UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-KSB
[X] Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of
1934
For the fiscal year ended June 30, 2005
[ ] Transition Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934
For the transition period from ______________ to _____________
Commission File Number: 0-29523
TS Electronics, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 73-1564807
---------------------------- --------------------------
(State of incorporation) (IRS Employer ID Number)
12890 Hilltop Road, Argyle, TX 76226
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(Address of principal executive offices)
(972) 233-0300
---------------------------
(Issuer's telephone number)
111 Hilltop Lane, Pottsboro, TX 75076
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered under Section 12 (b) of the Exchange Act - None
Securities registered under Section 12(g) of the Exchange Act: -
Common Stock - $0.001 par value
Check whether the issuer has (1) filed all reports required to be files by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period the Company was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes X No
--- ---
The issuer's revenues for the fiscal year ended June 30, 2005 were $-0-.
The aggregate market value of voting common equity held by non-affiliates as of
September 22, 2005 was approximately $1,406,149.
As of September 19, 2005, there were 2,500,060 shares of Common Stock issued and
outstanding.
Transitional Small Business Disclosure Format : Yes No X
--- ---
TS Electronics, Inc.
Index to Contents
Part I
Item 1 Description of Business
Item 2 Description of Property
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders
Part II
Item 5 Market for Common Equity, Related Stockholders Matters
and Small Business Issuer Purchases of Equity Securities
Item 6 Management's Discussion and Analysis or Plan of Operation
Item 7 Financial Statements
Item 8 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures
Item 8A Controls and Procedures
Part III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Item 10 Executive Compensation
Item 11 Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
Item 12 Certain Relationships and Related Transactions
Item 13 Exhibits
Item 14 Principal Accountant Fees and Services
Signatures
2
Caution Regarding Forward-Looking Information
---------------------------------------------
Certain statements contained in this annual filing, including, without
limitation, statements containing the words "believes", "anticipates", "expects"
and words of similar import, constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements.
Such factors include, among others, the following: international, national
and local general economic and market conditions: demographic changes; the
ability of the company to sustain, manage or forecast its growth; the ability of
the company to successfully make and integrate acquisitions; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; fluctuations and difficulty in
forecasting operating results; changes in business strategy or development
plans; business disruptions; the ability to attract and retain qualified
personnel; and other factors referenced in this and previous filings.
Given these uncertainties, readers of this Form 10-KSB and investors are
cautioned not to place undue reliance on such forward-looking statements. The
company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
PART I
Item 1 - Description of Business
TS Electronics, Inc. (formerly, Softstone, Inc.) was incorporated on
January 28, 1999 pursuant to the provisions of the General Corporation Act of
the State of Delaware. On May 31, 1999, we merged with Soft Stone Building
Products, Inc., an Oklahoma corporation that was a predecessor to our company's
business. Our initial business operations were conducted at 620 Dallas Drive,
Denton TX 76205. On February 1, 2000, we moved our offices and facilities to
Ardmore, OK. In June 2002, we moved our production facilities to a building in
Ardmore, OK at an industrial air park and we moved our office facilities to 111
Hilltop Lane, Pottsboro, TX 75076. On August 13, 2003, we changed our name to TS
Electronics, Inc.
Our focus initially was solely on realizing the commercial benefits of a
process developed and patented by our first president, Frederick Parker. This
process converts waste tires into useful products. We were not successful in
promoting this business, wrote off all assets associated with the business and
shifted our attention to the commercial possibilities of a then, newly
discovered devulcanization process to which we acquired a 5.5-year exclusive
license for the Western Hemisphere. In addition we began an important business
dealing in hard-to-find and specialty crumb rubber. We were also not successful
in this endeavor, and have abandoned all efforts regarding these pursuits.
Effective August 11, 2004, the company entered into a Stock Exchange
Agreement with Mr. Hou Xiao, the sole stockholder of China ESCO Holdings Limited
("China ESCO"), a company organized in the Hong Kong Special Administration
Region in The People's Republic of China and its wholly owned operating
subsidiary, AsiaNet PE Systems Limited. China ESCO was engaged in the
development and manufacturing of electrical energy saving systems and products
in the PRC.
The consummation of the transaction with China ESCO was subject to a number
of conditions, including receipt by us of financial statements of China ESCO as
required under applicable regulations, and satisfaction of all applicable
regulatory requirements. In January 2005, we declared China ESCO to be in
material breach of the Agreement and rescinded the Agreement.
Effective February 8, 2005, we executed a Letter of Intent with Osage
Energy Company, LLC ("Osage") whereby Osage would acquire 90% of the equity
interests of the company. This transaction was never consummated by the parties.
The company has had no operations or significant assets since the quarter
ended December 31, 2004.
3
On May 11, 2005, we sold to Halter Financial Group, Inc., in a private
placement, 1,875,045 shares of restricted common stock at a purchase price of
$0.1066641 per share, pursuant to the terms of a Stock Purchase Agreement (the
"Purchase Agreement"). The private placement was exempt from the registration
requirements of the Securities Act of 1933, as amended, in reliance upon Section
4(2) thereunder. As a result of the purchase, Halter Financial Group, Inc.
became our controlling stockholder, owning approximately 75% of our issued and
outstanding shares of common stock.
Immediately subsequent to and as a result of the closing of the
transactions contemplated by the Purchase Agreement, Gene F. Boyd, Keith P.
Boyd, Fredrick W. Parker and Leo G. Templer resigned as officers and directors,
as applicable, of the company. Timothy P. Halter was concurrently appointed as a
member of the Board of Directors, and Mr. Halter was elected as President, Chief
Accounting Officer, and Secretary of the company.
Our current principal business activity is to seek a suitable reverse
acquisition candidate through acquisition, merger or other suitable business
combination method.
Our equity securities are eligible for quotation on the NASD's
Over-the-Counter Bulletin Board under the trading symbol TSET.OB.
We may be referred to as a reporting shell corporation. Shell corporations
have zero or nominal assets and typically no stated or contingent liabilities.
Private companies wishing to become publicly trading may wish to merge with a
shell (a reverse merger or reverse acquisition) whereby the stockholders of the
private company become the majority of the stockholders of the combined company.
The private company may purchase for cash all or a portion of the common shares
of the shell corporation from its major stockholders. Typically, the board and
officers of the private company become the new board and officers of the
combined company and often the name of the private company becomes the name of
the combined entity.
We have very limited capital, and it is unlikely that we will be able to
take advantage of more than one such business opportunity. We intend to seek
opportunities demonstrating the potential of long-term growth as opposed to
short-term earnings. However, at the present time, we have not identified any
business opportunity that we plan to pursue, nor have we reached any agreement
or definitive understanding with any person concerning an acquisition.
No assurance can be given that we will be successful in finding or
acquiring a desirable business opportunity, given the limited funds that are
expected to be available for acquisitions. Furthermore, no assurance can be
given that any acquisition, which does occur, will be on terms that are
favorable to us or our current stockholders.
Our search will be directed toward enterprises that have a desire to become
public corporations. These enterprises may wish to satisfy, either currently or
in the reasonably near future, the minimum tangible asset requirement in order
to qualify shares for trading on a national exchange or quotation medium. We
intend to concentrate acquisition efforts on properties or businesses that we
believe may realize a substantial benefit from being publicly owned.
We do not propose to restrict our search for combination opportunities to
any particular geographical area or industry. Our discretion in the selection of
business opportunities is unrestricted, subject to the availability of such
opportunities, economic conditions, and other factors.
Any entity that has an interest in being acquired by, or merging into us,
is expected to be an entity that desires to become a public company and
establish a public trading market for its securities. In connection with such a
merger or acquisition, it is highly likely that an amount of stock constituting
control of the company would either be issued by us or be purchased from the
current principal stockholders of the company by the acquiring entity or its
affiliates. If stock is purchased from the current principal stockholders, the
transaction is likely to result in substantial gains to the current principal
stockholders relative to their purchase price for such stock. In our judgment,
none of the officers and directors would thereby become an underwriter within
the meaning of the Section 2(11) of the Securities Act of 1933, as amended, as
long as the transaction is a private transaction rather than a public
distribution of securities.
Depending upon the nature of the transaction, the current officers and
directors of the company may resign their management and board positions with
the company in connection with a change of control or acquisition of a business
4
opportunity. In the event of such a resignation, the company's current
management would thereafter have no control over the conduct of the company's
business.
It is anticipated that business opportunities will come to the company's
attention from various sources, including its officers and directors, its other
stockholders, professional advisors such as attorneys and accountants,
securities broker-dealers, venture capitalists, members of the financial
community, and others who may present unsolicited proposals. The company has no
plan, understandings, agreements, or commitments with any individual for such
person to act as a finder of opportunities for the company.
To a large extent, a decision to participate in a specific business
opportunity may be made upon management's analysis of the quality of the other
company's management and personnel, the anticipated acceptability of new
products or marketing concepts, the merit of technological changes, the
perceived benefit the business opportunity will derive from becoming a publicly
held entity, and numerous other factors which are difficult, if not impossible,
to analyze through the application of any objective criteria. In many instances,
it is anticipated that the historical operations of a specific business
opportunity may not necessarily be indicative of the potential for the future
because of a variety of factors, including, but not limited to, the possible
need to expand substantially, shift marketing approaches, change product
emphasis, change or substantially augment management, raise capital and the
like.
Certain types of business acquisition transactions may be completed without
any requirement that the company first submit the transaction to the
stockholders for their approval. In the event the proposed transaction is
structured in such a fashion that stockholder approval is not required, holders
of our securities (other than principal stockholders holding a controlling
interest) should not anticipate that they will be provided with financial
statements or any other documentation prior to the completion of the
transaction. Other types of transactions require prior approval of the
stockholders.
In the event a proposed business combination or business acquisition
transaction is structured in such a fashion that prior stockholder approval is
necessary, the company will be required to prepare a Proxy or Information
Statement describing the proposed transaction, file it with the Securities and
Exchange Commission for review and approval, and mail a copy of it to all
stockholders prior to holding a stockholders meeting for purposes of voting on
the proposal. Minority stockholders that do not vote in favor of a proposed
transaction may then have the right, in the event the transaction is approved by
the required number of stockholders, to exercise statutory dissenter's rights
and elect to be paid the fair value of their shares.
The analysis of business opportunities will be undertaken by or under the
supervision of our officers and directors. Although there are no current plans
to do so, company management might hire an outside consultant to assist in the
investigation and selection of business opportunities, and might pay a finder's
fee. Since company management has no current plans to use any outside
consultants or advisors to assist in the investigation and selection of business
opportunities, no policies have been adopted regarding use of such consultants
or advisors, the criteria to be used in selecting such consultants or advisors,
the services to be provided, the term of service, or the total amount of fees
that may be paid. However, because of the limited resources of the company, it
is likely that any such fee the company agrees to pay would be paid in stock and
not in cash.
Otherwise, in analyzing potential business opportunities, management
anticipates that it will consider, among other things, the following factors:
o Potential for growth and profitability indicated by new technology,
anticipated market expansion, or new products; o The company's perception
of how any particular business opportunity will be received by the
investment community and by the company's stockholders;
o Whether, following the business combination, the financial condition of the
business opportunity would be, or would have a significant prospect in the
foreseeable future of becoming, sufficient to enable the securities of the
company to qualify for listing on an exchange or on a national automated
securities quotation system, such as NASDAQ, so as to permit the trading of
such securities to be exempt from the requirements of Rule 15g-9 adopted by
the Securities and Exchange Commission.
o Capital requirements and anticipated availability of required funds, to be
provided by the company or from operations, through the sale of additional
securities, through joint ventures or similar arrangements, or from other
sources;
5
o The extent to which the business opportunity can be advanced;
o Competitive position as compared to other companies of similar size and
experience within the industry segment as well as within the industry as a
whole; and
o Strength and diversity of existing management or management prospects that
are scheduled for recruitment.
No single factor described above will be controlling in the selection of a
business opportunity, and management will attempt to analyze all factors
appropriate to each opportunity and make a determination based upon reasonable
investigative measures and available data. Potentially available business
opportunities may occur in many different industries and at various stages of
development, all of which will make the task of comparative investigation and
analysis of such business opportunities extremely difficult and complex.
Potential investors must recognize that, because of the company's limited
capital available for investigation and management's limited experience in
business analysis, the company may not discover or adequately evaluate adverse
facts about the opportunity to be acquired.
We are unable to predict when we may participate in a business opportunity.
Prior to making a decision to participate in a business opportunity, we
will generally request that we be provided with written materials regarding the
business opportunity containing as much relevant information as management deems
appropriate.
Management believes that various types of potential merger or acquisition
candidates might find a business combination with the company to be attractive.
These include acquisition candidates desiring to create a public market for
their shares in order to enhance liquidity for current stockholders, acquisition
candidates which have long-term plans for raising capital through public sale of
securities and believe that the possible prior existence of a public market for
their securities would be beneficial, and acquisition candidates which plan to
acquire additional assets through issuance of securities rather than for cash,
and believe that the possibility of development of a public market for their
securities will be of assistance in that process.
It is impossible to predict the manner in which the company may participate
in a business opportunity. Specific business opportunities will be reviewed as
well as the respective needs and desires of the company and the promoters of the
opportunity and, upon the basis of the review and the relative negotiating
strength of the company and such promoters, the legal structure or method deemed
by management to be suitable will be selected. Such structure may include, but
is not limited to leases, purchase and sale agreements, licenses, joint ventures
and other contractual arrangements. The company may act directly or indirectly
through an interest in a partnership, corporation or other form of organization.
Implementing such structure may require the merger, consolidation or
reorganization of the company with other corporations or forms of business
organization. In addition, the present management and stockholders of the
company most likely will not have control of a majority of the voting stock of
the company following a merger or reorganization transaction. As part of such a
transaction, the company's existing directors may resign and new directors may
be appointed without any vote by stockholders.
It is anticipated that any new securities issued in any reorganization
would be issued in reliance upon one or more exemptions from registration under
applicable federal and state securities laws to the extent that such exemptions
are available. In some circumstances, however, as a negotiated element of the
transaction, the company may agree to register such securities either at the
time the transaction is consummated or under certain conditions at specified
times thereafter. The issuance of substantial additional securities and their
potential sale into any trading market that might develop in the company's
securities may have a depressive effect upon such market.
The company will participate in a business opportunity only after the
negotiation and execution of a written agreement. Although the terms of such
agreement cannot be predicted, generally such an agreement would require
specific representations and warranties by all of the parties thereto, specify
certain events of default, detail the terms of closing and the conditions which
must be satisfied by each of the parties thereto prior to such closing, outline
the manner of bearing costs if the transaction is not closed, set forth remedies
upon default, and include miscellaneous other terms.
We currently have no employees. Management expects to use consultants,
attorneys and accountants as necessary, and does not anticipate a need to engage
any full-time employees so long as it is seeking and evaluating business
opportunities. The need for employees and their availability will be addressed
in connection with the decision whether or not to acquire or participate in
specific business opportunities.
6
Our business and plan of operation is subject to numerous risk factors,
including, but not limited to, the following:
There is No Agreement for a Business Combination and No Minimum
Requirements for a Business Combination. The company has no current arrangement,
agreement or understanding with respect to engaging in a business combination
with a specific entity. There can be no assurance that the company will be
successful in identifying and evaluating suitable business opportunities or in
concluding a business combination. No particular industry or specific business
within an industry has been selected for a target company. There is no assurance
that the company will be able to negotiate a business combination on terms
favorable to the company.
Lack of Diversification. Because of the limited financial resources that
the company has, it is unlikely that the Company will be able to diversify its
acquisitions or operations. The company's probable inability to diversify its
activities into more than one area will subject the company to economic
fluctuations within a particular business or industry and therefore increase the
risks associated with the company's operations.
Only One Director and Officer. Because management consists of only one
person, while seeking a business combination, Timothy P. Halter, the company's
President, will be the only person responsible in conducting the day-to-day
operations of the company. The company does not benefit from multiple judgments
that a greater number of directors or officers would provide, and the company
will rely completely on the judgment of its one officer and director when
selecting a target company.
Mr. Halter devotes only a limited amount of time per month to the business
of the company. Mr. Halter has not entered into a written employment agreement
with the company and he is not expected to do so. The company does not
anticipate obtaining key man life insurance on Mr. Halter. The loss of the
services of Mr. Halter would adversely affect development of the company's
business and its likelihood of continuing operations.
Conflicts of Interest. Certain conflicts of interest exist between the
company and its officers and directors. They have other business interests to
which they currently devote attention, and are expected to continue to do so. As
a result, conflicts of interest may arise that can be resolved only through
their exercise of judgment in a manner which is consistent with their fiduciary
duties to the company.
It is anticipated that the company's principal stockholders may actively
negotiate or otherwise consent to the purchase of a portion of their common
stock as a condition to, or in connection with, a proposed merger or acquisition
transaction. In this process, the company's principal stockholders may consider
their own personal pecuniary benefit rather than the best interest of other
company stockholders. Depending upon the nature of a proposed transaction,
company stockholder other than the principal stockholders may not be afforded
the opportunity to approve or consent to a particular transaction.
Possible Need for Additional Financing. The company has very limited funds,
and such funds, may not be adequate to take advantage of any available business
opportunities. Even if the company's currently available funds prove to be
sufficient to pay for its operations until it is able to acquire an interest in,
or complete a transaction with, a business opportunity, such funds will clearly
not be sufficient to enable it to exploit the opportunity. Thus, the ultimate
success of the company will depend, in part, upon its availability to raise
additional capital. In the event that the company requires modest amounts of
additional capital to fund its operations until it is able to complete a
business acquisition or transaction, such funds, are expected to be provided by
its principal stockholders. However, the company has not investigated the
availability, source, or terms that might govern the acquisition of the
additional capital which is expected to be required in order to exploit a
business opportunity, and will not do so until it has determined the level of
need for such additional financing. There is no assurance that additional
capital will be available from any source or, if available, that it can be
obtained on terms acceptable to the company. If not available, the company's
operations will be limited to those that can be financed with its modest
capital.
There may be a Scarcity of and/or Significant Competition for Business
Opportunities and Combinations. The company is and will continue to be an
insignificant participant in the business of seeking mergers with and
acquisitions of business entities. A large number of established and
well-financed entities, including venture capital firms, are active in mergers
and acquisitions of companies which may be merger or acquisition target
candidates for the company. Nearly all such entities have significantly greater
financial resources, technical expertise and managerial capabilities than the
company and, consequently, the company will be at a competitive disadvantage in
identifying possible business opportunities and successfully completing a
business combination. Moreover, the company will also compete in seeking merger
7
or acquisition candidates with other public shell companies, some of which may
also have funds available for use by an acquisition candidate.
Possible Dilution of Value of Shares upon Business Combination. A business
combination normally will involve the issuance of a significant number of
additional shares. Depending upon the value of the assets acquired in such
business combination, the per share value of the company's common stock may
increase or decrease, perhaps significantly.
Doing Business in a Foreign Country. The company may effectuate a business
combination with a merger target whose business operations or even headquarters,
place of formation or primary place of business are located outside the United
States of America. In such event, the company may face the significant
additional risks associated with doing business in that country. In addition to
the language barriers, different presentations of financial information,
different business practices, and other cultural differences and barriers that
may make it difficult to evaluate such a merger target, ongoing business risks
result from the international political situation, uncertain legal systems and
applications of law, prejudice against foreigners, corrupt practices, uncertain
economic policies and potential political and economic instability that may be
exacerbated in various foreign countries.
Taxation. Federal and state tax consequences will, in all likelihood, be
major considerations in any business combination that the company may undertake.
Currently, such transactions may be structured so as to result in tax-free
treatment to both companies, pursuant to various federal and state tax
provisions. The company intends to structure any business combination so as to
minimize the federal and state tax consequences to both the company and the
target entity; however, there can be no assurance that such business combination
will meet the statutory requirements of a tax-free reorganization or that the
parties will obtain the intended tax-free treatment upon a transfer of stock or
assets. A non-qualifying reorganization could result in the imposition of both
federal and state taxes, which may have an adverse effect on both parties to the
transaction.
Item 2 - Description of Property
The company currently maintains a mailing address at 12890 Hilltop Road,
Argyle, TX 76226. The company's telephone number there is (972) 233-0300. Other
than this mailing address, the company does not currently maintain any other
office facilities, and does not anticipate the need for maintaining office
facilities at any time in the foreseeable future. The company pays no rent or
other fees for the use of the mailing address as these offices are used
virtually full-time by other businesses of the company's President.
It is likely that the company will not establish an office until it has
completed a business acquisition transaction, but it is not possible to predict
what arrangements will actually be made with respect to future office
facilities.
Item 3 - Legal Proceedings
The company is not a party to any pending legal proceedings, and no such
proceedings are known to be contemplated.
Item 4 - Submission of Matters to a Vote of Security Holders
The company has not conducted any meetings of its stockholders during the
preceding quarter or periods subsequent thereto.
PART II
Item 5 - Market for Company's Common Stock, Related Stockholder Matters and
Small Business Issuer Purchase of Equity Securities
Market for Trading
Our common stock became eligible for quotation on the NASD's Over the
Counter Bulleting Board on April 17, 2002. Its stock symbol initially was
"SOFS". On August 15, 2003 the symbol was changed to "TSET.OB". The following
table shows the quarterly high and low prices of the stock for the periods
8
presented. The prices reflect inter-dealer quotations without mark-up, mark-down
or commissions and may not represent actual transactions.
------------------------------------------------------ ------------ -----------
High Low
------------------------------------------------------ ------------ -----------
Calendar 2003:
------------------------------------------------------ ------------ -----------
1st Qtr $ 0.10 $ 0.10
------------------------------------------------------ ------------ -----------
2nd Qtr 0.10 0.05
------------------------------------------------------ ------------ -----------
3rd Qtr 5.40 0.08
------------------------------------------------------ ------------ -----------
4th Qtr 5.20 2.00
------------------------------------------------------ ------------ -----------
------------------------------------------------------ ------------ -----------
Calendar 2004:
------------------------------------------------------ ------------ -----------
1st Qtr 0.20 0.60
------------------------------------------------------ ------------ -----------
2nd Qtr 0.65 0.52
------------------------------------------------------ ------------ -----------
3rd Qtr 1.15 1.01
------------------------------------------------------ ------------ -----------
4th Qtr 1.15 0.40
------------------------------------------------------ ------------ -----------
------------------------------------------------------ ------------ -----------
Calendar 2005:
------------------------------------------------------ ------------ -----------
1st Qtr 0.55 0.35
------------------------------------------------------ ------------ -----------
2nd Qtr 2.00 0.50
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3rd Qtr (through September 22, 2005) 2.25 1.05
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Common Stock
The company's Certificate of Incorporation authorizes the issuance of
30,000,000 shares of $0.001 par value common stock. Each record holder of common
stock is entitled to one vote for each share held on all matters properly
submitted to the stockholders for their vote. The Certificate of Incorporation
does not permit cumulative voting for the election of directors.
Holders of outstanding shares of common stock are entitled to such
dividends as may be declared from time to time by the board of directors out of
legally available funds; and, in the event of liquidation, dissolution or
winding up of the affairs of the company, holders are entitled to receive,
ratably, the net assets of the company available to stockholders after
distribution is made to the preferred stockholders, if any, who are given
preferred rights upon liquidation. Holders of outstanding shares of common stock
have no preemptive, conversion or redemptive rights. All of the issued and
outstanding shares of common stock are, and all unissued shares when offered and
sold will be, duly authorized, validly issued, fully paid, and non-assessable.
To the extent that additional shares of the company's common stock are issued,
the relative interests of then existing stockholders may be diluted.
Transfer Agent
Our independent stock transfer agent is Securities Transfer Corporation,
located in Frisco, Texas. Their mailing address and telephone number is: 2591
Dallas Parkway, Suite 102, Frisco, TX 75034; (469) 633-0300.
Dividend policy
No dividends have been paid to date and the Company's Board of Directors
does not anticipate paying dividends in the foreseeable future. It is the
current policy to retain all earnings, if any, to support future growth and
expansion.
Recent Sales of Unregistered Securities
During the year ended June 30, 2005 we issued unregistered shares of our
common stock as follows:
9
Dollar
Amount of
Date Amount Purchasers Consideration Type of Consideration
-------- --------- ------------------------------- ------------- ---------------------
04/05/05 25,000 Thomas J. Kennan(1) -0- In satisfaction of $12,500
owed for legal services
05/11/05 1,875,045 Halter Financial Group, Inc.(1) $ 199,999.99
------------------------
(1) Sold in an offering exempt from registration pursuant to the
provisions of Section 4(2) of the Act.
Item 6 - Management's Discussion and Analysis or Plan of Operation
Results of Operations
We had no revenue for the year ended June 30, 2005 and approximately
$23,000 for the year ended June 30, 2004 related to the Company's proprietary
process of converting used tires to usable products. Related to these revenues,
we experienced costs of sales of approximately $-0- and $48,000, respectively.
All operations related to the used tire conversion process were discontinued
effective June 30, 2004 in anticipation of a business combination transaction
which was subsequently abandoned.
General and administrative expenses for the years ended June 30, 2005 and
2004 were approximately $1.8 million and $93,000, respectively. The largest
increase in these costs relate to stock based compensation expense, consulting
fees paid to legal counsel and other individuals to facilitate the Fiscal 2005
change in control.
It is anticipated that future expenditure levels will increase if and when
the company consummates a business combination transaction with an operating
entity.
Earnings per share for the respective years ended June 30, 2005 and 2004,
respectively, were approximately $(2.20) and $(0.89) based on the
weighted-average shares issued and outstanding at the end of each respective
year.
We do not expect to generate any meaningful revenue or incur operating
expenses for purposes other than fulfilling the obligations of a reporting
company under the Securities Exchange Act of 1934 unless and until such time
that the company's operating subsidiary begins meaningful operations.
At June 30, 2005 and 2004, respectively, we had working capital of
approximately $(4,500) and $(68,000).
Liquidity and Capital Resources
On or about April 5, 2005, we issued 25,000 shares of restricted,
unregistered common stock, valued at $12,500, for payment of legal fees to
Thomas Kenan, our legal counsel.
On or about May 17, 2005, we sold 1,875,045 shares of restricted,
unregistered common stock for cash proceeds of approximately $200,000 to Halter
Financial Group, Inc. We used these proceeds to retire 100% of the outstanding
accounts payable and other operating debts of the company and to retire, through
negotiation, all amounts owed for whatever reason to the former controlling
shareholders. As a result of this transaction, the company had no outstanding
liabilities. This transaction was executed at less than the closing price on the
date of the respective transaction and resulted in a charge to operations of
approximately $1,694,000.
We relied upon an exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended, and no underwriter was used in conjunction
with any of the above listed transactions.
Through June 30, 2005, Halter Financial Group, Inc. has advanced the
company an aggregate of approximately $4,500 to support operations, settle
outstanding trade accounts payable and provide working capital. These advances
are repayable upon demand, are non-interest bearing and are unsecured.
It is the current intent of management and significant stockholders to
provide sufficient working capital necessary to support and preserve the
integrity of the corporate entity. However, there is no legal obligation for
either management or significant stockholders to provide additional future
funding. Should this pledge fail to provide financing, the company has not
10
identified any alternative sources. Consequently, there is substantial doubt
about the Company's ability to continue as a going concern.
The company's need for capital may change dramatically as a result of any
business acquisition or combination transaction. There can be no assurance that
the Company will identify any such business, product, technology or company
suitable for acquisition in the future. Further, there can be no assurance that
the company would be successful in consummating any acquisition on favorable
terms or that it will be able to profitably manage the business, product,
technology or company it acquires.
Item 7 - Index to Financial Statements
The required financial statements begin on page F-1 of this document.
Item 8 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
On August 15, 2005, Evans, Gaither & Associates, PLLC of Oklahoma City,
Oklahoma resigned as principal independent accountants of TS Electronics, Inc.
Evans, Gaither had been engaged as TS Electronics' principal independent
accountants since February 4, 2004, when it replaced Kabani & Company, Inc. of
Fountain Valley, California as our principal independent accountants.
The report of Evans, Gaither on the financial statements of TS Electronics
for its fiscal year ended June 30, 2004 contained no adverse opinions or
disclaimers of opinion, and, other than raising substantial doubt about TS
Electronics' ability to continue as a going concern for the fiscal year ended
June 30, 2004, were not otherwise modified as to uncertainty, audit scope, or
accounting principles during the period of its engagement (February 4, 2004) to
August 15, 2005, the date of resignation. Similarly, the reports of Kabani &
Company on the financial statements contained no adverse opinions or disclaimers
of opinion, and, other than raising substantial doubt about the company's
ability to continue as a going concern for each of the fiscal years ended June
30, 2003 and 2002, were not modified as to uncertainty, audit scope, or
accounting principles during such past years.
During the past two years or interim periods prior to August 15, 2005,
there were no disagreements between TS Electronics and either Evans, Gaither or
Kabani & Company, whether or not resolved, on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Evans, Gaither's or Kabani & Company's
satisfaction, would have caused it to make reference to the subject matter of
the disagreements in connection with its reports.
On August 17, 2005, TS Electronics engaged Hansen, Barnett & Maxwell, PC of
Salt Lake City, Utah as its new principal accountant to audit its consolidated
financial statements. TS Electronics did not consult the new accountant
regarding the application of accounting principles to a specific completed or
contemplated transaction, or the type of audit opinion that might be rendered on
the issuer's financial statements.
Item 8A. Controls and Procedures.
The company's management, with the participation of the company's Chief
Executive Officer and Chief Accounting Officer, has evaluated the effectiveness
of the company's disclosure controls and procedures as of June 30, 2005. Based
on this evaluation, the Company's Chief Executive Officer and Chief Accounting
Officer concluded that the company's disclosure controls and procedures are
effective for gathering, analyzing and disclosing the information the company is
required to disclose in the reports it files under the Securities Exchange Act
of 1934, within the time periods specified in the SEC's rules and forms.
11
PART III
Item 9 - Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The directors and executive officers serving the Company are as follows:
Name Age Position Held and Tenure
---- --- ------------------------
Timothy P. Halter 39 Chief Executive Officer, Chief
Accounting Officer and Director since
May 11, 2005
The director named above will serve until the next annual meeting of the
company's stockholders or until his successors are duly elected and have
qualified. Directors will be elected for one-year terms at the annual
stockholders meeting. Officers will hold their positions at the pleasure of the
board of directors, absent any employment agreement, of which none currently
exists or is contemplated. There is no arrangement or understanding between any
of the directors or officers of the company and any other person pursuant to
which any director or officer was or is to be selected as a director or officer,
and there is no arrangement, plan or understanding as to whether non-management
stockholders will exercise their voting rights to continue to elect the current
directors to the company's board. There are also no arrangements, agreements or
understandings between non-management stockholders that may directly or
indirectly participate in or influence the management of the company's affairs.
The directors and officers will devote their time to the company's affairs
on an as needed basis, which, depending on the circumstances, could amount to as
little as two hours per month, or more than forty hours per month, but more than
likely encompass less than four (4) hours per month. There are no agreements or
understandings for any officer or director to resign at the request of another
person, and none of the officers or directors are acting on behalf of, or will
act at the direction of, any other person.
Biographical Information
Timothy P. Halter, our sole officer and director, has during the past five
years served as the sole officer and director of Halter Financial Group, Inc., a
financial consulting firm.
Indemnification of Officers and Directors
The company's by-laws provide for the indemnification of its, directors,
officers, employees, and agents, under certain circumstances, against attorney's
fees and other expenses incurred by them in any litigation to which they become
a party arising from their association with or activities on behalf of the
company. The company will also bear the expenses of such litigation for any of
its directors, officers, employees, or agents, upon such persons promise to
repay the company therefor if it is ultimately determined that any such person
shall not have been entitled to indemnification. This indemnification policy
could result in substantial expenditures by the company, which it may be unable
to recoup.
Conflicts of Interest
None of the officers of the company will devote more than a small portion
of their respective time to the affairs of the company. There will be occasions
when the time requirements of the company's business conflict with the demands
of the officers' other business and investment activities. Such conflicts may
require that the company attempt to employ additional personnel. There is no
assurance that the services of such persons will be available or that they can
be obtained upon terms favorable to the company.
The officers, directors and principal stockholders of the company may
actively negotiate for the purchase of a portion of their common stock as a
condition to, or in connection with, a proposed merger or acquisition
transaction. It is anticipated that a substantial premium may be paid by the
purchaser in conjunction with any sale of shares by the company's officers,
directors and principal stockholders made as a condition to, or in connection
with, a proposed merger or acquisition transaction. The fact that a substantial
premium may be paid to members of company management to acquire their shares
creates a conflict of interest for them and may compromise their state law
12
fiduciary duties to the company's other stockholders. In making any such sale,
members of company management may consider their own personal pecuniary benefit
rather than the best interests of the company and the company's other
stockholders, and the other stockholders are not expected to be afforded the
opportunity to approve or consent to any particular buy-out transaction
involving shares held by members of company management.
The company has adopted a policy under which any consulting or finders fee
that may be paid to a third party for consulting services to assist management
in evaluating a prospective business opportunity would be paid in stock rather
than in cash. Any such issuance of stock would be made on an ad hoc basis.
Accordingly, the company is unable to predict whether, or in what amount, such
stock issuance might be made.
It is not currently anticipated that any salary, consulting fee, or finders
fee shall be paid to any of the company's directors or executive officers, or to
any other affiliate of the company except as described under Executive
Compensation below.
Although management has no current plans to cause the company to do so, it
is possible that the company may enter into an agreement with an acquisition
candidate requiring the sale of all or a portion of the common stock held by the
company's current stockholders to the acquisition candidate or principals
thereof, or to other individuals or business entities, or requiring some other
form of payment to the company's current stockholders, or requiring the future
employment of specified officers and payment of salaries to them. It is more
likely than not that any sale of securities by the company's current
stockholders to an acquisition candidate would be at a price substantially
higher than that originally paid by such stockholders. Any payment to current
stockholders in the context of an acquisition involving the company would be
determined entirely by the largely unforeseeable terms of a future agreement
with an unidentified business entity.
Compliance with Section 16 (a) of the Exchange Act
As a result of the change in control effected in May 2005, management is
unable to ascertain if all persons subject to Section 16(a) filing requirements
prior to said date timely filed reports required by Section 16(a) of the
Exchange Act during the fiscal year ended June 30, 2005 or prior fiscal years.
All persons subject to Section 16(a) filing requirements since the May 11, 2005
change in control have filed on a timely basis reports required to be filed by
Section 16(a) of the Exchange Act since said date.
Item 10 - Executive Compensation
No executive officer of the company has received total compensation in any
of the last three years that exceeds $100,000. The table below sets forth all
compensation awarded to, earned by, or paid to the presidents of the company
during the last three fiscal years:
Name Year Salary Bonus
----
Timothy P. Halter 2005 0 0
Keith Boyd 2005 0 0
Keith Boyd 2004 0 0
Keith Boyd 2003 $36,000 0
Employment Contracts
We have no long-term compensation plans or employment agreements with any
of our officers or directors.
There are no employment contracts, compensatory plans or arrangements,
including payments to be received from our company, with respect to any director
or executive officer which would in any way result in payments to any such
person because of his or her resignation, retirement or other termination of
employment, any change in control, or a change in the person's responsibilities
following a change in control of our company.
13
Stock Options
There have been no stock options granted to the officers and directors of
our company, nor have there been any other forms of compensation paid to the
officers and directors of the company.
Item 11 - Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of August 23, 2005, the number of shares
of common stock owned of record and beneficially by executive officers,
directors and persons who hold 5% or more of the outstanding common stock of the
company. Also included are the shares held by all executive officers and
directors as a group.
Number of Shares
Name and address Beneficially Owned % of Class
---------------- ------------------ ----------
Timothy P. Halter 1,875,045 75%
All Directors and Executive Officers 1,875,045 75%
(1 person)
Item 12 - Certain Relationships and Related Transactions
The company currently maintains a mailing address at 12890 Hilltop Road,
Argyle, Texas 76226. The company's telephone number there is (972) 233-0300.
This address is maintained and controlled by Timothy P. Halter, the company's
President. Other than this mailing address, the company does not currently
maintain any other office facilities, and does not anticipate the need for
maintaining office facilities at any time in the foreseeable future. The company
pays no rent or other fees for the use of the mailing address as these offices
are used virtually full-time by other businesses of the company's President.
Item 13 - Exhibits and Reports on Form 8-K
Exhibits
31.1 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
Reports on Form 8-K
On May 11, 2005, the company filed a Current Report on Form 8-K to report
the change in control transaction resulting from the purchase by Halter
Financial Group, Inc. of 1,875,045 shares of the company's common stock.
Item 14 - Principal Accountant Fees and Services
Fees Paid to Independent Public Accountants for 2005 and 2004 Audit Fees
The aggregate audit fees for 2005 were approximately $8,000 for
professional services rendered by Hanson, Barnett in connection with the audit
of our financial statements as of and for the 2005 fiscal year and fees of
approximately $7500 for professional services rendered by Evans, Gaither in
connection with reviews of our unaudited interim financial statements for the
quarterly periods ended September 30, 2004, December 31, 2004 and March 31,
2005. The aggregate audit fees for 2004 were approximately $5,000. The amounts
include fees for professional services rendered by Evans, Gaither in connection
with the audit of our financial statements for the 2004 fiscal year and reviews
of our unaudited consolidated interim financial statements for the first, second
and third quarters of 2004 by both Evans, Gaither and Kabani & Company.
14
Audit-Related Fees
There were no audit-related fees billed by Hanson, Barnett, Evans, Gaither
or Kabani & Company for other services rendered to the company for the 2004 or
2005 fiscal years.
Tax Fees
There were no fees for tax services billed by Hanson, Barnett, Evans,
Gaither or Kabani & Company for the 2004 or 2005 fiscal years.
All Other Fees
There were no additional aggregate fees billed by Hanson, Barnett, Evans,
Gaither or Kabani & Company for other services rendered to the company for the
2004 or 2005 fiscal years. The company's independent auditors may be engaged to
provide non-audit services only after the board of directors has first
considered the proposed engagement and has determined in each instance that the
proposed services are not prohibited by applicable regulations and the auditors'
independence will not be materially impaired as a result of having provided
these services. In making this determination, the board takes into consideration
whether a reasonable investor, knowing all relevant facts and circumstances,
would conclude that the auditors' exercise of objective and impartial judgment
on all issues encompassed within the auditors' engagement would be materially
impaired.
15
SIGNATURES
Pursuant to the requirements in Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the company has caused this report to be
signed on its behalf by the undersigned, thereto duly authorized.
TS Electronics, Inc.
Dated: September 23, 2005 By: /s/ Timothy P. Halter
----------------------------
Timothy P. Halter
President and
Chief Accounting Officer and
Sole Director
Pursuant to the requirements in the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the company and in the capacities and on the date as indicated.
Dated: September 23, 2005 By: /s/ Timothy P. Halter
----------------------------
Timothy P. Halter
President and
Chief Accounting Officer and
Sole Director
16
TS Electronics, Inc.
Index to Financial Statements
Page
----
Report of Hansen, Barnett & Maxwell, Independent
Registered Public Accounting Firm.......................................F-2
Report of Evans, Gaither & Associates PLLC, Independent
Registered Public Accounting Firm.......................................F-3
Balance Sheets as of June 30, 2005 and 2004..................................F-4
Statements of Operations for the Years Ended June 30, 2005 and 2004..........F-5
Statements of Changes in Stockholder' Deficit for the Years
Ended June 30, 2004 and 2005............................................F-6
Statements of Cash Flows for the Years Ended June 30, 2005 and 2004..........F-7
Notes to Financial Statements................................................F-8
F-1
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
5 Triad Center, Suite 750
Salt Lake City, UT 84180-1128
Phone: (801) 532-2200
Fax: (801) 532-7944
www.hbmcpas.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and the Stockholders
TS Electronics, Inc.
We have audited the balance sheet of TS Electronics, Inc. as of June 30, 2005,
and the related statements of operations, stockholders' deficit, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit 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 audit provides a
reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of TS Electronics, Inc. as of June 30,
2005, and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note C to the
financial statements, the Company has incurred significant losses and negative
cash flows from operating activities during the year ended June 30, 2005. As of
June 30, 2005, the Company had no assets, an accumulated deficit of $5,676,660,
and negative working capital of $4,473. These matters raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
with respect to these matters are also described in Note C. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Hansen, Barnett & Maxwell
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
September 8, 2005
F-2
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------
To the Stockholders and Board of Directors
TS Electronics, Inc. (formerly, Softstone, Inc.)
We have audited the accompanying balance sheet of TS Electronics, Inc.
(formerly, Softstone, Inc.) as of June 30, 2004 and the related statements of
operations, stockholders' deficit and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TS Electronics, Inc. as of June
30, 2004 and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
The Company's financial statements are prepared using the generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company had an accumulated deficit of $3,834,281 through June 30,
2004 and negative working capital of $68,322 at June 30, 2004. These factors, as
discussed in Note C to the financial statements, raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note C. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Evans, Gaither & Associates PLLC
Evans, Gaither & Associates PLLC
October 7, 2004
Oklahoma City, Oklahoma
F-3
TS Electronics, Inc.
Balance Sheets
June 30,
--------------------------
2005 2004
-------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash $ -- $ 84
-------------------------------------------------------------------------------------------
Total Current Assets -- 84
-------------------------------------------------------------------------------------------
Total Assets $ -- $ 84
-------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable - trade and accrued liabilities $ -- $ 68,406
Payable to major stockholder 4,473 --
-------------------------------------------------------------------------------------------
Total Current Liabilities 4,473 68,406
-------------------------------------------------------------------------------------------
Stockholders' Deficit
Common stock - $0.001 par value; 30,000,000 shares authorized;
2,500,060 shares and 600,015 shares outstanding, respectively 2,500 600
Additional paid-in capital 5,669,687 3,763,359
Shares to be issued -- 2,000
Accumulated deficit (5,676,660) (3,834,281)
-------------------------------------------------------------------------------------------
Total Stockholders' Deficit (4,473) (68,322)
-------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficit $ -- $ 84
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-4
TS Electronics, Inc.
Statements of Operations
For the Years Ended June 30,
--------------------------
2005 2004
---------------------------------------------------------------------
Revenues $ -- $ 23,275
Cost of Sales -- 47,681
---------------------------------------------------------------------
Gross Loss -- (24,406)
---------------------------------------------------------------------
General and Administrative Expense
Stock-based compensation 1,693,728 --
Other 148,651 92,963
---------------------------------------------------------------------
Total General and Administrative Expense 1,842,379 92,963
---------------------------------------------------------------------
Loss from Operations (1,842,379) (117,369)
Other Income (Expense)
Other income -- 2,500
Interest expense -- (5,595)
Loss on settlement of liabilities -- (504,190)
Gain on settlement of debt -- 120,362
---------------------------------------------------------------------
Net Loss $(1,842,379) $ (504,292)
---------------------------------------------------------------------
Basic and Diluted Loss per Common Share $ (2.20) $ (0.89)
---------------------------------------------------------------------
Basic and Diluted Weighted-Average
Common Shares Outstanding 837,144 565,450
---------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-5
TS Electronics, Inc.
Statements of Changes in Stockholders' Deficit
For the Years ended June 30, 2004 and 2005
Common Stock Additional Shares Total
------------------- Paid-in to be Accumulated Stockholders'
Shares Amount Capital Issued Deficit Deficit
---------------------------------------------------------------------------------------------------------------------------------
Balances at July 1, 2003 350,155 $ 350 $ 2,294,088 $ 6,515 $(3,329,989) $(1,029,036)
Issuance for cash received in prior period 344 1 2,514 (2,515) -- --
Settlement of related party accounts -- --
payable 6,879 7 40,512 -- -- 40,519
Issuance for services 1,988 2 14,143 -- -- 14,145
Issuance for payment of interest 229 -- 1,024 -- -- 1,024
Issuance as payment of loan incentive
recognized in prior period 1,147 1 1,999 (2,000) -- --
Issuance in exchange for the assumption
of liabilities by major stockholders 239,273 239 1,409,079 -- -- 1,409,318
Net loss for the year -- -- -- -- (504,292) (504,292)
--------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 2004 600,015 600 3,763,359 2,000 (3,834,281) (68,322)
Issuance for settlement of accounts
payable 25,000 25 12,475 -- -- 12,500
Issuance for cash 1,875,045 1,875 198,125 -- -- 200,000
Stock-based compensation -- -- 1,693,728 -- -- 1,693,728
Cancellation of obligation to issue
shares paid for in prior period -- -- 2,000 (2,000) -- --
Net loss for the year -- -- -- -- (1,842,379) (1,842,379)
---------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 2005 2,500,060 $ 2,500 $ 5,669,687 $ -- $(5,676,660) $ (4,473)
--------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-6
TS Electronics, Inc.
Statements of Cash Flows
For the Years Ended June 30,
---------------------------------------------------------------------------------------------------------
2005 2004
---------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net loss $(1,842,379) $ (504,292)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on settlement of liabilities -- 504,190
Gain on settlement of debt -- (120,362)
Expenses paid with common stock 12,500 14,145
Expenses paid by increase in payable due to major stockholder 4,473
Stock-based compensation 1,693,728 --
Change in accounts payable and accrued expenses (68,406) 70,507
--------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (204,557) (35,812)
--------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Cash received from disposition of property and equipment -- 2,500
--------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities -- 2,500
--------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Principal payments on loans and debts -- (3,804)
Proceeds from borrowing -- 35,411
Proceeds from issuance of common stock 200,000 --
--------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 200,000 31,607
--------------------------------------------------------------------------------------------------------
Net Decrease in Cash (84) (1,705)
Cash at beginning of year 84 1,789
--------------------------------------------------------------------------------------------------------
Cash at End of Year $ -- $ 84
--------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Interest paid during the year $ -- $ 5,595
--------------------------------------------------------------------------------------------------------
Supplemental Schedule of Noncash Investing and Financing Activities During the
year ended June 30, 2004, the major stockholders of the Company assumed $905,128
of liabilities from the Company in exchange for the transfer of assets with a
fair value of zero and the issuance of 239,273 shares of common stock with a
fair value of $1,409,318. A $504,190 loss on settlement of the liabilities was
recognized as a result of the transaction.
During the year ended June 30, 2005, the Company obtained a cancellation of a
$2,000 obligation to issue common stock that resulted from cash received in a
prior period. The cancellation was recognized as an increase in additional
paid-in capital.
The accompanying notes are an integral part of these financial statements.
F-7
TS Electronics, Inc.
Notes to Financial Statements
Note A - Organization and Description of Business
TS Electronics, Inc. (Company) was incorporated as Softstone, Inc. in accordance
with the Laws of the State of Delaware on October 7, 1998. The Company's initial
business plan was to manufacture a patented rubber product used in the road and
building construction industries.
On July 24, 2001, the Company entered into a plan of reorganization involving
Kilkenny Acquisition Corp. (Kilkenny) whereby the Company is the survivor and in
control of the Board of Directors. The merger agreement provided for the
exchange of 1,158,387 shares of the Company's common stock for all the issued
and outstanding common stock of Kilkenny. For accounting purposes, the
transaction between the Company and Kilkenny was treated as a re!capitalization
of the Company, with the Company as the accounting acquirer.
On August 13, 2003, the Company changed its name to TS Electronics, Inc.
On or about August 11, 2004 the Company entered into a Stock Exchange Agreement
(Agreement) with the sole shareholder of China ESCO Holdings Limited (China
ESCO), a company organized in the Hong Kong Special Administration Region in The
People's Republic of China and its wholly owned operating subsidiary, AsiaNet PE
Systems Limited. The agreement provided that the Company would issue
approximately 11,201,902 shares of its restricted common stock in exchange for
100% of the issued and outstanding capital stock of China ESCO which would
represent approximately 94% of the then total issued and outstanding common
stock of the Company after the exchange. On January 14, 2005, the August 17,
2003 Agreement was rescinded on the grounds of material breaches of the
agreement by the sole shareholder of China ESCO. Accordingly, the Agreement was
not given accounting recognition in the accompanying financial statements.
On or about February 8, 2005, the Company signed a letter of intent with Osage
Energy Company, LLC with regard to a proposed business combination transaction.
Subsequent discussions between the Company and Osage Energy resulted in an
abandonment of any further efforts with regard to such a business combination.
Note B - Preparation of Financial Statements
The Company follows the accrual basis of accounting in accordance with
accounting principles generally accepted in the United States of America and has
a year-end of June 30.
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 and 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.
Management acknowledges that it is solely responsible for adopting sound
accounting practices, establishing and maintaining a system of internal
accounting control and preventing and detecting fraud. The Company's system of
internal accounting control is designed to assure, among other items, that 1)
recorded transactions are valid; 2) valid transactions are recorded; and 3)
transactions are recorded in the proper period in a timely manner to produce
financial statements which present fairly the financial condition, results of
operations and cash flows of the Company for the respective periods being
presented.
For segment reporting purposes, the Company operated in only one industry
segment during the periods represented in the accompanying financial statements
and makes all operating decisions and allocates resources based on the best
benefit to the Company as a whole.
Note C - Going Concern Contingency
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which contemplate
continuation of the company as a going concern. However, the Company has an
accumulated deficit of $5,676,660 and negative working capital of $(4,473) at
June 30, 2005.
The Company's continued existence is dependent upon its ability to generate
sufficient cash flows from operations to support its daily operations as well as
provide sufficient resources to retire existing liabilities and obligations on a
timely basis.
F-8
TS Electronics, Inc.
Notes to Financial Statements - Continued
The Company anticipates offering equity securities in the future. However, there
is no assurance that the Company will be able to obtain additional funding
through the issuance of additional equity securities or, that such funding, if
available, will be obtained on terms favorable to or affordable by the Company.
If no additional operating capital is received during the next twelve months,
the Company will be forced to rely upon additional loans from management and/or
significant stockholders to preserve the integrity of the corporate entity at
this time. In the event, the Company is unable to acquire advances from
management and/or significant stockholders, the Company's ongoing operations
would be negatively impacted.
It is the intent of management and significant stockholders to provide
sufficient working capital necessary to support and preserve the integrity of
the corporate entity. However, no formal commitments or arrangements to advance
or loan funds to the Company or repay any such advances or loans exist. There is
no legal obligation for either management or significant stockholders to provide
additional future funding.
Note D - Summary of Significant Accounting Policies
Research and Development Expenses - Research and development expenses are
charged to operations as incurred.
Advertising Expenses - The Company does not utilize direct solicitation
advertising. All other advertising and marketing expenses are charged to
operations as incurred. For the years ended June 30, 2005 and 2004,
respectively, an aggregate of $-0- was charged to operations for advertising
expenses.
Stock-Based Compensation - The Company utilizes the fair-value method of
accounting for the payment for goods and/or services with the issuance of equity
shares.
Basic and Diluted Loss per Share - Basic loss per share is computed by dividing
net loss by the weighted-average number of common shares outstanding during the
period. Diluted loss per share is computed by dividing net loss by the
weighted-average number of common shares and dilutive potential common shares
outstanding.
New accounting pronouncements - In December 2004, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
123 (revised 2004), "Share-Based Payment" which revised Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation." This
statement supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees." The revised statement addresses the accounting for share-based
payment transactions with employees and other third parties, eliminates the
ability to account for share-based compensation transactions using APB 25 and
requires that the compensation costs relating to such transactions be recognized
in the statement of operations using the fair value method. The revised
statement is effective for the Company as of July 1, 2005. Adoption of the
revised statement is not expected to have any effect on the Company's financial
statements since the Company has not granted share-based compensation to any
employees.
Note E - Advances from Major Shareholder
Through June 30, 2005, the Company's major shareholder has paid $4,473 to others
on behalf of the Company to support the Company's operations, settle outstanding
trade accounts payable and provide working capital. These advances are repayable
upon demand, are non-interest bearing and are unsecured.
Note F - Income Taxes
The Company had no provision for income taxes during the years ended June 30,
2005 or 2004.
Concurrent with a May 2005 change in control, the Company's operating loss
carryforward for Federal income tax purposes will be limited. The Company's
income tax expense (benefit) for each of the years ended June 30, 2005 and 2004,
respectively, differed from the statutory federal rate of 34 percent as follows:
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TS Electronics, Inc.
Notes to Financial Statements - Continued
Year Ended Year Ended
June 30, 2005 June 30, 2004
------------- -------------
Statutory rate applied to income before income taxes $ (626,400) $(171,000)
Effect of non-deductible stock-based compensation expense 575,900
Change in deferred tax valuation allowance 50,500 171,000
------------- -------------
Income tax expense $ -- $ --
============= =============
Deferred tax assets consisted of the following as of June 30, 2005 and 2004,
respectively, after taking the May 2005 change in control into consideration:
June 30, 2005 June 30, 2004
------------- -------------
Deferred tax assets
Net operating loss carryforwards $ 1,500 $ --
Less valuation allowance (1,500) --
------------- -------------
Net Deferred Tax Asset $ -- $ --
============= =============
Note G - Common Stock Transactions
During the year ended June 30, 2004, the Company issued 344 shares of
restricted, unregistered common stock for cash received in the prior year.
During the year ended June 30, 2004, the Company issued 6,879 shares of
restricted, unregistered common stock valued at $40,519 for settlement of notes
payable amounting to $160,881 resulting in a gain of $120,362 on settlement of
debt.
During the year ended June 30, 2004, the Company issued 1,988 shares of
restricted, unregistered common stock for services valued at $14,145.
During the year ended June 30, 2004, the Company issued 229 shares of
restricted, unregistered common stock for interest valued at $1,024.
During the year ended June 30, 2004 the Company issued 1,147 shares of
restricted, unregistered common stock for loan incentives included in the prior
period valued at $2,000.
During the year ended June 30, 2004, the Company issued 239,273 shares of
restricted, unregistered common stock valued at $1,409,318, based on the market
value of the common stock on the date of issuance, and transferred its operating
assets to the Company's major stockholder in exchange for the major stockholder
assuming $905,128 of liabilities from the Company. As a result of the assumption
and issuance of the common stock, the Company recognized a loss on the
settlement of the liabilities of $504,190.
During the year ended June 30, 2005, the Company issued 25,000 shares of
restricted, unregistered common stock, valued at $12,500, for payment of legal
fees.
During the year ended June 30, 2005, the Company issued 1,875,045 shares of
restricted, unregistered common stock for cash proceeds of $200,000. The Company
used these proceeds to retire outstanding accounts payable and other
liabilities. This transaction was executed at less than the closing market price
for the Company's stock on the date of the transaction and therefore resulted in
recognition of stock-based compensation for the services rendered by management
of the Company in the amount of $1,693,728.
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