NOTES TO THE COMBINED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS

SpectraSource Corporation (the Company), through its four subsidiaries, markets products and services to the telecommunications market, commercial business applications, building owners, residential and commercial builders and developers, and the general consumer market. These products and services include fiber optics, structured cabling, home network systems, electrical components, lighting, ceiling fans, and associated hardware.

On April 28, 2000, the Company acquired 100% of the stock of three corporations engaged in supplying fixtures to the residential and commercial construction industry: Gulf Coast Fan & Light, Inc. (Gulf Coast); Builder Source, Inc.
(Builder Source); and Builders Lighting and Hardware, Inc. (Builders Lighting)
(collectively referred to as the "Acquired Companies").

As a result of these acquisitions, the Company's Principal Shareholder received as consideration for his interests in the Acquired Companies a total amount of 4,301,000 shares of the Company's common stock. Upon consummation of these acquisitions, the Principal Shareholder, directly and indirectly through his control of a corporation that owns stock in the Company, owned 4,734,876 shares which represented approximately 81% of the Company's outstanding common stock as of April 28, 2000.

The transaction between the Company and the Acquired Companies has been reflected in the accompanying financial statements as a reorganization of entities under common control whereby the historical basis of assets and liabilities of the Acquired Companies are carried forward as the recorded basis for the Company.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and its subsidiaries after elimination of all significant inter-company transactions.

USE OF ESTIMATES

The preparation of these financial statements requires the use of certain estimates by management in determining the Company's' combined assets, liabilities, revenues and expenses. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of highly liquid investments that are readily convertible into cash and have a maturity of three months or less. Cash equivalents are stated at cost, which approximates fair market value.

REVENUE RECOGNITION

Revenue from product sales is recognized as risk and title to the product transfer to the customer, which usually occurs when shipment, delivery, or installation, whichever is applicable, is made. The Company accrues for allowances for doubtful accounts based on its experience. The Company recognizes income on security monitoring contracts as the monitoring services are rendered.

INVENTORIES

Inventories are carried at the lower of cost or market, using average cost. Materials and supplies are valued using the average cost method.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost less accumulated depreciation. Property and equipment is depreciated on the straight-line method over their estimated useful lives, which in the opinion of management is adequate to allocate the cost of the property and equipment over their estimated useful lives. Expenditures for renewals, replacements, and betterments are capitalized. Maintenance and repairs are charged to operating expenses as incurred. Upon sale or other disposition, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount, less proceeds from disposal, is charged against or credited to income.

GOODWILL

Goodwill represents the excess of purchase price paid over the value assigned to the net tangible and identifiable intangible assets of a business acquired. As described below under Recent Accounting Standards, no amortization of goodwill has been recorded; instead, goodwill will be reviewed for impairment based on fair values.

DEFERRED SOFTWARE COSTS

Costs to purchase and to develop software for internal use are deferred and amortized on a straight-line basis over 5 years.

INCOME TAXES

The Company follows the asset and liability approach to account for deferred income taxes. Under this method, deferred taxes are recognized for temporary differences between the book and tax basis of assets and liabilities. These temporary differences are measured using the applicable enacted tax rates and provisions of the enacted tax laws. Valuation allowances are provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.

COMPREHENSIVE INCOME

Financial Accounting Standards Board ("FASB") Statement No. 130, "Reporting Comprehensive Income", became effective for fiscal years beginning after December 15, 1997, and establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company had no comprehensive income other than net income during the periods included in the accompanying financial statements.

EARNINGS PER COMMON SHARE

Earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the year.

RECENT ACCOUNTING PRONOUNCEMENTS

In October, 2004, the FASB issued SFAS No. 147, ACQUISITIONS OF CERTAIN FINANCIAL INSTITUTIONS--AN AMENDMENT OF FASB STATEMENTS NO. 72 AND 144 AND FASB INTERPRETATION NO. 9, relating to required methods of accounting applicable in the acquisition of financial institutions. This statement has no impact on the Company.

In December 2002, the FASB issued Statement No. 148, "ACCOUNTING FOR STOCK-BASED COMPENSATION-TRANSITION AND DISCLOSURE." This statement amends Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for an entity that voluntarily changes to the fair value method of accounting for stock-based employee compensation. It also amends the disclosure provisions of Statement No. 123 to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. Statement No. 148 also requires disclosure about those effects in interim financial information. The Company adopted the disclosure requirements of Statement No. 148 in the accompanying financial statements.

In April 2004, the FASB issued Statement No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This Statement is effective for contracts entered into or modified after June 30, 2004. The Company does not expect adoption of SFAS No. 149 to have a material impact on its consolidated financial statements.

In May 2004 the FASB issued SFAS No. 150, "ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY", which requires that certain financial instruments be presented as liabilities that were previously presented as equity or as temporary equity. Such instruments include mandatory redeemable preferred and common stock, and certain options and warrants. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2004, and is generally effective at the beginning of the first interim period beginning after June 15, 2004. This standard has been adopted and has had no impact on the Company.

NOTE 3. ACQUISITIONS

On April 28, 2000, the Company acquired all the stock of the Subsidiaries as described below:

The acquisition of Gulf Coast was accomplished by the issuance of an aggregate of 3,500,000 shares of the Company's Common Stock and a $1,000,000 10-year promissory note, a $390,000 5-year promissory note and a $50,000 3-year promissory note. Gulf Coast was incorporated in 1984 and designs and distributes the Old Jacksonville Ceiling Fans under a licensing agreement with U.S. Ceiling Fan Corp., a company controlled by the Company's Principal Shareholder.

The acquisition of Builders' Lighting was accomplished by the issuance of an aggregate of 1,000,000 shares of the Company's Common Stock. Builders' Lighting was incorporated in 1997 and distributes and wholesales lighting, hardware, and electrical components to the residential and commercial building industry.

The acquisition of Builder Source was accomplished by the issuance of an aggregate of 200,000 shares of the Company's Common Stock. Builder Source was incorporated in 1996 and distributes and wholesales hardware and electrical components to the residential and commercial building industry. The operations of Builders Source have since been absorbed into Gulf Coast and Builder's Lighting.

On August 30, 2002, the Company purchased 100% of the inventory, work-in-process, goodwill, and the company name of "Home Structure Sound", of Home Structure Sound, an unincorporated entity in the same line of business as the Company's Connect Source subsidiary. Home Structure Sound provides residential structured cabling - wiring for Internet, cable/satellite dish TV, and home security systems. Home Structure Sound began operations in January, 2002 and ceased operations as a separate entity upon acquisition by the Company on August 30, 2002. In conjunction with the acquisition, the three Principals

of Home Structure Sound became employees of the Company's Connect Source division. The assets and operations of Home Structure Sound have been combined and are included in the operations of the Company's Connect Source Division. The results of operations of Home Structure Sound are included in the financial statement of the Company beginning on the date of acquisition, August 30, 2002. The aggregate purchase price paid for Home Structure Sound was $423,000, consisting of cash in the amount of $45,000, long term debt in the amount of $184,000, and 339,400 shares of the Company's common stock valued at $193,000. The acquisition debt is unsecured, and bears no stated interest rate. Principal payments on the acquisition debt are as follows:

FYE 2003                     $   52,506
FYE 2004                         55,999
FYE 2005                         57,996
FYE 2006                         17,499
                             ----------
  Total                      $  184,000
                             ==========

The following table summarizes the estimated fair values of the assets acquired:

At August 30, 2004

Inventory                         $     12,232
Trademarks                              10,000
Goodwill                               400,768
                                  ------------
  Total Assets Acquired                423,000
                                  ------------
  Total Liabilities Assumed       $          0
                                  ------------
  Net Assets Acquired             $    423,000
                                  ============

The trademarks are unregistered and are being amortized over 20 years. The Goodwill equals the residual amount of consideration paid for Home Structure Sound over the fair market value of the other assets acquired. The total amount of Goodwill is expected to be amortizable over 15 years for tax purposes. Pursuant to SFAS 142, Goodwill is not amortizable for financial statement purposes and, instead, will be analyzed for impairment each period. 100% of the Goodwill is reportable in the Connect Source Communications, Inc. segment.

The estimated aggregate amortization expense for each of the five succeeding fiscal years is as follows:

FYE 2005                    $   500
FYE 2006                        500
FYE 2007                        500
FYE 2008                        500
FYE 2009                        500

The acquisition agreement provides that if the calendar year 2003 net profits, computed without considering certain expense items such as headquarter general and administrative charges allocated to connect Source, depreciation expense on pre-existing assets of Connect Source, and interest expense on pre-existing debt allocated to Connect Source, for the Home Structure Sound operations fall below a floor of $180,000, the purchase price shall be adjusted by a percentage deduction corresponding to the percentage below this floor. If, during the same period, the net profits exceed $600,000, the purchase price shall be adjusted by a percentage increase corresponding to the percentage above this ceiling, up to a total of a fifty percent increase above the purchase price. Should such contingency occur, the Company will account for it as an adjustment to the original purchase price of Goodwill.

Home Structure Sound did not meet its target performance for the first calendar year as specified in the purchase agreement. The Company waived enforcement of the provisions of the purchase agreement that require a reduction of the purchase price if the initial calendar year income targets are not met. Home Structure Sound substantially exceeded both initial and second year gross revenue targets and the Company is of the opinion that non-recurring integration and transition issues accounted for the failure to meet first year net income targets.

NOTE 4. SHORT TERM DEBT

At September 30, 2004, and September 30, 2003, the Company had short-term debt of $683,144 and $598,600, respectively. Short-term debt consists of lines of credit with commercial banks on a revolving basis bearing interest at the current prime rate. These lines of credit expire within twelve months from the date of issuance. These lines of credit are secured by a blanket U.C.C. security filing on inventory, accounts receivable, furniture and fixed assets, and are personally guaranteed by the Principal Shareholder.

                                                    Balance at      Balance at
                                        Interest   September 30,   September 30,
                                          Rate         2004            2003
                                                   ------------    ------------

Notes payable                             0-7%      $  243,468      $  353,411
Notes payable - Shareholders/ related
parties                                   0-8%       1,487,707       1,728,116
                                                    ----------      ----------
Total long-term debt                                $1,731,175       2,081,527
Less: Current maturities of long term debt             182,773         235,596
                                                    ----------      ----------
Net long-term debt                                  $1,548,402      $1,845,931
                                                    ==========      ==========

Notes Payable to banks are borrowings from commercial institutions to finance vehicle and equipment purchases and are secured by the assets purchased. On April 28, 2000, the Company issued $1,440,000 in principal amount of Notes Payable to Shareholders to effect the acquisition of Gulf Coast as described in Note 2 above. This portion of the Notes Payable to Shareholders is collateralized by the common stock of the subsidiaries. On August 30, 2002, the Company issued $184,000 of principal amount of Notes Payable in connection with the purchase of Home Structure Sound, the sellers of which became shareholders of the Company. This portion of the Note Payable to Shareholders is unsecured. The Company, with the consent of the Principal Shareholder, is not currently accruing interest expense on $ 1,206,000 balance of the notes payable to the Principal Shareholder, and is deferring the payment of $690,000 of principal due the Principal Shareholder under the original terms of the notes.

The principal payments required to be made on long-term debt during the next five years are shown below:

    Fiscal Year                        Amount
    -----------                        ------
        2005                          182,773
        2006                          839,836
        2007                          139,389
        2008                          140,796
2009 and thereafter                   226,161

NOTE 6. INCENTIVE STOCK OPTION PLAN

On July 31, 2000, the Company adopted a Stock Incentive Plan (the Plan). The Company may grant incentive stock options (ISOs), non-qualified stock options (NSOs), restricted stock options, performance units and bonus stock to officers, directors, consultants, or key-employees. The number of shares of Common Stock authorized for issuance under the Plan is 1,500,000. As of September 30, 2004, only incentive stock options have been granted under the Plan. Incentive stock options have a maximum life of 10 years and a minimum exercise value of no less than 100% of the fair market value of the stock at the grant date, except that in the case of an employee owning more than 10% of the combined voting power of all classes of stock, whether directly or indirectly, the options shall have a maximum life of 5 years, and the option price shall be not be less than 110% of such fair market value on the date of grant. The option price for each non-qualified stock option shall not be less than 50% of the fair market value on the date the option is granted. All options are non-transferable other than by will or the laws of descent and distribution. Unless otherwise specifically provided by the Company's Stock Option Committee of the Board of Directors on the date of the grant, granted options vest on a cumulative basis of 33 1/3% of the total number of shares covered thereby on the first, second, and third anniversary dates of the grant. Options may terminate if employment is terminated and the employee, officer, and or director may then only exercise the vested portion. During fiscal year ended September, 30, 2004, the Company granted no incentive stock.

The Company accounts for the fair value of its grants in accordance with SFAS 123, as amended by SFAS 148. The compensation cost that has been charged against income for the Plan was $0, $2,050, and $14,102 for fiscal years ended in 2004, 2003, and 2002, respectively.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for the 2003 grants: dividend yield of 0%, expected volatility of 20.00%, risk-free interest rate of 3.0%, and expected life of 5-10 years.

A summary of the status of the Plan as of September 30, 2004 and 2003, and changes during the years ending on those dates is presented below:

-------------------------------------------------------------------------------------------------------------
                                                             2004                                2003
-------------------------------------------------------------------------------------------------------------
                                                       Weighted-Average                    Weighted-Average
Incentive Stock Options                    Shares       Exercise Price        Shares        Exercise Price
---------------------------------------- ---------- ----------------------- ---------- ----------------------
Outstanding at beginning of year           448,415           .31              360,200            .31
---------------------------------------- ---------- ----------------------- ---------- ----------------------
Granted                                          0           .31              124,215           .2056
---------------------------------------- ---------- ----------------------- ---------- ----------------------
Exercised                                        0                                  0
---------------------------------------- ---------- ----------------------- ---------- ----------------------
Forfeited                                   41,910           .31               36,000            .30
---------------------------------------- ---------- ----------------------- ---------- ----------------------
Outstanding at End of Year                 406,505           .31              448,415           .2820
---------------------------------------- ---------- ----------------------- ---------- ----------------------
Options exercisable at year end            348,406           .31              448,415           .2820
---------------------------------------- ---------- ----------------------- ---------- ----------------------
Weighted Average Fair Value of Options
granted during the year                          0                              .0165
-------------------------------------------------------------------------------------------------------------

The following table summarizes information about Incentive Options outstanding at September 30, 2004:

--------- ----------------------------------------- -------------------------
          Options Outstanding                       Options Exercisable
--------- ----------------------------------------- -------------------------
                        Weighted          Weighted                 Weighted
Range of  Number        Average           Average   Number         Average
Exercise  Outstanding   Remaining         Exercise  Exercisable    Exercise
Prices    at 9/30/04    Contractual Life  Price     at 09/30/04    Price
--------- ------------- ----------------- --------- ------------- -----------
.30         220,000        2.51 years       .30        202,933      .30
--------- ------------- ----------------- --------- ------------- -----------
.34         100,000        2.51 years       .34         92,242      .34
--------- ------------- ----------------- --------- ------------- -----------
.20          66,905        3.50 years       .20         33,631      .20
--------- ------------- ----------------- --------- ------------- -----------
.22          19,600        2.00 years       .22         19,600      .22
--------- ------------- ----------------- --------- ------------- -----------
.20-.34     406,505        2.64 years       .31        348,406      .30
--------- ------------- ----------------- --------- ------------- -----------

NOTE 7. EMPLOYEE 401(K) PLAN

The Company has an Employee 401(k) Plan for all full-time employees. The plan provides a tax deferred contribution by the Company, at the Company's option, of up to 100% of the current year contributions for each employee with one year of vesting service, to the extent that such contribution does not exceed 10% of the total annual compensation. The Company typically matches 25% of the employee contribution. Total pre-tax contributions per employee are limited each year by the Internal Revenue Service.

                                September 30, 2004         September 30, 2003
                                ------------------         ------------------

Deferred tax provision               ($15,735)                    $6,581

The Company's deferred income tax asset at the expected federal statutory rate of 31% are composed of the following differences between financial and tax reporting:

                                                September 30,  September 30,
                                                     2004           2003
                                                ------------   ------------

Allowance for doubtful accounts                   $ 42,000        $ 36,416
Net operating loss carryforwards (NOLs)            343,574         335,109
Capital loss carryforwards                                               0
Goodwill and other                                  15,115           4,964
                                                ---------------------------
Total deferred tax asset                           400,689        $376,489
                                                ===========================

Based on historical performance, the Company believes that sufficient future taxable income will be generated to realize the entire deferred tax asset prior to expiration of any NOLs and that the realization of the deferred tax asset is more likely than not and therefore no valuation allowance has been established for deferred tax assets.

As of September 30, 2004, the Company's federal consolidated NOLs for income tax purposes were $1,177,857. If not utilized, the Company's federal consolidated NOLs will expire as follows:

Year                                    Amount
----                                    ------

2007                                    34,915
2008                                   542,000
2010                                   389,000
2012                                    78,000
2019                                    35,000
2020                                    18,000
2025                                    80,942

NOTE 9. RELATED PARTY TRANSACTIONS

At September 30, 2004 and September 30, 2003, the balance due to related parties controlled by the Principal Shareholder were $120,000 and $198,010, respectively. Transactions with these related parties include advancement of funds for inventory and operating expenses.

Under a licensing agreement with a company controlled by the Principal Shareholder, Gulf Coast Fan & Light is the exclusive licensee of the Old Jacksonville brand of ceiling fan. Payments made under the license agreement for fiscal years ended 2004, 2003, and 2002 were $0, $0, and $0, respectively. Currently, no license fee is being assessed the Company under the licensing agreement.

Year                                    Amount
----                                    ------

2004                                    30,600
2005                                    32,400
2006                                    28,500
2007                                        NA
2008                                        NA

NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS

The carrying amounts of cash, accounts receivable, accounts payable, short term notes payable, and accrued expenses approximate fair value because of the short maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment, and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. During September 30, 2004 and September 30, 2003, the Company had no derivative financial instruments.

                                             2004            2003
                                             ----            ----

Thousands of shares                         7,185           7,185

Basic and Fully Diluted                     (0.01)           0.00

NOTE 13. SEGMENT INFORMATION

The Company identifies its segments based on differences in products and services, as follows:

Gulf Coast Fan & Light, Inc. - ceiling fans systems for the residential and commercial building market.

Connect Source Communications, Inc. - cabling, wiring, and network systems for the residential and commercial building market. Security monitoring. Builders Lighting & Hardware, Inc. - residential and commercial lighting and hardware fixtures.

The segments are managed as one business unit, utilizing the same sales force, customer service force, operations management, and headquarter support staff.

                                                Builder's
                                    Connect    Lighting &
                       Gulf Coast    Source     Hardware   All Other    Totals
                       ---------------------------------------------------------

Revenues - External     3,165,463   2,711,419   3,188,046         0    9,064,928
Intersegment revenue       61,593                                         61,593
Cost of Goods Sold      1,922,923   1,948,088   2,176,638   -14,453    6,033,196
Depreciation               38,306      25,958      20,139    26,168      110,571
Interest Expense              416      30,688      19,848     3,480       54,431
Segment profit             29,240      43,426    -155,378    25,970      -56,742
Segment Assets            755,100     978,963   1,315,804   450,222    3,500,089
Asset Expenditure          28,143                  23,069    24,995       76,207

Reconciliation

Revenues
Revenues - Segments     9,126,521
Intersegment              -61,593
                       ----------

Consolidated revenue    9,064,928
                       ==========

                                       32

Profit or Loss
Profit - Segments         -82,712
Profit - Other             25,970
                       ----------

Consolidated Net
Income                    -56,742
                       ==========

Assets
Assets - Segments       3,256,944
Assets- Other             243,145
                       ----------

Consolidated Assets     3,500,089
                       ==========

Asset Expenditure
Segment                    51,212
Other                      24,995
                       ----------

                           76,207
                       ==========

Interest revenue is an immaterial item. "Profit-Other" in the amount of $25,970 consists of deferred tax benefit in the amount of $24,200 and various headquarter expenses, neither of which is allocated down to the segments. "Other Assets" in the amount of $450,222 consists of deferred tax asset in the amount of $400,689, which is not allocated to the segments, and leasehold improvements and capitalized software at the headquarter level. "Asset Expenditure - Other" in the amount $24,995 consists of fleet vehicles at the headquarter level.