UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Second Amendment)
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _________________
Commission file number 0-50742
SIGN MEDIA SYSTEMS, INC.
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(Exact name of small business issuer as specified in its charter)
FLORIDA 02-0555904
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(State or other jurisdiction of (IRS
incorporation or organization) Employer Identification No.)
2100 19th Street, Sarasota FL 34234
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(Address of principal executive offices)
(941) 330-0336
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 8,460,000 Common Shares no par value
as of May 31, 2005.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
The information required by Item 310(b) of Regulation S-B is attached hereto as
Exhibit One and is incorporated herein by reference. The Company restated its
December 31, 2003 financial statements by $55,702 due to an increase of
professional fees. Therefore, the June 30, 2004 deficit has been restated. The
net income for the six months ended June 30, 2004 did not change as it remained
at $231,261. See Note 9 of the Consolidated Financial Statements attached
hereto.
Item 2. Management's Discussion and Analysis or Plan of Operation.
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND
NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.
THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, AND THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING, BUT NOT LIMITED TO COMPETITION AND OVERALL MARKET AND ECONOMIC
CONDITIONS.
RESULTS OF OPERATIONS
Six Months Ended
June 30
2004 2003
(restated)
Revenue $ 654,484 $ 103,968
Cost of goods sold 94,260 33,424
---------- ----------
Gross profit 560,224 70,544
---------- ----------
Operating and other expenses 328,963 305,859
---------- ----------
Net income (loss) $ 231,261 $ (235,315)
========== ==========
Gross profit margin 86% 1%
Earnings per share of common stock $ 0.028 $ (0.030)
========== ==========
Weighted average of common shares 8,256,631 7,960,000
=========== ==========
For the six months ended June 30, 2004, the Company generated $654,484 of
revenue, $560,224 of gross profit, $231,261 of net income, and $0.028 in
earnings per weighted average common share based upon a weighted average of
8,256,631 common shares outstanding. .
For the six months ended June 30, 2003, the Company generated $103,968 of
revenue, $70,544 of gross profit, $(235,315) of net loss, and $(0.030) of net
loss per weighted common share based upon a weighted average of 7,960,000 common
shares outstanding.
Revenue for the six months ended June 30, 2004, increased $550,516 from the same
period last year. Net income for the six months ended June 30, 2004, increased
$466,576 from the same period last year. Earnings per share for the six months
ended June 30,2004, increased $.0.06 from the same period last year.
Three Months Ended
June 30
2004 2003
(restated)
Revenue $ 371,884 $ 88,217
Cost of goods sold 39,116 17,796
-------------------------------
Gross profit 332,768 70,421
-------------------------------
Operating and other expenses 148,845 197,408
-------------------------------
Net income (loss) $183,923 $(126,987)
===============================
Gross profit margin 89% 80%
Earnings per share of common stock $ 0.022 $ (0.016)
================================
Weighted average of common shares 8,460,000 8,000,000
================================
For the three months ended June 30, 2004, the Company generated $371,884 of
revenue, $332,768 of gross profit, $183,923 of net income, and $0.022 in
earnings per weighted average common share based upon a weighted average of
8,460,000 common shares outstanding. .
For the three months ended June 30, 2003, the Company generated $88,217of
revenue, $70,421 of gross profit, $(126,987) of net loss, and $(0.016) of net
loss per weighted average common share based upon a weighted average of
8,000,000 outstanding.
Revenue for the three months ended June 30, 2004, increased $283,667 from the
same period last year. Net income for the six months ended June 30, 2004,
increased $310,910 from the same period last year. Earnings per share for the
six months ended June 30,2004, increased $.04 from the same period last year.
MANAGEMENT'S DISCUSSION
The Company is in the business of developing, manufacturing and marketing mobile
billboard mounting systems which are mounted primarily on truck sides, rear
panels and breaking panel roll up doors. The Company also produces digitally
created outdoor, full color vinyl images ("Fleet Graphics") which are inserted
into the mounting systems and displayed primarily on trucks. The Company has
developed mounting systems which allow Fleet Graphics to easily slide into an
aluminum alloy extrusion with a cam-lever that snaps closed stretching the image
tight as a drum, and that also easily opens to free the image for fast removals
and change outs without damaging the truck body or the Fleet Graphics. The
mounting systems' proprietary cam-lever technology is the key to their
operation.
The Company's revenue comes from three primary sources; sales of the mobile
billboard mounting systems, sales of Fleet Graphics, and sales of third party
advertising utilizing the mobile billboard mounting systems and the Fleet
Graphics mounted on the sides of trucks owned by third parties. During the six
months and the three months ended June 30, 2004, $647,762 or 99% of the
Company's revenue came from the sale of its mobile billboard mounting systems
and $6,722 or 1% of the Company's revenue came from the sale of third party
advertising.
A material part of the Company's business is currently dependent upon one key
customer, Applied Advertising Network, LLC of Lake Mary, Florida. During the six
months ended June 30, 2004, the Company's sales to this customer were
approximately $622,741 or 95% of all sales. During the three months ended June
30, 2004, the Company's sales to this customer were approximately $355,718 or 96
% of all sales. The Company continues to rely on this customer for the majority
of its sales. However, the Company is moving forward to expand its distribution
base so that it will no longer depend on this one key customer. There can be no
guarantee that the Company will be able to diversify its distribution base.
Applied Advertising Network, LLC is not a related party.
The Company attributes the increases in revenue, income from continuing
operations and earnings per share to increases in sales due to the continued
expansion of the Company's sales and marketing division. The Company's primary
emphases is to expand sales nation wide and to also expand into Latin America by
acquiring independent dealers.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
There are no pending or threatened legal proceedings against the Company or any
of its subsidiaries.
Item 2. Changes in Securities.
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders.
NONE
Item 5. Other Information.
NONE
Item 6. Exhibits and Reports on Form 8-K.
INDEX TO EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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F-1 SIGN MEDIA SYSTEMS, INC.
FINANCIAL STATEMENTS
The Company filed no Forms 8K for the quarter ended June 30, 2004.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SIGN MEDIA SYSTEMS, INC.
(Registrant)
Date September9, 2005 /s/Antonio F. Uccello, III
---------------- -----------------------------
Antonio F. Uccello, III
Chief Executive Officer
Chairman of the Board
EXHIBIT F-1
SIGN MEDIA SYSTEMS, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 2004 AND 2003
SIGN MEDIA SYSTEMS, INC.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheet (Unaudited) as of June 30, 2004 F-1
Condensed Consolidated Statements of Income (Operations) for the
Six Months and Three Months Ended June 30, 2004 and 2003 (Unaudited) F-2
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2004 and 2003 (Unaudited) F-3
Notes to Condensed Consolidated Financial Statements F-4-12
SIGN MEDIA SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2004
(UNAUDITED)
ASSETS
(restated)
CURRENT ASSETS
Cash and cash equivalents $ 32,765
Accounts receivable 807,480
Inventory 35,541
Prepaid expenses and other assets 15,478
Miscellaneous receivable 4,000
----------------
Total current assets 895,264
PROPERTY AND EQUIPMENT - Net 133,569
----------------
TOTAL ASSETS $ 1,028,833
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 17,940
Accounts payable and accrued expenses 170,208
Due to related parties 109,761
Liability for stock to be issued 200,000
---------------
Total current liabilities 497,909
Long-term debt - net of current portion 17,995
Due to related parties 159,240
----------------
TOTAL LIABILITIES 675,144
----------------
STOCKHOLDERS' EQUITY
Common stock, no par value, 100,000,000
shares authorized at June 30, 2004
and 8,460,000 shares issued and outstanding
at June 30, 2004 5,000
Additional paid-in capital 671,700
Accumulated deficit (323,011)
---------------
Total stockholders' equity 353,689
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,028,833
===============
F-1
The accompanying notes are an integral part of these
condensed consolidated financial statements.
SIGN MEDIA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (OPERATIONS)
FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 2004 AND 2003 (UNAUDITED)
SIX MONTHS ENDED THREE MONTHS ENDED
June 30, June 30,
2004 2003 2004 2003
(restated) (restated)
------------------------ ------------------------
REVENUE $ 654,484 $ 103,968 $ 371,884 $ 88,217
COST OF GOODS SOLD 94,260 33,424 39,116 17,796
--------------------------- ---------------------
GROSS PROFIT 560,224 70,544 332,768 70,421
--------------------------- ----------------------
OPERATING EXPENSES
Professional fees 28,021 80,421 6,664 72,921
General and administrative
expenses 249,095 206,793 94,926 113,332
Depreciation 16,715 4,726 12,215 2,363
--------------------------- ----------------------
Total operating expenses 293,831 291,940 113,805 188,616
--------------------------- ----------------------
NET INCOME (LOSS) BEFORE
OTHER (EXPENSE) 266,393 (221,396) 218,963 (118,195)
OTHER (EXPENSE)
Interest expense (35,132) (13,919) (35,040) (8,792)
--------------------------- ----------------------
Total Other (Expense) (35,132) (13,919) (35,040) (8,792)
--------------------------- -----------------------
NET INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES 231,261 (235,315) 183,923 (126,987)
Provision for income taxes - - - -
--------------------------- ----------------------
NET INCOME (LOSS) APPLICABLE
TO COMMON SHARES $ 231,261 $ (235,315) $ 183,923 $ (126,987)
=========================== =======================
NET INCOME (LOSS) PER BASIC
AND DILUTED SHARES 0.028 (0.030) 0.022 (0.016)
=========================== ======================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 8,256,631 7,960,000 8,460,000 8,000,000
=========================== =======================
F-2
The accompanying notes are an integral part of these condensed consolidated
financial statements.
SIGN MEDIA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003 (UNAUDITED)
2004 2003
(restated)
-------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 231,261 $ (235,315)
-------------- ---------------
Adjustments to reconcile net income (loss)
to net cash provided by
(used in) operating activities
Depreciation 16,715 4,726
Changes in assets and liabilities:
(Increase) in accounts receivable (235,582) (74,195)
(Increase) decrease in inventory 2,850 (1,400)
Decrease in prepaid expenses and
other current assets 39,666 -
(Increase) in miscellaneous receivable (4,000) -
Increase in accounts payable and
accrued expenses 17,248 24,510
Assets received for stock - 55,702
---------------- ---------------
Total adjustments (163,103) 9,343
---------------- ---------------
Net cash provided by (used in)
operating activities 68,158 (225,972)
---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (47,230) (56,444)
---------------- ---------------
Net cash (used in) investing activities (47,230) (56,444)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) from long-term debt,
net of current portion (52,089) 12,259
Proceeds (payments) to related parties (183,142) 232,989
Contribution of additional paid-in capital 200,000 34,437
---------------- ---------------
Net cash provided by (used in)
financing activities (35,231) 279,685
---------------- ---------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (14,303) (2,731)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 47,068 5,138
---------------- --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 32,765 $ 2,407
================ ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest. $ 35,132 $ 13,919
================ ==============
SUPPLEMENTAL NON-CASH INVESTING ACTIVITIES:
Conversion of liability to common stock $ 324,000 $ -
=============== ==============
F-3
The accompanying notes are an integral
part of these condensed consolidated financial statements.
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION
The condensed unaudited interim financial statements included
herein have been prepared by Sign Media Systems, Inc. (the
"Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the
"SEC"). Certain information and footnote disclosures normally
included in the financial statements prepared in accordance
with accounting principles generally accepted in the United
States of America have been condensed or omitted as allowed by
such rules and regulations, and the Company believes that the
disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed consolidated
financial statements be read in conjunction with the December
31, 2003 audited financial statements and the accompanying
notes thereto. While management believes the procedures
followed in preparing these condensed financial statements are
reasonable, the accuracy of the amounts are in some respects
dependent upon the facts that will exist, and procedures that
will be accomplished by the Company later that year.
The management of the Company believes that the accompanying
unaudited condensed consolidated financial statements contain
all adjustments (including normal recurring adjustments)
necessary to present fairly the operations and cash flows for
the periods presented.
The Company restated the June 30, 2004 financial statements by
restating its December 31, 2003 deficit (see Note 9).
The Company began business as Go! Agency LLC, a Florida
Limited Liability Company ("Go Agency"). Go Agency was formed
in April 2000, principally to pursue third party truck side
advertising. The principal of Go Agency invested approximately
$857,000 in Go Agency pursuing this business. It became
apparent that a more advanced truck side mounting system would
be required and that third party truck side advertising alone
would not sustain an ongoing profitable business. Go Agency
determined to develop a technologically advanced mounting
system and focused on a different business plan.
F-4
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004 AND 2003
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
The Company was incorporated on January 28, 2002 as a Florida
corporation. Upon incorporation, an officer of the Company
contributed $5,000 and received 1,000 shares of common stock
of the Company. Effective January 1, 2003, the Company issued
7,959,000 shares of common stock in exchange of $55,702 of net
assets of GO! Agency, LLC, a Florida limited liability company
("Go Agency"), a company formed on June 20, 2000, as E Signs
Plus.com, LLC., a Florida limited liability company. In this
exchange, the Company assumed some debt of Go Agency and the
exchange qualified as a tax free exchange under IRC Section
351. The net assets received were valued at historical cost.
The net assets of Go Agency that were exchanged for the shares
of stock were as follows:
Accounts receivable $30,668
Fixed assets, net of depreciation 112,214
Other assets 85,264
Accounts payable (29,242)
Notes payable (27,338)
Other payables (115,864)
---------
Total $55,702
=========
Go Agency was formed to pursue third party truck side
advertising. The principal of Go Agency invested approximately
$857,000 in Go Agency pursuing this business. It became
apparent that a more advanced truck side mounting system would
be required and that third party truck side advertising alone
would not sustain an ongoing profitable business. Go Agency
determined to develop a technologically advanced mounting
system and focused on a different business plan. Go Agency
pre-exchange transaction was a company under common control of
the major shareholder of SMS. Post-exchange transactions have
not differed. Go Agency still continues to operate and is
still under common control.
Go Agency and the Company developed a new and unique truck
side mounting system which utilizes a proprietary cam lever
technology which allows an advertising image to be stretched
tight as a drum. Following the exchange, the Company had
7,960,000 shares of common stock issued and outstanding. The
Company has developed and filed an application for a patent on
its mounting systems. The cam lever technology is considered
an intangible asset and has not been recorded as an asset on
the Company's consolidated balance sheet. This asset was not
recorded due to the fact that there was no historic recorded
value on the books of Go Agency for this asset.
On November 17, 2003, the Company entered into a merger
agreement by and among American Powerhouse, Inc., a Delaware
corporation and its wholly owned
F-5
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004 AND 2003
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
subsidiary, Sign Media Systems Acquisition Company, Inc., a
Florida corporation and Sign Media Systems, Inc. Pursuant to
the merger agreement, Sign Media Systems merged with Sign
Media Systems Acquisition Company with Sign Media Systems
being the surviving corporation. The merger was completed on
December 8, 2003 with the filing of Articles of Merger with
the State of Florida at which time Sign Media Systems
Acquisition ceased to exist and Sign Media Systems became the
surviving corporation. Some time prior to the merger, American
Powerhouse had acquired certain technology for the manufacture
of a water machine in the form of a water cooler that
manufactures water from ambient air. However, American
Powerhouse was not engaged in the business of manufacturing
and distributing the water machine but was engaged in the
licensing of that right to others. Prior to the merger,
American Powerhouse granted a license to Sign Media Systems
Acquisition to use that technology and to manufacture and sell
the water machines. The acquisition of this license was the
business purpose of the merger. As consideration for the
merger, Sign Media Systems issued 300,000 shares of its common
stock to American Powerhouse, 100,000 shares in the year
ending December 31, 2002, and 200,000 shares in the year
ending December 31, 2004. The 300,000 shares of stock were
valued at $1.50 per share based on recent private sales of
Sign Media Systems common stock. There were no other material
costs of the merger. There was and is no relationship between
American Powerhouse and either Sign Media Systems or GO!
AGENCY. The Company recorded this license as an intangible
asset for $400,000 for and subsequently impaired the entire
amount.
The Company has reclassified its June 30, 2004 condensed
consolidated financial statements to reflect certain
reclassifications on the condensed consolidated balance sheet.
These reclassifications had no effect on any income or expense
for the six months ended June 30, 2004.
F-6
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements
in conformity with accounting principles generally accepted in
the United States of America requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Revenue and Cost Recognition
Currently, the Company has three primary sources of revenue:
(1) The sale and installation of their mounting system
(2) The printing of advertising images to be inserted on
trucks utilizing the Company's mounting systems.
(3) Third party advertising
The Company's revenue recognition policy for these sources of
revenue is as follows. The Company relies on Staff Accounting
Bulletin Topic 13, in determining when recognition of revenue
occurs. There are four criteria that the Company must meet
when determining when revenue is realized or realizable and
earned. The Company has persuasive evidence of an arrangement
existing; delivery has occurred or services rendered; the
price is fixed or determinable; and collectibility is
reasonably assured. Typically, the Company recognizes revenue
when orders are placed and they receive deposits on those
orders. In regard to the revenue recognition of third party
advertising, the Company recognizes the revenue once they have
completed the task for which the consumer paid.
In addition, the Company offers manufacture's warranties. The
warranties are provided by the Company and not sold.
Therefore, no income is derived from the warranty itself.
Cost is recorded on the accrual basis as well, when the
services are incurred rather than when payment is made.
F-7
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
Costs of goods sold are separated by components consistent
with the revenue categories. Mounting systems, printing and
advertising costs include purchases made, and payroll costs
attributable to those components. Payroll costs is included
for sales, engineering and warehouse personnel in costs of
goods sold. Cost of overhead is diminimus. The Company's
inventory consists of finished goods, and unassembled parts
that comprise the framework for the mounting system placed on
trucks for their advertising. All of these costs are included
in costs of goods sold for the six months ended June 30, 2004
and 2003.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments and
other short-term investments with an initial maturity of three
months or less to be cash equivalents.
The Company maintains cash and cash equivalent balances at
several financial institutions that are insured by the Federal
Deposit Insurance Corporation up to $100,000.
Property and Equipment
Property and equipment are stated at cost. Depreciation is
computed primarily using the straight-line method over the
estimated useful life of the assets.
Furniture and fixtures 5 years
Equipment 5 years
Trucks 5 years
Advertising
Costs of advertising and marketing are expensed as incurred.
Advertising and marketing costs were $3,020 and $27,616 for
the six months ended June 30, 2004 and 2003, respectively
Fair Value of Financial Instruments
The carrying amount reported in the balance sheets for cash
and cash equivalents, accounts receivable, accounts payable
and accrued expenses approximate fair value because of the
immediate or short-term maturity of these financial
instruments.
F-8
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings (Loss) per Share of Common Stock
Historical net income (loss) per common share is computed
using the weighted-average number of common shares
outstanding. Diluted earnings per share (EPS) include
additional dilution from common stock equivalents, such as
stock issuable pursuant to the exercise of stock options and
warrants.
The following is a reconciliation of the computation for basic
and diluted EPS:
Jume 30,
2004 2003
(restated)
--------- ----------
Net income (loss) $ 231,261 $ (235,315)
========= ==========
Weighted-average common shares
outstanding
Basic 8,256,631 7,960,000
Weighted-average common stock
equivalents
Stock options - -
Warrants - -
---------- ---------
Weighted-average common shares
outstanding
Diluted 8,256,631 7,960,000
========= =========
NOTE 3- PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30,
2004 and 2003:
2004 2003
-------- -------
Equipment $ 71,634 $ 18,032
Furniture and Fixtures 41,798 29,552
Transportation Equipment 54,621 8,860
--------- ---------
168,053 56,444
Less: accumulated depreciation 34,484 4,726
--------- ---------
Net Book Value $ 133,569 $ 51,718
========= =========
Depreciation expense for the six months ended June 30, 2004
and 2003 was $16,715 and $4,726, respectively.
F-9
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 4- COMMITMENTS AND CONTINGENCIES
The Company entered into a lease agreement on November 1, 2002
with Hawkeye Real Estate, LLC, a related entity, to lease
warehouse and office space. The lease expires on December 30,
2007, and provides that SMS pay all applicable sales and use
tax, insurance and maintenance. The total minimum rental
commitments at June 30, 2004 under this lease are as follows:
2004 $ 30,000
2005 30,000
2006 30,000
2007 15,000
----------
$ 105,000
==========
Rent expense for the six months ended June 30, 2004 and 2003
was $19,086, and $17,036, respectively.
NOTE 5- RELATED PARTY TRANSACTIONS
On January 28, 2002, Sign Media Systems, Inc. was formed as
a Florida Corporation but did not begin business operations
until April, 2002. Most of the revenue that Sign Media
Systems, Inc. earned was contract work with Go! Agency, LLC.,
a Florida limited liability company, a related party. Sign
Media Systems, Inc. would contract Go! Agency, LLC. to
handle and complete jobs. There was no additional revenue or
expense added from one entity to the other.
On September 15, 2002, the Company entered into a loan
agreement with Go! Agency, LLC and in connection therewith
executed a promissory note with a future advance clause in
favor of Go! Agency whereby Go! Agency agreed to loan the
Company up to a maximum of $100,000 for a period of three
years, with interest accruing on the unpaid balance at 18% per
annum, payable interest only monthly, with the entire unpaid
balance due and payable in full on September 15, 2005. At June
30, 2004, the Company was indebted to Go! Agency in the amount
of $96,883.
On January 3, 2003, the Company entered into a loan agreement
with Olympus Leasing Company, a related party, and in
connection therewith executed a promissory note with a future
advance clause in favor of Olympus Leasing, whereby Olympus
Leasing agreed to loan the Company up to a maximum of
$1,000,000 for a period of three years, with interest accruing
on the unpaid balance at 18% per annum, payable interest only
monthly, with the entire unpaid balance due and payable in
full on January 3, 2006. As of June 30, 2004 there was
$136,021 due. Other due to related party advances were
$36,097. Due to related parties totaled $269,001 at June 30,
2004.
F-10
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 6- LONG-TERM DEBT
Long-term debt consists of two installment notes with GMAC
Finance. As discussed in Note 1, the Company assumed debt from
Go! Agency as of January 28, 2002. On June 18, 2003, the
Company acquired a truck in the amount of $45,761 financed by
GMAC over a period of 5 years. Monthly payments are $763. The
loan carries no interest charges.
NOTE 7- PROVISION FOR INCOME TAXES
The net deferred tax assets in the accompanying condensed
consolidated balance sheets include the following components
at June 30, 2004:
Deferred tas assets $ 172,401
Deferred tax valuation allowance (172,401)
---------
$ -
==========
Due to the uncertainty of utilizing the approximate $446,450
in net operating losses, and recognizing the deferred tax
assets, an offsetting valuation allowance has been
established.
NOTE 8- STOCKHOLDERS' EQUITY
As of June 30, 2004 and 2003, there were 100,000,000 shares of
common stock authorized.
As of June 30, 2004 and 2003, there were 8,593,334 and
7,960,000 shares of common stock issued and outstanding.
During the six months ended June 30, 2004 the Company had the
following stock transactions:
The company issued 216,000 shares of common stock in
conversion of a liability. In addition, the Company issued an
additional 133,334 shares in May 2004 to complete the
conversion.
F-11
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2004 AND 2003
NOTE 9- PRIOR PERIOD ADJUSTMENT
The Company restated its December 31, 2003 deficit by $55,702
due to an increase of professional fees. Therefore, the June
30, 2004 deficit has been restated. The net income for the six
months ended June 30, 2004 did not change as it remained at
$231,261.
Deficit, restated at December 31, 2003 ($554,272)
Net income for the six months ended
June 30, 2004 $231,261
---------
Deficit, June 30, 2004, restated ($323,011)
==========
F-12