 trading days
preceding exercise.
2005
On
December 23, 2005, the Company issued to Cornell Capital Partners secured
convertible debentures in the principal amount of $1,000,000. The Convertible
Debentures are secured by substantially all of the Company’s assets, have a one
year term and accrue interest at 10% per annum. Cornell Capital
Partners is
entitled, at its option, to convert and sell all or any part of the principal
amount of the Convertible Debentures, plus any and all accrued interest, into
shares of Common Stock at a price equal to the lesser of (i) $0.35 and (ii)
ninety percent (90%) of the lowest volume weighted average price of the Common
Stock during the fifteen (15) trading days immediately preceding the date of
conversion as quoted by Bloomberg, LP. Out of the total principal amount of
$1,000,000, in December 2005, we received gross proceeds of $800,000, and the
remaining $200,000, representing the second tranche of the gross proceeds,
was
funded in February 2006. In December 2005, we received $143,000 representing
the
net proceeds from the issuance of secured convertible debentures to Cornell
Capital Partners under the Securities Purchase Agreement, dated December 23,
2005. The total net proceeds take into account estimated expenses in the amount
of $47,000 and the payment of $610,000 to Cornell Capital Partners for the
repayment of the secured convertible debentures issued to Cornell Capital
Partners on October 6, 2005. In February 2006, we received the second tranche
of
the proceeds in the net amount of $164,037.19.
On
October 6, 2005, the Company entered into a Standby Equity Distribution
Agreement with Cornell Capital Partners. Pursuant to the Standby Equity
Distribution Agreement, we could have, at our discretion, periodically sold
to
Cornell Capital Partners shares of common stock for a total purchase price
of up
to $15 million. Pursuant to the Standby Equity Distribution Agreement, Cornell
Capital Partners was entitled to purchase shares of Sensor
System’s
common
stock at a total discount equal to 10%. For each share of common stock purchased
under the Standby Equity Distribution Agreement, Cornell Capital Partners would
have paid us
95% of
or a 5% discount to, the lowest closing bid price of our common stock
on
the
Over-the-Counter Bulletin Board or other
principal market on which our common stock is traded for the five days
immediately following the notice date. Further, Cornell Capital Partners would
have retained 5% of each advance under the Standby Equity Distribution
Agreement. In connection with the Standby Equity Distribution Agreement, Cornell
Capital Partners received a one-time commitment fee in the form of 1,471,429
shares of common stock. On December 23, 2005, the Company entered into a
Termination Agreement with Cornell Capital Partners, pursuant to which the
Standby Equity Distribution Agreement, as well as the related Registration
Rights Agreement and the Placement Agent Agreement, were terminated.
On
October 6, 2005, we entered into a Securities Purchase Agreement pursuant to
which we issued to Cornell Capital Partners convertible debentures in the
aggregate principal amount of $600,000. The principal amount, plus accrued
interest, was able to be convertible in whole or in part, at Cornell Capital
Partners’ discretion, into our common stock at any time and from time to time
before maturity at a fixed price of $0.245 per share, subject to certain
limitations as provided therein. The convertible debentures had a term of a
one-year, possess registration rights, accrued interest at a rate equal to
10%
per year, and were secured by Sensor System’s assets. The
Company repaid to Cornell Capital Partners a total amount of $610,000,
representing principal amount and accrued interest, on December 23,
2005.
On
October 19, 2005, the Company issued 200,000 shares of Rule 144 stock to Duke
Capital as a compensation for its consulting service in the merger transaction
between ACSI and Spectre Industries, Inc.
On
October 19, 2005, the Company issued 725,778 shares of Rule 144 stock to Pei
Jen
Hsu for a warrant exercise and loan conversion exercised by Hsu in March
2005.
On
February 10, 2005, the Company issued 3,000,000 shares of S-8 stock as
compensation to ex-directors, Ian Grant and Matthew Markin.
On
January 25, 2005, the Company issued 4,500,000 shares of Rule 144 stock to
Quantum Economic Development, Inc., Frank
Demille, Foxir Communications Inc, Ian Grant and Matthew Markin for their
services in connection with the merger transaction pursuant to the merger
agreement.
On
January 25, 2005, the Company issued 47,802,373 shares of Rule 144 stock for
the
warrant exercise of ACSI shareholders per its merger agreement with Spectre
Industries, Inc.
On
May
24, 2004, the Company issued 2,584,906 shares of Rule 144 stock to the
shareholders of ACSI Merger
Agreement, dated March 13, 2004, between Spectre Industries, Inc., Spectre
Merger Sub, Inc., Ian S. Grant and Advanced Custom Sensors, Inc.
On
April
5, 2004, the Company issued 13,334 shares Olof Hildebrand.
On
May
30, 2003, the Company issued 1,367 shares to Markus Hugelshofer.
On
November 15, 2002, the Company issued 667 shares to Margrit
Oppliger.
On
September 24, 2002, the Company issues 67 shares to Andrew
Yachnowitz.
On
August
26, 2002, the Company issued 3,334 shares to Ken Grant.
ITEM
27. EXHIBITS
Exhibits
Required By Item 601 of Regulation S-B
The
exhibits listed below and designated as “provided herewith” (rather than
incorporated by reference) follow the signature page to this Prospectus in
sequential order.
DESIGNATION
OF
EXHIBIT
AS
SET FORTH
IN
ITEM 601 OF REGULATION S-B
|
|
DESCRIPTION
|
|
LOCATION
|
|
|
|
|
|
2.1
|
|
Merger
Agreement, dated March 13, 2004, between Spectre Industries, Inc.,
Spectre
Merger Sub, Inc., Ian S. Grant and Advanced Custom Sensors,
Inc.
|
|
Incorporated
by reference as Exhibit 2.1 to the Current Report on Form 8-K filed
on
June 9, 2004
|
|
|
|
|
|
3.1
|
|
Articles
of Incorporation of Abercrombie, Inc., dated May 8, 1986
|
|
Incorporated
by reference as Exhibit 3.1 to the current Form 10-SB filed on May
8,
2000
|
|
|
|
|
|
3.2
|
|
Amended
Articles of Incorporation, dated June 1, 1995
|
|
Incorporated
by reference as Exhibit 3.2 to the current Form 10-SB filed on May
8,
2000
|
|
|
|
|
|
3.3
|
|
Amended
Articles of Incorporation of Spectra Motor Cars Inc., dated October
5,
1997
|
|
Incorporated
by reference as Exhibit 3.3 to the current Form 10-SB filed on May
8,
2000
|
DESIGNATION
OF
EXHIBIT
AS
SET FORTH
IN
ITEM 601 OF REGULATION S-B
|
|
DESCRIPTION
|
|
LOCATION
|
|
|
|
|
|
3.4
|
|
Bylaws
of Abercrombie, Inc., dated May 16, 1986
|
|
Incorporated
by reference as Exhibit 3.4 to the current Form 10-SB filed on May
8,
2000
|
|
|
|
|
|
4.1
|
|
2006
Stock Option Plan
|
|
Provided
herewith
|
|
|
|
|
|
4.2
|
|
Stock
Option Agreement, dated January 1, 2006, by and between Sensor System
Solutions, Inc. and Michael Young
|
|
Provided
herewith
|
|
|
|
|
|
5.1
|
|
Legal
Opinion of Burton, Bartlett & Glogovac re: legality
|
|
To
be filed by amendment
|
|
|
|
|
|
10.1
|
|
Joint
Venture Agreement, dated as April 12, 2005, among HX, a Chinese Company,
Sensor System Solutions, Inc. and China Automotive Systems,
Inc.
|
|
Incorporated
by reference as Exhibit 10.21 to the Form SB-2 filed on February
14,
2006
|
|
|
|
|
|
10.2
|
|
Technology
Transfer Contract, dated as January 28, 2005, among HX, a Chinese
Company,
Sensor System Solutions, Inc. and China Automotive Systems,
Inc.
|
|
Provided
herewith
|
|
|
|
|
|
10.3
|
|
Lease,
by and among the Irvine Company and Advanced Customs, Inc. and Advanced
Optical Mems, Inc.
|
|
Provided
herewith
|
|
|
|
|
|
10.4
|
|
Engagement
Agreement, dated August 10, 2005, by and between Sensor System Solutions
and Trenwith Securities, LLC
|
|
Incorporated
by reference as Exhibit 10.1 to the Current Report on Form 8-K filed
on
November 18, 2005
|
|
|
|
|
|
10.5
|
|
Warrant,
dated as of December 27, 2005, issued by Sensor System Solutions,
Inc. to
Trenwith Securities, LP
|
|
Incorporated
by reference as Exhibit 10.2 to the Current Report on Form 8-K filed
on
June 5, 2006
|
DESIGNATION
OF
EXHIBIT
AS
SET FORTH
IN
ITEM 601 OF REGULATION S-B
|
|
DESCRIPTION
|
|
LOCATION
|
|
|
|
|
|
10.6
|
|
Securities
Purchase Agreement, dated as of October 6, 2005, by and between the
Company and Cornell Capital Partners, LP
|
|
Incorporated
by reference as Exhibit 99.3 to the Current Report on Form 8-K filed
on
October 18, 2005
|
|
|
|
|
|
10.7
|
|
Irrevocable
Transfer Agent Instructions dated as of October 6, 2005, by and between
Sensor System Solutions, Inc. and Cornell Capital Partners,
LP
|
|
Incorporated
by reference as Exhibit 99.4 to the Current Report on Form 8-K filed
on
October 18, 2005
|
|
|
|
|
|
10.8
|
|
Escrow
Agreement, dated as of October 6, 2005, by and among the Company,
Cornell
Capital Partners, LP and David Gonzalez, Esq., as escrow
agent
|
|
Incorporated
by reference as Exhibit 99.5 to the Current Report on Form 8-K filed
on
October 18, 2005
|
|
|
|
|
|
10.9
|
|
Security
Agreement, dated as of October 6, 2005, by and between the Company
and
Cornell Capital Partners, LP
|
|
Incorporated
by reference as Exhibit 99.6 to the Current Report on Form 8-K filed
on
October 18, 2005
|
|
|
|
|
|
10.10
|
|
Insider
Pledge and Escrow Agreement, dated as of October 6, 2005, by and
among the
Company, Cornell Capital Partners, LP and David Gonzalez, Esq., as
escrow
agent
|
|
Incorporated
by reference as Exhibit 99.7 to the Current Report on Form 8-K filed
on
October 18, 2005
|
|
|
|
|
|
10.11
|
|
Irrevocable
Transfer Agent Instructions, dated as of October 6, 2005, by and
among the
Company, David Gonzalez, Esq. and Worldwide Stock Transfer,
LLC
|
|
Incorporated
by reference as Exhibit 99.8 to the Current Report on Form 8-K filed
on
October 18, 2005
|
|
|
|
|
|
10.12
|
|
Secured
Convertible Debenture, dated October 6, 2005, issued by Sensor System
Solutions, Inc. to Cornell Capital Partners, LP
|
|
Incorporated
by reference as Exhibit 99.10 to the Current Report on Form 8-K filed
on
October 18, 2005
|
DESIGNATION
OF
EXHIBIT
AS
SET FORTH
IN
ITEM 601 OF REGULATION S-B
|
|
DESCRIPTION
|
|
LOCATION
|
|
|
|
|
|
10.13
|
|
Sensor
System Solutions, Inc. Placement Agent Agreement, dated as of October
6,
2005, by and among Sensor System Solutions, Inc., Cornell Capital
Partners, LP and Monitor Capital, Inc., as placement agent
|
|
Incorporated
by reference as Exhibit 10.2 to the Current Report on Form 8-K filed
on
November 18, 2005
|
|
|
|
|
|
10.14
|
|
Securities
Purchase Agreement dated as of December 23, 2005, by and between
Sensor
System Solutions, Inc. and Cornell Capital Partners, LP
|
|
Incorporated
by reference as Exhibit 10.1 to the Current Report on Form 8-K filed
on
January 4, 2006
|
|
|
|
|
|
10.15
|
|
Investor
Registration Rights Agreement dated as of December 23, 2005 by and
between
Sensor System Solutions, Inc. and Cornell Capital Partners,
LP
|
|
Incorporated
by reference as Exhibit 10.2 to the Current Report on Form 8-K filed
on
January 4, 2006
|
|
|
|
|
|
10.16
|
|
Secured
Convertible Debenture dated as of December 23, 2005, issued to Cornell
Capital Partners, LP
|
|
Incorporated
by reference as Exhibit 10.3 to the Current Report on Form 8-K filed
on
January 4, 2006
|
|
|
|
|
|
10.17
|
|
Security
Agreement dated as of December 23, 2005, by and between Sensor System
Solutions, Inc. and Cornell Capital Partners, LP
|
|
Incorporated
by reference as Exhibit 10.4 to the Current Report on Form 8-K filed
on
January 4, 2006
|
|
|
|
|
|
10.18
|
|
Warrant
dated as of December 23, 2005 issued to Cornell Capital Partners,
LP
|
|
Incorporated
by reference as Exhibit 10.5 to the Current Report on Form 8-K filed
on
January 4, 2006
|
|
|
|
|
|
10.19
|
|
Insider
Pledge and Escrow Agreement dated as of December 23, 2005 among Sensor
System Solutions, Inc., Cornell Capital Partners, LP and David Gonzalez,
Esq.
|
|
Incorporated
by reference as Exhibit 10.6 to the Current Report on Form 8-K filed
on
January 4, 2006
|
DESIGNATION
OF
EXHIBIT
AS
SET FORTH
IN
ITEM 601 OF REGULATION S-B
|
|
DESCRIPTION
|
|
LOCATION
|
|
|
|
|
|
10.20
|
|
Escrow
Agreement dated December 23, 2005 among Sensor System Solutions,
Inc.,
Cornell Capital Partners, LP and David Gonzalez, Esq.
|
|
Incorporated
by reference as Exhibit 10.7 to the Current Report on Form 8-K filed
on
January 4, 2006
|
|
|
|
|
|
10.21
|
|
Irrevocable
Transfer Agent Instructions dated as of December 23, 2005, by and
between
Sensor System Solutions, Inc. and Cornell Capital Partners,
LP
|
|
Incorporated
by reference as Exhibit 10.8 to the Current Report on Form 8-K filed
on
January 4, 2006
|
|
|
|
|
|
10.22
|
|
Termination
Agreement dated as of December 23, 2005, by and between Sensor System
Solutions, Inc. and Cornell Capital Partners, LP
|
|
Incorporated
by reference as Exhibit 10.9 to the Current Report on Form 8-K filed
on
January 4, 2006
|
|
|
|
|
|
14.01
|
|
Code
of Ethics, dated February 13, 2004
|
|
Incorporated
by reference to as Exhibit 4.3 to the Current Report on Form-10KSB
filed
on April 30, 2004
|
|
|
|
|
|
23.1
|
|
Consent
of Weinberg & Company, P.A.
|
|
Provided
herewith
|
Item
28. Undertakings
The
undersigned Registrant hereby undertakes:
(1)
To
file, during any period in which it offers or sells securities, a post-effective
amendment to this Registration Statement to:
(i)
Include
any prospectus required by Section 10(a)(3) of the 1933 Act;
(ii)
Reflect
in the prospectus any facts or events which, individually or together, represent
a fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the “Calculation of Registration Fee”
table in the effective Registration Statement;
(iii)
Include
any additional or changed information on the plan of distribution.
(2)
For
determining liability under the 1933 Act, the Company will treat each such
post-effective amendment as a new registration statement of the securities
offered, and the offering of such securities at that time to be the initial
bona
fide
offering.
(3)
To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4)
For
determining liability of the undersigned small business issuer under the 1933
Act to any purchaser in the initial distribution of the securities, the
undersigned small business issuer undertakes that in a primary offering of
securities of the undersigned small business issuer pursuant to this
Registration Statement, regardless of the underwriting method used to sell
the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned
small
business issuer will be a seller to the purchaser and will be considered to
offer or sell such securities to such purchaser:
(i)
Any
preliminary prospectus or prospectus of the undersigned small business issuer
relating to the offering required to be filed pursuant to Rule 424;
(ii)
Any
free writing prospectus relating to the offering prepared by or on behalf of
the
undersigned small business issuer or used or referred to by the undersigned
small business issuer;
(iii)
The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned small business issuer or its
securities provided by or on behalf of the undersigned small business issuer;
and
(iv)
Any
other communication that is an offer in the offering made by the undersigned
small business issuer to the purchaser.
Insofar
as indemnification for liabilities arising under the 1933 Act, as amended,
may
be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable.
In
the
event that a claim for indemnification against such liabilities (other than
the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the 1933 Act and will be governed by
the
final adjudication of such issue.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this registration statement
to be signed on our behalf by the undersigned, on June 16, 2006.
|
|
|
|
Sensor
System Solutions, Inc.
|
|
|
|
Date: June
16, 2006
|
By: |
/s/
Michael Young |
|
Name:
Michael
Young
|
|
Title:
Chief
Executive Officer, Acting Chief Financial Officer and Principal Accounting
Officer
|
In
accordance with the Securities Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
and
on the dates indicated.
|
|
|
/s/
Michael Young
|
|
Date:
June 16, 2006
|
Michael
Young
|
|
|
Chief
Executive Officer, Acting Chief Financial Officer, Principal Accounting
Officer and Director
|
|
|
|
|
|
/s/
Hanlin Chen
|
|
Date:
June 16, 2006
|
Hanlin
Chen
|
|
|
Director
|
|
|