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 June 30, 2005
[ ] 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 incorporation or organization) (IRS
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 June 30, 2005.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
The information required by Item 310(b) of Regulation S-B is attached hereto as
Exhibit One and is incorporated herein by reference.
Item 2. Management's Discussion and Analysis or Plan of Operation.
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND
NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.
THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, AND THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING, BUT NOT LIMITED TO COMPETITION AND OVERALL MARKET AND ECONOMIC
CONDITIONS.
RESULTS OF OPERATIONS
Six Months Ended
June 30
2005 2004
Revenue $ 511,385 $ 654,484
Cost of goods sold 13,396 94,260
------------ ------------
Gross profit 497,989 560,224
------------ ------------
Operating and other
Expenses 403,511 328,963
------------ ------------
Other income 103 -
------------ ------------
Net income (loss) $ 94,581 $ 231,261
============ ============
Gross profit margin 97% 86%
Earnings per share
of common stock $ 0.011 $ 0.028
============ =============
Weighted average of
common shares 8,460,000 8,256,621
=========== ============
For the six months ended June 30, 2005, the Company generated $511,385 of
revenue, $497,989 of gross profit, $94,581 of net income, and $0.011 in earnings
per weighted average common share based upon a weighted average of 8,460,000
common shares outstanding. .
For the six months ended June 30, 2004, the Company generated $654,484 of
revenue, $560,224 of gross profit, $231,261) of net income, and $0.028 of net
income per weighted common share based upon a weighted average of 8,256,631
common shares outstanding.
Revenue for the six months ended June 30, 2005, decreased $143,099 from the same
period last year. Net income for the six months ended June 30, 2005, decreased
$136,680 from the same period last year. Earnings per share for the six months
ended June 30,2005, decreased $0.02 from the same period last year.
Three Months Ended
June 30
2005 2004
Revenue $ 489,114 $ 371,884
Cost of goods sold 10,889 39,116
---------- ---------
Gross profit 478,225 332,768
---------- ---------
Operating and other
Expenses 213,443 148,845
---------- ---------
Other income 101 -
---------- ---------
Net income (loss) $ 264,883 $ 183,923
========== =========
Gross profit margin 98% 89%
Earnings per share
of common stock $ 0.031 $ 0.022
========== ========
Weighted average of
common shares 8,460,000 8,460,000
========== =========
For the three months ended June 30, 2005, the Company generated $489,114 of
revenue, $478,225 of gross profit, $264,883 of net income, and $0.031 in
earnings per weighted average common share based upon a weighted average of
8,460,000 common shares outstanding. .
For the three months ended June 30, 2004, the Company generated $371,884 of
revenue, $332,768 of gross profit, $183,923 of net income, and $0.022 in
earnings per weighted average common share based upon a weighted average of
8,460,000 common shares outstanding.
Revenue for the three months ended June 30, 2005, increased $117,230 from the
same period last year. Net income for the three months ended June 30, 2005,
increased $80,960 from the same period last year. Earnings per share for the
three months ended June 30,2005, increased $0.03 from the same period last year.
MANAGEMENT'S DISCUSSION
The Company is in the business of developing, manufacturing and marketing mobile
billboard mounting systems which are mounted primarily on truck sides, rear
panels and breaking panel roll up doors. The Company also produces digitally
created outdoor, full color vinyl images ("Fleet Graphics") which are inserted
into the mounting systems and displayed primarily on trucks. The Company has
developed mounting systems which allow Fleet Graphics to easily slide into an
aluminum alloy extrusion with a cam-lever that snaps closed stretching the image
tight as a drum, and that also easily opens to free the image for fast removals
and change outs without damaging the truck body or the Fleet Graphics. The
mounting systems' proprietary cam-lever technology is the key to their
operation.
The Company's revenue comes from three primary sources; sales of the mobile
billboard mounting systems, sales of digital printing, and sales of third party
advertising utilizing the mobile billboard mounting systems. During the six
months ended June 30, 2005, $496,904. or 97% of the Company's revenue came from
the sale of its mobile billboard mounting systems, $0.00 or 00% of the Company's
revenue came from the sale of third party advertising and $15,281.00 or 3% of
the Company's revenue came from the sale of digital printing.
A material part of the Company's business is currently dependent upon one key
customer, Advanced Advertising Network, LLC of Lake Mary, Florida. During the
six months ended June 30, 2005, the Company's sales to this customer were
approximately $485,816 or 95% of all sales. During the three months ended June
30, 2005, the Company's sales to this customer were approximately $459,768 or
94% of all sales. The Company continues to rely on this customer for the
majority of its sales. However, the Company is moving forward to expand its
distribution base so that it will no longer depend on this one key customer.
There can be no guarantee that the Company will be able to diversify its
distribution base. Advanced Advertising Network, LLC is not a related party.
For the six months ended June 30, 2005, the Company attributes the decreases in
revenue, net income and earnings per share to seasonal decreases in sales and
increases in operating expenses due to the continued expansion of the Company's
sales and marketing division. The Company's primary emphases is to expand sales
nation wide and to also expand into Latin America by acquiring independent
dealers.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
There are no pending or threatened legal proceedings against the Company or any
of its subsidiaries.
Item 2. Changes in Securities.
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders.
NONE
Item 5. Other Information.
NONE
Item 6. Exhibits and Reports on Form 8-K.
INDEX TO EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
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1 SIGN MEDIA SYSTEMS, INC. FINANCIAL STATEMENTS
The Company filed no Forms 8K for the quarter ended June 30, 2005.
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 August 22, 2005 /S/Antonio F. Uccello, III
--------------- -----------------------------
Antonio F. Uccello, III
Chief Executive Officer
Chairman of the Board
EXHIBIT ONE
SIGN MEDIA SYSTEMS, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 2005 AND 2004
SIGN MEDIA SYSTEMS, INC.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheet (Unaudited) as of June 30, 2005
Condensed Consolidated Statements of Income for the
Six and Three Months Ended June 30, 2005 and 2004 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2005 and 2004 (Unaudited)
Notes to Condensed Consolidated Financial Statements
SIGN MEDIA SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2005
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 13,705
Accounts receivable 8,929
Inventory 78,036
---------------
Total current assets 100,670
---------------
PROPERTY AND EQUIPMENT - Net 186,527
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OTHER ASSETS
Due from related parties 1,200,000
---------------
Total other assets 1,200,000
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TOTAL ASSETS $ 1,487,197
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Deferred revenue $ 250,000
Liability for stock to be issued 224,900
Accounts payable and accrued expenses 222,823
Due to related parties 19,985
Current portion of long-term debt 9,211
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Total current liabilities 726,919
Long-term debt - net of current portion 51,184
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TOTAL LIABILITIES $ 778,103
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STOCKHOLDERS' EQUITY
Common stock, no par value, 100,000,000 shares
authorized at June 30, 2005 and 8,460,000 shares
issued and outstanding at June 30, 2005 $ 5,000
Additional paid-in capital 1,171,700
Accumulated deficit (467,606)
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Total stockholders' equity 709,094
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,487,197
=============
The accompanying notes are an integral part
of these condensed consolidated financial statements.
SIGN MEDIA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2005 AND 2004 (UNAUDITED)
SIX MONTHS ENDED THREE MONTHS ENDED
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
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REVENUE $ 511,385 $ 654,484 $ 489,114 $ 371,884
COST OF GOODS SOLD 13,396 94,260 10,889 39,116
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GROSS PROFIT 497,989 560,224 478,225 332,768
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OPERATING EXPENSES
Professional fees 33,854 28,021 13,244 6,664
General and administrative
expenses 343,798 249,095 186,534 94,926
Depreciation 24,941 16,715 13,050 12,215
-------------------------------------------------
Total operating expenses 402,593 293,831 212,828 113,805
-------------------------------------------------
NET INCOME BEFORE OTHER
INCOME (EXPENSE) 95,396 266,393 265,397 218,963
OTHER INCOME (EXPENSE)
Other income 103 - 101 -
Interest expense (918) (35,132) (615) (35,040)
-------------------------------------------------
Total Other Income (Expense) (815) (35,132) (514) (35,040)
-------------------------------------------------
NET INCOME BEFORE PROVISION
FOR INCOME TAXES 94,581 231,261 264,883 183,923
Provision for income taxes - - - -
-------------------------------------------------
NET INCOME APPLICABLE TO
COMMON SHARES $ 94,581 $ 231,261 $ 264,883 $ 183,923
=================================================
NET INCOME PER BASIC AND
DILUTED SHARES 0.011 0.028 0.031 0.022
=================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 8,460,000 8,256,631 8,460,000 8,460,000
=================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
SIGN MEDIA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (UNAUDITED)
2005 2004
--------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 94,581 $ 231,261
-------------------------------
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation 24,941 16,715
Changes in assets and liabilities:
(Increase) in accounts receivable 541,649 (235,582)
(Increase) decrease in allowance
for doubtful accounts 500,000 -
(Increase) decrease in inventory 7,536 2,850
Decrease in prepaid expenses and
other current assets 4,000 39,666
(Increase) in miscellaneous receivable - (4,000)
Increase in accounts payable and
accrued expenses 52,834 17,248
Increase in deferred revenue 250,000 -
-------------------------------
Total adjustments 1,380,960 (163,103)
-------------------------------
Net cash provided by operating activities 1,475,541 68,158
-------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (86,913) (47,230)
-------------------------------
Net cash (used in) investing activities (86,913) (47,230)
-------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in liability for stock to be issued 24,900 -
Payments on long-term debt (9,209) (52,089)
Payments on debt - related parties (1,396,966) (183,142)
Contribution of additional paid-in capital - 200,000
-------------------------------
Net cash (used in) financing activities (1,381,275) (35,231)
-------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 7,353 (14,303)
CASH AND CASH EQUIVALENTS - BEGINNING
OF PERIOD 6,352 47,068
-------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 13,705 $ 32,765
===============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest. $ - $ 35,132
===============================
SUPPLEMENTAL NON-CASH INVESTING ACTIVITIES:
Conversion of liability to common stock $ - $ 324,000
===============================
The accompanying notes are an integral
part of these condensed consolidated financial statements.
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION
The condensed unaudited interim financial statements included
herein have been prepared by Sign Media Systems, Inc. (the
"Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the
"SEC"). Certain information and footnote disclosures normally
included in the financial statements prepared in accordance
with accounting principles generally accepted in the United
States of America have been condensed or omitted as allowed by
such rules and regulations, and the Company believes that the
disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed consolidated
financial statements be read in conjunction with the December
31, 2004 audited financial statements and the accompanying
notes thereto. While management believes the procedures
followed in preparing these condensed financial statements are
reasonable, the accuracy of the amounts are in some respects
dependent upon the facts that will exist, and procedures that
will be accomplished by the Company later that year.
The management of the Company believes that the accompanying
unaudited condensed consolidated financial statements contain
all adjustments (including normal recurring adjustments)
necessary to present fairly the operations and cash flows for
the periods presented.
The Company 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.
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2005 AND 2004
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
The Company was incorporated on January 28, 2002 as a Florida
corporation. Upon incorporation, an officer of the Company
contributed $5,000 and received 1,000 shares of common stock
of the Company. Effective January 1, 2003, the Company issued
7,959,000 shares of common stock in exchange of $55,702 of net
assets of GO! Agency, LLC, a Florida limited liability company
("Go Agency"), a company formed on June 20, 2000, as E Signs
Plus.com, LLC, a Florida limited liability company. In this
exchange, the Company assumed some debt of GO! Agency and the
exchange qualified as a tax-free exchange under IRC Section
351. The net assets received were valued at historical cost.
The net assets of Go Agency that were exchanged for the shares
of stock were as follows:
Accounts receivable $ 30,668
Fixed assets, net of depreciation 112,214
Other assets 85,264
Accounts payable (29,242)
Notes payable (27,338)
Other payables (115,864)
---------
Totals $ 55,702
========
Go Agency was formed to pursue third party truck 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
recoded due to the fact that there was no historic recorded
value on the books of Go Agency for this asset.
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2005 AND 2004
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
Signs Media Systems, Inc. Pursuant to the merger agreement,
Signs 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 this merger. As consideration for
the merger, Sign Media Systems issued 300,000 shares of its
common stock to American Powerhouse, 100,000 shares in the
year ending December 31, 2002, and 200,000 shares in the year
ending December 31, 2004. The 300,000 shares of stock were
valued at $1.50 per share based on recent private sales of
Sign Media Systems common stock. There were no other material
costs of the merger. There was and is no relationship between
American Powerhouse and either Sign Media Systems or GO!
AGENCY. The Company recorded this license as an intangible
asset for $400,000 and subsequently impaired the entire
amount.
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2005 AND 2004
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of condensed consolidated financial statements
in conformity with accounting principles generally accepted in
the United States of America requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Revenue and Cost Recognition
Currently, the Company has three primary sources of revenue:
(1) The sale and installation of their mounting system
(2) The printing of advertising images to be inserted on
trucks utilizing the Company's mounting systems.
(3) Third party advertising
The Company's revenue recognition policy for these sources of
revenue is as follows. The Company relies on Staff Accounting
Bulletin Topic 13, in determining when recognition of revenue
occurs. There are four criteria that the Company must meet
when determining when revenue is realized or realizable and
earned. The Company has persuasive evidence of an arrangement
existing; delivery has occurred or services rendered; the
price is fixed or determinable; and collectibility is
reasonably assured. Typically, the Company recognizes revenue
when orders are placed and they receive deposits on those
orders. In regard to the revenue recognition of third party
advertising, the Company recognizes the revenue once they have
completed the task for which the consumer paid.
In addition, the Company offers 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.
Costs of goods sold are separated by components consistent
with the revenue categories. Mounting systems, printing and
advertising costs include purchases made, and payroll costs
attributable to those components. Payroll costs is included
for sales, engineering and warehouse personnel in cost of
goods sold. Cost of overhead is diminimus. The Company's
inventory consists of finished goods, and unassembled parts
that comprise the framework for the mounting system placed on
trucks for their advertising. All of these costs are included
in costs of goods sold for the six months ended June 30, 2005
and 2004.
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2005 AND 2004
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 $1,800 and $3,020 for the
six months ended June 30, 2005 and 2004, 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) include additional dilution from
common stock equivalents, such as stock issuable pursuant to
the exercise of stock options and warrants.
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2005 AND 2004
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings per Share of Common Stock (Continued)
The following is a reconciliation of the computation for basic
and diluted EPS:
2005 2004
------ ------
Weighted-average common stock equivalents
Stock options - -
Warrants - -
-------- -------
Weighted-average common shares outstanding
Diluted 8,460,000 8,256,631
========= =========
NOTE 3- PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30,
2005 and 2004:
2005 2004
-------- -------
Equipment $ 104,234 $ 71,634
Furniture and Fixtures 112,022 41,798
Transportation Equipment 54,621 54,621
--------- -------
270,877 167,053
Less: accumulated depreciation 84,350 34,484
--------- -------
Net Book Value $ 186,527 $133,569
========= ========
Depreciation expense for the six months ended June 30, 2005
and 2004 was $24,941 and $16,715, respectively.
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2005 AND 2004
NOTE 4- COMMITMENTS AND CONTINGENCIES
The Company entered into a lease agreement on November 1, 2002
with Hawkeye Real Estate, LLC, a related entity, to lease
warehouse and office space. The lease expires on December 30,
2007, and provides that SMS pay all applicable sales and use
tax, insurance and maintenance. The total minimum rental
commitments at June 30, 2005 under this lease are as follows:
2005 $ 30,000
2006 30,000
2007 15,000
---------
$ 75,000
=========
Rent expense for the six months ended June 30, 2005 and 2004
was $16,050, and $19,086, respectively.
NOTE 5- RELATED PARTY TRANSACTIONS
On January 28, 2002, Sign Media Systems, Inc. was formed as
a Florida Corporation but did not begin business operations
until April 2002. Most of the revenue that Sign Media Systems,
Inc. earned was contract work with Go! Agency, LLC., a
Florida limited liability company, a related party. Sign
Media Systems, Inc. would contract Go! Agency, LLC. to
handle and complete jobs. There was no additional revenue or
expense added from one entity to the other.
On 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, 2005 there was $0 due
to Olympus. Other due to related party advances were $19,985.
Due from related parties totaled $19,985 at June 30, 2005.
On June 28, 2005, the Company loaned to Olympus Leasing
Company, a related party, $1,200,000. The loan is for a period
of five years with interest accruing on the unpaid balance at
5.3% per annum, interest only payable annually, with the
entire principal and unpaid interest due and payable in full
on June 28, 2010.
SIGN MEDIA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2005 AND 2004
NOTE 6- LONG-TERM DEBT
Long-term debt consists of two installment notes with GMAC
Finance. As discussed in Note 1, the Company assumed debt from
Go! Agency as of January 28, 2002. On June 18, 2003, the
Company acquired a truck in the amount of $45,761 financed by
GMAC over a period of 5 years. Monthly payments are $763. The
loan carries no interest charges.
NOTE 7- PROVISION FOR INCOME TAXES
The net deferred tax assets in the accompanying condensed
consolidated balance sheets include the following components
at June 30, 2005:
Deferred tax assets $ 140,000
Deferred tax valuation allowance (140,000)
----------
$ -
==========
Due to the uncertainty of utilizing the entire $467,606 in net
operating losses, and recognizing the deferred tax assets, an
offsetting valuation allowance has been established. The
Company will utilize its net operating losses to offset any
Federal Income Tax due.
NOTE 8- STOCKHOLDERS' EQUITY
As of June 30, 2005 and 2004, there were 100,000,000 shares of
common stock authorized.
As of June 30, 2005 and 2004, there were 8,460,000 shares of
common stock issued and outstanding.
During the six months ended June 30, 2005 the Company did not
have any stock transactions.
NOTE 9- LIABILITY FOR STOCK TO BE ISSUED
At June 30, 2005, the Company has recorded $224,900 for common
stock to be issued at a later date. Upon the issuance of the
common stock the liability will be removed.