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A leading provider
of advanced
technology-based
security solutions
Spectra Systems Corporation
Annual report and accounts 2016
Spectra Systems Corporation
is an established world leader
in providing security technology,
from banknotes and products
to electronic gaming.
Spectra provides integrated solutions comprised
of engineered materials for authentication and
hardware and software systems which verify the
unique signatures of the authentication materials.
WE OPERATE IN
35 COUNTRIES
OVER 60
CUSTOMERS
FOUR
ACQUISITIONS
SINCE 2012
WE HAVE
29 STAFF IN
OUR OFFICES
Highlights
Financial highlights
Operational highlights
– Revenue of US$11.1 million (2015: US$14.1 million)
– Adjusted EBITDA up 123% at US$2.4 million1
(2015: US$1.1 million1)
– In-house manufacturing for G7 central bank
commenced in Q4 with a 35% uplift to gross
profits going forward
– Adjusted PBTA up 184% at US$2.0 million1
(2015: US$0.7 million1)
– Adjusted EBITDA per share up over 100%
at US$0.05 (2015: US$0.02)
– Adjusted PBTA per share up over 100%
at US$0.04 (2015: US$0.2)
– US$2.8 million of cash generated from
operations (2015: US$0.5 million consumed)
– Completed the acquisition and full
integration of specialty phosphor assets
and customer relationships
– Phosphor sales exceeded 2015 by 211%,
with 115% of the increase due to a new sales
channel not associated with the acquisition
– Brand authentication sales remained strong
and at forecasted levels
– Secure Transactions Group performed in line
– Strong balance sheet with cash of US$8.8 million
with expectations
(2015: US$9.8 million) at 31 December2
– Inaugural annual dividend of US$0.05 per share
to be paid in June
1 Before stock compensation expense and exceptional items.
2 Does not include US$1.1 million (2015: US$1.1 million) of restricted
and investment cash.
– Cost reductions through reduced R&D in 2016
– Cost reduction plan through staffing realignments
and facility consolidation in 2017 with full impact
in 2018
Revenue
(US$ million)
11.1
(2015: 14.1)
.
9
6
1
1
.
4
1
Adjusted EBITDA
(US$ million)
Adjusted EBITDA per share
(US$)
2.4
(2015: 1.1)
0.05
(2015: 0.02)
4
2
.
1
.
2
5
0
0
.
5
0
0
.
1
.
1
1
1
.
1
2
0
0
.
14
15
16
14
15
16
14
15
16
Review of the year
IFC Corporate statement
1
2
4 Our strategy
6
Highlights
Spectra at a glance
Chief Executive Officer’s
statement
Corporate governance
Board of Directors
10
and senior management
12 Directors’ report
Independent auditors’ report
Financial statements
16
17 Balance sheets
18
19
Statements of income and
other comprehensive income
Statements of
stockholders’ equity
20 Statements of cash flows
21
Notes to the
financial information
Shareholder and
corporate information
33
Discover more online
www.spsy.com
Our strategy
Page 4
Chief Executive
Officer’s statement
Page 6
1
Spectra Systems Corporation Annual report and accounts 2016Review of the year Spectra at a glance
Spectra is a highly responsive organization
that develops customized solutions for
its customers.
Our customers
Our end customers include a G7
central bank organization and one of
the world’s largest commercial security
printers and papermakers, which
supplies the Company’s technology
to a second G7 central bank and
numerous other central banks.
Our solutions are used by:
– 19 central banks;
– commercial security printers and papermakers;
– Crane & Co.;
– national lotteries in six countries;
– suppliers of security threads for world currencies;
– Intralot SA;
– Scientific Games International inc.;
– GTECH S.p.A.;
– Governments of Turkey, India, Malaysia,
Norway and Mexico; and
– 16 states within the US, including Puerto Rico.
Our solutions
Authentication systems
Spectra’s sophisticated capabilities allow us to invent,
develop and manufacture integrated solutions comprised
of a system of taggant materials and sensor equipment
to authenticate banknotes at high processing speeds.
Our solutions are used by:
– two G7 central banks;
– 17 other central banks for currency authentication; and
– a major G7 country for passport security.
Secure transactions
Spectra’s Secure Transactions Group is the leading
supplier of real-time fraud control and risk management
systems to government-sanctioned gaming operators.
Currently deployed in North America, Europe and Asia,
our integrity systems monitor and audit more than
US$20 billion in annual sales for online, internet and
mobile phone-based lotteries and pari-mutuel organizations.
Our products have been engineered to provide:
– fully automated independent real-time monitoring; and
– compatibility with all gaming systems.
Smartphone authentication of product brands
TruBrand™ and TruNote™
Spectra’s new technology enables end users to
verify products and banknotes with a smartphone.
This technology eliminates the need for costly
readers and allows the consumer to authenticate
the product themselves.
– TruBrand™ and TruNote™ are materials-based
technologies that do not rely on images.
Banknote cleaning
Spectra’s new technology has the potential to substantially
reduce central bank costs and environmental impact of
disposing of soiled banknotes. Two United States (US)
patents on the use of supercritical fluids for cleaning
and decontaminating banknotes in circulation were
issued in 2015.
2
Spectra Systems Corporation
Annual report and accounts 2016
We have integrated our TruBrandTM cloud-based
authentication services into the Secure Transactions
Group to create an important new growth channel
for the Group as the smartphone authentication
technology gains traction.
ICS
Expanding its authentication
of secure transactions
Spectra has recently expanded its
authentication of secure transactions
beyond physical banknotes with its secure
internal control system (ICS) software
platforms and is an established security
provider for the worldwide gaming industry.
Our ICS software provide methods for
fraud, money laundering and match fixing
detection, as well as statistical analysis,
and have many existing parallel applications
used by the securities exchange industry.
Smartphone authentication
of product brands
TruBrand™ and TruNote™
Spectra’s new technology enables
end users to verify product and banknote
authenticity with a smartphone. Embedded
in printed and holographic labels, TruBrandTM
presents a covert materials-based signature
for detection and analysis on the smartphone
using cloud-based authentication.
3
Spectra Systems Corporation Annual report and accounts 2016Review of the year Our strategy
Developing and acquiring for the future.
Our solutions
Strategic aim
Development strategy
Progress
Capitalize on
existing suite of
developed covert
materials products
Future development of covert materials
and sensors will be externally funded
Advanced smartphone
authentication
technology
Leverage TruBrandTM smartphone
technology to create new revenue
streams for both materials as well
as the Secure Transactions Group
Proposal issued for the joint development
and licensing of a polymer banknote
technology by a major printer of banknotes
Proposal issued for the development
and supply of further upgraded sensor
capability to a G7 central bank in response
to a standardization requirement
Trials underway with large tobacco
supplier in Asia
Increase high margin
specialty materials sales
Develop and acquire specialty phosphor
and taggants for authentication
Acquired specialty phosphor company
in January 2016
Develop new TruBrandTM taggants
Internal development and licensing
of novel phosphors
Increased phosphor sales beyond
US banknotes into Asia and Europe
through partners
Implement
cost reductions
Identify areas for cost savings in both
infrastructure and staff composition
Restructuring of staff is underway
Consolidating operations upon the
expiration of a property lease in mid-2017
Seeking lower cost materials or price
reductions from suppliers
4
New opportunities include G7
and other central banks
Penetration into the polymer banknote
market through licensing agreements
The successful production-scale
testing and consummation of our
TruBrandTM taggants by a large
tobacco supplier in Asia, leading
to sales in late 2018
The utilization of the Secure
Transactions Group for cloud-based
server authentication of TruBrandTM
The sale of our smartphone
technology TruNoteTM for the
authentication of banknotes
New sales channel for our specialty
phosphor materials to a banknote
security thread manufacturer
Incorporation of phosphors in our
smartphone products
Increased opportunities with
long-standing customers
The benefits of reduced staffing
and leased space is expected to
be realized in 2018
Spectra Systems Corporation Annual report and accounts 2016 Capitalize on
existing suite of
developed covert
materials products
Future development of covert materials
Proposal issued for the joint development
and sensors will be externally funded
and licensing of a polymer banknote
technology by a major printer of banknotes
Proposal issued for the development
and supply of further upgraded sensor
capability to a G7 central bank in response
to a standardization requirement
Trials underway with large tobacco
supplier in Asia
Advanced smartphone
authentication
technology
Leverage TruBrandTM smartphone
technology to create new revenue
streams for both materials as well
as the Secure Transactions Group
Increase high margin
specialty materials sales
Develop and acquire specialty phosphor
Acquired specialty phosphor company
and taggants for authentication
in January 2016
Develop new TruBrandTM taggants
Internal development and licensing
of novel phosphors
Increased phosphor sales beyond
US banknotes into Asia and Europe
through partners
Implement
cost reductions
Identify areas for cost savings in both
Restructuring of staff is underway
infrastructure and staff composition
Consolidating operations upon the
expiration of a property lease in mid-2017
Seeking lower cost materials or price
reductions from suppliers
Outlook
New opportunities include G7
and other central banks
Penetration into the polymer banknote
market through licensing agreements
The successful production-scale
testing and consummation of our
TruBrandTM taggants by a large
tobacco supplier in Asia, leading
to sales in late 2018
The utilization of the Secure
Transactions Group for cloud-based
server authentication of TruBrandTM
The sale of our smartphone
technology TruNoteTM for the
authentication of banknotes
New sales channel for our specialty
phosphor materials to a banknote
security thread manufacturer
Incorporation of phosphors in our
smartphone products
Increased opportunities with
long-standing customers
The benefits of reduced staffing
and leased space is expected to
be realized in 2018
Our markets
Spectra’s market opportunity has expanded once more
with the introduction of our smartphone authentication
solutions for products, tax stamps and banknotes. The ability
to empower anyone with a smartphone to authenticate
products and banknotes containing our materials transforms
the market.
Our TruBrand™, TruStamp™ and TruNote™ suite of solutions are the only
materials-based smartphone authentication technologies in the world
and rely on our proprietary materials. This is a powerful combination
of new and disruptive technologies introduced by one company, which,
in the span of two years, has gone from concept to market-ready products
for sale and under test by large volume tobacco suppliers in Asia.
Spectra’s current suite of portable reader-based solutions can be used
for authenticating and tracking consumer and tax-bearing products.
Our reader based business has grown considerably in Asia and has
several recognizable brand owners as customers.
With over 150 billion banknotes manufactured annually worldwide
and 85% of all transactions performed using banknotes, this business
has proven to be a high quality, long-term revenue source for the Company.
With 19 central bank customers and new developed technologies,
particularly for polymer banknotes, we expect continued strong
earnings from this sector.
The worldwide replacement of unfit banknotes has a cost approaching
US$10 billion annually. This, along with the increasing demands for
governments to reduce costs, is a business case for our banknote
cleaning technology, Aeris™. Aeris™ has the potential to generate
significant hardware sales with ongoing service revenue once the long
central bank sales cycle plays out. Aeris™ has no competition and, now
that patents have been issued, the market is ours exclusively.
Spectra’s secure ICS software products have been augmented with
new capabilities since the acquisitions and have resulted in revenue
growth with existing customers as well as with new ones. Along
with the expansion in internet-based lotteries, we expect to provide
cloud-based authentication for a potentially large number of customers
using our materials-based TruBrand™, TruStamp™ and TruNote™
smartphone authentication.
5
Spectra Systems Corporation Annual report and accounts 2016Review of the year Chief Executive Officer’s statement
Through achieving key commercial
milestones, Spectra has substantially
improved its performance in 2016.
Introduction
For the second year running, Spectra has generated
significant EBITDA, up over 100% relative to 2015
(before stock compensation expense and exceptional
items). This steep growth was driven by increased use of
our in-house manufacturing for a contracted G7 central bank
customer, as well as a new central bank end customer for our
high margin phosphor materials. In-house manufacturing was
in effect for the last quarter of 2016 and will continue for the
duration of the contract to beyond 2026. Both of these revenue
streams are sales of consumables to large central bank end
customers, as opposed to more intermittent hardware revenue,
and are therefore expected to continue to fuel profitability
in the long term.
With the Company having reached sustainable profits and
having sufficient resources to execute on its growth plans
with its existing cash reserves, the Board is delighted to start
paying dividends. Its dividend policy will take account of the
Group’s profitability and underlying growth, and the maintenance
of sufficient cash reserves. The Board intends to distribute
substantially all of the Company’s profits until its year-end
unrestricted cash balances have fallen to approximately
US$5 million, whereupon it intends to pay dividends twice
covered by earnings. It therefore intends to pay an inaugural
annual dividend of US$0.05 per share on or about June 30, 2017
to shareholders of record as of June 9, 2017 and thereafter
to pay an annual dividend as described above in June after
the audited close of each financial year.
In addition to these high performing revenue streams, we
had a solid performance from our brand authentication and
gaming software business lines, and our newest authentication
product for materials-based smartphone authentication won
its first customer in 2016, which resulted in successful trials
with other potentially very large customers in Asia.
Revenue for the year was US$11.1 million (2015: US$14.1 million).
EBITDA for the year, before stock compensation expense and
exceptional items, as a result of the above factors, was up 123%
at US$2.4 million, compared to the prior year at US$1.1 million.
Having generated cash from operations of US$2.8 million
(2015: US$0.5 million consumed), cash at the period
end amounted to US$8.8 million (2015: US$9.8 million),
excluding US$1.1 million of restricted and investment cash
(2015: US$1.1 million). This is notwithstanding US$3.1 million
expended on the phosphor assets acquisition.
The Company therefore has sufficient resources to execute
on its growth plans with its existing cash reserves.
Review of operations
Authentication Systems
The Authentication Systems Group, which includes the security
phosphor materials, generated revenue of US$9.8 million
(2015: US$12.8 million) and adjusted EBITDA of US$1.9 million
(2015: US$1.1 million). The fall-off in revenue relative to 2015 is
associated with the final delivery of sensors to a G7 central
bank in 2015. The increased earnings in 2016 reflect the success
we have had in greatly increasing high margin materials sales
of our security phosphor materials as well as the realization
of a long-term increase in gross profit from the in-house
manufacturing of our covert materials sold to a G7 central bank
and another 18 central banks through a licensing arrangement.
6
Spectra Systems Corporation Annual report and accounts 2016 The Company’s strategy for increasing
revenue and earnings is shifting towards
brand authentication markets while
continuing to expand our banknote
business through licensing and the sale
of already developed technologies.
Achievements included:
– Acquisition and integration of a security phosphor
company in February 2016 without new hires.
– Record sales of security phosphors with a new large
central bank as the end customer.
– In-house manufacturing of covert materials for a
G7 central bank.
– Continued strong brand authentication sales of US$1.5 million
(2015: US$1.5 million).
– Successful trials of the TruBrandTM smartphone-based
authentication technology leading to decisive larger
scale production tests in 2017.
Although we cannot be assured of the continued sales levels
of the phosphor materials, we are confident that our proven
ability to deliver large quantities of material in 2016 to a new
customer will have lasting value which will translate into
sustainable increases in our sales of these materials.
Secure Transactions Group
The Secure Transactions Group, formed around the various
gaming technology acquisitions made in 2012, performed
in line with management expectations, generating adjusted
EBITDA of US$0.5 million (2015: US$0.5 million) on revenue
of US$1.3 million (2015: US$1.3 million).
The Secure Transactions Group has won three new contracts
and four new licenses, and has succeeded in introducing a new
64-bit Premier Integrity package which has been integrated
with the software systems of the three major lottery providers.
Norway has adopted this new offering and the state of Virginia
has adopted our products for two online/mobile products.
We are confident that we will see growth of the business in 2017.
In addition, we have integrated our TruBrandTM cloud-based
authentication services into the Secure Transactions Group to
create an important new growth channel for the Group as the
smartphone authentication technology gains traction.
AerisTM banknote cleaning technology
While there was no revenue contribution from this business
line in 2016, development and marketing related expenses
for the AerisTM product were restricted to approximately
US$50k. With the completion of a significant number of
central bank tests as well as internal banknote cleaning
studies behind us, the program costs associated with this
new technology will now contract to very basic collateral
marketing materials and travel to potential customers
and strategic partners.
The risk averse nature of the banknote industry, with its long
sales cycle and the many special interests which would be
negatively affected by the success of AerisTM banknote cleaning
technology, will impact the adoption cycle of the product.
The Company is therefore looking to partner with a credible
industry hardware supplier to advance the adoption of AerisTM.
Strategy
The Company’s strategy for increasing revenue and earnings is
shifting towards brand authentication markets while continuing
to expand our banknote business through licensing and the sale
of already developed technologies.
We have developed and introduced an impressive suite
of covert authentication products which are currently under
consideration by central banks and potential corporate
licensing partners. With multiple developed technologies
for both paper and polymer substrates already in front of
potential customers, we no longer need to fund internally
the development of covert banknote technologies.
We will focus our efforts going forward on reaping the benefits
of these developed covert materials products, while also
supporting and innovating, as required, for our existing central
bank customers. All additional work on covert materials and
sensors will be entirely externally funded and a restructuring
of our staffing requirements is already underway to cut costs
while bolstering expertise in phosphors and smartphone
applications software development.
7
Spectra Systems Corporation Annual report and accounts 2016Review of the year Chief Executive Officer’s statement continued
The Company’s shorter-term prospects
have increased with the growth of the
authentication business beyond covert
materials and hardware.
The longer-term (two to four years) opportunities are:
4) The joint development and licensing of a polymer
banknote technology by a major printer of banknotes.
5) The development and supply of further upgraded
sensor capability to a G7 central bank in response
to a standardization requirement.
6) The sale of our smartphone technology TruNoteTM
for the authentication of banknotes.
We are pleased that we are able to supplement our
sustained and growing profitability with a number of
near-term and longer-term prospects of a significant scale.
We are particularly delighted that the authentication business
outside of banknotes is increasing ahead of expectations and
that it can provide a smoothing of our long-term banknote
business with its characteristically extended sales cycles and
delays. We believe that we have a number of transformative
opportunities ahead in several aspects of our business that
will drive near and long-term earnings growth for the
Company and its shareholders.
With the Company having reached sustainable profits
and having sufficient resources to execute on its growth
plans with its existing cash reserves, the Board is delighted
to start paying dividends. It intends to pay an inaugural
annual dividend of US$0.05 per share in June 2017 and
thereafter to pay the dividend in June after the audited
close of each fiscal year.
Nabil M. Lawandy
Chief Executive Officer
May 26, 2017
Review of operations continued
Strategy continued
The Company has made a significant and deliberate strategic
decision to aggressively grow its revenue and earnings through
the sale of secure materials beyond the covert central bank
products. This approach focuses on generating high margins
from our unique security materials, which include phosphors
and taggants for brand authentication. Taggant sales for brand
authentication using our TruBrandTM smartphone technology
will create new revenue streams for both materials as well
as for the Secure Transactions Group through cloud-based
server authentication, bringing a fully synergistic benefit
to the entire business.
Mirroring the shift towards secure materials beyond covert
technologies is an effort to further reduce and restructure
our staffing as well as our infrastructure needs. The shift
in emphasis will accelerate revenue growth, reduce costs,
and further increase and smooth out our earnings as we
go forward.
Prospects
The Company’s shorter-term prospects have increased with the
growth of the authentication business beyond covert materials
and hardware. In addition, while we are transitioning to a mode
of capitalizing on our already developed covert technologies
and customers, we have several significant opportunities
ahead for this side of the business going forward.
We are targeting six specific opportunities, three of which
are relatively near term and three of which are somewhat
longer term.
The important, near-term and significant opportunities are:
1) The continued sale of our specialty phosphor materials to
a security thread manufacturer providing product to what
we believe is a large Asian central bank.
2) The successful production-scale testing and consummation
of our TruBrandTM taggants by a large tobacco supplier in Asia,
leading to sales in late 2018.
3) Increased revenue for the Secure Transactions Group
from both online gaming and cloud-based authentication
services for our TruBrandTM customers.
8
Spectra Systems Corporation Annual report and accounts 2016 Corporate governance and financial statements
Corporate governance
10
12 Directors’ report
Board of Directors and senior management
Independent auditors’ report
Financial statements
16
17 Balance sheets
18 Statements of income and other comprehensive income
19 Statements of stockholders’ equity
20 Statements of cash flows
21 Notes to the financial information
33
Shareholder and corporate information
Board of Directors and senior management
Board of Directors
BJ Penn
Non-executive Chairman
Nabil M. Lawandy
President and Chief Executive Officer
Mr. Penn was Acting Secretary of the US Navy from March to
May 2009, having previously been Assistant Secretary of the
US Navy (Installations and Environment) from March 2005. He was
also Director, Industrial Base Assessments from October 2001
to March 2005, with responsibility for the overall health of the
US defense industrial base. He commenced his career as a
Naval Aviator, having received his BS from Purdue University,
West Lafayette, and his MS from the George Washington
University, Washington, DC. Mr. Penn has been a member
of the Board since June 2010 and became Chairman of
the Board on 7 June 2011.
Dr. Lawandy is the founder, President and Chief Executive Officer
of the Company. From 1981 to 1999, Dr. Lawandy was a tenured
full professor of Engineering and Physics at Brown University.
He holds a BA in Physics, and an MSc and PhD in Chemistry,
both from the Johns Hopkins University. He has authored over
170 reviewed scientific papers and is an inventor on 52 US and
27 foreign issued patents. He has also received a Presidential Young
Investigator Award, an Alfred P. Sloan Fellowship, a Rolex Award
for Enterprise and a Samuel Slater Award for Innovation.
Donald Stanford
Non-executive Director
Martin Jaskel
Non-executive Director
Mr. Stanford, who was until 2001 the Chief Technical Officer of
GTECH Corporation, is an Adjunct Professor of Computer Science
and Engineering at Brown University and is an instructor in the
Program in Innovation, Management and Entrepreneurship (PRIME).
He holds a BA in International Relations and an MS in Computer
Science and Applied Mathematics, both from Brown University.
Over 30 years, he has held every technical leadership position,
including Vice President of Advanced Development and Chief
Technology Officer. Mr. Stanford serves on several boards including
Spectra Systems, Times Squared Academy Charter School
and the Business Innovation Factory.
Mr. Stanford is a member of the RI Science and Technology
Advisory Council. He serves on the Brown advisory councils to
the President and the School of Engineering. In 1999 Mr Stanford
received the Black Engineer of the Year Award for Professional
Achievement. In 1999 he also received the Honorable Thurgood
Marshall Award for Community Service from the NAACP. In 2002 he
received the Brown Graduate School’s Distinguished Graduate Award
and the RI Professional Engineer’s Award for Community Service.
Mr Jaskel has over 40 years of involvement in the financial
services industry. He began in the United Kingdom government
bond market as a broker with leading firms, latterly as a Partner
in W Greenwell & Co. In 1986, as an element of the deregulation
of the UK markets, W Greenwell was sold to Midland Bank and
became the leading Gilt-Edged Market Maker, of which Mr Jaskel
was a Director. In 1988 he was appointed Director of Global Sales
and Marketing of Midland Montagu Treasury (the treasury division
of Midland Bank) after chairing a committee to redesign the
distribution of Treasury products. In 1990 he was appointed
Director of Global Sales at NatWest Treasury and rebuilt the
neglected franchise global distribution of treasury and
capital markets products.
In 1994 he was promoted to Managing Director of Global Trade
and Banking Services. He sat on the Advisory Board of ECGD,
the UK export – import bank, was responsible for several years
for signing off all the UK exposure to BAE and Airbus and sat on
several government and Bank of England advisory boards. In 1997
he left NatWest and founded financial services consultancies,
which included a consultancy at KPMG Corporate Finance and the
corporate FX division of Travelex plc, and an interim appointment
as the Managing Director of a private real estate company with
a £500 million portfolio of commercial and residential property.
In 2005 he joined European American Capital Limited, an
FSA-authorized and regulated specialized advisory bank, as
Senior Advisor. He has wide experience as a Non-executive
Director of both publicly quoted and private companies.
10
Spectra Systems Corporation Annual report and accounts 2016
Senior management
Brian E. McLain
Chief Financial Officer and Company Secretary
James Cherry
Director of Authentication Systems
Mr. McLain has been Spectra’s Chief Financial Officer since
January 2017. Before joining Spectra, he served as the Corporate
Controller for OMNIlife Science, Inc. Prior to OMNIlife, he
progressed from the role of Corporate Controller to Vice President,
Finance & Business Solutions at SeraCare Life Sciences, Inc., which
was quoted on NASDAQ prior to being bought out in 2012.
Previously, he served in various roles at International Power,
a UK-owned power producer, and Excelergy Corporation,
a venture-backed software business. He started his career
at Arthur Andersen. Mr. McLain holds a BS from Boston College
and is a licensed Certified Public Accountant.
Mr. Cherry serves as Director of Authentication Systems. He joined
the Company in 2002 from Auspex Systems, an enterprise network
data storage system business, where he had been involved in
marketing and product management for seven years. Prior to that,
he had worked for five years at DuPont in product management.
Scott Tillotson
Director of Secure Transactions
Mr. Tillotson serves as Director of Secure Transactions Group.
He has held a variety of positions with Spectra for ten years and
GTECH Corporation, a leader in the lottery industry, for nine years
in product marketing and management. Prior to that, he worked
for the IBM Corporation as an Account Executive and Systems
Engineer. Mr. Tillotson holds a BSEE from Purdue University.
William Goltsos
Vice President, Engineering
Andrei Smuk
Director of Research and Development
Dr. Goltsos was appointed Vice President, Engineering in April 2000.
From September 1996 to April 2000, he served as Senior Systems
Engineer. Prior to that, from 1992 to 1996, he served as a staff member
of the MIT/Lincoln Laboratory’s Optical Communications Group.
Dr. Goltsos holds a BS in Physics from Rensselaer Polytechnic
Institute and an MS and PhD in Physics from Brown University.
Dr. Smuk, who joined the Company in 2000, was appointed
Director of Research and Development in 2006. He is responsible
for the development of advanced materials and innovative sensor
systems. He received a PhD in Physics from Brown University in
2000 and an MS in Applied Physics from the Moscow Institute
of Physics and Technology in 1994.
Key
Audit Committee
Compensation Committee
Government Security Committee
Nominating Committee
11
Spectra Systems Corporation Annual report and accounts 2016Corporate governance
Directors’ report
for the year ended December 31, 2016
The Directors present their report and the audited consolidated financial statements for the year ended December 31, 2016.
Domicile
Spectra Systems Corporation is a C corporation and is registered and domiciled in the United States of America.
Principal activity
The principal activity of the Company is to invent, develop and sell integrated optical systems that provide customers with
increased efficiency, security tracking and product life. The integrated systems combine consumables and engineered optical
materials with software and hardware for use in applications. The Company also provides software tools to the lottery and
gaming industries for fraud, money laundering and match fixing detection, as well as statistical analysis.
Results and dividends
The Company’s statements of income and other comprehensive income are set out on page 18 and show the results for
each year.
There is no federal or state income tax liability on the respective income tax returns due to timing differences arising
between items of income and expense recorded on the books and those reported on the tax returns. Additionally, the
Company has approximately US$27 million in federal and US$4 million in state net operating loss carryforwards to offset
future income reported on the respective tax returns.
The Directors intend to pay a dividend of US$0.05 per share on or about June 30, 2017 to shareholders of record as
of June 9, 2017.
Review of business and future developments
A review of the operations of the Group is contained in the Spectra at a glance review on page 2.
Principal risks and uncertainties and financial risk management
Complex products
Certain of the products produced by the Company are highly complex and are designed to be used in complex systems.
Failure to correct errors or other problems identified after deployment could result in events that may have a negative
effect on the Company’s business and financial condition.
The Company’s markets may become impacted by technological change
Markets for the Company’s products may become characterized by rapidly changing technology, evolving industry standards
and increasingly sophisticated customer requirements. The introduction of products embodying new technology and the
emergence of new industry standards could render the Company’s existing products obsolete and unmarketable and may
exert pricing pressure on existing products. If the Company could not then develop products that remain competitive in terms
of technology and price and that meet customer needs, this could have a negative impact on the business.
Expiry of patents
All patents have a limited duration of enforceability. US patents generally have a duration of 20 years from the filing date.
Once a patent expires, the invention disclosed in the patent may be freely used by the public without accounting to the
patent owner, as long as there are no other unexpired patents that embrace an aspect of the invention. There is no certainty
that any improvement, new use or new formulation will be patented to extend the protection of the underlying invention
or provide additional coverage to adequately protect the invention. As a result, the public may have the right to freely use
the invention described in and previously protected by an expired patent.
Dependence on key personnel
The success of the Company’s revenues are dependent on a limited number of employees, in particular the Chief Executive
Officer and other managers with technological and development input. The Company has endeavored to ensure that its
key employees are incentivized but cannot guarantee the retention of these staff. The Company also has the benefit of
keyman insurance.
Forward-looking statements
All statements, other than statements of historical fact, contained in this document constitute “forward-looking statements”.
In some cases, forward-looking statements can be identified by terms such as “may”, “intend”, “might”, “will”, “should”,
“could”, “would”, “believe”, or the negative of these terms and similar expressions. Such forward-looking statements are
based on assumptions and estimates, and involve risks, uncertainties and other factors which may cause the actual results,
financial condition, 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. New factors may
emerge from time to time that could cause the Company’s business not to develop as it expects and it is not possible for
the Company to predict all such factors. Given these uncertainties, investors are cautioned not to place any undue reliance
on such forward-looking statements. Except as required by law, the Company disclaims any obligation to update any such
forward-looking statements in this document to reflect future events or developments.
12
Spectra Systems Corporation Annual report and accounts 2016 Key performance indicators (in millions)
– Revenue of US$11.1 million (2015: US$14.1 million).
– Adjusted EBITDA of US$2.4 million (2015: US$1.1 million).
– Adjusted EBITDA per share, in cents, of US$0.05 (2015: US$0.02).
– Basic earnings per share, in cents, of US$0.03 (2015: US$0.00).
Post-reporting date events
On January 18, 2017, the Company extended its lease for manufacturing and warehouse space in East Providence until
October 31, 2022.
Financial instruments
Details of the use of financial instruments by the Company are contained in note B of the financial statements.
Directors’ responsibilities
The Directors are responsible for preparing the Directors’ report and the financial statements on the basis of preparation
set out in note A of the financial statements and in accordance with United States Generally Accepted Accounting Principles
(US GAAP). The Directors of the Company are responsible for the document in which the financial information is included.
In preparing these financial statements, the Directors are required to:
– select suitable accounting policies and then apply them consistently;
– make judgments and accounting estimates that are reasonable and prudent; and
– state whether they have been prepared in accordance with US GAAP, subject to any material departures disclosed
and explained in the financial statements.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions, disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure
that the financial statements comply with all legal requirements. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Directors’ interests
The Directors’ beneficial interests in the common stock of the Company were as follows:
Ordinary shares
N.M. Lawandy
M. Jaskel
December 31,
2016
2015
1,883,570
9,960
1,883,570
9,960
1,893,530
1,893,530
Substantial shareholdings
The following shareholders held 3% or more of the issued common stock of the Company at December 31, 2016:
Worsley Investors Fund
O. Salam
N. Slater
N.M. Lawandy
H. Heye
Ordinary
shares
6,870,000
3,594,464
3,210,000
1,883,570
1,813,850
17,371,884
% issued
15.18
7.94
7.09
4.16
4.01
38.38
13
Spectra Systems Corporation Annual report and accounts 2016Corporate governance Directors’ report continued
for the year ended December 31, 2016
Directors’ compensation
The following table details the Directors’ earned compensation for the year ended December 31, 2016:
Executive Directors
N.M. Lawandy
Non-executive Directors
B. Penn
M. Jaskel
D. Stanford
O. Salam
R. Puton
J. Donohue
Total
Salary
and bonus
Benefits
Board fees
Total
compensation
$
475,000 $
35,606
$
— $
510,606
—
—
—
—
—
—
—
—
—
—
—
—
12,000
12,000
12,000
4,000
4,000
4,000
12,000
12,000
12,000
4,000
4,000
4,000
$
475,000 $
35,606
$
48,000 $
558,606
Directors’ share options
At December 31, 2016, Directors had options or warrants to purchase ordinary shares under the Company’s stock option plan
as follows:
N.M. Lawandy
B. Penn
M. Jaskel
D. Stanford
Options held at
December 31,
2016
Weighted
average
exercise price
Options vested
at December 31,
2016
4,105,292
$
220,000
220,000
220,000
4,765,292
$
0.55
0.50
0.50
0.50
0.55
2,851,250
153,333
153,333
153,333
3,311,249
Corporate governance
At both December 31, 2016 and the date of this report, the Board comprised one Executive Director, Nabil M. Lawandy,
and three independent Non-Executive Directors, BJ Penn, as Chairman, Martin Jaskel and Donald Stanford. On April 12, 2016,
the Board contracted to four members in response to a G7 central bank customer security requirement relating to the
composition of the Board. At that time, Oussama Salam, Roland Puton and Jeffrey Donohue resigned from the Board.
The Board usually meets at least every three months to closely monitor the progress of the Company towards the
achievement of budgets, targets and strategic objectives.
The Board also operates four Committees, the Audit Committee, the Compensation Committee, the Nominating
Committee and the Government Security Committee.
The Audit Committee comprises Martin Jaskel, Nabil M. Lawandy and Donald Stanford. It has primary responsibility for
monitoring the quality of internal controls and ensuring that the financial performance of the Company is properly measured
and reported on. It will receive and review reports from the Company’s management and auditors relating to the interim
and annual accounts and the accounting and internal control systems in use throughout the Company. The Audit Committee
intends to meet no less than three times each financial year and will have unrestricted access to the Company’s auditors.
The Compensation Committee comprises Martin Jaskel, BJ Penn and Donald Stanford. It reviews the performance of the
Executive Directors and makes recommendations to the Board on matters relating to remuneration and terms of employment.
The Committee also makes recommendations to the Board on proposals for the granting of share options and other equity
incentives pursuant to any share options scheme or equity incentive scheme in operation from time to time.
The Nominating Committee comprises Martin Jaskel, as Chairman, BJ Penn and Donald Stanford. The Committee seeks
and nominates qualified candidates for election or appointment to Spectra’s Board of Directors.
14
Spectra Systems Corporation Annual report and accounts 2016 The Government Security Committee comprises BJ Penn, as Chairman, and Nabil M. Lawandy. It is responsible for ensuring
the implementation within the Company of all procedures, organizational matters and other aspects pertaining to the security
and safeguarding of information, including the exercise of appropriate oversight and the monitoring of operations to ensure
that protective measures are effectively maintained and implemented.
The Board intends to comply with Rule 21 of the AIM Rules relating to Directors’ dealings and will also take all reasonable
steps to ensure compliance by the Company’s applicable employees. The Company has adopted a share dealing code for
this purpose on substantially the same terms as the Model Code.
Website publication
The Directors are responsible for ensuring the annual report and the financial statements are made available on a website.
Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing
the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance
and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to
the ongoing integrity of the financial statements contained therein.
Auditors
All of the current Directors have made themselves aware of any information needed by the Company’s auditors for the
purposes of their audit and to establish that the auditors are aware of that information. The Directors are not aware of any
relevant information of which the auditors are unaware.
Miller Wachman LLP have expressed their willingness to continue as the Company’s auditors and a resolution to re-appoint
Miller Wachman LLP will be proposed at the Annual General Meeting.
By order of the Board
Brian McLain
Company Secretary
June 1, 2017
15
Spectra Systems Corporation Annual report and accounts 2016Corporate governance Independent auditors’ report
To the Board of Directors and stockholders of Spectra Systems Corporation
We have audited the accompanying financial statements of Spectra Systems Corporation, which comprise the balance
sheets as of December 31, 2016 and 2015, and the related statements of income and other comprehensive income,
stockholders’ equity, and cash flows for the year then ended, and the related notes to the financial statements.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with
accounting principles generally accepted in the United States of America; this includes the design, implementation,
and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are
free from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit
in accordance with auditing standards generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.
The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement
of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal
control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of significant accounting estimates made by management, as well
as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position
of Spectra Systems Corporation as of December 31, 2016 and 2015, and the results of its operations and its cash flows
for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Miller Wachman LLP
Boston, Massachusetts
June 1, 2017
16
Spectra Systems Corporation Annual report and accounts 2016 Balance sheets
December 31, 2016 and 2015
Assets
Current assets
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts
of $12,500 and $12,650 in 2016 and 2015, respectively
Other receivables
Inventory
Prepaid expenses
Deferred tax assets
Total current assets
Property, plant and equipment, net
Other assets
Intangible assets, net
Restricted cash and investments
Deferred tax assets
Other assets
Total other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities
Accounts payable
Accrued expenses and other liabilities
Deferred revenue
Total current liabilities
Non-current liabilities
Deferred revenue
Total non-current liabilities
Total liabilities
Commitments and contingencies (note J)
Stockholders’ equity
Common stock, $0.01 par value, 125,000,000 shares authorized at December 31, 2016
and 2015; 45,251,370 shares issued and outstanding at December 31, 2016 and 2015
Additional paid-in capital – common stock
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
2016
2015
$
8,807,868
$
9,808,487
2,538,230
4,198,356
167,792
52,705
2,914,671
2,824,195
103,981
619,000
124,975
170,000
15,151,542
17,178,718
2,560,970
2,867,526
7,304,113
1,091,732
370,000
145,727
4,627,355
1,073,558
819,000
19,285
8,911,572
6,539,198
$ 26,624,084
$
26,585,442
$
401,603
$
1,463,698
1,437,346
1,260,319
1,564,641
1,247,273
3,099,268
4,275,612
255,886
255,886
277,222
277,222
3,355,154
4,552,834
452,514
452,514
55,061,067
54,936,776
(113,313)
(86,291)
(32,131,338)
(33,270,391)
23,268,930
22,032,608
Total liabilities and stockholders’ equity
$ 26,624,084
$
26,585,442
The accompanying notes are an integral part of these financial statements.
17
Spectra Systems Corporation Annual report and accounts 2016Financial statements
Statements of income and other comprehensive income
for the years ended December 31, 2016 and 2015
2016
2015
$
9,036,814
$
11,672,565
1,620,503
464,302
1,747,474
693,824
11,121,619
14,113,863
3,523,360
7,402,407
7,598,259
6,711,456
2,347,591
3,421,310
737,273
2,549,341
3,525,747
655,395
6,506,174
6,730,483
1,092,085
(19,027)
52,432
351
(5,815)
46,968
1,139,053
—
86,648
769
(33,635)
53,782
34,755
—
$
1,139,053
$
34,755
$
$
0.03
0.03
$
$
—
—
45,251,370
45,251,370
45,297,370
45,251,370
$
(32,837)
$
(59,863)
5,815
33,635
(27,022)
(26,228)
$
1,112,031 $
8,527
Revenues
Product
Service
Royalty
Total revenues
Cost of sales
Gross profit
Operating expenses
Research and development
General and administrative
Sales and marketing
Total operating expenses
Income/(loss) from operations
Other income/(expense)
Interest income
Other income, net
Foreign currency loss
Total other income, net
Income before provision for income taxes
Provision for income taxes
Net income
Earnings per share
Basic
Diluted
Weighted average number of common shares
Basic
Diluted
Other comprehensive (loss)/income
Unrealized loss on currency exchange
Reclassification for realized loss in net income
Total other comprehensive loss
Comprehensive income
The accompanying notes are an integral part of these financial statements.
18
Spectra Systems Corporation Annual report and accounts 2016 Statements of stockholders’ equity
for the years ended December 31, 2016 and 2015
Common stock
Shares
Amount
Additional
paid-in capital
Accumulated
deficit
Other
comprehensive
loss
Total
stockholders’
equity
Balance at December 31, 2014
45,251,370 $
452,514 $ 54,913,613 $ (33,305,146) $
(60,063) $ 22,000,918
Compensation cost related to
amortization of stock options
Reclassification for realized
loss in net income
Unrealized loss on
currency exchange
Net income
—
—
—
—
—
—
—
—
23,163
—
—
—
—
—
—
—
23,163
33,635
33,635
(59,863)
(59,863)
34,755
—
34,755
Balance at December 31, 2015
45,251,370 $
452,514 $ 54,936,776 $ (33,270,391) $
(86,291) $ 22,032,608
Compensation cost related to
amortization of stock options
Reclassification for realized
loss in net income
Unrealized loss on
currency exchange
Net income
—
—
—
—
—
—
—
—
124,291
—
—
—
—
—
—
—
124,291
5,815
5,815
(32,837)
(32,837)
1,139,053
—
1,139,053
Balance at December 31, 2016
45,251,370 $
452,514 $ 55,061,067 $ (32,131,338) $
(113,313) $ 23,268,930
The accompanying notes are an integral part of these financial statements.
19
Spectra Systems Corporation Annual report and accounts 2016Financial statements Statements of cash flows
for the years ended December 31, 2016 and 2015
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
2016
2015
$
1,139,053
$
34,755
Depreciation and amortization
Stock-based compensation expense
Allowance for doubtful accounts
Inventory obsolescence
Changes in operating assets and liabilities:
Accounts receivable
Other receivable
Inventory
Prepaid expenses
Other assets
Accounts payable
Accrued expenses and other liabilities
Deferred revenue
Net cash provided by/(used in) operating activities
Cash flows from investing activities
Restricted cash and investments
Payment of patent and trademark costs
Payment of software costs
Asset acquisitions
Purchases of property, plant, and equipment
Net cash (used in)/provided by investing activities
Effect of exchange rate on cash and cash equivalents
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents, beginning of the year
1,097,673
124,291
22,177
—
866,673
23,163
—
75,671
1,638,365
(2,499,512)
(115,442)
143,013
21,455
(2,656)
(1,126,920)
(128,068)
(2,052)
1,295,314
(17,853)
1,989
453,617
160,922
(8,306)
(921,685)
2,804,635
(528,998)
(18,174)
1,426,442
(390,679)
(123,675)
(326,192)
—
(3,118,489)
(213,917)
(129,646)
(288,584)
(3,780,663)
597,749
(24,591)
(1,000,619)
(33,110)
35,641
9,808,487
9,772,846
Cash and cash equivalents, end of the year
$
8,807,868 $
9,808,487
Supplemental disclosures of cash flow information
Income taxes paid
Non-cash investing activities
Acquisition of patents through accounts payable
Acquisition of property, plant and equipment through accounts payable
The accompanying notes are an integral part of these financial statements.
$
$
$
— $
500
64,428
$
228,536
— $
44,000
20
Spectra Systems Corporation Annual report and accounts 2016 Notes to the financial information
for the years ended December 31, 2016 and 2015
Note A – Corporate information
Spectra Systems Corporation (the “Company”) develops and sells integrated optical systems that provide customers
with increased efficiency, security tracking and product life. The integrated systems combine consumables and engineered
optical materials with software and hardware for use in applications. The Company develops and sells its integrated solutions
across a spectrum of markets, including currency manufacturing and cleaning, branded products, industrial logistics and
other highly sensitive documents. The Company also provides software tools to the lottery and gaming industries for fraud,
money laundering and match fixing detection, as well as statistical analysis.
The Company was incorporated on July 3, 1996 in Delaware as Spectra Acquisition Corp. On August 26, 1996, the Company
purchased substantially all of the assets of SSC Science Corporation (SSCSC) and changed its name to Spectra Science
Corporation. The assets were purchased for US$1,654,000 in cash plus common stock warrants. The acquisition was
accounted for using the purchase method of accounting.
On June 8, 2001, the Company changed its name to Spectra Systems Corporation.
On July, 25 2011, the Company raised US$20,241,179, net of offering costs, on the London Stock Exchange in a placing
of 18,592,320 common shares at a placing price of £0.753 per new common share, representing 41.09% of the enlarged
common share capital of the Company. As a result of the offering, anti-dilution provisions found in the Company’s Amended
and Restated Certificate of Incorporation converted all of the issued and outstanding preferred shares into 17,185,052
common shares, giving 26,659,050 common shares in issue at the time of the placing.
On June 6, 2012, the Company acquired all of the assets of ESI Integrity, Inc., including its proprietary source codes, multi-year
contracts, long-standing customer relationships and assumed liabilities. US$1,425,000 was paid in consideration for the assets.
On September 14, 2012, the Company acquired certain assets of Lapis Software Associates, including their proprietary
source codes, multi-year and long-standing customer relationships, and assumed liabilities. US$726,000 was paid in
consideration for the assets.
On February 28, 2014, the Company acquired certain assets of Inksure Technologies, Inc., including their
long-standing customer relationships and authentication technology. US$1,356,000 was paid in consideration for the assets.
On September 30, 2015, the Company acquired certain assets of Solaris Nanosciences, Inc. (Solaris), including technology
and customer relationships in exchange for US$213,917 in cash. The Company also recorded US$184,000 in contingent
payments based on a royalty payment arrangement for anticipated continuing business.
On January 28, 2016, the Company acquired certain specialty phosphor assets including technology and customer
relationships. The total consideration amounted to US$3,118,489 (See note M).
Note B – Significant accounting policies
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
of America (US GAAP) requires management to make estimates and judgments that affect the amounts reported in the
financial statements and accompanying notes. The accounting estimates that require management’s most difficult and
subjective judgments include the assessment of recoverability of property, plant, and equipment; the valuation of inventory;
intangible assets; and the recognition and measurement of income tax assets and liabilities. The actual results may differ
materially from management’s estimates.
Cash and cash equivalents
The Company considers highly liquid investment purchases with a maturity of 90 days or less at the date of acquisition
to be cash equivalents.
Restricted cash and investments
Restricted cash and investments represents a certificate of deposit held as collateral for certain performance requirements
in accordance with terms of a services contract. At both December 31, 2016 and 2015, the agreement required that US$500,000
be maintained as collateral. The collateral will be released as the Company meets contractual milestones. Restricted cash
and investments of US$1,091,732 and US$1,073,558 as of December 31, 2016 and 2015, respectively, are certificates of deposit
whose maturity exceeded 90 days at the date of acquisition, of which US$500,000 is restricted.
21
Spectra Systems Corporation Annual report and accounts 2016Financial statements Note B – Significant accounting policies continued
Significant concentrations
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and
cash equivalents and trade accounts receivable. The Company’s cash management policies restrict investments to low-risk
highly liquid securities, and the Company restricts its transactions to financial institutions with good credit standing.
The Company has cash and investments, including restricted, on deposit with financial institutions which are insured by either
the Federal Deposit Insurance Corporation up to US$250,000 per institution or the Canadian Deposit Insurance Corporation
up to 100,000 Canadian Dollars per institution. The Company also maintains cash on hand and cash in bank accounts in the
United Kingdom, neither of which are subject to insurance. As of December 31, 2016, the amount of cash and investments,
including restricted, not insured was US$9,325,201.
Concentrations of credit risk with respect to trade accounts receivable are limited due to the concentration of business
with government entities. The Company’s management attempts to minimize credit risk on its accounts receivable by
monitoring credit exposure on a regular basis.
The following table summarizes the number of customers that individually comprise greater than 10% of total accounts
receivable and their aggregate percentage of the Company’s total accounts receivable as of:
Number of significant customers
Percentage of total receivables
December 31,
2016
3
73%
2015
2
80%
The following table summarizes the number of customers that individually comprise greater than 10% of total revenues and
their aggregate percentage of the Company’s total revenues for the years ended:
Number of significant customers
Percentage of total revenue
The following table summarizes the geographic concentration of revenue for the years ended:
December 31,
2016
3
64%
2015
3
72%
United States of America
Europe
Rest of World
December 31,
2016
2015
$
7,951,227 $
10,207,794
2,165,437
1,004,955
2,884,471
1,021,598
$
11,121,619 $
14,113,863
Accounts receivable
Accounts receivable are stated at the amount management expects to collect from outstanding customer accounts.
Management provides for uncollectible accounts through a provision for bad debt expense. At December 31, 2016
and 2015, the Company had a US$12,500 and a US$12,650 allowance for doubtful accounts, respectively.
22
Spectra Systems Corporation Annual report and accounts 2016Notes to the financial information continuedfor the years ended December 31, 2016 and 2015 Note B – Significant accounting policies continued
Fair value of financial instruments
The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, accounts
receivable and accounts payable, are carried in the financial statements at amounts that approximate their fair market
values at December 31, 2016 and 2015.
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which
prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon
the lowest level of input that is available and significant to the fair value measurement:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices
for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market
participants would use in pricing the asset or liability.
As of December 31, 2016 and 2015, the Company has certificates of deposit of US$1,091,732 and US$1,073,558, respectively,
which is included in restricted cash and investments. The Company considers this certificate of deposit as a Level 2 investment.
Foreign currency translation
The functional currency of the Company’s foreign operations is the applicable local currency, the Canadian Dollar.
The functional currency is translated into US Dollars for balance sheet accounts using currency exchange rates in effect
as of the balance sheet date and for revenue and expense accounts using an average exchange rate in effect during
the applicable period. The translation adjustments are deferred as a separate component of stockholders’ equity in
accumulated other comprehensive loss.
Inventory
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. The Company
regularly reviews inventory quantities on hand and records a provision to write down excess and obsolete inventory to its
estimated net realizable value if less than cost.
Intangible assets
Goodwill represents the excess of purchase price over the fair value of the net assets acquired. Goodwill is not amortized,
but is subject to at least an annual assessment for impairment or whenever events or circumstances indicate that it might
be impaired.
Other intangible assets consist of patents, trademarks and various intangible assets identified as part of a business combination
such as contracts, customer relationships and technology. Patents and trademarks are recorded at cost. For intangible assets
identified as part of a business combination, values are assigned using various valuation techniques, including the present
value of expected future cash flows. Intangible assets are amortized using the straight-line method over their estimated useful
lives ranging from seven to 15 years. The Company evaluates the possible impairment of its intangible assets annually or
whenever events or circumstances indicate the carrying value of the assets may not be recoverable.
Property and equipment
Property and equipment is stated on the basis of purchase price. Depreciation is calculated using the straight-line method
over the following estimates useful lives:
Laboratory equipment
Computer and office equipment
Furniture and fixtures
3–7 years
3–5 years
7 years
Leasehold improvements
Shorter of lease term or estimated useful life
Software
Manufacturing equipment
3–5 years
5–7 years
Maintenance and repairs are charged to expense as incurred. When assets are retired or otherwise disposed of, the assets
and related allowances for depreciation and amortization are eliminated from accounts and any resulting gain or loss is
reflected in net income.
23
Spectra Systems Corporation Annual report and accounts 2016Financial statements
Note B – Significant accounting policies continued
Investment in affiliates
The Company accounts for investments in affiliates under the cost method of accounting if the Company owns less
than 20% of the affiliates’ outstanding capital. As of December 31, 2016, the Company held a 19% ownership in an affiliate
(SpectraMed), and a 10% ownership in an affiliate (Solaris). These affiliates have had significant losses in prior years and
the Company had previously reduced its investments in these affiliates to US$nil.
Accounting for stock-based compensation
In accounting for the Employee Stock Option Plan, the Company uses the Black-Scholes option pricing model to calculate
compensation costs associated with options granted to employees. Total compensation costs are recorded over the option
vesting period, generally three years.
Revenue recognition
Product revenue includes sales of pigments and security taggants, delivery of prototypes and contracts with multiple
elements including nonrecurring engineering and follow-on manufacturing. Service revenue includes research and
development services provided for a fixed price or provided for a specific period.
Revenues related to sales of pigments and security taggants and research and development services provided for a
specific period are generally recognized when products are shipped or services are provided, the risk of loss has passed
to the customer, the sales price is fixed or determinable and collectability is reasonably assured.
Revenue from multiple element arrangements is deferred until all elements of the contract are delivered unless all of the
following criteria have been met: (1) the product or service has been delivered; (2) the fee for the delivered element is not
subject to forfeiture, refund or concession based on performance or delivery of the undelivered element; and (3) the fair
value of the delivered element is determined based upon the price charged by the Company or the price charged by
competitors when similar services or products are sold separately, in which case the revenues for each element will be
recognized independently in accordance with the Company’s policy.
The Company enters into arrangements that can include various combinations of software, services and hardware.
Where elements are delivered over different periods of time, and when allowed under US GAAP, revenue is allocated
to the respective elements based on their relative selling prices at the inception of the arrangement, and revenue is
recognized as each element is delivered.
Revenue from fixed-price development contracts is recognized on the percentage-of-completion method, measured by the
percentage of effort incurred to date to estimated total effort for each contract. That method is used because management
considers total effort to be the best available measure of progress on the contracts. Because of inherent uncertainties in
estimating effort, it is at least reasonably possible that the estimates used will change within the near term.
Royalties are recognized when they are earned based on sales or use of technologies by third parties except where future
income is not anticipated to cover non-refundable advances received, when the excess royalty is taken to income.
Research and development
Internal research and development costs are expensed as incurred. Certain third party research and development
costs are capitalized in connection with contracted work. These costs are expensed as certain milestones are achieved.
Overhead, general and administrative and training costs are expensed as incurred.
Income tax
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income taxes. The benefits from net operating losses
carried forward may be impaired or limited in certain circumstances. In addition, a valuation allowance can be provided
for deferred tax assets when it is more likely than not that all or some portion of the deferred tax asset will not be realized.
The Company has a deferred tax asset of US$989,000 at December 31, 2016 and 2015. For both 2016 and 2015, there is
no federal or state income tax liability on those respective income tax returns.
Advertising costs
Advertising costs are charged to expense when incurred. Advertising expense was US$36,725 and US$35,379 for 2016
and 2015, respectively.
Shipping and handling
The Company reports the cost of shipping and handling as an operating expense. Shipping and handling expense was
US$138,262 and US$245,019 for 2016 and 2015, respectively.
24
Spectra Systems Corporation Annual report and accounts 2016Notes to the financial information continuedfor the years ended December 31, 2016 and 2015 Note C – Related party transactions
The Company sold phosphor products and received royalties amounting to approximately US$2,684,000 and US$1,211,000
for the years ended December 31, 2016 and 2015, respectively, to a company owned by a shareholder.
On September 30, 2015, the Company purchased certain assets, including technology and customer relationships, from Solaris
in exchange for US$213,917 in cash. The Company also recorded US$184,000 in contingent payments based on a royalty
payment arrangement for anticipated continuing business. The agreement requires the Company to pay Solaris 10% of any
revenues hereafter received by the Company from the commercial exploitation of the assets. The Chief Executive Officer
of Solaris is also the Chief Executive Officer of Spectra.
Note D – Inventories
Inventories consist of the following:
Raw materials
Finished goods
Note E – Property and equipment
Property and equipment consists of the following:
Laboratory equipment
Computer and office equipment
Furniture and fixtures
Leasehold improvements
Software
Manufacturing equipment
Total
Less: accumulated depreciation
December 31,
2016
2015
$
2,079,163
$
2,111,413
835,508
712,782
$
2,914,671
$
2,824,195
December 31,
2016
2015
$
655,335
$
981,343
352,157
136,850
629,544
136,850
1,470,046
1,802,635
340,937
348,483
1,897,755
2,604,386
4,853,080
6,503,241
(2,292,110)
(3,635,715)
$
2,560,970
$
2,867,526
Depreciation expense amounted to US$436,573 and US$449,173 for the years ended December 31, 2016 and 2015, respectively.
As part of its consolidation of East Providence operations (see note J), the Company disposed of US$1,780,968 of fully
depreciated equipment.
25
Spectra Systems Corporation Annual report and accounts 2016Financial statements Note F – Intangible assets
Intangible assets consist of the following:
Patents
Customer relationships
Non-compete agreements
Developed technology
Tradename
Trademarks
Goodwill
Total
Less: accumulated amortization
December 31,
2016
2015
$
2,503,041
$
2,120,741
3,043,000
1,943,000
188,440
1,502,000
30,000
90,547
177,440
632,000
30,000
17,739
2,468,863
1,564,863
9,825,891
6,485,783
(2,521,778)
(1,858,428)
$
7,304,113
$
4,627,355
Amortization expense amounted to US$661,100 and US$417,500 for the years ended December 31, 2016 and 2015, respectively.
Estimated amortization expense is as follows:
$
604,358
569,659
526,587
445,836
394,065
4,763,608
$
7,304,113
December 31,
2016
2015
$
18,897
$
18,786
123,675
3,155
—
499
$
145,727
$
19,285
Year ending
December 31,
2017
2018
2019
2020
2021
Thereafter
Note G – Other assets
Other assets consist of the following:
Rental deposits
Deferred contract costs
Other
26
Spectra Systems Corporation Annual report and accounts 2016Notes to the financial information continuedfor the years ended December 31, 2016 and 2015
Note H – Accrued expenses and other liabilities
Accrued expenses and other liabilities consist of the following:
Royalties
Employee compensation
Contingent costs
Professional fees
Property and franchise taxes
Product warranty
Other
Note I – Income taxes
The approximate components of the income tax provision are as follows:
Income tax provision/(benefit) computed at:
Federal statutory rate – current
State statutory rate – current
Federal deferred
State deferred
Change in valuation allowance
Provision for income taxes
December 31,
2016
2015
$
793,719
$
808,510
272,057
184,000
93,883
30,000
25,000
38,687
303,441
184,000
82,830
90,629
25,000
70,231
$
1,437,346
$
1,564,641
December 31,
2016
2015
$
351,000
$
(54,000)
62,000
90,000
16,000
(519,000)
(10,000)
89,000
16,000
(41,000)
$
—
$
—
A reconciliation of the statutory federal income tax rate with our effective income tax rate was as follows:
Statutory federal rate
State income taxes, net of income tax benefit
Non-deductible expenses and other
Change in valuation allowance
Effective tax rate
December 31,
2016
34.0%
0.1%
(28.1%)
(6.0%)
—
2015
34.0%
1.2%
(44.8%)
9.6%
—
27
Spectra Systems Corporation Annual report and accounts 2016Financial statements Note I – Income taxes continued
Approximate deferred income tax assets are as follows:
Depreciation and amortization
Deferred revenue
Deferred rent
Federal and state tax credits
Inventory
Bad debts
Net operating loss carryforward
Valuation allowance
Total deferred income tax assets
December 31,
2016
2015
$
(153,000)
$
(138,000)
(492,000)
(492,000)
—
7,000
1,054,000
1,054,000
97,000
5,000
189,000
5,000
8,643,000
9,048,000
(8,165,000)
(8,684,000)
$
989,000
$
989,000
The Company uses an effective tax rate of 40% consisting of a federal rate of 34% and a state rate of 6% net of federal effect.
As of December 31, 2016, the Company has net operating loss carryforwards expiring between 2018 and 2036 for US federal
income tax purposes of approximately US$27,000,000 and US$4,000,000 expiring between 2017 and 2020 for state income
tax purposes. A valuation allowance has been established for US$8,165,000 and US$8,684,000 as of December 31, 2016
and 2015, respectively, for the deferred tax benefit related to those loss carryforwards and other deferred tax assets.
At December 31, 2016, the Company also had approximately US$1,100,000 of tax credit carryforwards that are available
to offset federal and state liabilities. The credits will begin to expire between 2018 and 2028 for federal and between 2018
and 2023 for state.
The utilization of the tax carryforwards described above are dependent upon future profitability prior to any expiration
dates. Additionally, alternative minimum taxes, if any, and substantial changes in ownership and tax laws and regulations
may substantially limit their realization.
The Company accounts for the effect of any uncertain tax positions based on a “more likely than not” threshold to the
recognition of the tax positions being sustained based on the technical merits of the position under scrutiny by the applicable
taxing authority. If a tax position or positions are deemed to result in uncertainties of those positions, the unrecognized tax
benefit is estimated based on a “cumulative probability assessment” that aggregates the estimated tax liability for all uncertain
tax positions. The Company is not currently under examination by any taxing jurisdiction. The Company’s federal and state
income tax returns are generally open for examination for three years following the date filed.
Note J – Commitments and contingencies
The Company is involved from time to time in litigation incidental to the conduct of its business. The Company is not
currently a party to any lawsuit or proceeding.
Lease commitments
The Company holds four real estate leases. The Company’s lease agreement for corporate office space expired
September 30, 2012 and is now in a month-to-month arrangement. The Company signed a five-year lease agreement
for manufacturing and warehouse space in East Providence beginning in November 2013 and expiring in October 2017.
During January 2017, this lease was extended through October 2022 (see note P). To support the ICS business, the Company
signed a lease which has been extended through January 2019. The Company’s lease for laboratory space in East Providence
has been extended through May 31, 2020 for a portion of the space. The Company will vacate the remaining portion of the
space by June 1, 2017 and consolidate its operations at its other East Providence locations. Rent expense was US$434,591
and US$419,990 for the years ended December 31, 2016 and 2015, respectively.
28
Spectra Systems Corporation Annual report and accounts 2016Notes to the financial information continuedfor the years ended December 31, 2016 and 2015 Note J – Commitments and contingencies continued
Lease commitments continued
Future minimum lease payments are as follows:
Year ending
December 31,
2017
2018
2019
2020
2021
Thereafter
$
308,105
253,921
234,165
166,940
120,817
102,770
$
1,186,718
License and supply agreements
In 1996, and subsequently amended in 1999 and 2002, the Company entered into a license agreement under which the Company
obtained a nonexclusive right to use certain technology through the term of the licensor’s patents on such technology.
The license agreement contains provisions for royalties to be paid on sales of products developed under the agreement.
For the years ended December 31, 2016 and 2015, the Company recorded US$185,191 and US$224,904, respectively, in
royalty expense.
Note K – Stockholders’ equity
Common and preferred stock
On July 25, 2011, the Company raised US$20,241,179, net of offering costs, on the London Stock Exchange in a placing
of 18,592,320 common shares at a placing price of £0.753 per new common share, representing 41.09% of the enlarged
common share capital of the Company. As a result of the offering, anti-dilution provisions found in the Company’s
Amended and Restated Certificate of Incorporation converted all of the issued and outstanding preferred shares into
17,185,052 common shares, giving 26,659,050 common shares in issue at the time of the placing. At December 31, 2016
there were 45,251,370 common shares issued and outstanding and no preferred shares in issue.
Stock option plans
In February 2002, the Company adopted the 2002 Stock Plan (the “2002 Plan”) which provided for the grant of incentive
stock options and nonqualified stock options, stock awards and stock purchase rights for the purchase of up to 1,500,000
shares of the Company’s common stock to officers, employees, consultants and Directors of the Company. The Board
of Directors is responsible for administration of the 2002 Plan. The Board determines the term of each option, the option
exercise price, and the number of shares for which each option is granted and the rate at which each option is exercisable.
Incentive stock options may be granted to an officer or employee at an exercise price per share of not less than the fair
value per common share on the date of the grant (not less than 110% of fair value in the case of holders of more than 10%
of the Company’s voting stock) and with a term not to exceed ten years from the date of the grant (five years for incentive
stock options granted to holders of more than 10% of the Company’s voting stock). Nonqualified stock options may be
granted to consultants or Directors at an exercise price per share of not less than 85% of the fair value of the common
stock. Stock options generally vest over three years and are exercisable over a period up to ten years from the date
of grant. As of December 31, 2016, 135,000 options were outstanding under the 2002 Plan.
In May 2007, the Company adopted the 2007 Stock Plan (the”2007 Plan”) which provided for the grant of incentive stock
options and nonqualified stock options, stock awards and stock purchase rights for the purchase of up to 14,100,000 shares
of the Company’s common stock to officers, employees, consultants and Directors of the Company. The Board of Directors
is responsible for administration of the 2007 Plan. The Board determines the term of each option, the option exercise price,
and the number of shares for which each option is granted and the rate at which each option is exercisable. Stock options
generally vest over three years and are exercisable over a period up to ten years from the date of grant. As of December 31, 2016,
6,912,414 options were outstanding and 7,052,586 options were available for grant under the 2007 Plan.
During the year ended December 31, 2016, the remaining 344,451 options that were issued without a plan expired.
29
Spectra Systems Corporation Annual report and accounts 2016Financial statements
Note K – Stockholders’ equity continued
Stock option plans continued
Information related to stock options granted by the Company is summarized as follows (including certain options granted
outside of the Plans):
December 31, 2016
December 31, 2015
Number of shares
under option
Weighted average
exercise price
Number of shares
under option
Weighted average
exercise price
Outstanding at beginning of year
6,012,391
$
Granted
Exercised
Forfeited/canceled
3,306,689
—
(2,271,666)
Outstanding at end of year
7,047,414
$
0.74
0.37
—
0.91
0.51
6,141,491
$
0.74
—
—
(129,100)
6,012,391
$
—
—
0.73
0.74
The following table summarizes information about stock options outstanding at December 31, 2016:
Exercise price range
US$0.30–US$0.84
US$0.85–US$1.23
Options outstanding
Options exercisable
Weighted
average
contractual life
(years)
Weighted
average
exercise price
Number of
shares
Weighted
average
exercise price
6.22
$
3.97
6.07
$
0.47
1.19
0.51
4,376,284
$
460,000
4,836,284
$
0.52
1.19
0.58
Number of
outstanding
shares
6,587,414
460,000
7,047,414
As of December 31, 2016, the weighted average contractual life for exercisable stock options was 4.55 years.
The Company’s stock price closed at US$0.31 (£0.255) on December 31, 2016. As of December 31, 2016, the aggregate
intrinsic value for outstanding and exercisable stock options was US$72,659 and US$24,309, respectively. Intrinsic value for
stock options is defined as the difference between the current market value of the stock and the exercise price. The intrinsic
value represents the value that would have been received by the option holders had the option holders exercised all of their
options as of that date.
The Company currently uses the Black-Scholes option pricing model to determine the fair value of its stock options.
The valuations determined using this model are affected by assumptions regarding a number of complex and subjective
variables including stock price, volatility, expected life of options, risk-free interest rates, and expected dividends, if any.
The Company recorded stock-based compensation costs of US$124,291 and US$23,163 for the years ended December 31, 2016
and 2015, respectively. There was no stock-based compensation expense capitalized during either year. During the year
ended December 31, 2016, the weighted average grant date fair value of stock options granted was US$0.37. The assumptions
used to value stock option grants are as follows for the year ended:
Risk-free rate
Expected life (years)
Assumed volatility
Expected dividends
December 31,
2016
0.7%
5.00
32.7%
None
As of December 31, 2016, there was approximately US$242,491 of unrecognized compensation cost, related to unvested
stock-based payments granted to our employees, Directors and consultants, which is expected to be recognized over
a weighted average period of two years. Total unrecognized compensation cost will be adjusted for future changes in
estimated forfeitures and recognized over the remaining vesting periods of the stock grants.
30
Spectra Systems Corporation Annual report and accounts 2016Notes to the financial information continuedfor the years ended December 31, 2016 and 2015
Note L – Employee retirement plan
During 1999, the Company adopted a defined contribution plan, established under the guidelines of Section 401(k) of the
Internal Revenue Code (IRC), which covers all employees. Employees are eligible to participate in the employee retirement
plan (Plan) at the beginning of the first month following the date of hire. Employees may contribute up to the maximum
allowed by the IRC of eligible pay on a pretax basis. The Company made a matching contribution of 50% of employee
contributions up to 4% of eligible salary. Company matching contributions vest at 25% after one year of service, 50% at
the end of two years of service and 100% at the end of three years of service. For the years ended December 31, 2016
and 2015, the Company’s matching contributions were US$39,482 and US$41,419, respectively.
Note M – Business combinations
On January 29, 2016, the Company acquired certain specialty phosphor assets primarily used in the authentication of world
banknotes for total consideration of US$3,118,489. In addition to the assets, most importantly, the Company has acquired
long-standing customer relationships related to the assets including a major world supplier of banknote inks. The Company
will incorporate the acquired assets within its existing phosphor business and reports this acquisition as part of its
Authentication Systems segment.
The following tables provide further details of this acquisition:
Assets acquired
Inventories
Goodwill
Customer relationships (15-year amortization period)
Developed technology (10-year amortization period)
Non-compete agreement (3-year amortization period)
233,489
964,000
1,050,000
860,000
11,000
3,118,489
Note N – Segment reporting
In accordance with ASC 280, management has identified three operating segments. The first is the Authentication Systems
Group, which captures the hardware, software and materials related to the authentication of banknotes, tax stamps and other
high value goods. The second segment is the Secure Software Transactions Group, which provides an Internal Control
System (ICS) software offering to the lottery and gaming industries. ICS provides tools for fraud, money laundering and
match fixing detection, as well as statistical analysis. The third segment is the Banknote Cleaning Group, which captures
the technology related to cleaning soiled banknotes.
Information for each reportable segment as of December 31, 2016 and 2015 is as follows:
Gross
revenue
Income/(loss)
from operations
Depreciation and
amortization
Capital
expense
Segment
assets
2015
Secure Software Transactions
$
1,321,822 $
162,058 $
202,957 $
18,517 $
3,147,070
Authentication Systems
12,792,041
357,509
Banknote Cleaning
—
(538,594)
626,843
36,873
22,690
22,633,632
247,377
804,740
Total
$
14,113,863 $
(19,027) $
866,673 $
288,584 $ 26,585,442
2016
Secure Software Transactions
$
1,274,211 $
350,686 $
205,433 $
16,206 $
2,563,557
Authentication Systems
9,847,408
791,399
849,539
Banknote Cleaning
—
(50,000)
42,701
40,000
73,440
23,165,251
895,276
Total
$
11,121,619 $
1,092,085 $
1,097,673 $
129,646 $ 26,624,084
31
Spectra Systems Corporation Annual report and accounts 2016Financial statements
Note O – Earnings per share
The calculation of basic earnings per share is based on the net income divided by the weighted average number of common
shares outstanding. Diluted earnings per share is calculated by considering the dilutive impact of common stock equivalents
under the treasury stock method as if they were converted into common stock as of the beginning of the period or as of
the date of grant, if later. For 2015, the exercise price of all options exceeded the average market price of the shares in issue
and therefore are not considered in the diluted earnings per share calculation. The following table shows the calculation
of basic and diluted earnings per common share:
Numerator
Net income
Denominator
December 31,
2016
December 31,
2015
$
1,139,053
$
34,755
Weighted average number of common shares outstanding
45,251,370
45,251,370
Effect of dilutive securities
Stock options
46,000
—
Diluted weighted average number of common shares outstanding
45,297,370
45,251,370
Earnings per common share
Basic
Diluted
$
$
0.03
0.03
$
$
—
—
Note P – Subsequent events
The Company evaluated all events or transactions that occurred through June 1, 2017, the date these financial statements
were available to be issued.
On January 18, 2017, the Company extended its lease for manufacturing and warehouse space in East Providence until
October 31, 2022. The minimum lease commitment is included in the lease commitment table within note J.
On March 30, 2017, the Company declared a dividend of US$0.05 per share to be paid on or around June 30, 2017 to
shareholders of record as of June 9, 2017.
32
Spectra Systems Corporation Annual report and accounts 2016Notes to the financial information continuedfor the years ended December 31, 2016 and 2015 Shareholder and corporate information
Registered office
Spectra Systems Corporation
321 South Main Street, Suite 102
Providence, RI 02903
United States of America
+1 401 274 4700
Nominated Advisor
WH Ireland Limited
24 Martin Lane
London EC4R 0DR
United Kingdom
+44 (0) 207 220 1666
Broker
WH Ireland Limited
24 Martin Lane
London EC4R 0DR
United Kingdom
+44 (0) 207 220 1666
Auditors and Reporting Accountants
Miller Wachman LLP
100 Cambridge Street, 13th Floor
Boston, MA 02114
United States of America
+1 617 338 6800
English Law Legal Counsel
Covington & Burling LLP
265 Strand
London WC2R 1BH
United Kingdom
+44 (0) 207 067 2000
US Based Legal Counsel
Adler, Pollock & Sheehan, PC
One Citizens Plaza, 8th Floor
Providence, RI 02903
United States of America
+1 401 274 7200
Registrar
Computershare Investor Services PLC
2nd Floor
Vintners’ Place
68 Upper Thames Street
London EC4V 3BJ
+44 (0) 870 703 0300
33
Spectra Systems Corporation Annual report and accounts 2016Financial statements S
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Spectra Systems Corporation
321 South Main Street
Providence, RI 02903 USA
tel: 401.274.4700 fax: 401.274.3127
email: info@spsy.com