UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A
(Amendment No. 5)
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of The Securities Exchange Act of 1934
0-50742
--------------------------------------------------------------------------------
(Commission file number)
SIGN MEDIA SYSTEMS, INC.
--------------------------------------------------------------------------------
(Name of Small Business Issuer in its Charter)
Florida 020555904
--------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation organization) Identification No.)
2100 19th Street, Sarasota, FL 34234
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (941) 330-0336
--------------------------
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of each Exchange on which
To be so Registered Each class is to be Registered
None None
Securities to be Registered under Section 12(g) of the Act:
Common Stock, No Par Value
--------------------------------------------------------------------------------
(Title of Class)
Documents Incorporated by reference: Exhibits 3.1, 3.2, 4.1, 14.1, and 21.1 from
the Issuer's Form 10-SB filed as of May 4, 2004. Exhibits 10.1, 10.2, 10.3, and
10.4 from the Issuer's Form 10-SB/A Third Amendment filed as of February 9,
2005. Exhibits 10.5, 10.6, and 16.3 from the Issuer's From 10-SB/A Fourth
Amendment filed as of April 1, 2005.
1
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Our History.
We started business as E Signs Plus.com, LLC, a Florida limited liability
company on June 20, 2000. We were engaged in the business of manufacturing and
selling signage of all types. We were also in the business of selling
advertising space on the sides of trucks. We would rent space on the sides of
trucks and sell that space to other businesses that wished to advertise their
products in that manner ("third party advertising"). We also printed the
advertising materials ("graphics"). At that time we were purchasing truck side
mounting systems from third parties to attached to the truck sides in which to
insert the graphics.
It soon became apparent that the third party advertising business would not be
profitable if we had to purchase mounting systems from third parties. In August
of 2001, we began developing our own proprietary truck side mounting systems for
the display of graphics on the sides of trucks. We also determined that there
was another market for our mounting systems and graphics; businesses that wished
to advertise their products on their own fleet of trucks. At that time we
decided to limit our business to developing, manufacturing and marketing mobile
billboard mounting systems which are primarily mounted on trucks, to printing
the graphics that are inserted into the mounting systems and to third party
advertising. On August 27, 2001, we changed E Signs Plus.com's name to GO!
AGENCY, LLC.
On January 28, 2002, we incorporated Sign Media Systems, Inc. in the State of
Florida. GO! AGENCY continued in the business of marketing its proprietary truck
side mounting systems, the sale of third party advertising and the printing and
sale of graphics. Sign Media Systems engaged the business of developing,
manufacturing and marketing the mounting systems.
In December, 2002, we determined that it would be in our best interest to
operate the truck side mounting system, third party advertising and graphics
business through one entity rather than two entities. Therefore, effective
January 1, 2003, GO! AGENCY contributed all of its assets to Sign Media Systems,
in exchange for Sign Media Systems common stock and Sign Media Systems became a
subsidiary of GO! AGENCY. GO! AGENCY owns 97% of our shares of common stock. At
that time, GO! AGENCY ceased conducting the truck side mounting system, third
party advertising and graphics business and all of those business activities are
conducted through Sign Media Systems. Both GO! AGENCY and Sign Media Systems are
"small business issuers" as that term is defined in Section 228.10 of Regulation
S-B promulgated by the Securities and Exchange Commission. Please refer to Note
1 of the Consolidated Financial Statements contained in Part F/S hereof and to
Item 7, Certain Relationships and Related Transactions for more information
concerning our relationship with GO! AGENCY.
Antonio F. Uccello, III, is the manager and the 51% owner, the control person
and promoter of GO! Agency formerly known as E Signs Plus.com and, therefore,
pursuant the terms of GO! Agency's Operating Agreement, has the sole power,
subject to his fiduciary duties to the other GO! Agency members, to vote, or
dispose of or direct the disposition of all the shares of Sign Media System's
common stock beneficially owned by GO! Agency. Antonio F. Uccello, III, has
absolute control of us by virtue of his voting control of 7,960,000 shares of
our common stock.
2
On November 17, 2003, we entered into a merger agreement with American
Powerhouse, Inc., a Delaware corporation and its wholly owned subsidiary, Sign
Media Systems Acquisition Company, Inc., a Florida corporation. Pursuant to the
merger agreement, we merged with Sign Media Systems Acquisition Company. 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 we 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. 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. The license agreement is attached hereto as Exhibit 10.5. Material terms
of the license agreement include the following:
o we have right to utilize certain proprietary technology for the
manufacture, design, creation, sale or use of a water cooler ("Water
Machine") which manufactures distilled water from ambient air;
o the term of the license is in perpetuity;
o the territory in which we are allowed to exploit the license is all
countries in the world;
o the license in non-exclusive; and
o we do not have the right to sublicense the technology to others.
As consideration for the merger, we issued 300,000 shares of our common stock to
American Powerhouse. The 300,000 shares of stock were valued at $1.50 per share
based on recent private sales of our stock. There were no other material costs
of the merger. Please refer to Note 1 of the Notes to Consolidated Financial
Statements for December 31, 2003 and 2002 contained elsewhere herein for more
information on the merger. Due to problems with our plans for marketing and
distribution of the water machine subsequent to the merger, the license has no
carrying or book value for the year ended December 31, 2003 in our Consolidated
Financial Statements for December 31, 2003 and 2002. There was and is no
relationship between American Powerhouse and either Sign Media Systems or GO!
AGENCY. To the best of our knowledge, the only control person of American
Powerhouse is Denis C. Tseklenis.
Our Business.
We are 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. We also produce digitally created
outdoor, full color vinyl images ("graphics") which are inserted into the
mounting systems and displayed primarily on trucks. We have developed mounting
systems which allow 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 graphics. We are also in the business of
selling third party advertising on truck sides utilizing our mounting systems.
3
In November, 2003, we acquired a license to certain proprietary technology for
the manufacture, design, creation, sale or use of a water cooler which
manufactures distilled water from ambient air. It was our intent to sell this
product in Central and South America. At that time we were in negotiations with
independent dealers in Central America who sold United States products in
Central and South America who expressed a desire to market this product in that
territory. Ultimately, we were unable to come to a satisfactory agreement with
these dealers for the sale of this product. Accordingly, we are not currently
engaged in the business of manufacturing and sale of this product. We will not
become engaged in the business of manufacturing and selling this product until
we can identify and come to a satisfactory agreement with an independent dealer
or dealers in that territory for the sale of this product. We cannot currently
predict when or if we will identify and come to a satisfactory agreement with an
independent dealer or dealers in this territory for the sale of this product.
Our Products and Services.
We currently have five mounting systems; two for the sides of truck bodies and
trailers of all sizes, one for the rear of side roll up beverage body trailers,
one for the rear garage style roll up doors of trailers and one for the sides of
commercial cargo vans. Our "Profile I" mounting system utilizes our proprietary
Cam Lever technology to evenly tension images across wide surface areas and
allows graphics to be inserted on both sides of truck bodies and trailers of all
sizes. Our "Profile II" mounting system utilizes our proprietary Omega Lock and
Insert technology combined with our grommeted floating rail/zip tie technology
to evenly tension images across wide surface areas and allows graphics to be
inserted on both sides of truck bodies and trailers of all sizes. Our Hotswap
Lite mounting system evenly tensions images across small surface areas and
allows graphics to be inserted on the rear panels of side roll up beverage
trucks and trailers. Our Hotswap Stretch mounting system utilizes our
proprietary stretch technology to evenly tension images across breaking panel
garage type roll up doors, seamlessly allowing images to roll up with those
doors and allows graphics to be changed and reused. Our VanGo mounting system
utilizes our proprietary cap and insert technology to evenly tension images on
curved surfaces such as the sides of commercial cargo van bodies.
With five products to cover key visible surface areas of trucks and trailers, we
offer economical and easy image change-outs for semi and beverage trailers,
urban box trucks, and cargo vans.
We are also in the digital printing and graphic design business, which allows us
not only to market our mounting systems, but also to design and produce the
graphics which are inserted in mounting systems.
4
Graphics are high-resolution full digital color prints, produced in heavy weight
outdoor vinyl. They are mounted on truck sides, rear panels and roll-up doors
utilizing our mounting systems. Whether a customer's advertising campaign
reaches from coast to coast, or changes seasonally, our mounting systems will
allow the customer to exchange and reuse images over and over again. Images can
be "swapped" for a fraction of what it costs to remove, paint, and apply
pressure sensitive adhesive vinyl to truck sides, with downtime measured in
minutes, rather than days. Downtime for trucks is an extremely important
consideration as the trucks generate no revenue and provide no services when not
on the road.
We are also in the business of selling third party advertising on truck sides
utilizing our mounting systems and graphics.
Our Target Markets and Marketing Strategy.
Currently, we have three primary sources of revenue: (i) the sale and
installation of our mounting systems, (ii) third party advertising; and (iii)
the printing of graphics to be inserted on trucks utilizing our mounting systems
Our Mounting Systems.
According to Fleet Owner magazine, the commercial trucking market consists of
more than 10 million vehicles - trucks, tractors, and trailers - of all types
and sizes, from light to heavy duty, serving all segments of the nation's
economy. Commercial trucking fleets in the U.S. operate more than 7 million
trucks and 3.4 million trailers. Trucking is a large and diverse business. It
hauls roughly 80% of America's freight and serves virtually every sector of the
nation's economy. Truckers fall into two basic categories: for-hire carriers and
private fleets. For-hire truckers haul freight and provide transportation
services for others. Trucking is their primary business. Private fleets, on the
other hand, are the proprietary transport, distribution, or service arms of
companies that are not in the trucking business. A private fleet's primary
function is to haul its own company's goods or perform a service in support of
its company's main business. Private fleets make up over two-thirds of the
trucking market. In the trucking industry, fleets are defined as trucking
operations of five or more vehicles. The "5+" truck-fleet segment is the heart
of the trucking market, accounting for close to 80% of the total commercial
vehicle population. The private fleet one the market where we are initially
focused.
We are focusing on three primary channels for distribution of our mounting
systems to the private fleet market: (i) developing a nation wide dealer base;
(ii) strategic alliances with reselling partners, including truck body and
trailer manufacturers, truck dealers and the traditional retail sign industry;
and (iii) direct sales to existing fleets. We believe these three channels of
distribution offer the opportunity for future growth and expansion.
Third Party Advertising.
Private fleets also offer a third source of revenue; third party advertising. We
identify fleet owners who are willing to lease space on their trucks for
advertising from third parties. We enter into a lease agreement with a fleet
owner for truck side space that provides that so long as there is third party
advertising on that space, we will pay the fleet owner a monthly lease fee. We
identify third parties who wish to advertise their good or services in the area
in which the fleet owners utilize their fleets and sell the third party
advertiser space on the truck sides. We obtain revenue from the graphics we
produce for the advertising and from the advertising fee. In this segment of our
business, we do not sell the mounting systems and therefore derive no revenue
from a sale of the mounting systems.
5
We are focusing on three primary channels for third party advertising: (i)
developing a nation wide dealer base; (ii) alliances with advertising agencies;
and (iii) direct sales to third parties seeking advertising space using our
sales and marketing staff.
Graphics.
We believe that sales of graphics will be made in conjunction with sales of our
mounting systems and sales of third party advertising.
Competition.
Our market for our products is based on the cost-effective use and re-use of
graphics in conjunction with our mounting systems without damaging either the
graphics or the truck sides to reach large and diverse adult audiences.
The truck side advertising business is fragmented into two segments; pressure
sensitive applied vinyl and mounting systems that allow graphics to be attached
to the sides of trucks.
Our primary competition is pressure sensitive applied vinyl ("PSAV"). PSAV is
vinyl that adheres directly to the truck side. The initial cost of our mounting
systems with graphics is about the same as applying PSAV to truck sides.
However, removal of PSAV is extremely labor and time intensive and destroys the
Fleet Graphic. The benefit of the our mounting systems is that the Fleet Graphic
can be "swapped" for a fraction of what it costs to remove and re-apply PSAV,
with downtime for the truck measured in minutes, rather than days. Our mounting
systems also allow the Fleet Graphic to be reused at a later date.
The major manufacturers and marketers of PSAV are 3M Company and Avery Dennison
Corporation. 3M and Avery Dennison are multi-billion dollar companies with
established and successful sales and marketing organizations. Nevertheless, we
believe that the advantages of our mounting systems will allow us to effectively
compete in this industry.
There are other companies that design and manufacture some type of mounting
system for attaching graphics to vehicles. None of these competitors has a
system that is substantially similar to our mounting systems and we believe that
the functionality and cost-effectiveness of our mounting systems make them
competitive in the market. However, some of our potential competitors may have
larger advertising and marketing budgets than we do and may be better able to
establish a market presence.
6
Dependence on Major Customers
A material part of our business is currently dependent upon one key customer,
Applied Advertising Network, LLC of Lake Mary, Florida. During the year ended
December 31, 2003, our sales to this customer were approximately $624,874 or
80.7% of all sales. We continue to rely on this customer for the majority of our
sales. However, we are moving forward to expand our dealer base so that we will
no longer depend on this one key customer. There can be no guarantee that we
will be able to diversify our distribution base. Applied Advertising Network,
LLC is not a related party. In 2003, we entered into a Distribution Agreement
with Applied Advertising. That agreement provides:
o The term of the agreement is one year and can be renewed by the mutual
agreement of the parties. The agreement was renewed in 2004 and does not expire
until December 2005.
o The agreement grants Applied Advertising the territory of the United States of
America and Central America which means that it can sell our products in those
areas.
o The agreement allows Applied Advertising to appoint one or more dealers in its
territory but only with our consent.
o The agreement obligates Applied Advertising to use its best efforts to
actively promote, market and sell our products in its territory.
o The agreement obligates Applied Advertising to maintain the formal name of our
products, with their appropriate trademark, service mark, logo, or trade name
designations, in all advertising and other printed materials relating to our
products.
o The agreement allows Applied Advertising to purchase our products at specified
prices but also allows us to change the pricing in out sole discretion upon
fifteen days written notice. We considering our pricing arrangement with Applied
Advertising and all of our other customers to be a trade secret.
A copy of the Distributor Agreement with Applied Advertising is attached hereto
as an exhibit.
For the period January 28, 2002 (inception) through December 31, 2002, we
derived $143,775 or 78% or our revenue from GO! AGENCY, LLC, a related party. We
no longer rely on GO! AGENCY for any of our revenue.
Sources and Availability of Raw Materials.
Raw material for the manufacture of the mounting systems consists primarily of
extruded aluminum and fasteners which are readily available throughout the
county. Raw material for the manufacture of the graphics consists primarily of
vinyl billboard banner material which is readily available throughout the
country.
7
Intellectual Property and Patents.
Our success may depend in large part upon our ability to preserve our trade
secrets, obtain and maintain patent protection for our technologies, products
and processes, and operate without infringing the proprietary rights of other
parties. However, we may rely on certain proprietary technologies, trade
secrets, and know-how that are not patentable. Although we do take action to
protect our trade secrets and our proprietary information, in part, by the use
of confidentiality and non-compete agreements with our employees, consultants
and dealers, we cannot guaranty that:
o these agreements will not be breached;
o we would have adequate remedies for any breach; or
o our proprietary trade secrets and know-how will not otherwise become
known or be independently developed or discovered by competitors.
On January 15, 2002, we filed a United States patent application for our
mounting systems and we therefore own a pending United States patent application
that contains claims covering our mobile sign mounting systems. The patent
application is being prosecuted by the intellectual property law firm of Fish &
Richardson, PC of New York City. The patent application includes claims covering
certain cam lever technology which we developed and believe is unique in the
truck side framing industry. We believe that the patent application claims which
are on file are sufficiently broad to cover not only our specific system, but
also similar systems; and that, if granted, will be infringed by systems that
employ the fundamentals of our system. However, at this time our patent
attorneys cannot advise as to the likelihood of obtaining allowance of the
claims on file or other claims sufficiently broad to provide a competitive
advantage.
We cannot guaranty that our actions will be sufficient to prevent imitation or
duplication of either our products and services by others or prevent others from
claiming violations of their trade secrets and proprietary rights.
On December 16, 2002, we filed a United States application for a trademark for
the words "HOTSWAPROFILE" which we use to describe our mounting system for
trucks of all sizes. We are advised that the final review prior to publication
was completed on July 20, 2004 and that the application will be published for
opposition. We do no as yet know the date of publication. There can be no
guarantee that there will not be public opposition to the issuance of the
trademark or that the trademark will ever be approved.
We intend to file in the near future a United States application for a trademark
for the words "HOTSWAP GRAPHICS."
Research and Development Activities.
In the year ended December 31, 2003, we did not incur research and development
costs. In the period January 28, 2002 (inception) through December 31, 2002, we
did not incur research and development costs.
8
Employees.
As of the date of this Third Amended From 10-SB, we have eight full time
employees and no part time employees for a total of eight employees.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Our Business
A description of our business is set forth above in Item One, Description of
Business.
Management Discussion Snapshot.
The following table sets forth certain of our summary selected operating and
financial data. The following table should be read in conjunction with all other
financial information and analysis presented herein including the Audited
Financial Statements for the Year Ended December 31, 2003 and period January 28,
2002 (inception) through December 31, 2002.
Summary Selected Statements of Profits and Losses and Financial Data
RESTATED RESTATED
---------------- -------------
January 28, 2002
(INCEPTION)
THROUGH
2003 DECEMBER 31, 2002(1)
(Audited) (Audited)
---------------- -------------
Revenue $ 774,349 $ 184,831
Cost of Goods Sold $ 201,850 $ 138,443
--------------- --------------
Gross Profit $ 572,449 $ 46,388
Operating Expenses $ 676,771 $ 169,827
---------------- --------------
Net Loss Before Other (Expense) $ (104,272) $(123,439)
Other (Expense) Impairment $(450,000) -
---------------- --------------
Net Loss $(554,272) $(123,439)
Net Loss Per Common Share $ (0.07) $ (123.144)
Weighted Average Shares Outstanding 8,031,000 1,000
Assets $ 815,555 $ 14,698
Liabilities $ 1,017,127 $ 133,137
Stockholders' Deficit $ (201,572) $(118,439)
================ ==============
(1)The Company was incorporated and began operations on January 28, 2002.
9
Results of Operations.
Revenue and Expenses.
For the year ended December 31, 2003, we had revenue of $774,349, a net loss of
$(104,272) before an impairment expense of $(450,000), a net loss of $(554,272)
and a net loss per common share of $(0.07) based upon a weighted average of
8,031,000 common shares outstanding. Our revenue is generated from three
sources; the sale of our mobile billboard mounting systems, the printing of
digital graphics, and truck side advertising. During the year ended December 31,
2003, we generated $699,612 or 90% of our revenue from the sale of our mobile
billboard mounting systems, $74,737 or 10% of our revenue from the printing of
digital graphics and nothing from truck side advertising. During the year ended
December 31, 2003, we incurred an organizational expense of $(450,000). This
organizational expense is attributable solely to our merger with Sign Media
Systems Acquisition Company, Inc. then a wholly owned subsidiary of American
Powerhouse, Inc., a Delaware corporation. In connection with the merger, we
issued 300,000 shares of our common stock to American Powerhouse, Inc. These
shares are valued at $450,000 or $1.50 per share based on recent sales of our
common stock.
During the year ended December 31, 2003, a material part of our business was
dependent upon one key customer, Applied Advertising Network, LLC of Lake Mary,
Florida. During the year ended December 31, 2003, our sales to this customer
were approximately $624,874 or 80.7% of all sales. We continue to rely on this
customer for the majority of our sales. However, we are moving forward to expand
our dealer base so that we will no longer depend on this one key customer. There
can be no guarantee that we will be able to diversify our distribution base.
For the period January 29, 2002 (inception) through December 31, 2002, we had
revenue of $184,831, a net loss of $(123,439) and a net loss per common share of
$(123.44) based upon a weighted average of 1,000 common shares outstanding.
During this period, we generated $41,056 or 22% or our revenue from the sale of
our mobile billboard mounting systems, $98,775 or 53% of our revenue from the
printing of digital graphics and $45,000 or 24% of our revenue from truck side
advertising.
For the period January 28, 2002 (inception) through December 31, 2002, we
derived $143,775 or 78% or our revenue from GO! AGENCY, LLC, a related party. We
no longer rely on GO! AGENCY for any of our revenue.
Our revenue in the year ended December 31, 2003 was $774,349 compared to revenue
in the preceding period January 28, 2002 (Inception) to December 31, 2002 of
$184,831. This is an increase of $589,518 from period to period. This increase
in revenue is attributable to the acquisition of one key customer, Applied
Advertising Network, LLC of Lake Mary, Florida. In the year ended December 31,
2003, Applied Adverting Network became our first dealer and placed an order for
mobile billboard mounting systems in the amount of $624,874 which was 80.7% of
all of our sales for that period. Applied Advertising Network is not a related
party.
10
The following table sets forth a summary of our cost of goods sold:
FOR THE YEAR ENDED DECEMBER 31, 2003, AND 2003 2002
THE PERIOD JANUARY 28, 2002 (INCEPTION) TO
DECEMBER 31, 2002:
-------------------------------------------------- ------------- -------------
Mounting systems - sale, installation and payroll $ 167,082 $ 53,919
Printing 34,768 47,624
Advertising - 36,900
------------- -------------
Total Cost of Goods Sold $ 201,850$ 138,443
============= =============
The following table sets forth a summary of cost of goods sold as a percentage
of revenue:
FOR THE YEAR ENDED DECEMBER 31, 2003, AND 2003 2002
THE PERIOD JANUARY 28, 2002 (INCEPTION) TO
DECEMBER 31, 2002:
------------------------------------------------ --------------- ---------------
Cost of goods sold as a percentage of revenue:
Mounting systems - sale, installation and payroll 24% 131%
Printing 47% 48%
Advertising 0% 82%
Total Cost of Goods Sold 26% 75%
Cost of goods sold and cost of goods sold as a percentage of revenue for
advertising decreased to zero from period to period. The reason for this
decrease is that our cost of goods sold for advertising is incurred only when
there is revenue from advertising and there was no revenue from advertising for
the year ended December 31, 2003. We believe cost of goods sold for advertising
as a percentage of revenue from advertising for the period January 28, 2002
(Inception) to December 31, 2002 was exceptionally high because in 2002, our
first year of business, as a promotion, we contracted to produce advertising
products for the State of Florida.(1) Because we viewed this sale as promotional
in nature and hoped to produce more such products for the State of Florida, we
priced the contract substantially below market price resulting in a high cost of
goods sold for advertising as a percentage of revenue.
(1) The contract with the State of Florida was with GO! Agency, LLC, a related
party and GO! Agency subcontracted the work to us.
Cost of goods sold and cost of goods sold as a percentage of revenue from
printing decreased from period to period. Cost of goods sold for printing
decreased as a result of a decrease in revenue from printing. We consider the
decrease in the percentage of cost of goods sold for printing from period to
period to be immaterial.
Cost of goods sold for mounting systems increased from period to period. This
increase is due to increased sales of mounting systems. Cost of goods sold for
mounting systems as a percentage of revenue from mounting systems decreased from
period to period. The decrease in cost of goods sold for mounting systems as a
percentage of revenue from mounting systems is due primarily to three reasons.
First, in the period January 28, 2002 to December 31, 2002 (Inception) certain
of the costs for the mounting systems were higher due to initial start up of the
Company. Second, beginning in the year ended December 31, 2003, our cost of
manufacturing our then existing mounting system was significantly reduced as a
result of re-engineering. Third, we developed several substantially less costly
mounting systems.
11
Increases in advertising expense, automobile expense bank charges, business
travel, commissions and marketing and promotion in the year ended December 31,
2003 from the preceding period are the result of an increased emphasis on sales
and marketing and the expansion of the sales and marketing department. We expect
all of these expenses to continue to increase for the foreseeable future as we
continue to grow.
The decrease in computer expense for the year ended December 31, 2003 from the
previous period is attributable the fact that our computer system was upgraded
and reorganized in the prior period resulting the need for less day to day
maintenance.
The increase in depreciation expense for the year ended December 31, 2003 from
the previous period is attributable to the acquisition of all of the physical
assets of GO! AGENCY, LLC, a related party, in January of 2003.
The decrease in equipment rental expense for the year ended December 31, 2003
from the previous period in attributable to the acquisition of all of the
physical assets of GO! AGENCY, LLC, a related party, in January of 2003. Because
we acquired these assets, we were not required to rent or lease comparable
assets.
The increase in employee expense for the year ended December 31, 2003 from the
previous period is attributable to the fact that in 2003 we began providing
health insurance benefits for our employees.
The increase in interest expense for the year ended December 31, 2003 from the
previous period is attributable to substantial loans to us in 2002 and 2003 from
related parties. These loans were necessary for working capital. See Item 7
below, Certain Relationships and Related Transactions.
Payroll is reported as a portion of cost of goods sold and as a separate item in
operating expenses. That portion of payroll related to the production and sale
of our products is reported as a part of cost of goods sold. Administrative
payroll is reported as a part of operating expenses. For the year ended December
31, 2003, payroll included in cost of goods sold was $63,227, administrative
payroll reported as an operating expense was $64,768 and total payroll was
$127,995. For the period January 28, 2002 (Inception) through December 31, 2002,
payroll included in cost of goods sold was $31,500, administrative payroll
reported as an operating expense was $32,550 and total payroll was $64,050. The
increase in payroll and payroll taxes for the year ended December 31, 2003 from
the previous period is attributable to increases in employees due to increased
sales and marketing activities. We expect the number of employees to continue to
increase as we continue to expand sales and marketing.
The increase in professional fees for the year ended December 31, 2003 from the
previous period is attributable to legal and accounting fees associated with the
transfer of all of the assets of GO! AGENCY, LLC to us, legal and accounting
fees attributable to our merger with Sign Media Systems Acquisition Company,
Inc., public auditing fees associated with our registration under the Securities
Exchange Act of 1934, and legal fees associated with our registration and
compliance under the Securities Exchange Act of 1934.
12
The increase in rent and utilities for the year ended December 31, 2003 from the
previous period is attributable to our moving our operations to larger
facilities which we now occupy.
The increase in impairment expense for the year ended December 31, 2003 from the
previous period is attributable solely to our merger with Sign Media Systems
Acquisition Company, Inc. then a wholly owned subsidiary of American Powerhouse,
Inc., a Delaware corporation. In connection with the merger, we issued 300,000
shares of our common stock to American Powerhouse, Inc. These shares are valued
at $450,000 or $1.50 per share based on recent sales of our common stock. The
purpose of the merger was to acquire certain proprietary technology.
Working Capital.
The following table sets forth a summary of our working capital.
AT DECEMBER 31: 2003 2002
----------------------------------------------- --------------- ---------------
Current assets $ 712,501 $ 14,698
Current liabilities 500,119 73,454
--------------- ---------------
Working capital $ 212,382 $ (58,756)
=============== ===============
Current ratio 1.42 .20
Our current assets for the year ended December 31, 2003 increased $697,803 from
the previous period primarily due to increases accounts receivable due to
increased sales. See cash flow analysis below.
Our current liabilities for the year ended December 31, 2003 increased $426,665
from the previous period primarily due to increases in long term debt, accounts
payable and a liability for stock to be issued. The increase in long term debt
for the year ended December 31, 2003 from the previous period was the result of
the purchase of equipment. The increase in accounts payable for the year ended
December 31, 2003 from the previous period was driven primarily by sales and
marketing expenses. Liability for stock to be issued reflects stock that was not
issued by year end but which had been paid for prior to year end.
Cash Flow.
Our cash flow from operating, investing and financing activities, as reflected
in the Consolidated Statement of Cash Flows are summarized in the table below.
FOR THE YEAR ENDED DECEMBER 31, 2003, AND
THE PERIOD JANUARY 28, 2002 (INCEPTION) TO
DECEMBER 31, 2002: 2003 2002
--------------------------------------------- --------------- ---------------
Net cash provided by/(used in):
Operating activities $ (474,896) $ (92,817)
Investing activities (90,886) -
Financing activities 607,712 97,955
-------------- --------------
Net change in cash and cash equivalents $ 41,930 $ 5,138
=============== ===============
13
Net cash used in operating activities for the year ended December 31, 2003
increased compared to the preceding period. This increase was driven primarily
by increased sales which resulted in increased accounts receivable and increased
purchases of inventory.
Net cash used in investing activities for the year ended December 31, 2003
increased compared to the preceding period. This increase was the result of the
acquisition of equipment necessary for the manufacture and sale of our truck
side mobile billboard mounting system.
Net cash provided by financing activities for the year ended December 31, 2003
increased compared to the preceding period. This increase was the result of
long-term debt utilized to purchase equipment, loans from related parties and
the issuance of common stock. The loans from related parties and the issuance of
common stock was primarily to provide working capital until such time as
accounts receivable are collected. Total cash provided by financing activities
for the year ended December 31, 2003 was $607,712 which consisted of $88,024 of
long term debt from unrelated parties utilized to purchase equipment, $359,188
of long term loans from related parties and $160,500 from the issuance of common
stock.
Assets and Debt.
Our current assets are summarized in the table below.
AT DECEMBER 31: 2003 2002
------------------------------------------------ --------------- ---------------
Current assets $ 712,501 $ 14,698
Current assets for the year ended December 31, 2003 increased compared to the
preceding period. Current assets for the year ended December 31, 2003 consists
of $47,068 of cash and cash equivalents, $571,898 of accounts receivable,
$38,391 of inventory, and $55,144 of prepaid expenses and other assets. The
increase in current assets was due primarily to increased sales which resulted
in increased cash, increased accounts receivable and the need to increase
inventory.
Accounts receivable aging for the year ended December 31, 2003 are summarized in
the table below.
AT DECEMBER 31, 2003:
1-30 31-60 61-90 > 90 TOTAL
---------- ------------ --------- ---------- ---------
TOTALS $7,727 $561,874 - $2,297 $571,898
========== ============ ========= ========== =========
All accounts receivable are delinquent after 30 days. Out of the total accounts
receivable, $561,874 are attributable to one obligor and all of that amount was
delinquent at December 31, 2003. During the year ended December 31, 2004, the
full amount of the $561,874 delinquency was satisfied in full by cash payments.
During the year ended December 31, 2004, the full amount of the $2,297
delinquency was satisfied. None of the accounts receivable are from a related
party.
14
Accounts receivable aging for the year ended December 31, 2002 are summarized in
the table below.
AT DECEMBER 31, 2002:
1-30 31-60 61-90 > 90 TOTAL
---------- ------------ ----------- --------- -----------
TOTALS - - $1,295 - $1,295
========== ============ =========== ========= ===========
All accounts receivable are delinquent after 30 days. All of the accounts
receivable at December 31, 2002 are attributable to one obligor and all of that
amount was delinquent at December 31, 2002. During the year ended December 31,
2003, the full amount of the accounts receivable was satisfied. None of the
accounts receivable are fro a related party.
Our non-current assets and long-term debt are summarized in the table below.
AT DECEMBER 31: 2003 2002
Non-current assets $ 103,054 $ -
Long-term debt $ 69,604 $ -
Non-current assets and long term debt for the year ended December 31, 2003
increased compared to the preceding period. The increase in non-current assets
was due to two factors: (1) the transfer by GO! AGENCY, LLC of all of its assets
having an agreed net value of $55,702 to us and (2) our acquisition of new
equipment. Long term debt increased due to the acquisition of new equipment.
Our debt, including the current portion of long term debt, owed to related
parties is summarized in the table below.
AT DECEMBER 31: 2003 2002
----------------------------------------------- --------------- ---------------
Current debt due to related parties $ $4,739 $ 33,272
Long-term debt due to related parties 447,404 59,683
------------- -------------
Total debt due to related parties $ 452,143 $ 92,955
============= =============
Current debt due to related parties for the year ended December 31, 2003
decreased due to partial repayment to a related party. Long-term debt due to
related parties for the year ended December 31, 2003 increased compared to the
preceding period. The primary reason for the increase in debt due to related
parties was to provide working capital. See Item 7, Certain Relationships and
Related Transactions.
Our total debt is summarized in the table below.
AT DECEMBER 31: 2003 2002
---------------------------------------------- -------------- ---------------
Long-term debt due to related parties $ 447,404 $ 59,683
Long-term debt 69,604 -
------------- -------------
Total Debt $ 517,008 $ 59,683
============= =============
15
Our stockholders' deficit is summarized in the table below.
AT DECEMBER 31: 2003 2002
---------------------------------------------- --------------- ---------------
Stockholders' deficit:
Total $ (201,572) $ (118,439)
=============== ===============
Off Balance Sheet Arrangements.
We have not entered into any off-balance sheet arrangements as defined by SEC
Final Rule 67 (FR-67) "Disclosure in Management's Discussion and Analysis about
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations,"
Liquidity and Capital Resources.
For the two reported periods, cash flow from operating activities has not been
sufficient to cover our working capital requirements or to finance expansion of
our sales and marketing activities. We have utilized cash flows from financing
activities to provide working capital and to expand sales and marketing
activities. Financing has been provided primarily by loans from related parties
and from the issuance of common stock. We do not have any institutional
financing in place and do not anticipate being able to arrange any institutional
financing for the foreseeable future.
The following table summarizes our cash flow provided by or used in operating
activities, investing activities and financing activities.
FOR THE YEAR ENDED DECEMBER 31, 2003, AND 2003 2002
THE PERIOD JANUARY 28, 2002 (INCEPTION) TO
DECEMBER 31, 2002:
------------------------------------------------ --------------- ---------------
Net cash provided by (used in):
Operating activities $ (474,896) $ (92,817)
Investing activities (90,886 -
Financing activities $607,712) 97,955
-------------- --------------
Net change in cash and cash equivalents $ 41,930 $ 5,138
=============== ===============
The following table depicts our known contractual obligations for the periods
reflected. These obligations may vary from period to period and provide a view
as to certain unavoidable cash outflows. The term "known contractual
obligations" has the same meaning as is contemplated by its use in Item
303(a)(5) of Regulation S-K. The term "total contractual payment stream" means
the total of all payments due in the periods reflected in the table.
TOTAL PAYMENTS DUE IN:
CONTRACTUAL
PAYMENT
STREAM
CONTRACTUAL OBLIGATIONS 2004 2005 2006 2007
----------------------------------------------
Long-term debt obligations $ 73,680 $ 18,420 $ 18,420 $ 18,420 $ 18,420
Long-term debt due to related
parties 603,735 80,533 172,330 350,872 -
Operating lease obligations 117,500 30,000 30,000 30,000 27,500
--------- ------- -------- -------- ------
Total $ 794,915 $ 128,953 $220,750 $ 399,292 $ 45,920
========= ======== ======== ======= ========
16
Long-term debt consists of two installment notes with GMAC Finance for the
purchase of two trucks one in the original amount of $45,761 and the other in
the original amount of $46,860. Both notes are at zero percent interest. The
installment payments continue at the same amounts until the notes are satisfied
in full in 2009. The total of the installment payments for both notes will be
$92,621.
Long-term debt due related parties consists of two loans from related parties
consisting of two promissory notes due to related parties payable interest only,
with one note being due and payable in full in December of 2005 and one note
being due and payable in full in January 2006. See Item 7, Certain Relationships
and Related Transactions contained elsewhere herein.
Operating lease obligations consists of one lease for our corporate offices. The
lease terminates September 30, 2007. See Item 7, Certain Relationships and
Related Transactions contained elsewhere herein.
The following table depicts certain budgeted expenses for the periods reflected
that, in addition to the firm contractual commitments set forth in the table
immediately above, we feel must be expended to insure our viability.
TOTAL BUDGETED EXPENSES:
BUDGETED
EXPENSES
2004 2005 2006 2007
----------------------------------------------
Sales and Marketing $ 10,393,873 $ 121,427 $ 777,679 $ 3,225,540 $ 6,269,227
Engineering and
Production 1,773,664 119,889 199,636 519,383 934,756
Executive 678,517 156,450 165,236 174,022 182,809
Administrative 1,146,962 216,239 248,573 329,908 352,242
---------- ------- ------- ---------- -----------
Total $ 13,993,016 $ 614,005 $1,391,124 $4,248,853 $ 7,739,034
============= ========= ========== ========== ==========
We believe, but cannot guarantee that sales of our products will generate
sufficient cash flow to meet our firm contractual commitments and our budgeted
expenses. If cash flow from sales is insufficient, we will be required to raise
money through financing activities including loans from related parties and
sales of common stock. We cannot guarantee that we will be able to obtain loans
or sell stock in sufficient amounts to meet our firm contractual commitments and
our budgeted expenses.
Looking Forward.
Water Machine
For the reasons set forth in Part 1, Item 1 above, we are not currently engaged
in the business of manufacturing and selling the Water Machine. When and if we
become engaged in this business, we believe that the Water Machines can be
manufactured at a cost that will allow their sale to be competitive with bottled
water products. Because we are not currently engaged in this business, we cannot
predict the impact of this product on our results of operation and financial
condition going forward.
17
Our Truck Side Mounting Systems, Advertising and Digital Printing Business
Our emphasis in the coming months is to increase our dealer network. We are
actively pursuing the securing more qualified dealers. We believe that securing
a larger dealer base will result in additional sales. There can be no guarantee
that we will be successfully in securing additional dealers and if we do secure
additional dealers that they will increase sales.
In addition to securing additional dealers, we are working to improve our truck
side mounting systems to reduce their cost and improve their quality. We have an
in-house engineer working on this project.
There can be no guarantee that we will continue to be profitable or that our
revenue or net income will increase sufficiently to support expansion. Unless
and until our marketing activities succeed and we sell our products on a
wide-scale commercial basis, we may not have enough revenue to cover our
operating expenses and may incur losses. We do not expect to generate
significant revenue until such time, if ever, that sales increase substantially
from their present levels. Accordingly, we cannot assure anyone that we will
generate sufficient revenue to profitably operate in the future.
Our operations have consumed and will continue to consume substantial amounts of
capital, which, up until now, have been largely financed from loans from related
parties and sales of stock to private investors. We expect capital and operating
expenditures to increase. Although we believe that we will be able to attract
additional capital through private investors and as a result thereof our cash
reserves and cash flows from operations will be adequate to fund our operations
through the end of calendar year 2005, there can be no assurance that such
sources will, in fact, be adequate or that additional funds will not be required
either during or after such period. No assurance can be given that any
additional financing will be available or that, if available, it will be
available on terms favorable to us. If adequate funds are not available to
satisfy either short or long-term capital requirements, we may be required to
limit our operations significantly or discontinue our operations. Our capital
requirements are dependent upon many factors including, but not limited to, the
rate at which we develop and introduce our products and services, the market
acceptance and competitive position of such products and services, the level of
promotion and advertising required to market such products and services and
attain a competitive position in the marketplace, and the response of
competitors to our products and services.
We believe that we have assembled an experienced team of senior management. We
believe that it is an essential part of our strategy to continue to aggressively
strengthen the breadth, depth and industry expertise of our executive team. Our
growth depends to a substantial degree on Antonio F. Uccello, III, the Chairman,
President, Chief Executive Officer and Chief Financial Officer as well as other
executive officers and key management personnel. Our loss of the services of any
of these key personnel could have a material adverse effect on our business.
There is currently no "key person" life insurance on the life of any of our
executive officers, and no plans are underway to secure adequate key man
coverage. Our continued growth will also be dependent upon our ability to
attract and retain additional skilled management and sales personnel. We may not
be successful, which could adversely affect our business. Our inability to
retain key personnel or attract new high quality senior management could
materially adversely affect our results of operations.
18
Our business may be dependent on obtaining patent protection for our mobile sign
mounting systems and on the continued validity of a patent, if obtained. We have
a patent pending on this proprietary technology. However, a patent may never be
issued. There can be no assurance that any steps taken by us to protect its
proprietary technology will be adequate to prevent misappropriation, that any
patent issued to us will not be invalidated, circumvented or challenged, or that
any patent we may obtain will provide a competitive advantage. There can be no
assurance that others will not independently develop a technology superior to
our technology and obtain patents thereon. In such event, we may not be able to
license such technology on reasonable terms, or at all. Although we believe that
our mobile sign mounting system does not infringe upon proprietary rights of
others, there can be no assurance that third parties will not assert
infringement claims in the future. Moreover, litigation might be necessary in
the future to enforce our patent (if obtained), or to defend against claims of
infringement or invalidity. Such litigations, regardless of outcome, could
result in substantial cost and diversion of resources, and could have a material
adverse effect on our business, financial condition and results of operations.
We have not received any notifications from either the United States Patent and
Trademark Office or any third party making any such claims, nor do we have
knowledge of any technology that is substantially similar to its technology that
could lead to such a claim.
Because our technology is attached to vehicles that travel throughout populated
areas, it is possible that faults in the mounting system or in the installation
thereof could cause accidents or injuries to others or their property. If this
were to occur, we could be held liable for damages, including punitive damages
that could materially adversely affect our business. We carry products liability
insurance in the amount of $2,000,000 per incident in order to protect against
such occurrences. In addition, where we have certified installers of our
products, such installers will have entered into contracts with us to indemnify
us for the installers' faulty installations. However, there can be no guarantee
that either the insurance or indemnification would be sufficient to shield us
from large damage claims that could adversely affect our business.
Federal regulations exist that govern outdoor billboard advertising along the
nation's roadways affecting the size, placement and other aspects of such
advertising. Currently, however, regulations have not specifically targeted
mobile vehicle advertising. There can be no guarantee that new regulations will
not be promulgated that affect our business. In addition, certain current
regulations restrict the advertising of alcohol and tobacco products. We do not
anticipate that these regulations will affect our business, as we do not focus
on these types of advertisers, nor do we currently intend to do so in the
future.
We offer several warranties on our products, for five years, covering the
functionality of the mounting systems and the ultraviolet protection of the
graphics where we do the printing of the graphics. There can be no guarantee
that we will be able to afford to process all of the warranted maintenance if
more legitimate repairs are requested than we have forecasted.
19
We have begun training outside parties to become certified installers of our
products. We anticipate that having more installers will make repairs and
change-outs of graphics convenient and cost effective for our customers.
However, we may not be able to train enough installers to handle the potential
demand for our products. This would result in delays in service, which could
affect customer satisfaction and adversely affect our business. Currently, we
believe that we have sufficient numbers of trained installers to handle the
potential demand and expect to be able to continue to train additional
installers to keep pace with the anticipated growth of our business. However,
there can be no guarantee that this will occur
Once we train outside independent installers to install our products, we will
not be supervising each of them on a continuing basis. Although each certified
independent installer is anticipated to be under contract with us to install our
products only according to our specifications, we cannot guarantee that this
level of installation will occur in every case, and it is possible that we may
face liability for the installers' actions if our products injure or damage
other people or their property. We intend to procure indemnification agreements
from our certified independent installers to avoid this potential problem.
ITEM 3. DESCRIPTION OF PROPERTY
On November 1, 2002, we entered into a lease as the lessee with Hawkeye Real
Estate, LLC, a Florida limited liability company, as lessor for 6,300 square
feet of mixed office and warehouse space at 2100 19th Street, Sarasota, FL 34234
for a period of five years beginning December 1, 2002 and continuing until
November 30, 2007 for a fixed monthly rental of $2,500 per month. Our executive
offices and manufacturing facility are located at these premises. We believe the
premises are adequate for our purposes.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth the security ownership as of March 22, 2004 by:
(i) each person (or group of affiliated persons) who, to our knowledge, is the
beneficial owner of five percent or more of our outstanding common stock, (ii)
each named director and each named executive officer who, to out knowledge, is
the beneficial owner of our outstanding common stock, and each of the foregoing
as a group.
20
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS
Name and Address Amount and Nature Percent
Title of Class Of Beneficial Owner Of Beneficial Owner of Class
Antonio F. Uccello, III(1)
Common Stock, No 2100 19th Street
Par Value Sarasota, FL 34234 4,059,600(1) 49%(1)
Abraham Uccello(1)
Common Stock, No 637 Mecca Dr.
Par Value Sarasota, FL 34234 2,388,000(1) 29%(1)
Salvatore Uccello(1)
Common Stock, No 6527 Waterford Circle
Par Value Sarasota, FL 34238 716,400(1) 9%(1)
Roger P. Nelson(1)
Common Stock, No 14 Giovanni Drive
Par Value Waterford, CT 06385 796,000 10%(1)
Totals for Class as a
Whole 7,960,000(1) 97%
(1) Pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended, beneficial ownership of a security consists of sole or shared
voting power (including the power to vote or direct the voting) and/or sole or
shared investment power (including the power to dispose or direct the
disposition) with respect to a security whether through a contract, arrangement,
understanding, relationship or otherwise. All of the shares described in the
foregoing table are owned by GO! Agency, LLC, a Florida limited liability
company whose address is 4744 Spinnaker Drive Bradenton, FL 34208. The
individuals listed are the members of GO! Agency and the shares of common stock
reflected for each person in the foregoing table reflect each such person's
percentage ownership of GO! Agency. Antonio F. Uccello, III, is the manager and
the 51% owner of GO! Agency and, therefore, pursuant the terms of GO! Agency's
Operating Agreement, has the sole power, subject to his fiduciary duties to the
other GO! Agency members, to vote, or dispose of or direct the disposition of
all the shares of Sign Media System, Inc.'s common stock beneficially owned by
GO! Agency. Antonio F. Uccello, III, has absolute control of us by virtue of his
voting control of 7,960,000 shares of our common stock.
SECURITY OWNERSHIP
OF MANAGEMENT
(1) (2) (3) (4)
Name and Address Amount and Nature Percent
Title of Class Of Beneficial Owner Of Beneficial Owner of Class
Antonio F. Uccello, III(1)
Common Stock, No 2100 19th Street
Par Value Sarasota, FL 34234 4,059,600(1) 49.24%(1)
Stephen R. MacNamara(2)
Common Stock, No 1071 Meyers Park Drive
Par Value Tallahassee, FL 32301 30,000 .364%
Thomas Bachman(3)
Common Stock, No 2960 S. McCall Road, Ste 210
Par Value Inglewood, FL 34224 - -
Andrei A. Troubeev(4)
Common Stock, No 7736 37th Court E.
Par Value Sarasota, FL - -
Charles A. Pearson, III(5)
6138 Turnbury Park Dr.
Common Stock, No Apt. 6301 - -
Par Value Sarasota, FL 34234
Totals for Class as a
Whole 4,089,600 49.60%
21
(1) Antonio F. Uccello, III is our Chairman, President, Chief Executive Officer,
and Chief Financial Officer. Antonio F. Uccello, III is the 51% owner and
manager of GO! Agency, LLC, a Florida limited liability company. GO! Agency owns
7,960,000 shares of the common stock of Sign Media Systems, Inc. which
represents 94% of the total of the issued and outstanding shares of common
stock. Antonio F. Uccello, III, as the manager and the 51% owner of GO! Agency,
pursuant the terms of GO! Agency's Operating Agreement, has the sole power,
subject to his fiduciary duties to the other GO! Agency members, to vote, or
dispose of or direct the disposition of all the shares of Sign Media System,
Inc.'s common stock beneficially owned by GO! Agency. Antonio F. Uccello, III,
has absolute control of us by virtue of his voting control of 7,960,000 shares
of our common stock.
(2) Stephen R. MacNamara is our Secretary and is also a Director.
(3) Thomas Bachman is a Director.
(4) Andrei A. Troubeev is our Vice-President of Engineering.
(5) Charles A. Pearson, III is our Vice President of Sales and Marketing.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The Company's executive officers, directors and key employees and their business
experience follows:
Name and Age Position Term
Antonio F. Uccello, III Chairman/President/ Chief Executive January 28, 2002
Age 36 Officer/Chief Financial Officer to present
Andrei A. Troubeev Vice-President-Engineering March 1, 2004
Age 37 to present
Charles A. Pearson, III Vice-President-Sales July 5, 2004
Age 38 to present
Thomas Bachman Director March 11, 2003
Age 57 to present
Stephen R. MacNamara Director/Secretary March 11, 2003
Age 50 to present
22
Resumes
Antonio F. Uccello, III
Mr. Uccello is the founder, President, Chief Executive Officer, Chairman of the
Board of Directors and the Chief Financial Officer of the Company. Mr. Uccello
attended college at the University of Connecticut and took graduate courses at
Hunter College in New York City. Mr. Uccello has been in the securities industry
for the last 13 years. Mr. Uccello holds a Series 65, Registered Investment
Advisor license from the National Association of Securities Dealers. From June,
1996, to February, 2001, Mr. Uccello was a branch manager for Brookstreet
Securities. Brookstreet Securities is a registered broker-dealer. Mr. Uccello
left Brookstreet Securities in February, 2001, to establish Chelsea Capital
Management, LLC where he acts a registered investment advisor. Both Chelsea and
Mr. Uccello are registered as investment advisors with The State of Florida,
Department of Banking and Finance and the State of Connecticut Department of
Banking, Division of Securities and Business Investments. Mr. Uccello is the
owner of 99% of the membership interests and the sole manager of Chelsea and as
such is the sole owner and sole control person of Chelsea. Mr. Uccello is a
minority member and the manager of Hawkeye Real Estate, LLC and is the President
of and a minority shareholder in Olympus Leasing Company, both of which are
related parties to us. Hawkeye Real Estate is a real estate developer and
Olympus Leasing is engage in the business of making commercial loans. Mr.
Uccello will devote 80% of his time to us. Mr. Uccello has extensive experience
in finance and is responsible for the over all profitability of the Company.
Andrei A. Troubeev
Mr. Troubeev is the Vice-President, Engineering for the Company. Mr. Troubeev
earned his Bachelor of Science, Mechanical Engineering, from Belarus
Agricultural and Mechanical University in 1997. Mr. Troubeev has experience in
developing new designs, support of production and assembly teams, recommending
changes to improve product designs and production efficiency, and the
development and testing of new product designs. Mr. Troubeev was Distribution
Director for DELO Magazine a monthly business journal published in English,
Russian and German from Belarus from February, 1993 to July, 1999, and was
Production Engineer from Trailmate, Inc. in Sarasota, Florida from July, 1999 to
March, 2004. Trailmate, Inc. is in the business of manufacturing commercial
edgers and mowers and adult and industrial tricycles. Mr. Troubeev participated
in the development of new designs, support of production and assembly teams and
recommendations of changes to improve product designs and production efficiency
for Trailmate.
Charles A. Pearson, III
Mr. Pearson is the Vice-President, Sales and Marketing for the Company. Mr.
Pearson earned a Bachelor of Science, Industrial Technology & Technical Sales,
from East Carolina University at Greenville, NC in 1991 and his Masters of
Business Administration, International Business, from Florida Metropolitan
University at Tampa, Florida in 2002. From October, 1995 to February, 1999, Mr.
Pearson was employed by Pinnacle Broadcasting Co., Inc., first as an Account
Executive for WRNS 95 1 FM, a radio station in Kinston, NC, then Sales Manager
and finally General Manager of WREO 93.3 FM/WDLAX AM, a radio station in
Washington, NC. From February, 1999 to August, 2000, Mr. Pearson was the Sales
Manager for Tropic Petroleum Co., Inc. of Tampa, Florida. Tropic Petroleum is in
the business of petroleum equipment sales. From August, 2000 to December, 2001,
Mr. Pearson was an Account Executive for Freedom Sales & Marketing of Tampa,
Florida. Freedom Sales & Marketing is in the business of electronic component
sales. From December, 2001 to July, 2004, Mr. Pearson was Sales Manager for
Gasoline Equipment Marketers of Tampa, Florida. Gasoline Equipment Marketers is
in the business petroleum equipment sales.
23
Thomas Bachman
Mr. Bachman is a Director of the Company. Mr. Bachmann has been the Executive
Publisher and Director of Industry Development of Beverage Industry Magazine,
the leading trade publication for the beverage industry since 1994. Prior to
becoming Executive Publisher and Director of Industry Development of Beverage
Industry Magazine in 1994, Mr. Bachmann was the National Sales Manager and
Associate Publisher of Beverage Industry Magazine from 1976 to 1981. From 1982
to 1992 Mr. Bachmann was Publisher of Diary Field, Today's Catholic Teacher and
Early Childhood News. Mr. Bachmann ran his own consulting firm, Bachmann and
Associates from 1992 to 1994. Mr. Bachmann is a member of the National Soft
Drink Association, the Canadian Soft Drink Association, and the International
Bottled Water Association. Mr. Bachmann will bring an industry wide perspective
to the Company.
Stephen R. MacNamara
Mr. MacNamara is a Director and the Secretary of the Company. Mr. MacNamara
holds a Bachelor of Science, Journalism, from the University of Florida and a
Juris Doctor from Florida State University. Mr. MacNamara has been an Associate
Professor, Department of Communication at Florida State University since 1994.
Mr. MacNamara has been the President of The Florida Association of Health Plans
since 2000. Mr. MacNamara served as Chief of Staff, Florida House of
Representatives from July 1999, to May 2000, the Professor-in-Residence, Florida
House of Representatives from January 1999, to May 2000, Visiting Associate,
Department of Communications at Florida State University from 1993, to 1994,
Director of The Collins Center for Public Policy from 1990 to 1992, and
Secretary, Florida Department of Business regulation from 1989, to 1990. Mr.
MacNamara is Associate Vice President for Academic Affairs at Florida State
University. Mr. MacNamara has extensive experience in governmental affairs.
Family Relationships
There are no current family relationships among the Company's officers and
directors. Prior to February 6, 2004 Abraham Uccello was our President and Chief
Executive Officer and Salvatore Uccello was our Vice President of Engineering.
Antonio F. Uccello, the current President and Chief Executive Officer and
Abraham Uccello are brothers and Salvatore Uccello is their father. Abraham
Uccello and Salvatore Uccello resigned on February 2, 2004.
Employment Agreements
There are no employment agreements between us and our executive officers and key
personnel.
ITEM 6. EXECUTIVE COMPENSATION
Set forth below are the annual cash compensation and restricted stock grants
paid to the Company's executive officers for the period January 28, 2003
(Inception) to December 31, 2003.
24
Summary Compensation Table
Annual Compensation Long Term Compensation
All Other
Name and Other Annual Compen-
Principal Position Year Salary Bonus Compensation Stock Grants sation(1)
Antonio F. Uccello, III
Chief Financial
Officer 2003 8,000 0 0 0 $ 9,112
Abraham Uccello
President, Chief
Executive
Officer 2003 48,817 0 0 6,583
Salvatore Uccello
Vice President,
Engineering 2003 35,254 0 0 0 6,583
(1) All Other Compensation consists solely of health insurance.
None of the directors has been paid any fees for acting as such and we do not
anticipate paying any directors' fees in the foreseeable future.
Other than as set forth in the foregoing table, with footnotes, there is no
other plan, contract, authorization or arrangement, whether or not set forth in
any formal documents, pursuant to which the following may be received by any or
our officers or directors: cash, stock, restricted stock or restricted stock
units, phantom stock, stock options, stock appreciation rights ("SARs"), stock
options in tandem with SARs, warrants, convertible securities, performance units
and performance shares, and similar instruments.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We were formed as a Florida corporation with the name Sign Media Systems, Inc.
on January 28, 2002 but did not begin business operations until April 2002. Most
of the revenue that we earned was contract work with GO! Agency, LLC, a Florida
limited liability company, a related party. We would contract with GO! Agency to
handle and complete jobs. There was no additional revenue or expense added from
one entity to the other. Throughout 2002, we maintained Due To/From accounts
with GO! Agency to properly reflect the related party transactions. As of
December 31, 2003, we had an outstanding liability in the amount of $4,739 due
to GO! Agency. This amount is reflected in our consolidated balance sheet for
the year ended December 31, 2003 as current portion of debt-related parties. No
payment or repayment terms had been established as of December 31, 2003. The
total revenue derived from GO! Agency for the period January 28, 2002
(Inception) through December 31, 2002 was $143,775.
25
In January, 2002, Antonio F. Uccello, III, who is considered one of our
promoters, and is a related party, contributed $5,000 to us as our initial
paid-in capital in exchange for 1,000 shares of our common stock. Subsequently,
in January 2003, Antonio F. Uccello, III, transferred his 1,000 shares of our
common stock to GO! AGENCY, LLC.
On September 24, 2002, we entered into a Loan Agreement with GO! AGENCY, LLC, a
related party, and in connection therewith executed a Promissory Note with a
future advance clause (1) in favor of GO! Agency whereby GO! Agency agreed to
loan us 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
September 24, 2002, Antonio F. Uccello, III, was our sole shareholder, one of
our officers and directors and was the owner of 51% of the economic interest of
GO! Agency. GO! Agency is the owner of 94% of the issued and outstanding shares
of our stock. At December 31, 2003, GO! Agency had loaned us a total of $96,883
pursuant to the Loan Agreement and the Promissory Note and we were indebted to
GO! Agency in such amount as of that date. At December 31, 2002, GO! Agency had
loaned us a total of 59,683 pursuant to the Loan Agreement and the Promissory
Note and we were indebted to GO! Agency in such amount as of that date.
On November 1, 2002, we entered into a lease as the lessee with Hawkeye Real
Estate, LLC, a Florida limited liability company, as lessor for 6,300 square
feet of mixed office and warehouse space at 2100 19th Street, Sarasota, FL 34234
for a period of five years beginning December 1, 2002 and continuing until
November 30, 2007 for a fixed monthly rental of $2,500 per month. Antonio F.
Uccello, III, is the manager and a member of Hawkeye Real Estate, LLC and is one
of our officers and directors and an indirect shareholder of Sign Media Systems,
Inc. We believe that we are paying fair market value for the rent on this
property. Hawkeye Real Estate is a real estate developer.
Effective January 1, 2003, GO! AGENCY, LLC, which is considered one of our
promoters, and is a related party, transferred all of its assets to us in
exchange for us issuing it 7,959,000 shares of our common stock. We valued the
assets at $55,702 which was their historical cost. Please refer to Note 1 of our
consolidated financial statements for the years ended December 31, 2003 and 2002
contained elsewhere in this report. GO! AGENCY, LLC is controlled by Antonio F.
Uccello, III which means Mr. Uccello has absolute control of us by virtue of his
voting control of 7,960,000 of our shares of common stock.
On January 3, 2003, we 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 (1) in favor of Olympus Leasing, whereby Olympus
Leasing agreed to loan us 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. At December 31, 2003, Olympus Leasing had loaned us a total of
$350,521 pursuant to the Loan Agreement and the Promissory Note and we were
indebted to Olympus Leasing in such amount as of that date. At January 3, 2003,
Antonio F. Uccello, III, was, and is today, the President, Chairman and owner of
45% of the issued and outstanding shares of stock of Olympus Leasing. Antonio F.
Uccello, III, and was and is one of our officers and directors and an indirect
shareholder of Sign Media Systems, Inc. Olympus Leasing is engaged in the
business of providing commercial financing. Olympus Leasing has outstanding
financing agreements with numerous other unrelated parties.
26
(1) A future advance clause as used herein is a provision in a promissory note
that allows for an additional advance of funds by the lender to the borrower and
for future advances of funds by the lender to the borrower up to the maximum
amount stated in the promissory note all of which advances of funds are subject
to the terms and conditions of the promissory note.
ITEM 8. DESCRIPTION OF SECURITIES
Common Stock
Our Articles of Incorporation currently authorize the issuance of one hundred
million (100,000,000) shares of common stock, without par value of which at
December 31, 2003, 8,244,000 shares of common stock, without par value, are
issued and outstanding.
Except as provided by law or our certificate of incorporation with respect to
voting by class or series, holders of common stock are entitled to one vote for
each share held of record on all matters to be voted on by the shareholders.
There is no cumulative voting with respect to the election of directors. In the
event of liquidation, dissolution or winding up of us, the holders of common
stock are entitled to share proportionally in all assets remaining which are
available for distribution to them after payment of liabilities and after
provision has been made for each class of serial preferred stock having
preference over the common stock, if any. Holders of shares of common stock, as
such, have no conversion, preemptive or other subscription rights, and there are
no redemption provisions applicable to the common stock.
Preferred Stock
Our Articles of Incorporation currently authorize the issuance of one hundred
million (100,000,000) shares of serial preferred stock, without par value. We
currently have no shares of serial preferred stock issued or outstanding.
Our Board of Directors is authorized to cause the Company's serial preferred
stock to be issued in series which may vary as to: (a) the number of shares
constituting such series and the designation of such series, which shall be such
as to distinguish the shares thereof from the shares of all other series and
classes; (b) the rate of dividend, the time of payment and, if cumulative, the
dates from which dividends shall be cumulative, and the extent of participation
rights, if any; (c) any right to vote with holders of shares of any other series
or class and any right to vote as a class, either generally or as a condition to
specified corporate action; (d) the price at and the terms and conditions on
which shares may be redeemed; (e) the amount payable upon shares in event of
involuntary liquidation; (f) the amount payable upon shares in event of
voluntary liquidation; (g) any sinking fund provisions for the redemption or
purchase of shares; (h) the terms and conditions on which shares may be
converted, if the shares of any series are issued with the privilege of
conversion, and (i) any other relative rights, preferences and limitations of
that series. The issuance of preferred stock could adversely affect the voting
power of holders of common stock and, depending on the rights, preferences,
privileges and restrictions set by our Board of Directors, could have the effect
of delaying, deferring or preventing a change of our control. For example, if
our Board of Directors authorized the issuance of preferred stock having
preferential voting rights, the holder of such preferred stock could potentially
influence any votes regarding a change of control to a much greater extent than
would otherwise be achievable based on such holder's pro rata percentage
ownership of our securities.
27
ITEM 9. CODE OF ETHICS
We have adopted a code of ethics which is a document of conduct we establish for
ourselves to help us and our employees comply with laws and good ethical
practices. A copy of the code of ethics is attached as Exhibit 14.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Market Information
There is no established public market for our common stock. Although we hope to
be quoted on the OTC Bulletin Board, our common stock is not currently listed or
quoted on any quotation service. There can be no assurance that our common stock
will be quoted on any quotation service or that any market for our stock will
ever develop or, if developed, will be sustained.
None of our common stock is subject to outstanding options or warrants to
purchase, or securities convertible into, our common equity.
380,000 shares of our common stock could be sold pursuant to Rule 144 under the
Securities Act.
There is no proposal to publicly offer any of our common stock.
Holders
There are approximately 158 holders of our common stock.
Dividends
We have never paid any cash dividends on our common stock and do not anticipate
paying cash dividends in the foreseeable future. The future payment of dividends
is directly dependent upon our future earnings, our financial requirements and
other factors to be determined by our Board of Directors, in its sole
discretion. For the foreseeable future, it is anticipated that any earnings that
may be generated from our operations will be used to finance our growth, and
that cash dividends will not be paid to common stockholders.
28
ITEM 2. LEGAL PROCEEDINGS
There are no pending or threatened legal proceedings to which we are a party or
of which any of our property is the subject. To our knowledge, there are no
proceedings contemplated by governmental authorities.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In May of 2002, we retained the accounting firm of Abbate & Megale Certified
Public Accountants, LLP ("Abbate & Megale") of 827 Wantagh Avenue, Suite 1,
Wantagh, NY 11793 to act as our independent auditors. Abbate & Megale audited
our financial statements for the period January 28, 2002 (inception), through
December 31, 2002, and issued their independent auditors' report on those
statements for that period (the "Abbate & Megale Report"). On October 15, 2003,
our Board of Directors voted to discharge Abbate & Megale. The reason for their
discharge was that the Board of Directors determined it to be in our best
interest to retain an independent accounting firm that had public accounting
experience and that regularly practiced before the Securities and Exchange
Commission ("SEC"). Our Board of Directors determined that Abbate & Megale did
not have public accounting experience and did not regularly appear before the
SEC and discharged them for that reason and for no other reason.
The Abbate & Megale Report contained no adverse opinion or disclaimer of
opinion, nor was it modified as to uncertainty, audit scope, or accounting
principles. The decision to change accountants was recommended to our Board of
Directors by management and was approved by our Board of Directors. There were
no disagreements with Abbate & Megale on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure. From
January 28, 2002 (inception) to December 31, 2002 and the subsequent interim
periods through October 15, 2003 there were no disagreements with Abbate &
Megale on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreement(s), if not
resolved to the satisfaction of Abbate & Megale, would have caused Abbate
&Megale to make reference to such matter of the disagreement(s) in connection
with its reports.
On October 15, 2003, we engaged the independent accounting firm of Bagell,
Josephs & Company, L.L.C. ("Bagell, Josephs") of High Ridge Commons, Suites
400-403, 200 Haddonfield Berlin Road, Gibbsboro, New Jersey 08026 to audit our
financial statements. The engagement of Bagell, Josephs was approved by our
Board of Directors. There are no disagreements with Bagel, Josephs.
Although we discharged Abbate & Megale on October 15, 2003, we neglected to
request written confirmation of the above factual basis for their discharge and
lack of disagreements until March, 2004.
29
ITEM 3A. CONTROLS AND PROCEDURES
The company's management evaluated, with the participation of the Chief
Executive Officer and Chief Financial Officer, the effectiveness of the
company's disclosure controls and procedures as of December 31, 2003. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the company's disclosure controls and procedures were effective
as of December 31, 2003. There has been no change in the company's internal
control over financial reporting that occurred during the first quarter of 2004
that has materially affected, or is reasonably likely to material affect, the
company's internal control over financial reporting.
ITEM 3B. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The aggregate fees billed by our independent auditors, Bagell Josephs & Company,
LLC, for the year ended December 31, 2003, and the aggregate fees billed by our
independent auditors Abbate and Megale, Certified Public Accountants, LLP, for
the period January 28, 2002 (Inception), through December 31, 2002, are as
follows:
January 28, 2002
(Inception)
Through
2003 December 31, 2002
------------------ ------------------
Audit Fees $ 7,000 $ 4,500
Audit Related Fees $ -0- $ -0-
Tax Fees $ -0- $ -0-
All Other Fees $ -0- $ -0-
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all securities sold by us
within the past three years that were not registered under the Securities Act.
The issuances described hereunder were made in reliance upon the exemptions from
registration set forth in Section 4(2) and Regulation D, Rule 506 of the
Securities Act relating to sales by an issuer not involving any public offering.
All securities sold by us within the past three years were shares of common
stock, no par value. No underwriter was used in any of these transactions and
there were no underwriting discounts or commissions paid.
Number
Date Name of Shares Consideration
January 28, 2002 Antonio F. Uccello, III 1,000 $5,000
January 1, 2003 GO! Agency, LLC 7,959,000 (1)
June 1, 2003 Stephen. MacNamara 30,000 $4,500
September 30, 2003 Nelson J. Martin 10,000 Services-$15,000
Abraham Uccello,
Trustee of the
Candlelight Non-
October 8, 2003 Grantor Trust 10,000 $15,000
October 31, 2003 Henry Eldon Sinsel 10,000 $15,000
November 11, 2003 Raimo Vitikainen 20,000 $30,000
November 12, 2003 William J. Hone 40,000 $60,000
November 14, 2003 Salvatore Uccello, Jr. 10,000 Services-$15,000
November 17, 2003 Lynda Melnick 20,000 $30,000
American Powerhouse,
November 17, 2003 Inc. 300,000 (2)
November 20, 2003 Roger P. Nelson 20,000 $30,000
November 24, 2003 Christopher Stender 10,000 Services-$15,000
December 8, 2003 Jerry Hanson 10,000 Services-$15.000
December 8, 2003 Marcus Faller 10,000 Services-$15,000
Total 8,460,000(3)
30
(1) Effective January 1, 2003, GO! Agency, LLC, a Florida limited liability
company, transferred all of its assets which had an original cost basis of
$300,000 and an agreed value of $55,702 to us in exchange for 7,959,000 shares
of our common stock, no par value which was in excess of 80% of our then issued
and outstanding shares of common stock.
(2) Effective November 17, 2003, we merged with Sign Media Systems Acquisition
Company, Inc., a Florida corporation and we were the surviving company in that
merger. In order to acquire Sign Media Systems Acquisition Company by the
merger, we paid its former sole stockholder, American Powerhouse, Inc. 300,000
shares of our common stock.
(3) Two Hundred Sixteen Thousand shares of stock reflected in the total of
8,460,000 were not issued until the first quarter of the next fiscal year.
Accordingly, we reported a liability on our balance sheet for the year ended
December 31, 2003 for stock to be issued in the amount of $324,000 for the year
ended December 31, 2003. The 216,000 shares were subsequently issued in 2004.
At the time of the sale of shares of stock to Antonio F. Uccello, III, and to
GO! Agency, Antonio F. Uccello and all of the members of GO! Agency were
"Executive Officers and Directors" of Sign Media Systems as those terms are
defined in Section 501 of Regulation D promulgated by the Securities and
Exchange Commission. At the time of the sale of shares of stock to Stephen
MacNamara he was a Director of Sign Media Systems. As Executive Officers and
Directors, each of these purchasers were "Accredited Investors" as that term is
defined in Section 501 of Regulation D promulgated by the Securities and
Exchange Commission. As Executive Officers and Directors, these purchasers had
access to our non-financial statement and financial statement information
described in Section 502(b)(2) of Regulation D promulgated by the Securities and
Exchange Commission. None of the offers or sales to these purchasers involved
any form of general solicitation or general advertising. Prior to each sale,
each of these purchasers was afforded the opportunity to ask questions and
receive answers concerning the terms and conditions of the offering and to
obtain additional information we possessed or could acquire without unreasonable
effort or expense to verify the accuracy of the information provided them
pursuant to Section502 (b)(2). We took reasonable care to insure that the shares
of stock sold to these purchasers could not be resold without registration under
the Securities Act of 1933 (the "Act") or an exemption there from and that these
purchasers were not underwriters under that Act and in connection there with:
(a) made reasonable inquiry to insure that these purchasers were acquiring the
shares of stock for themselves and not for any other persons; (b) provided
written disclosure to each purchaser that the shares of stock had not been
registered under the Act and therefore could not be resold unless registered
under the Act or unless an exemption from registration is available; and (c)
placed a restrictive legend on the shares of stock stating that they had not
been registered under the act and setting forth restrictions on their
transferability and sale. Finally, we made reasonable inquiry to insure that
each of these purchasers had such knowledge and experience in financial and
business matters that each purchaser was capable of evaluating the merits and
risks of investment in the shares of stock and of making an informed investment
decision with respect thereto or had consulted with advisors who possess such
knowledge and experience.
31
All of the remaining purchasers were Accredited Investors except Raimo
Vitikainen, Salvatore Uccello, Jr., Christopher Stender and Jerry Hanson. At the
time of the sale of shares of stock to the remaining purchasers listed in the
foregoing table, we provided all of the with our non-financial statement and
financial statement information described in Section 502(b)(2) of Regulation D
promulgated by the Securities and Exchange Commission. None of the offers or
sales to these purchasers involved any form of general solicitation or general
advertising. Prior to each sale, each of these purchasers was afforded the
opportunity to ask questions and receive answers concerning the terms and
conditions of the offering and to obtain additional information we possessed or
could acquire without unreasonable effort or expense to verify the accuracy of
the information provided them pursuant to Section502 (b)(2). We took reasonable
care to insure that the shares of stock sold to these purchasers could not be
resold without registration under the Securities Act of 1933 (the "Act") or an
exemption there from and that these purchasers were not underwriters under that
Act and in connection there with: (a) made reasonable inquiry to insure that
these purchasers were acquiring the shares of stock for themselves and not for
any other persons; (b) provided written disclosure to each purchaser that the
shares of stock had not been registered under the Act and therefore could not be
resold unless registered under the Act or unless an exemption from registration
is available; and (c) placed a restrictive legend on the shares of stock stating
that they had not been registered under the act and setting forth restrictions
on their transferability and sale. Finally, we made reasonable inquiry to insure
that each of these purchasers had such knowledge and experience in financial and
business matters that each purchaser was capable of evaluating the merits and
risks of investment in the shares of stock and of making an informed investment
decision with respect thereto or had consulted with advisors who possess such
knowledge and experience.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
We have authority under Section 607.0850 of the Florida Business Corporation Act
("Florida Law") to indemnify our directors and officers to the extent provided
in such statute. Our Articles of Incorporation, as amended, and Bylaws, as
amended, provide for the indemnification of our officers, and directors to the
fullest extent permitted by Florida Law either now or hereafter. The provisions
of Florida Law that authorize indemnification do not eliminate the duty of care
of a director, and in appropriate circumstances equitable remedies such as
injunctive or other forms of non-monetary relief will remain available under
Florida Law. In addition, each director will continue to be subject to liability
for: (a) violations of the criminal law, unless the director had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful; (b) deriving an improper personal benefit from a
transaction; (c) voting for or assenting to an unlawful distribution; and (d)
willful misconduct or a conscious disregard for our best interests in a
proceeding by or in the right of us to procure a judgment in our favor or in a
proceeding by or in the right of a shareholder. Florida Law does not affect a
director's responsibilities under any other law, such as the federal securities
laws or state or federal environmental laws. The Company believes that such
indemnification provisions are necessary to attract and retain qualified persons
as directors and executive officers.
32
The Securities and Exchange Commission has taken the position that
indemnification of officers, directors or persons controlling the Company for
liabilities arising under the Securities Act of 1933, as amended, is held to be
against public policy and is therefore unenforceable.
33
SIGN MEDIA SYSTEMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2003
AND FOR THE PERIOD JANUARY 28, 2002 (INCEPTION)
THROUGH DECEMBER 31, 2002
34
SIGN MEDIA SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE(S)
Report of Independent Registered Public Accounting Firm 34-35
Consolidated Balance Sheets as of December 31, 2003 and 2002 36
Consolidated Statements of Operations for the Year Ended
December 31, 2003 and for the period January 28, 2002
(inception) through December 31, 2002 37
Consolidated Statements of Changes in Stockholders' (Deficit)
for the Year Ended December 31, 2003 and for the period
January 28, 2002 (inception) through December 31, 2002 38
Consolidated Statements of Cash Flows for the Year Ended
December 31, 2003 and for the period January 28, 2002
(inception) through December 31, 2002 39
Notes to Consolidated Financial Statements 40-51
35
BAGELL, JOSEPHS & COMPANY, L.L.C.
Certified Public Accountants
High Ridge Commons
Suites 400-403
200 Haddonfield Berlin Road
Gibbsboro, New Jersey 08026
(856) 346-2828 Fax (856) 346-2882
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders of
Sign Media Systems, Inc.
Sarasota, FL
We have audited the accompanying consolidated balance sheets of Sign Media
Systems, Inc. (the "Company") as of December 31, 2003 and 2002 and the related
consolidated statements of operations, changes in stockholders' (deficit), and
cash flows for the year and period then ended. These consolidated financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sign Media Systems,
Inc. as of December 31, 2003 and 2002 and the results of its operations, changes
in stockholders' (deficit), and cash flows for the year and period then ended in
conformity with accounting principles generally accepted in the United States of
America.
36
As discussed in Note 10 to the consolidated financial statements, the Company
has restated its December 31, 2003 consolidated financial statements for certain
errors that resulted in an understatement of previously reported expenses that
were discovered by the Company's management. The recognition of these expenses
have an effect on stockholders' (deficit) since these expenses were associated
with the issuance of the Company's common stock. The net effect of these changes
decreased the net income from $22,430 as originally reported to net loss of
($554,272), as amended. This decrease was attributed to the recognition of
organizational expenses and professional services rendered for stock. In
addition, the Company recognized $324,000 as a liability for stock to be issued
for transactions in 2003 when the stock was issued in 2004.
In addition, the Company has restated its 2002 financial statements to reflect
the issuance of 7,959,000 shares of stock being issued on January 1, 2003. The
previous financial statements reflected this issuance in 2002. The value of the
7,959,000 shares were valued at $55,702. These shares were for the exchange of
net assets with Go Agency, LLC.
BAGELL, JOSEPHS & COMPANY, LLC
BAGELL, JOSEPHS & COMPANY, LLC
Certified Public Accountants
Gibbsboro, New Jersey
March 25, 2005
37
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
ASSETS
RESTATED
--------
2003 2002
-------- ---------
CURRENT ASSETS
Cash and cash equivalents $ 47,068 $ 5,138
Accounts receivable 571,898 1,295
Inventory 38,391 8,265
Prepaid expenses and other assets 55,144 -
---------- ---------
Total current assets 712,501 14,698
PROPERTY AND EQUIPMENT - Net 103,054 -
---------- ---------
TOTAL ASSETS $ 815,555 $ 14,698
========== =========
LIABILITIES AND STOCKHOLDERS'(DEFICIT)
CURRENT LIABILITES
Current portion of long-term debt 16,415 -
Accounts payable and accrued expenses 152,960 40,182
Current portion of debt - related parties 4,739 33,272
Liability for stock to be issued 324,000 -
--------- --------
Total current liabilities 500,119 73,454
LONG-TERM DEBT - Net of Current Portion 69,604 -
LONG-TERM DEBT - RELATED PARTIES
(Net of Current Portion) 447,404 59,683
--------- -------
TOTAL LIABILITIES 1,017,127 133,137
--------- -------
STOCKHOLDERS' (DEFICIT)
Common stock, no par value, 100,000,000 shares
authorized at December 31, 2003 and 2002 8,444,000
issued and outstanding at December 31, 2003 and 2002 5,000 5,000
Additional paid-in capital 471,139 -
Accumulated Deficit (677,711) (123,439)
--------- --------
Total stockholder's (deficit) (201,572) (118,439)
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 815,555 $ 14,698
========= ========
The accompanying notes are an integral part of the
condolidated financial statements.
38
SIGN MEDIA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003 AND FOR THE
PERIOD JANUARY 28, 2002 (INCEPTION) THROUGH DECEMBER 31,2002
RESTATED
JANUARY 28, 2002
(INCEPTION)
RESTATED THROUGH
2003 DECEMBER 31, 2002
---------- -----------------
REVENUE
Monitoring systems - sale & installation $ 699,612 $ 41,056
Printing 74,737 98,775
Advertising - 47,000
--------- ----------
TOTAL REVENUE 774,349 184,831
COST OF GOODS SOLD
Monitoring systems - sale & installation 167,082 53,919
Printing 34,768 47,624
Advertising - 36,900
-------- -----------
TOTAL COST OF GOODS SOLD 201,850 138,443
-------- -----------
GROSS PROFIT 572,499 46,388
OPERATING EXPENSES
Advertising 43,469 19,665
Automobile 3,327 330
Bank charges 4,277 661
Business travel 12,581 1,330
Commissions 30,596 5,000
Computer expense 5,386 11,552
Depreciation 17,769 -
Dues and subscriptions - 165
Equipment rental 7,578 25,598
Employee benefits 33,065 -
Finders fee 7,500 -
Insurance 24,385 19,097
Interest expense 76,464 1,133
License and permits - 260
Marketing and promotion 8,315 -
Miscellaneous 13,105 4,426
Payroll 64,768 32,550
Payroll taxes 11,241 5,154
Postage and delivery 4,229 -
Professional services 219,708 13,927
Reimbursed expenses 14,984 -
Rent 33,460 9,339
Repairs and maintenance 1,359 1,510
Supplies 15,664 -
Taxes - other - 2,634
Telephone 19,377 13,862
Utilities 4,164 1,734
-------- ---------
Total operating expenses 676,771 169,827
-------- ---------
NET LOSS BEFORE OTHER (EXPENSE) (104,272) (123,439)
OTHER (EXPENSE)
Organizational expense (450,000) -
-------- ---------
Total Other (Expense) (450,000) -
-------- ---------
NET LOSS BEFORE PROVISION FOR INCOME TAXES (554,272) (123,439)
Provision for income taxes - -
-------- ---------
NET LOSS APPLICABLE TO COMMON SHARES $(554,272) $ (123,439)
========= ==========
NET LOSS PER BASIC AND DILUTED SHARES $ (0.07) $ (123.44)
========= ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 8,031,000 1,000
========= ==========
The accompanying notes are an integral part of the
condolidated financial statements.
39
SIGN MEDIA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 2003 AND FOR THE
PERIOD JANUARY 28, 2002 (INCEPTION) THROUGH DECEMBER 31,2002
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ -------- -------- --------
Balance, January 28, 2002
(Inception) 1,000 $ 5,000 $ - $ - $ 5,000
Net (loss) for the year (123,439) (123,439)
--------- ------- -------- --------- ---------
Balance, December 31, 2002 1,000 5,000 - (123,439) (118,439)
Contributed Capital,
Officer - - 29,937 - 29,937
Issuance of shares in
exchange for net assets
of Go Agency 7,959,000 - 55,702 - 55,702
Issuance of common stock
in exchange for cash 134,000 - 160,500 - 160,500
Issuance of common stock
in connection with merger
of SMA 100,000 - 150,000 - 150,000
Issuance of common stock
in exchange for services 50,000 - 75,000 - 75,000
Net (loss) for the year - - - (554,272) (554,272)
--------- --------- ------- -------- ---------
Balance, December 31, 2003 8,244,000 $ 5,000 $ 471,139 $(677,711) $ (201,572)
========= ======= ========= ======== ==========
The accompanying notes are an integral part of the
condolidated financial statements.
40
SIGN MEDIA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2003 AND FOR THE
PERIOD JANUARY 28, 2002 (INCEPTION) THROUGH DECEMBER 31, 2002
RESTATED
JANUARY 28,2002
(INCEPTION)
RESTATED THROUGH
2003 DECEMBER 31, 2002
-------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (554,272) $ (123,439)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation 17,769 -
Common stock issued for organizational expense 150,000 -
Common stock issued for services 75,000 -
Changes in assets and liabilities:
(Increase) in accounts receivable (570,603) (1,295)
(Increase) in inventory (30,126) (8,265)
(Increase) in prepaid expenses and other
current assets (55,144) -
Increase in accounts payable and accrued expenses 112,778 40,182
Net assets received in exchange for stock 55,702 -
Increase in liability for stock to be issued 324,000 -
---------- ------------
Total adjustments 79,376 30,622
---------- -----------
Net cash (used in) operating activities (474,896) (92,817)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (90,886) -
---------- ----------
Net cash (used in) investing activities (90,886) -
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt, net of payments 88,024 -
Net proceeds from debt - related parties 359,188 92,955
Common stock issuance 160,500 5,000
---------- ----------
Net cash provided by financing activities 607,712 97,955
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 41,930 5,138
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 5,138 -
---------- ----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 47,068 $ 5,138
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 110,081 $ 1,133
========== ==========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Furniture and fixtures contributed by officer/
stockholder $ 29,937 $ -
========== ==========
Common stock issued for organizational expense $ 150,000 $ -
========== ==========
Common stock issued for services $ 75,000 $ -
========== ==========
The accompanying notes are an integral part of the
condolidated financial statements.
41
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION
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.
42
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
On November 17, 2003, the Company entered into a merger
agreement by and among American Powerhouse, Inc., a Delaware
corporation and its wholly owned 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. Because 200,000 shares of the
300,000 authorized were not issued until 2004, the Company
reported a $300,000 liability for stock to be issued for the
year ended December 31, 2003. 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 $150,000 for the 100,000 shares of stock issued in
2003 and subsequently impaired the entire amount. The Company
issued the remaining 200,000 shares in 2004, and recorded a
liability for stock to be issued at $300,000. There is a
$450,000 charge against income reflected in the consolidated
statements of operations for the year ended December 31, 2003.
The Company has restated its December 31, 2003 consolidated
financial statements to reflect certain expenses previously
not recognized. The Company recognized $450,000 of
organizational expenses on November 17, 2003 and $130,702 of
professional services expenses throughout 2003 for related
stock issuances. In addition, the Company reversed its tax
accrual of $4,000 due to changes that were made resulting in a
net loss. The net effect of these restatements resulted in the
accumulated deficit increasing by $576,702 from ($101,009) to
($677,711).
Additionally, the Company restated its 2002 financial
statements to reflect the issuance of 7,959,000 shares as
being issued in 2003. The Company originally reflected these
shares issued in 2002.
43
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The 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 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 are as follows. The Company relies on Staff Accounting
Bulletin Topic 13, in determining when the 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 it has completed the task for which the consumer paid.
In addition, the Company offers manufacturer's warranties.
These 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.
44
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue and Cost Recognition (Continued)
Cost of goods sold are separated by components consistent with
the revenue categories. Mounting systems, printing and
advertising costs, including purchases made, and payroll costs
are attributed to those components. Payroll cost is included
for sales, engineering and warehouse personnel in cost of
goods sold, and the balances in 2003 and 2002 have been
reclassified to reflect those costs. All of these costs are
included in costs of goods sold for the years ended December
31, 2003 and 2002. Cost of overhead is diminimus. The
Company's inventory consists of finished goods, and
unassembled parts that comprise the framework for the mounting
systems placed on trucks for their advertising.
Warranties
The Company offers manufacturers warranties that covers all
manufacturer defects. The Company accrues warranty costs based
on historical experience and management's estimates. The
Company has not experienced any losses in the past two years
with respect to the warranties, therefore has not accrued any
liability as of December 31, 2003. The following table
represents the Company's losses in the past two years with
respect to warranties.
Balance Charged Balance
at Beginning to Costs and at End of
of Period Expenses Deductions Period
------------ ------------- ----------- ---------
Year ended December 31,
2003 $ - $ - $ - $ -
=========== ============ ========== ==========
Period ended December
31, 2002 $ - $ - $ - $ -
=========== ============ ========== ==========]
Provision for Bad Debt
Under SOP 01-6 "Accounting for Certain Entities (including
Entities with Trade Receivables), the Company has intent and
belief that all amounts in accounts receivable are
collectible. Additionally, the Company has policies for
non-accrual and past due loans including the policy for
charging off uncollectible trade receivables and determining
past due or delinquency status. The Company has determined
that based on their collections that no allowance for doubtful
accounts needs to be recorded at December 31, 2003 and 2002.
Bad debt expense for the year ending December 31, 2003 and for
the period January 28, 2002 (inception) through December 31,
2002 was $0 and $0, respectively.
45
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $43,469 and $19,665 for
the year ended December 31, 2003 and for the period January
28, 2002 (inception) through December 31, 2002, respectively.
Inventory
Inventory at December 31, 2003 and 2002 consisted of raw
materials. Included in these raw materials are top rails, side
rails, floating rails, fixed pivot rails, lever rails and
right and left end caps. Inventory is stated at the lower of
cost or market, utilizing the first-in, first out method
"FIFO" to determine which amounts are removed from inventory.
46
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Prepaid Expenses
Prepaid expenses at December 31, 2003 represent $5,350 of
prepaid rent and $49,794 of interest paid in advance to
Olympus Leasing. The Company has determined these assets to be
current because these amounts will be charged to the
appropriate expense in one year or less.
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.
Stock-Based Compensation
Employee stock awards under the Company's compensation plans
are accounted for in accordance with Accounting Principles
Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued
to Employees", and related interpretations. The Company
provides the disclosure requirements of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), and related interpretations.
Stock-based awards to non-employees are accounted for under
the provisions of SFAS 123 and has adopted the enhanced
disclosure provisions of SFAS No. 148 "Accounting for
Stock-Based Compensation- Transition and Disclosure, an
amendment of SFAS No. 123".
The Company measures compensation expense for its employee
stock-based compensation using the intrinsic-value method.
Under the intrinsic-value method of accounting for stock-based
compensation, when the exercise price of options granted to
employees is less than the estimated fair value of the
underlying stock on the date of grant, deferred compensation
is recognized and is amortized to compensation expense over
the applicable vesting period. In each of the periods
presented, the vesting period was the period in which the
options were granted. All options were expensed to
compensation in the period granted rather than the exercise
date.
The Company measures compensation expense for its non-employee
stock-based compensation under the Financial Accounting
Standards Board (FASB) Emerging Issues Task Force (EITF) Issue
No. 96-18, "Accounting for Equity Instruments that are Issued
to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services".
47
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The fair value of the option issued is used to measure the
transaction, as this is more reliable than the fair value of
the services received. The fair value is measured at the value
of the Company's common stock on the date that the commitment
for performance by the counterparty has been reached or the
counterparty's performance is complete. The fair value of the
equity instrument is charged directly to compensation expense
and additional paid-in capital.
Earnings per Share of Common Stock
Historical net loss per common share is computed using the
weighted-average number of common shares outstanding. Diluted
earnings per share (EPS) includes 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:
Restated Restated
2003 2002
--------- ---------
Net (loss) $ (554,272 $ (123,439)
========== ===========
Weighted-average common
shares outstanding
Basic 8,060,083 1,000
Weighted-average common
stock equivalents
Stock options - -
Warrants - -
----------- -----------
Weighted-average common
shares outstanding
Diluted 8,050,083 1,000
=========== ===========
Reclassifications
Certain amounts in the December 31, 2002 financial statements
have been restated to conform with the December 31, 2003
presentation. There has been no effect on the net loss from
operations for the year ended December 31, 2002 on these
reclassifications.
48
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 3- PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December
31, 2003, and 2002:
2003 2002
---------- ---------
Equipment $ 36,228 $ -
Furniture and Fixtures 29,974 -
Transportation Equipment 54,621 -
---------- ---------
120,823 -
Less: accumulated depreciation 17,769 -
---------- ---------
Net Book Value $ 103,054 $ -
========== ==========
Depreciation expense for the year ended December 31, 2003 was
$17,769.
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 December 31, 2003 under this lease are as
follows:
2004 $ 30,000
2005 30,000
2006 30,000
2007 27,500
--------
$ 117,500
=========
Rent expense for the year ended December 31, 2003 was $33,460,
and $9,339 for the period January 28, 2002 (inception) through
December 31, 2002.
The third-party truck side advertising lease commitments only
occurred in 2002, and in each instance were for a period less
than one year, therefore the Company has no commitment in
future years on those agreements.
49
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
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.
Throughout 2002, Sign Media Systems, Inc. maintained Due
To/From accounts with GO! Agency, LLC to properly reflect the
related party transactions. As of December 31, 2003, the
Company had an outstanding liability in the amount of $4,739
due to GO! Agency, LLC. No payment or repayment terms had been
established as of December 31, 2003. As of December 31, 2002,
there was $33,272 due to GO! Agency, LLC. Interest expense
paid to shareholders for the year ended December 31, 2003 and
2002 was $0.
The total revenue derived from GO! Agency, LLC. for the period
January 28, 2002 (inception) through December 31, 2002 was
$143,775.
On September 24, 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 24, 2005. At
December 31, 2003, the Company was indebted to GO! Agency in
the amount of $96,883. This amount is reflected in the
consolidated balance sheet as a long-term liability. As of
December 31, 2002, there was $59,683 due to GO! Agency,
reflected as a long-term liability on the consolidated balance
sheet.
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. At December 31, 2003, Olympus Leasing
had loaned the Company a total of $350,521 pursuant to the
loan agreement and the promissory note and the Company was
indebted to Olympus Leasing in such amount as of that date.
This amount is reflected in the consolidated balance sheet as
a long-term liability.
Total interest expense incurred to Olympus Leasing for the
year ended December 31, 2003 was $61,007. Actual interest paid
to Olympus Leasing was $110,801 for the year ended December
31, 2003. Of the amount $49,794 represents interest paid in
advance as detailed in Note 2.
50
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 6- LONG-TERM DEBT
Long-term debt consists of two installment notes with GMAC
Finance. 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 remaining balance on this loan
is $41,164. The loan carries no interest charges. Additionally
on December 4, 2003, the Company entered into another truck
loan in the amount of $46,860. No payments were made on this
loan as of December 31, 2003. The payments will be for a
period of 5 years at $772 per month. The loan carries no
interest charges.
The following represents maturities over the next five years
and in the aggregate:
For the years ending December 31:
2004 $18,420
2005 18,420
2006 18,420
2007 18,420
2008 14,344
Total $88,024
NOTE 7- PROVISION FOR INCOME TAXES
The net deferred tax assets in the accompanying consolidated
balance sheets include the following components at December
31, 2003 and 2002:
2003 2002
---------- ----------
Deferred tax assets $ 186,603 $ 37,032
Deferred tax
valuation allowance (186,603) (37,032)
---------- -----------
Net deferred tax assets $ - $ -
========== ===========
Due to the uncertainty of utilizing the approximate $677,711
and $123,439 net operating losses, respectively, and
recognizing the deferred tax assets, an offsetting valuation
allowance has been established.
Effective January 1, 2003, the Company terminated its election
as an S-corporation that occurred on January 28, 2002.
51
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 8- CONCENTRATION OF CREDIT RISK
A material part of the Company's business was dependent upon
one key customer during the year ended December 31, 2003.
Sales to this customer were approximately $624,874 or 80.7%.
For the period January 28, 2002 (inception) through December
31, 2002, the Company derived $143,775 or 78% of their income
from GO! Agency, LLC. Approximately 98% of the Company's
accounts receivable at December 31, 2003 is due from one
customer.
NOTE 9- STOCKHOLDERS' DEFICIT
As of December 31, 2003 and 2002, there were 100,000,000
shares of common stock authorized.
As of December 31, 2003 and 2002, there were 8,244,000 and
1,000 shares of common stock issued and outstanding,
respectively.
During 2002, the Company issued 1,000 shares of common stock
in exchange for $5,000 in cash.
During 2003 the Company had the following stock transactions:
The Company exchanged 7,959,000 shares of common stock for
$55,702 in net assets of Go Agency, LLC on January 1, 2003.
The Company issued 134,000 shares of common stock for
$160,500. The Company pursuant to a board resolution was to
issue another 16,000 shares of common stock, but this issuance
did not occur until 2004. The Company recorded a $24,000
liability for stock to be issued. This amount was received in
2003.
The Company issued 50,000 shares of common stock for services
valued at $75,000. The $1.50 per share value was derived at
based on the Company's recent cash sales of their securities.
There were no other valuations or sales of stock other than
the cash sales. This was determined to be the most accurate
reflection of the value at the time the stock was issued for
services.
The Company issued 100,000 shares of common stock but
authorized 300,000 shares to be issued in connection with the
merger of SMA. The Company valued this at $450,000 with
$300,000 reflected as a liability for stock to be issued for
200,000 shares. These shares were issued in 2004.
There were no options and warrants granted during the period
January 28, 2002 (Inception) through December 31, 2002 and the
year ended December 31, 2003.
52
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 10- PRIOR PERIOD ADJUSTMENTS
During the year ended December 31, 2003, the Company has
recognized $450,000 of organization expense, $130,702 of
professional fees and has reversed a $4,000 tax accrual.
Accordingly, the accumulated deficit is restated as follows:
Accumulated Deficit, December 31, 2003, as
previously reported ($101,009)
Prior Period Adjustments (576,702)
---------
Accumulated Deficit, December 31, 2003,
as restated ($677,711)
==========
In addition, the Company restated its 2002 financial
statements to reflect the issuance of the 7,959,000 shares of
stock effective January 1, 2003. The Company originally
reflected these shares as being issued in 2002.
53
PART III
ITEM 1. INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
3.1 Amended Articles of Incorporation of Sign Media Systems, Inc.
Incorporated by reference from our Form 10-SB filed as of May 4, 2004.
3.2 By-Laws of Sign Media Systems, Inc. Incorporated by reference from
our Form 10-SB filed as of May 4, 2004.
4.1 Specimen Certificate of the Common Stock of Sign Media Systems, Inc.
Incorporated by reference from our Form 10-SB filed as of May 4, 2004.
10.1 Agreement and Plan of Merger Among American Powerhouse, Inc., Sign
Media Systems Acquisition Company, Inc. and Sign Media Systems, Inc.
Incorporated by reference from our Form 10-SB/A Third Amendment filed as
of February 9, 2005.
10.2 Distribution Agreement between Sign Media Systems, Inc. and Applied
Advertising Network, LLC. Incorporated by reference from our Form
10-SB/A Third Amendment filed as of February 9, 2005.
10.3 Promissory Note and Loan Agreement between GO! AGENCY, LLC and Sign
Media Systems, Inc. Incorporated by reference from our Form 10-SB/A
Third Amendment filed as of February 9, 2005.
10.4 Promissory Note and Loan Agreement between Olympus Leasing Company
and Sign Media Systems, Inc. Incorporated by reference from our Form
10-SB/A Third Amendment filed as of February 9, 2005.
10.5 License Agreement for the acquisition of technology. Incorporated by
reference from our Form 10-SB/A Fourth Amendment filed as of April 1,
2005.
10.6 Contribution Agreement. Incorporated by reference form our Form
10-SB/A Fourth Amendment filed as of April 1, 2005.
14.1 Code of Ethics. Incorporated by reference from our Form 10-SB filed as
of May 4, 2004.
16.3 Letter on change in certifying accountant. Incorporated by reference
from our Form 10-SB/A Fourth Amendment filed as of April 1, 2005.
21. Our Subsidiaries. Incorporated by reference from our Form 10-SB
filed as of May 4, 2004.
54
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act or 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SIGN MEDIA SYSTEMS, INC.
(Registrant)
/s/ Antonio F. Uccello, III
Antonio F. Uccello, III
Chief Executive Officer, President, Chief Financial Officer,
Chairman of the Board of Directors
May 13, 2005
/s/ Thomas Bachman
Thomas Bachman
Director
May 13, 2005
/s/ Stephen R. MacNamara
Stephen R. MacNamara
Director
May 13, 2005
55