UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _________________
Commission file number 0-50742
SIGN MEDIA SYSTEMS, INC.
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(Exact name of small business issuer as specified in its charter)
FLORIDA 02-0555904
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(State or other jurisdiction of (IRS
incorporation or organization) Employer Identification No.)
2100 19th Street, Sarasota FL 34234
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(Address of principal executive offices)
(941) 330-0336
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 8,460,000 Common Shares no par value
as of March 31, 2004
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
The information required by Item 310(b) of Regulation S-B is attached hereto as
Exhibit One.
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 Company generated $282,600 of revenue, $227,456 of gross profit, $47,338 of
net earnings from continuing operations and $0.006 in earnings per
weighted-average common share from continuing operations for the three months
ended March 31, 2004.
For total operations, net income for the three months ended March 31, 2004, was
$47,338 or $0.006 in earnings per weighted-average common share with 8,222,222
weighted average common shares outstanding compared with a net loss of
$(108,328) or $(0.014) in earnings per weighted-average common with 8,000,000
weighted average common shares outstanding for the three months ended March 31,
2003.
Three Months Ended
March 31
2004 2003
Revenue $282,600 $ 15,751
Cost of Revenue 55,144 15,628
-------- ----------
Gross profit 227,456 123
Operating and Other Expenses 180,118 108,451
-------- ----------
Income (Loss) from
continuing operations $ 47,338 $(108,328)
======== ==========
Gross profit margin 80% 1%
Earnings per share
of common stock $ 0.006 $ (0.014)
Revenue for the three months ended March 31, 2004, increased $266,849 from the
same period last year. Cost of revenue for the three months ended March 31,
2004, increased $39,516 from the same period last year. Operating and other
expenses for the three months ended March 31, 2004, increased $71,667 from the
same period last year. Income from continuing operations for the three months
ended March 31, 2004, increased $155,666 from the same period last year.
Earnings per weighted-average common share was $0.006 for the three months ended
March 31, 2004, based on weighted-average common shares outstanding of
8,222,222, and earnings per weighted-average common share was $(0.014) for the
three months ended March 31, 2003 based upon weighted-average common shares
outstanding of 8,000,000.
MANAGEMENT'S DISCUSSION
The Company attributes the increase in revenue, cost of revenue, gross profit,
operating expenses and income form continuing operations to increases in sales
due to the continued expansion of the Company's sales and marketing division.
The Company's primary emphases is to expand sales nation wide and to also expand
into Latin America.
The Company currently has a working capital deficit. The Company will require
significant 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 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 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.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
There are no pending or threatened legal proceedings against the Company or any
of its subsidiaries.
Item 2. Changes in Securities.
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders.
NONE
Item 5. Other Information.
NONE
Item 6. Exhibits and Reports on Form 8-K.
INDEX TO EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------------------------------------------------------
1 SIGN MEDIA SYSTEMS, INC. FINANCIAL STATEMENTS
The Company filed no Forms 8K for the quarter ended March 31, 2004.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SIGN MEDIA SYSTEMS, INC.
(Registrant)
Date May 14, 2004 /s/ Antonio F. Uccello, III
Antonio F. Uccello, III
Chief Executive Officer
Chairman of the Board
EXHIBIT 1
SIGN MEDIA SYSTEMS, INC.
INDEX TO CONDENSED FINANCIAL STATEMENTS
CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheet (Unaudited) as of March 31, 2004
Statements of Income (Operations) for the Three Months Ended
March 31, 2004 and 2003 (Unaudited)
Statements of Cash Flows for the Three Months Ended
March 31, 2004 and 2003 (Unaudited)
Notes to Condensed Financial Statements
SIGN MEDIA SYSTEMS, INC.
BALANCE SHEETS
MARCH 31, 2004
ASSETS
(UNAUDITED)
MARCH 31,
2004
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CURRENT ASSETS
Cash and cash equivalents $ 149,559
Accounts receivable 546,949
Inventory 46,674
----------
Total Current Assets 743,182
PROPERTY AND EQUIPMENT - Net 111,251
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TOTAL ASSETS $ 854,433
==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current portion of long-term debt 17,940
Accounts payable and accrued expenses 172,071
---------
Total current liabilities 190,011
LONG-TERM DEBT - Net of Current Portion 20,682
DUE TO OFFICER/STOCKHOLDER 44,690
DUE TO RELATED PARTY COMPANIES 433,015
---------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value, 100,000,000 shares
authorized at March 31, 2004 and 8,460,000
issued and outstanding at March 31, 2004 5,000
Additional paid-in capital 214,437
Accumulated deficit (53,672)
---------
Total stockholder's equity (deficit) 165,765
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 854,433
=========
The accompanying notes are an integral part
of these condensed financial statements.
SIGN MEDIA SYSTEMS, INC.
CONDENSED STATEMENTS OF INCOME (OPERATIONS)
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED)
2004 2003
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REVENUE - NET OF DISCOUNTS $ 282,600 $ 15,751
COST OF GOODS SOLD 55,144 15,628
--------- ----------
GROSS PROFIT 227,456 123
--------- ----------
OPERATING EXPENSES
Professional fees 21,357 7,500
General and administrative expenses 154,169 93,461
Depreciation 4,500 2,363
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Total operating expenses 180,026 103,324
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INCOME (LOSS) BEFORE OTHER (EXPENSE) 47,430 (103,201)
OTHER (EXPENSE)
Interest expense (92) (5,127)
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Total Other (Expense) (92) (5,127)
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NET INCOME (LOSS) AFTER OTHER (EXPENSE) $ 47,338 $ (108,328)
======== ==========
NET INCOME (LOSS) PER BASIC AND DILUTED SHARES $ 0.006 $ (0.014)
======== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 8,222,222 8,000,000
========= ==========
The accompanying notes are an integral part
of these condensed financial statements.
<page>
SIGN MEDIA SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED)
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 47,338 $ (108,328)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation 4,500 2,363
Changes in assets and liabilities:
(Increase) in accounts receivable 24,949 (8,574)
(Increase) in inventory (8,283) (425)
(Increase) in prepaid expenses and other
assets 55,144 -
Increase in accounts payable and accrued expenses 19,111 16,685
(Decrease) in income taxes payable (4,000) -
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Total adjustments 91,421 10,049
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Net cash used in operating activities 138,759 (98,279)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixed assets (12,697) (56,444)
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Net cash provided by investing activities (12,697) (56,444)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (Payments) on long-term debt,
net of current portion (8,238) 13,702
Payments to from officers/stockholders (944) (5,889)
Proceeds (Payments) to related party companies (14,389) 112,154
Contribution of additional paid in capital - 29,937
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Net cash provided by financing activities (23,571) 149,904
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NET INCREASE IN CASH AND CASH EQUIVALENTS 102,491 (4,819)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 47,068 5,138
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CASH AND CASH EQUIVALENTS - END OF YEAR $ 149,559 $ 319
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest expense $ (92) $ (5,127)
========== ==========
The accompanying notes are an integral part
of these condensed financial statements.
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2004 AND 2003
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION
The condensed unaudited interim financial statements included
herein have been prepared by Sign Media Systems, Inc. (the
"Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the
"SEC"). Certain information and footnote disclosures normally
included in the financial statements prepared in accordance
with accounting principles generally accepted in the United
States of America have been condensed or omitted as allowed by
such rules and regulations, and the Company believes that the
disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial
statements be read in conjunction with the December 31, 2003
audited financial statements and the accompanying notes
thereto. While management believes the procedures followed in
preparing these condensed financial statements are reasonable,
the accuracy of the amounts are in some respects dependent
upon the facts that will exist, and procedures that will be
accomplished be the Company later that year.
The management of the Company believes that the accompanying
unaudited condensed financial statements contain all
adjustments (including normal recurring adjustments) necessary
to present fairly the operations and cash flows for the
periods presented.
The Company began business as Go! Agency LLC, a Florida
Limited Liability Company ("Go Agency"). Go Agency was formed
in April, 2000, principally to pursue third party truck side
advertising. The principal of Go Agency invested approximately
$857,000 in Go Agency pursuing this business. It became
apparent that a more advanced truck side mounting system would
be required and that third party truck side advertising alone
would not sustain an ongoing profitable business. Go Agency
determined to develop a technologically advanced mounting
system and focused on a different business plan.
In order to develop the advanced mounting system and to pursue
this new business plan, Go Agency incorporated Sign Media
Systems, Inc. (the "Company" or "SMS") on January 28, 2002
under the laws of the State of Florida. Go Agency and SMS
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. Effective
January 1, 2003, Go Agency transferred all of its assets
including its interest in the proprietary cam lever
technology, which together had an original cost basis of
$300,000 to SMS. The agreed upon value of the assets $55,702
was exchanged for 7,959,000 shares of the Company's common
stock which was in excess of eighty percent (80%) of the
Company's then issued and outstanding shares of common stock.
In connection with this exchange, SMS assured $25,765 of Go
Agency's debt, which consisted primarily of a truck loan from
GMAC Finance. Following the exchange, the Company had
8,000,000 shares of common stock issued and outstanding. The
Company has developed and filed an application for a patent on
its mounting systems.
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004 AND 2003
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
Effective December 8, 2003, Sign Media Systems Acquisition
Company, Inc., an inactive Florida corporation, was merged
into Sign Media Systems, Inc. per a Plan of Merger that was
adopted by the shareholders of both companies on November 17,
2003.
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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
Revenue is recognized under the accrual method of accounting
when the services are rendered rather than when cash is
collected for the services provided.
Cost is recorded on the accrual basis as well, when the
services are incurred rather than paid for.
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
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004 AND 2003
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising
Costs of advertising and marketing are expensed as incurred.
Advertising and marketing costs were $2,733 and $16,309 for
the three months ended March 31, 2004 and 2003, respectively
Fair Value of Financial Instruments
The carrying amount reported in the balance sheets for cash
and cash equivalents, accounts receivable, accounts payable
and accrued expenses approximate fair value because of the
immediate or short-term maturity of these financial
instruments.
Earnings per Share of Common Stock
Historical net income 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:
March 31
----------------------
2004 2003
-------- ------
Net income (loss) $ 47,338 $ (108,328)
========== ===========
Weighted-average common shares
outstanding
Basic 8,222,222 8,000,000
Weighted-average common stock
equivalents
Stock options - -
Warrants - -
--------- ---------
Weighted-average common shares
outstanding
Diluted 8,222,222 8,000,000
========= =========
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004 AND 2003
NOTE 3- PROPERTY AND EQUIPMENT
Property and equipment consist of the following at March 31,
2004 and 2003:
2004 2003
--------- -------
Equipment $ 39,217 $ 18,032
Furniture and Fixtures 35,947 29,552
Transportation Equipment 54,621 8,860
---------- --------
129,785 56,444
Less: accumulated depreciation 18,534 2,363
---------- --------
Net Book Value $ 111,251 $ 54,081
========== ========
Depreciation expense for the three months ended March 31, 2004
and 2003 was $4,500 and $2,363, respectively.
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 March 31, 2004 under this lease are as follows:
2004 $ 30,000
2005 30,000
2006 30,000
2007 27,500
--------
$117,500
========
Rent expense for the three months ended March 31, 2004 and
2003 was $11,781, and $8,643, respectively.
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004 AND 2003
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 March 31, 2004 there was
$265,244 due.
NOTE 6- LONG-TERM DEBT
Long-term debt consists of two installment notes with GMAC
Finance. As discussed in Note 1, the Company assumed debt from
Go! Agency as of January 28, 2002. On June 18, 2002, the
Company acquired a truck in the amount of $45,761 financed by
GMAC over a period of 5 years. Monthly payments are $763. The
loan carries no interest charges.
NOTE 7- PROVISION FOR INCOME TAXES
Deferred income taxes will be determined using the liability
method for the temporary differences between the financial
reporting basis and income tax basis of the Company's assets
and liabilities. Deferred income taxes will be measured based
on the tax rates expected to be in effect when the temporary
differences are included in the Company's tax return. Deferred
tax assets and liabilities are recognized based on anticipated
future tax consequences attributable to differences between
financial statement carrying amounts of assets and their
respective tax bases.
Effective January 1, 2003, the Company terminated its election
as an S corporation that occurred on January 28, 2002.