Additionally, SFAS No. 156 requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, permits an entity to choose either the use of an amortization or fair value method for subsequent measurements, permits at initial adoption a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights and requires separate presentation of servicing assets and liabilities subsequently measured at fair value and additional disclosures for all separately recognized servicing assets and liabilities. SFAS No. 156 is effective for transactions entered into after the beginning of the first fiscal year that begins after September 15, 2006. The adoption of FAS 156 is not anticipated to have a material impact on the company’s financial position or results of operations. In June 2006, the FASB issued Interpretation No. 48, “Accounting of Uncertainty in Income Taxes” (FIN48), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 establishes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact in the adoption of this interpretation will have on its future financial statements.
In September 2006, The Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurement” (SFAS No. 157”). This standard provides guidance for using fair value to measure assets and liabilities. SFAS No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. Prior to SFAS No. 157, the methods for measuring fair value were diverse and inconsistent, especially for items that are not actively traded. The standard clarifies that for items that are not actively traded, such as certain kinds or derivatives, fair value should reflect the price in a transaction with a market participant, including an adjustment for risk, not just the company’s mark-to-model value. SFAS No. 157 also requires expanded disclosure of the effect on earnings for items measured using unobservable data. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the impact of this statement on its financial statements and expects to adopt SFAS No. 157 on December 31, 2007.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans- -An Amendment of FASB Statements No 87,88,106 and 132R.” This standard requires an employer to: (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur. Those changes will be reported in comprehensive income. The requirement to recognize the funded status of a benefit plan and the disclosure requirements are effective as of the end of the fiscal year ending after December 15, 2006. The requirements to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008, The Company is evaluating the impact of this statement on its financial statements and believes that such impact will not be material.
Property and equipment consists of the following at June 30, 2007:
| | | 2007 | |
| Equipment | | $ | 128,745 | |
| Furniture and Fixtures | | | 112,022 | |
| Transportation Equipment | | | 24,621 | |
| | | | 265,388 | |
| Less: Accumulated Depreciation | | | 186,968 | |
| | | | | |
| Net Book Value | | $ | 78,420 | |
Depreciation expense for the six months ended June 30, 2007 was $20,332.
NOTE 5- RELATED PARTY TRANSACTIONS
On January 28, 2002, Sign Media Systems, Inc. was formed as a Florida Corporation but did not begin business operations until April 2002. Most of the revenue that Sign Media Systems, Inc. earned was contract work with Go! Agency, LLC., a Florida limited liability company, a related party. Sign Media Systems, Inc. would contract Go! Agency, LLC. to handle and complete jobs. There was no additional revenue or expense added from one entity to the other.
On January 3, 2003, the Company entered into a loan agreement with Olympus Leasing Company, a related party, and in connection therewith executed a promissory note with a future advance clause in favor of Olympus Leasing, whereby Olympus Leasing agreed to loan the Company up to a maximum of $1,000,000 for a period of three years, with interest accruing on the unpaid balance at 18% per annum, payable interest only monthly, with the entire unpaid balance due and payable in full on January 3, 2006. As of June 30, 2007 and 2006, there was $0 and $0 due to Olympus, respectively.
On June 28, 2005, the Company loaned $1,200,000 to Olympus Leasing Company, a related party. At June 28, 2005, Antonio F. Uccello, III, was, and is now the President, Chairman, a minority owner of the issued and outstanding shares of stock of Olympus Leasing and reports to its board of directors. Antonio F. Uccello, III, was and is one of the Company’s officers and directors and an indirect shareholder of Sign Media Systems, Inc. The loan is for a period of five years with interest accruing on the unpaid balance at 5.3% per annum payable annually, with the entire principle and unpaid interest due and payable in full on June 28, 2010.
There is no prepayment penalty. The purpose of the loan was to obtain a higher interest rate than is currently available at traditional banking institutions. Olympus Leasing’s primary business is making secured loans to chiropractic physicians throughout the United States for the purchase of chiropractic adjustment tables. The loans are generally for less than $3,000 each and are secured by a first lien on each chiropractic adjustment table. The chiropractic physician personally guarantees each loan. The rate of return on the Olympus Leasing loans is between 15% and 25% per annum. To date, Olympus Leasing has suffered no loss from any loan to a chiropractic physician for the purchase of a chiropractic adjustment table. There is an excellent market for the re-sale of tables, which may be the subject of a foreclosure. Olympus Leasing currently has in excess of $1,000,000 in outstanding finance receivables from chiropractic physicians secured by a first lien on each chiropractic adjustment table.
Since the making of the loan by the Company to Olympus Leasing, Olympus Leasing has made payments to the Company of $956,272 pursuant to the note. The remaining balance that was due from related party on the balance sheet was $613,342 on June 30, 2007.
NOTE 6- SHORT-TERM DEBT
Short-term debt consists of an installment note with GMAC Finance. Balance due on June 30, 2007 was $7,410.
NOTE 7- PROVISION FOR INCOME TAXES
There was no provision for income taxes during the six months ended June 30, 2007. For the six months ended June 30, 2006 there was a $101,775 provision.
In conformity with SFAS No. 109, deferred tax assets and liabilities are classified based on the financial reporting classification of the related assets and liabilities, which give rise to temporary book/tax differences. Deferred taxes were immaterial at June 30, 2007.
NOTE 8- 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 rent is anticipated to be $30,000 per annum. The lease expires in November of 2007.
Rent expense for the six months ended June 30, 2007 and 2006 was $15,000, and $8,025, respectively.
NOTE 9- CONCENTRATION OF CREDIT RISK
A material part of the Company’s business was dependent upon one key customer throughout its history. The company is no longer doing business with that customer which represented 99% of their revenues.
NOTE 10- STOCKHOLDERS’ EQUITY
As of June 30, 2007 and 2006, there were 100,000,000 shares of common stock authorized.
As of June 30, 2007 and 2006, there were 11,493,267 and 8,460,000 shares of common stock issued and outstanding, respectively.
The following is a list of the common stock transaction during the six months ended June 30, 2007:
On January 10, 2007, the Company issued 150,000 shares of its common stock at a fair market value of $75,000, for services provided to the Company.
On January 12, 2007, the Company issued 2,000,000 shares of its common stock at a fair market value of $1,000,000, for consulting services provided to the Company.
On February 8, 2007, the Company issued 300,000 shares of its common stock at a fair market value of $90,000, as additional compensation for an employee’s past services to the Company.
There were no options or warrants granted during the period beginning on January 28, 2002 (Inception) ending June 30, 2007.
NOTE 11- SUBSEQUENT EVENT
The company filed an 8-k on August 15, 2007 stating that the company sold securities in the amount of $235,294.
Item 2. Management's Discussion and Analysis or Plan of Operation.
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.
THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, AND THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO COMPETITION AND OVERALL MARKET AND ECONOMIC CONDITIONS.
RESULTS OF CONTINUING OPERATIONS
The following tables sets forth certain of our summary selected unaudited operating and financial data. The following table should be read in conjunction with all other financial information and analysis presented herein.
Six Months Ended
June 30
| | | 2007 | | | 2006 | |
| | | | | | | |
| Total Revenue | | $ | 24,713 | | | $ | 728,679 | |
| Cost of Goods Sold | | | 19,955 | | | | 15,820 | |
| Gross profit | | | 4,758 | | | | 712,859 | |
| Total Operating Expenses | | | 1,768,912 | | | | 253,846 | |
| Net Income (Loss) Before Other Income (Expense) | | | (1,764,154 | ) | | | 459,013 | |
| Total Other Income (Expense) | | | 7,617 | | | | 17,417 | |
| Net Income (Loss)Before Provision For Income Taxes | | | (1,756,537 | ) | | | 476,430 | |
| Provision For Income Taxes | | | - | | | | (101,775 | ) |
| Net Income (Loss) Applicable To Common Shares | | $ | (1,756,537 | ) | | $ | 374,655 | |
| Net Income (Loss) Per Basic And Diluted Shares | | $ | (0.16 | ) | | $ | 0.04 | |
| Weighted Average Number OF Common Shares Outstanding | | | 11,287,742 | | | | 8,460,000 | |
| Gross profit margin | | | 19 | % | | | 98 | % |
For the six months ended June 30, 2007, the Company had Total Revenue of $24,713, Cost of Goods Sold of $19,955, Gross Profit of $4,758, Total Operating Expenses $1,768,912, Net Income (Loss Before Other Income (Expense) of $(1,764,154), Total Other Income (Expense) $7,617, Net Income (Loss) Before Provision For Income Taxes of $(1,756,537), a Provision For Income Taxes of $0.00, Net Income (Loss) Applicable to Common Shares of $(1,756,537), and Net Income (Loss) Per Basic and Diluted Shares of $(0.16) based on 11,287,742 Weighted Average Number Of Common Shares Outstanding.
For the six months ended June 30, 2006, the Company had Total Revenue of $728,689, Cost of Goods Sold of $15,820, Gross profit of $712,859, Total Operating Expenses of $253,846, Net Income (Loss) Before Other Income (Expense) of $459,013, Total Other Income (Expense) of $17,417, Net Income (Loss) Before Provision For Income Taxes of $476,430, a Provision For Income Taxes of $(101,775), Net Income (Loss) Applicable To Common Shares of $374,655 and Net Income (Loss) Per Basic and Diluted Shares of $0.04 based on 8,460,000 Weighted Average Number Of Common Shares Outstanding.
Three Months Ended
June 30
| | | 2007 | | | 2006 | |
| | | | | | | |
| Revenue | | $ | 8,454 | | | $ | 426,427 | |
| Cost of Goods Sold | | | 1,258 | | | | 6,469 | |
| Gross profit | | | 7,196 | | | | 419,958 | |
| Total Operating Expenses | | | 484,919 | | | | 124,912 | |
| Net Income (Loss) Before Other Income (Expense) | | | (477,723 | ) | | | 295,046 | |
| Total Other Income (Expense) | | | 7,041 | | | | 6,980 | |
| Net Income (Loss)Before Provision For Income Taxes | | | (470,682 | ) | | | 302,026 | |
| Provision For Income Taxes | | | - | | | | (96,175 | ) |
| Net Income (Loss) Applicable To Common Shares | | $ | (470,682 | ) | | $ | 205,851 | |
| Net Income (Loss) Per Basic And Diluted Shares | | $ | (0.04 | ) | | $ | 0.02 | |
| Weighted Average Number OF Common Shares Outstanding | | | 11,493,267 | | | | 8,460,000 | |
| Gross profit margin | | | 85 | % | | | 98 | % |
For the three months ended June 30, 2007, the Company had Total Revenue of $8,454, Cost of Goods Sold of $1,258, Gross profit of $7,196, Total Operating Expenses of $484,919, Net Income (Loss) Before Other Income (Expense) of $(477,723), Total Other Income (Expense) of $7,041, Net Income (Loss) Before Provision For Income Taxes of $(470,682), a Provision For Income Taxes of $-, Net Income (Loss) Applicable To Common Shares of $(470,682) and Net Income (Loss) Per Basic and Diluted Shares of $(0.04) based on 11,493,267 Weighted Average Number Of Common Shares Outstanding.
For the three months ended June 30, 2006, the Company had Total Revenue of $426,427, Cost of Goods Sold of $6,469, Gross profit of $419,958, Total Operating Expenses of $124,912, Net Income (Loss) Before Other Income (Expense) of $295,046, Total Other Income (Expense) of $6,980, Net Income (Loss) Before Provision For Income Taxes of $302,026, a Provision For Income Taxes of $(96,175), Net Income (Loss) Applicable To Common Shares of $205,851 and Net Income (Loss) Per Basic and Diluted Shares of $0.02 based on 8,460,000 Weighted Average Number Of Common Shares Outstanding.
MANAGEMENT’S DISCUSSION
The Company’s revenue decreased by $703,966 from six month period to six month period. The Company attributes the decreases in Revenue, Gross Profit, Net Income Before Other Income, Net Income Before Provision For Income tax, Net Income Applicable to Common Shares, and Net Income Per Basic And Diluted Shares to the loss of one key customer that had previously accounted to more than ninety percent (90%) of the Company’s sales.
The Company attributes the increase in Total Operating Expenses to (a) the issuance of 150,000 shares of its unregistered restricted common stock valued at $75,000 for unpaid consulting services performed over a period of three years, (b) the issuance of 300,000 shares of its unregistered restricted common stock valued at $90,000 to an officer of the Company for unpaid services for a period of five years, and (c) the issuance of 2,000,000 shares of its registered common stock valued at $1,000,000 for consulting services over a period of four years for a total of $1,650,000.
The Company will require significant additional capital to implement both its short term and long-term business strategies. However, there can be no assurance that such additional capital will be available or, if available, that the terms will be favorable to the Company. The absence of significant additional capital whether raised through a public or private offering or through other means, including either private debt or equity financings, will have a material adverse effect on the Company’s operations and prospects.
The Company’s operations have consumed and will continue to consume substantial amounts of capital, which, up until now, have been largely financed internally through cash flows, from loans from related parties, and private investors. The Company expects capital and operating expenditures to increase. Although the Company believes that it will be able to attract additional capital through private investors and as a result thereof its cash reserves and cash flows from operations will be adequate to fund its operations through the end of calendar year 2007, 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 the Company. If adequate funds are not available to satisfy either short or long-term capital requirements, the Company may be required to limit its operations significantly or discontinue its operations. The Company’s capital requirements are dependent upon many factors including, but not limited to, the rate at which it develops and introduces its 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 its products and services.
Because of the loss of a key customer and a corresponding decline in revenue, the Company’s Board of Directors have authorized the Company’s officers to pursue raising additional capital of up to $5,000,000 by the means of a private placement of its common stock pursuant to Regulation 230.506 of Regulation D promulgated by the Securities and Exchange Commission pursuant to the Securities Act of 1933. The proceeds from the private placement will be utilized to expand the Company’s current business. and to seek the acquisition of non-related businesses internationally, including. There is no assurance that the private placement will attract sufficient additional capital for these purposes.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
There are no pending or threatened legal proceedings against the Company or any of its subsidiaries.
Item 2. 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) 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. (1)
| Date | Name | Number of Shares | Consideration in Dollars |
| | | | |
January 24, 2007 | Marcus Faller | 150,000 | Services 75,000 |
February 8, 2007 | Evelyn P. Silva | 300,000 | Services |
| Total | | | $165,00 |
The Company claims an exemption from registration for common stock issued to the above purchasers Pursuant to Section 4(2) of the Securities Act of 1933. All of the above purchasers, were provided the Company’s non-financial statement and financial statement information described in Section 502(b)(2) of Regulation D promulgated by the Securities and Exchange Commission. 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. The Company 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, the Company 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.
In the year ended December 31, 2006, we issued 583,267 shares of unregistered common stock to satisfy liabilities for stock to be issued in prior years for a total of $224,900. Reference is made to the Company’s First Amended Form 10-K for the period ended December 31, 2005 dated April 17, 2006 and filed with the Securities and Exchange Commission on April 17, 2006, which is incorporated herein by reference.
In addition to the above, reference is made to the Company’s Form 8-K, Section 3 - Securities and Trading Markets dated August 15 2007 and filed with the Securities and Exchange Commission on August 15, 2007, which is incorporated herein by reference.
Item 3. Defaults Upon Senior Securities.
NONE
Item 4. Submission of Matters to a Vote of Security Holders.
NONE
Item 5. Other Information.
On June 28, 2005, the Company loaned, $1,200,000 to Olympus Leasing Company, a related party. At June 28, 2005, Antonio F. Uccello, III, was, and is now the President, Chairman and a minority owner of the issued and outstanding shares of stock of Olympus Leasing and reports to its board of directors. Antonio F. Uccello, III, was and is one of the Company’s officers and directors and an indirect shareholder of Sign Media Systems, Inc. The loan is for a period of five years with interest accruing on the unpaid balance at 5.3% per annum payable annually, with the entire principal and unpaid interest due and payable in full on June 28, 2010. There is no prepayment penalty. The purpose of the loan was to obtain a higher interest rate than is currently available at traditional banking institutions. Olympus Leasing’s primary business is making secured loans to chiropractic physicians throughout the United States for the purchase of chiropractic adjustment tables. The loans are generally for less than $3,000 each and are secured by a first lien on each chiropractic adjustment table. Each loan is personally guaranteed by the chiropractic physician. The rate of return on the Olympus Leasing loans is between 15% and 25% per annum. To date, Olympus Leasing has suffered no loss from any loan to a chiropractic physician for the purchase of a chiropractic adjustment table. On January 3, 2007, the Company pursuant to the future advance clause in this note loaned Olympus Leasing an additional $300,000. Since the making of the loan, including future advances thereon, by the Company to Olympus Leasing, Olympus Leasing has made payments to the Company of $956,272 pursuant to the note attached hereto as Exhibit 10.6. The remaining balance that was due from related party on the balance sheet was $613,342 on June 30, 2007. Because of the foregoing facts, the Company believes that the probability of a default on the loan by it to Olympus Leasing is unlikely. The current principal balance due to the Company from Olympus Leasing is $594,746. There is an excellent market for the re-sale of chiropractic adjustment tables which may be the subject of a foreclosure. Olympus Leasing currently has in excess of $1,000,000 in outstanding finance receivables from chiropractic physicians secured by a first lien on each chiropractic adjustment table.
Item 6. Exhibits and Reports on Form 8-K.
INDEX TO EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------------------------------------------------------------------------------------------------
10.6 Promissory Note described in Part I, Item 2, Management's Discussion and Analysis and Plan of Operation above which is inforporated herein by
reference from the Company's Second Amended Form 10-QSB, Quarterly Report under Section 13 or 15(d) of the Exchange Act for the period ended
June 30, 2005 and filed with the Securities and Exchange Commission on November 22, 2005.
31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
