Signet
International Holdings, Inc. and Subsidiary
(a
development stage enterprise)
Consolidated
Statements of Cash Flows
Nine
months ended September 30, 2007 and 2006 and
Period
from October 17, 2003 (date of inception) through September 30,
2007
(Unaudited)
|
|
Nine months
ended
September 30,
2007
|
|
|
Nine months
ended
September 30,
2006
|
|
|
Period
from
October
17,
2003
(date
of inception)
through
September 30,
2007
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(
218,105
|
)
|
|
$
|
(
488,198
|
)
|
|
$
|
(
1,142,000
|
)
|
Adjustments
to reconcile net income to net cash
provided
by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Organizational
expenses paid with issuance
of common and preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
50,810
|
|
Expenses
paid with common stock
|
|
|
-
|
|
|
|
250,000
|
|
|
|
306,430
|
|
Increase
(Decrease) in
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable - trade
|
|
|
(
19,165
|
)
|
|
|
|
|
|
|
|
|
Accrued
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
officers compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(
99,730
|
)
|
|
|
(
105,423
|
)
|
|
|
(
335,337
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
proceeds from note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
90,000
|
|
Cash
paid to retire note payable
|
|
|
-
|
|
|
|
(90,000
|
)
|
|
|
(90,000
|
)
|
Cash
proceeds from sale of common stock
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
Purchase
of treasury stock
|
|
|
-
|
|
|
|
(50,000
|
)
|
|
|
(50,000
|
)
|
Cash
paid to acquire capital
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,447
|
)
|
Capital
contributed to support operations
|
|
|
-
|
|
|
|
-
|
|
|
|
33,812
|
|
Net
cash provided by financing activities
|
|
|
|
|
|
|
(125,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease) in Cash and Cash Equivalents
|
|
|
(
80,430
|
)
|
|
|
(
230,423
|
)
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
|
|
|
|
401,370
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Interest and Income Taxes Paid
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid during the period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,000
|
|
Income
taxes paid (refunded)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Non-Cash Investing and Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of broadcast and intellectual properties with
long-term
contracts payable and common stock
|
|
$
|
4,007,249
|
|
|
$
|
-
|
|
|
$
|
4,007,249
|
|
The
financial information presented herein has been prepared by
management
without
audit by independent certified public accountants.
The
accompanying notes are an integral part of these financial
statements.
Signet
International Holdings, Inc. and Subsidiary
(a
development stage enterprise)
Notes
to Consolidated Financial Statements
September
30, 2007 and 2006
Note
A - Organization and Description of Business
Signet
International Holdings, Inc. was incorporated on February 2, 2005 in accordance
with the Laws of the State of Delaware as 51142, Inc.
On
September 8, 2005, pursuant to a Stock Purchase Agreement and Share Exchange
(Agreement) by and among Signet International Holdings, Inc. (Signet); Signet
Entertainment Corporation (SIG) and the shareholders of SIG (Shareholders)
(collectively SIG and the SIG shareholders shall be known as the “SIG Group”),
Signet acquired 100.0% of the then issued and outstanding preferred and common
stock of SIG for a total of 3,421,000 common shares and 5,000,000 preferred
shares of Signet’s stock issued to the SIG Group. Pursuant to the
agreement, SIG became a wholly owned subsidiary of Signet.
Signet
Entertainment Corporation was incorporated on October 17, 2003 in accordance
with the Laws of the State of Florida. SIG was formed to establish a
television network “The Gaming and Entertainment Network”.
The
Company is considered in the development stage and, as such, has generated
no
significant operating revenues and has incurred cumulative operating losses
of
approximately $1,142,000.
Note
B - Preparation of Financial Statements
The
acquisition of Signet Entertainment Corporation by Signet International
Holdings, Inc. effected a change in control of Signet International Holdings,
Inc. and is accounted for as a “reverse acquisition” whereby Signet
Entertainment Corporation is the accounting acquirer for financial statement
purposes. Accordingly, for all periods subsequent to the “reverse
merger” transaction, the financial statements of the Signet International
Holdings, Inc. will reflect the historical financial statements of Signet
Entertainment Corporation from it’s inception and the operations of Signet
International Holdings, Inc. subsequent to the September 8, 2005 transaction
date.
The
Company follows the accrual basis of accounting in accordance with accounting
principles generally accepted in the United States of America and has a year-end
of December 31.
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 disclosure 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.
Management
further acknowledges that it is solely responsible for adopting sound accounting
practices, establishing and maintaining a system of internal accounting control
and preventing and detecting fraud. The Company’s system of internal
accounting control is designed to assure, among other items, that 1) recorded
transactions are valid; 2) valid transactions are recorded; and 3) transactions
are recorded in the proper period in a timely manner to produce financial
statements which present fairly the financial condition, results of operations
and cash flows of the Company for the respective periods being
presented.
During
interim periods, the Company follows the accounting policies set forth in
its
annual audited financial statements filed with the U. S. Securities and Exchange
Commission on its Annual Report on Form 10-KSB for the year ended December
31,
2006. The information presented within these interim financial
statements may not include all disclosures required by generally accepted
accounting principles and the users of financial information provided for
interim periods should refer to the annual financial information and footnotes
when reviewing the interim financial results presented herein.
In
the
opinion of management, the accompanying interim financial statements, prepared
in accordance with the U. S. Securities and Exchange Commission’s instructions
for Form 10-QSB, are unaudited and contain all material adjustments, consisting
only of normal recurring adjustments necessary to present fairly the financial
condition, results of operations and cash flows of the Company for the
respective interim periods presented. The current period results of
operations are not necessarily indicative of results which ultimately will
be
reported for the full fiscal year ending December 31, 2007.
Signet
International Holdings, Inc. and Subsidiary
(a
development stage enterprise)
Notes
to Consolidated Financial Statements - Continued
September
30, 2007 and 2006
Note
B - Preparation of Financial Statements - Continued
The
accompanying consolidated financial statements contain the accounts of Signet
International Holdings, Inc. and its wholly-owned subsidiary, Signet
Entertainment Corporation. All significant intercompany transactions
have been eliminated. The consolidated entities are collectively
referred to as “Company”.
Note
C - Going Concern Uncertainty
The
Company remains in the process of implementing it’s business plan, which will
require the raising of additional capital. As such, the Company is
considered to be a development stage company.
The
Company's continued existence is dependent upon its ability to generate
sufficient cash flows from operations to support its daily operations as
well as
provide sufficient resources to retire existing liabilities and obligations
on a
timely basis.
The
Company anticipates that future sales of equity securities to fully implement
it’s business plan or to raise working capital to support and preserve the
integrity of the corporate entity may be necessary. There is no
assurance that the Company will be able to obtain additional funding through
the
sales of additional equity securities or, that such funding, if available,
will
be obtained on terms favorable to or affordable by the Company.
If
no
additional capital is received to successfully implement the Company’s business
plan, the Company will be forced to rely on existing cash in the bank and
upon
additional funds which may or may not be loaned by management and/or significant
stockholders to preserve the integrity of the corporate entity at this
time. In the event, the Company is unable to acquire sufficient
capital, the Company’s ongoing operations would be negatively
impacted.
It
is the
intent of management and significant stockholders to provide sufficient working
capital necessary to support and preserve the integrity of the corporate
entity. However, no formal commitments or arrangements to advance or
loan funds to the Company or repay any such advances or loans
exist. There is no legal obligation for either management or
significant stockholders to provide additional future funding.
While
the
Company is of the opinion that good faith estimates of the Company’s ability to
secure additional capital in the future to reach our goals have been made,
there
is no guarantee that the Company will receive sufficient funding to sustain
operations or implement any future business plan steps.
Note
D - Summary of Significant Accounting Policies
1.
|
Cash
and cash equivalents
|
For
Statement of Cash Flows purposes, the Company considers all cash on hand
and in
banks, certificates of deposit and other highly-liquid investments with
maturities of three months or less, when purchased, to be cash and cash
equivalents.
The
Company has adopted the provisions of AICPA Statement of Position 98-5,
“Reporting on the Costs of Start-Up Activities” whereby all organizational and
initial costs incurred with the incorporation and initial capitalization
of the
Company were charged to operations as incurred.
3.
|
Research
and development expenses
|
Research
and development expenses are charged to operations as
incurred.
Signet
International Holdings, Inc. and Subsidiary
(a
development stage enterprise)
Notes
to Consolidated Financial Statements - Continued
September
30, 2007 and 2006
Note
D - Summary of Significant Accounting Policies - Continued
The
Company does not utilize direct solicitation advertising. All other
advertising and marketing expenses are charged to operations as
incurred.
The
Company uses the asset and liability method of accounting for income
taxes. At September 30, 2007 and 2006, respectively, the deferred tax
asset and deferred tax liability accounts, as recorded when material
to the
financial statements, are entirely the result of temporary
differences. Temporary differences represent differences in the
recognition of assets and liabilities for tax and financial reporting
purposes,
primarily accumulated depreciation and amortization, allowance for
doubtful
accounts and vacation accruals.
As
of
September 30, 2007 and 2006, the deferred tax asset related to the
Company’s net
operating loss carryforward is fully reserved. Due to the provisions
of Internal Revenue Code Section 338, the Company may have no net operating
loss
carryforwards available to offset financial statement or tax return
taxable
income in future periods as a result of a change in control involving
50
percentage points or more of the issued and outstanding securities
of the
Company.
6.
|
Earnings
(loss) per share
|
Basic
earnings (loss) per share is computed by dividing the net income (loss)
available to common shareholders by the weighted-average number of
common shares
outstanding during the respective period presented in our accompanying
financial
statements.
Fully
diluted earnings (loss) per share is computed similar to basic income
(loss) per
share except that the denominator is increased to include the number
of common
stock equivalents (primarily outstanding options and warrants).
Common
stock equivalents represent the dilutive effect of the assumed exercise
of the
outstanding stock options and warrants, using the treasury stock method,
at
either the beginning of the respective period presented or the date
of issuance,
whichever is later, and only if the common stock equivalents are considered
dilutive based upon the Company’s net income (loss) position at the calculation
date.
At
September 30, 2007 and 2006, and subsequent thereto, the Company’s issued and
outstanding preferred stock is considered anti-dilutive due to the
Company’s net
operating loss position.
Note
E - Fair Value of Financial Instruments
The
carrying amount of cash, accounts receivable, accounts payable and
notes
payable, as applicable, approximates fair value due to the short term
nature of
these items and/or the current interest rates payable in relation to
current
market conditions.
Interest
rate risk is the risk that the Company’s earnings are subject to fluctuations in
interest rates on either investments or on debt and is fully dependent
upon the
volatility of these rates. The Company does not use derivative
instruments to moderate its exposure to interest rate risk, if any.
Financial
risk is the risk that the Company’s earnings are subject to fluctuations in
interest rates or foreign exchange rates and are fully dependent upon
the
volatility of these rates. The company does not use derivative
instruments to moderate its exposure to financial risk, if
any.
Signet
International Holdings, Inc. and Subsidiary
(a
development stage enterprise)
Notes
to Consolidated Financial Statements - Continued
September
30, 2007 and 2006
Note
F - Broadcast and Intellectual Properties
Contract
Payables
On
April
20, 2007, the Company entered into a new purchase agreement with
Freehawk for
100% of the rights to 21 television series to be produced by Freehawk
exclusively for Signet. The total consideration paid by the Company
for these rights was 270,000 shares of restricted, unregistered common
stock and
a $50,000 promissory note. Based on an independent third-party
appraisal, the Company valued this transaction at approximately
$2,870,625. The common stock was issued pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933, as
amended, and
no underwriter was used in this transaction.
On
May
22, 2007, the Company acquired the exclusive television rights to
“Tales From
The moe.Republic”, by John E. Derhak. This full-length novel is in
the process of being published and is currently being sold in an
abridged,
autographed limited edition through the website
www.moerepublic.org. Total consideration paid by the Company for
these rights was 113,662 shares of restricted, unregistered common
stock and a
$25,000 promissory note. Based on an independent third-party
appraisal, the Company valued this transaction at approximately
$1,136,600. The common stock was issued pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933, as
amended, and
no underwriter was used in this transaction.
Note
G - Income Taxes
The
components of income tax (benefit) expense each of the nine month
periods ended
September 30, 2007 and 2006 and for the period from October 17, 2003
(date of
inception) through September 30, 2007, are as follows:
|
|
Nine Months
ended
|
|
Nine Months
ended
|
|
Period
from
October
17, 2003
(date
of inception)
through
|
|
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of
September 30, 2007, the Company has a net operating loss carryforward
of
approximately $639,000 for Federal and State income tax
purposes.. The amount and availability of any future net operating
loss carryforwards may be subject to limitations set forth by the
Internal
Revenue Code. Factors such as the number of shares ultimately issued
within a
three year look-back period; whether there is a deemed more than
50 percent
change in control; the applicable long-term tax exempt bond rate;
continuity of
historical business; and subsequent income of the Company all enter
into the
annual computation of allowable annual utilization of the
carryforwards.
(Remainder
of this page left blank intentionally)
Signet
International Holdings, Inc. and Subsidiary
(a
development stage enterprise)
Notes
to Consolidated Financial Statements - Continued
September
30, 2007 and 2006
Note
G - Income Taxes - Continued
The
Company's income tax expense (benefit) for each of the nine
month periods ended
September 30, 2007 and 2006 and for the period from October
17, 2003 (date of
inception) through September 30, 2007, respectively, differed
from the statutory
federal rate of 34 percent as follows:
|
|
Nine Months
ended
|
|
Nine Months
ended
|
|
Period
from
October
17, 2003
(date
of inception)
through
|
|
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
Statutory
rate applied to income before income taxes
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of deductions for accrued compensation
|
|
|
|
|
|
|
|
|
|
|
Non-deductible consulting fees related to issuance
|
|
|
|
|
|
|
|
|
|
|
of common stock at less than “fair value”
|
|
|
|
|
|
|
|
|
|
|
Other, including reserve for deferred tax
|
|
|
|
|
|
|
|
|
|
|
asset and application of net operating loss
carryforward
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary
differences, consisting primarily of the prospective usage
of net operating loss
carryforwards and statutory deferrals of accrued compensation
give rise to
deferred tax assets and liabilities as of September 30, 2007
and 2006,
respectively:
|
|
September 30,
2007
|
|
|
September 30,
2006
|
|
Deferred
tax assets
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
217,000
|
|
|
$
|
119,000
|
|
Timing
of deductions for accrued compensation
|
|
|
143,000
|
|
|
|
69,000
|
|
Less
valuation allowance
|
|
|
(360,000
|
)
|
|
|
(188,000
|
)
|
Net
Deferred Tax Asset
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Note
H - Preferred Stock
On
March
14, 2007, the Company formally designated a series of Super
Preferred Stock of
the Company’s 50,000,000 authorized shares of the capital preferred stock
of the
Corporation. The designated Series A Convertible Super Preferred
Stock (the "Series A Super Preferred Stock"), to consist
of 5,000,00 shares, par
value $.001 per share, which shall have the following preferences,
powers,
designations and other special rights:
|
Voting:Holders
of the Series A Super Preferred Stock shall have
ten votes per share held
on all matters submitted to the shareholders of
the Company for a vote
thereon. Each holder of these shares shall have the option
to
appoint two additional members to the Board of
Directors. Each
share shall be convertible into ten (10) shares
of common
stock.
|
Dividends:
|
The
holders of Series A Super Preferred Stock shall
be entitled to receive
dividends or distributions on a pro rata basis
with the holders of common
stock when and if declared by the Board of Directors
of the
Company. Dividends shall not be cumulative. No
dividends or distributions shall be declared or
paid or set apart for
payment on the Common Stock in any calendar year
unless dividends or
distributions on the Series A Preferred Stock for
such calendar year are
likewise declared and paid or set apart for payment. No
declared and unpaid dividends shall bear or accrue
interest.
|
Signet
International Holdings, Inc. and Subsidiary
(a
development stage enterprise)
Notes
to Consolidated Financial Statements - Continued
September
30, 2007 and 2006
Note
H - Preferred Stock - Continued
Liquidation
Preference
|
Upon
the liquidation, dissolution and winding up of the
Company, whether
voluntary or involuntary, the holders of the Series
A Super Preferred
Stock then outstanding shall be entitled to, on a
pro-rata basis with the
holders of common stock, distributions of the assets
of the Corporation,
whether from capital or from earnings available for
distribution to its
stockholders.
|
The
Board
of Directors has the authority, without further action by the
shareholders, to
issue, from time to time, preferred stock in one or more series
for such
consideration and with such relative rights, privileges, preferences
and
restrictions that the Board may determine. The preferences,
powers, rights and
restrictions of different series of preferred stock may differ
with respect to
dividend rates, amounts payable on liquidation, voting rights,
conversion
rights, redemption provisions, sinking fund provisions and
purchase funds and
other matters. The issuance of preferred stock could adversely
affect the voting
power or other rights of the holders of common stock.
On
October 20, 2003, in conjunction with the formation and incorporation
of Signet
Entertainment Corporation, SIG issued 4,000,000 shares of preferred
stock to the
incorporating persons. This transaction was valued at
approximately $40,000, which approximates the value of the
services
provided.
On
July
19, 2005, the Company issued 1,000,000 shares of preferred
stock to an existing
shareholder and Company officer for services related to the
organization and
structuring of the Company and it’s proposed business plan. This
transaction was valued at approximately $10,000, which approximates
the value of
the services provided.
Concurrent
with the reverse merger transaction, these shareholders exchanged
their Signet
Entertainment Corporation preferred stock for equivalent shares
of Signet
International Holdings, Inc. Series A Super Preferred stock,
as described
above.
Note
I - Common Stock Transactions
On
October 17, 2003 and November 1, 2003, in connection with the
incorporation and
formation of the Company, an aggregate of approximately 3,294,000
shares of
restricted, unregistered shares of common stock and were issued
to various
founding individuals. This combined preferred stock and common stock
issuances were collectively valued at approximately $40,810,
which approximated
the fair value of the time provided by the individuals and
the related
out-of-pocket expenses.
On
June
16, 2004 and December 3, 2004, the Company sold, in three separate
transactions
to three unrelated individuals, an aggregate 70,000 shares
of restricted,
unregistered common stock for $35,000 cash. These shares were sold
pursuant to an exemption from registration under Section 4(2)
of the Securities
Act of 1933, as amended, and no underwriter was used any of
the three
transactions.
Between
July 20, 2005 and August 26, 2005, Signet Entertainment Corporation
sold an
aggregate 57,000 shares of common stock to existing and new
shareholders at a
price of $0.01 per share for gross proceeds of approximately
$570. As
this selling price was substantially below the “fair value” of comparable
transactions, the Company recognized a charge to operations
for consulting
expense equivalent to the difference between the established
“fair value” of
$1.00 per share (as determined by the pricing in the September
2005 Private
Placement Memorandum) and the selling price of $0.01 per share.
On
September 9, 2005, the Company commenced the sale of common
stock pursuant to a
Private Placement Memorandum in a self-underwritten offering. This
Memorandum is offering for sale to persons who qualify as accredited
investors
and to a limited number of sophisticated investors, on a best
efforts basis, up
to 2,000,000 of our common shares at $1.00 per share, for anticipated
gross
proceeds of $2,000,000. The common shares will be offered through the
Company’s officers and directors on a best-efforts basis. The minimum
investment is $1,000, however, the Company might, at it’s sole discretion,
accept subscriptions for lesser amounts. Funds received from all
subscribers will be released to the Company upon acceptance
of the subscriptions
by the Company’s management. Through December 31, 2006, the Company
has sold an aggregate 381,000 shares for gross proceeds of
$381,000 under this
Memorandum.
Signet
International Holdings, Inc. and Subsidiary
(a
development stage enterprise)
Notes
to Consolidated Financial Statements - Continued
September
30, 2007 and 2006
Note
I - Common Stock Transactions - Continued
On
March
31, 2006, the Company repurchased 50,000 shares of common
stock from the estate
of a deceased shareholder which purchased said shares for
$50,000 cash pursuant
to the aforementioned September 2005 Private Placement
Memorandum for $50,000
cash. In June 2006, the Company’s Board of Directors cancelled these
shares and returned them to unissued status.
On
June
22, 2006, the Company issued 250,000 shares of unregistered,
restricted common
stock, valued at $0.50 per share or $125,000, in payment of
consulting fees. As the agreed-upon value of the services
provided was less than the “fair value” of comparable transactions, the Company
has recognized an additional charge to Consulting Fees
equivalent to the
difference between the established “fair value” of $1.00 per share (as
determined by the pricing in the September 2005 Private
Placement Memorandum)
and the agreed-upon value of $0.50 per share in the corresponding
line item in
the Company’s Statement of Operations.
On
April
16, 2007, the Company issued 270,000 shares of unregistered,
restricted common
stock for the acquisition of certain broadcast and other
production
rights. These shares were sold pursuant to an exemption from
registration under Section 4(2) of the Securities Act of
1933, as amended, and
no underwriter was used in this transaction.
On
May 2,
2007, the Company sold, in a private transaction, 6,800
shares of unregistered,
restricted common stock at a price of $1.00 per share for
cash. These
shares were sold pursuant to an exemption from registration
under Section 4(2)
of the Securities Act of 1933, as amended, and no underwriter
was used in this
transaction.
On
May
22, 2007, the Company issued 113,662 shares of unregistered,
restricted common
stock for the acquisition of intellectual properties related
to literary
works. These shares were sold pursuant to an exemption from
registration under Section 4(2) of the Securities Act of
1933, as amended, and
no underwriter was used in this transaction.
On
August
30, 2007, the Company sold, in a private transaction, 12,500
shares of
unregistered, restricted common stock at a price of $1.00
per share for
cash. These shares were sold pursuant to an exemption from
registration under Section 4(2) of the Securities Act of
1933, as amended, and
no underwriter was used in this transaction.
Note
J - Commitments
Leased
office space
The
Company operates from leased office facilities at 205 Worth
Avenue, Suite 316
Palm Beach, FL 33480 under an operating lease. The lease agreement
was originally expired to expire in July 2009 and has been
subsequently amended
to a month-to-month basis. The lease requires monthly payments of
approximately $928. The Company is not responsible for any additional
charges for common area maintenance.
The
Company also reimburses two non-executive personnel and
one executive officer
for the use of their personal home offices, which are not
exclusive to the
Company’s business, at approximately $250 per month. These agreements
are on a month-to-month basis.
For
the
respective years ended December 31, 2006 and 2005, the
Company paid an aggregate
of $34,755 and $16,738 for rent under these agreements.
Triple
Play Management Agreement
On
October 23, 2003, Signet Entertainment entered into a Management
Agreement with
Triple Play Media Management (Triple Play) of Peoria, Arizona. Triple
Play is engaged to be the management company to manage
and operate any acquired
Signet facility (facilities) on a permanent basis for Signet
for a period of ten
years (the initial period) with an automatic extension
of an additional ten
years unless the dissenting party gives proper
notice.
Signet
International Holdings, Inc. and Subsidiary
(a
development stage enterprise)
Notes
to Consolidated Financial Statements - Continued
September
30, 2007 and 2006
Note
J - Commitments - Continued
Triple
Play Management Agreement
- continued
To
facilitate this Management Agreement, Signet will endeavor to
raise capital
contributions through a Private Placement Offering, Regulation
506 and /or a
Public Offering and show evidence of the total capital funds
required for the
establishment of the Network including providing funds for the
budgeted
operations of the business for the term of this agreement plus
extensions.
Signet will also provide a minimum of 17,500 square feet of permanent
structure
(connector facility), fully equipped to accommodate full- service
television
studios, sound stages and various production equipment within
completely
air-conditioned and heated work places and mobile modular production
unit (s)
fully equipped and a Eutelsat satellite Hot Bird and delivery
system. Triple Play will, in turn, perform the following
actions: a) acquire and maintain various licenses; b) compliance with
local ordinances and state laws; c) maintain complete books of
account, which
shall comply with requirements of any governmental agency including
all Federal
Communications commission (FCC) regulations; d),provide an annual
budget to
Signet, addressing all operating activities, including a reserve
for repairs,
refurbishment, and replacements to maintain the premises and
equipment in good
condition; e) make no expenditures other than those items provided
in an annual
budget; f) maintain books and records to be made available to
Signet
representatives; g) have complete creative control and authority
to determine
all matters concerning decor, design, arrangement, format and
all production
presentations including creative design, absolute control and
discretion with
respect to the operation of the premises; and h) be responsible
for all
necessary and proper insurances safeguarding against all reasonably
foreseeable
risks on a replacement cost basis of coverage to both parties
, the business and
its assets.
Upon
Signet’s raising the necessary required funding through a secondary
offering,
Signet will begin funding the working capital requirements of
Triple Play for a
share of Triple Play’s profit. The working capital commitment is
based on mutually agreed budgets and is projected to amount approximately
$15
million, inclusive of management fees. This advance of management
fees would be drawn down by Triple Play over approximately the
first 12 months
of its operations which would begin once Signet has access to
the secondary
offering funding. This advance will be recovered by Signet from
Triple Play’s future cash flows. In return, Signet will receive 87.5
% of Triple Play’s monthly gross revenues less Triple Play’s monthly
operating expenses.
For
the
services, Triple Play shall render to Signet, Signet shall pay
management fees
to Triple Play based upon Triple Play’s gross revenues, as follows: a) 12% of
Triple Play’s gross revenues, provided that Triple Play realizes a minimum
pre
tax net profit of 25%, plus b) ½% (one half percent) of Triple Play’s gross
revenues for Triple Play’s costs of licenses and permits for international air
waves and feeds duties and taxes, satellite transmission links,
down links,
including earth stations. The fees in a) and b), noted above, shall
become due from Signet within 90 days after the close of each
calendar year
based on a determination by independently prepared Certified
Public Accountants’
reports. These reports will account for advances Signet has made.
Triple
Play’s Chief Executive Officer, Richard Grad, one of Signet’s founding
shareholders, will be paid by Signet, a signing bonus of $50,000
upon the
funding of a future Signet offering. Signet will also pay to Mr. Grad
the following annual compensation during the entire term of this
agreement,
including extensions thereto: 1) a guaranteed annual salary of
$200,000.(Two Hundred Thousand), per year payable at the beginning
of each month
at the rate of twelve equal installments and will be subsequently
deducted from
each annual management fee settlement noted above; 2) an allowance
of $1,500 for
moving and relocation expenses and 3) ordinary and reasonable
employee benefits
related to health insurance. It is specifically noted that Mr. Grad
will function solely as an independent contractor representing
Triple Play and
will not be construed as a Signet employee.
Signet
International Holdings, Inc. and Subsidiary
(a
development stage enterprise)
Notes
to Consolidated Financial Statements - Continued
September
30, 2007 and 2006
Note
J - Commitments - Continued
Big
Vision Management Contract
On
July
22, 2005, Signet Entertainment entered into a Management Agreement
with Big
Vision Studios, a Nevada Limited Liability Company (Big Vision)
located in both Las Vegas, Nevada and Burbank, California whereby
Big Vision
will be the exclusive supplier of High Definition Equipment and
Studio rental
for Signet. This agreement is for a period of one (1) year,
commencing with the submission by Signet’s of evidence of the total capital
funds required for the establishment of Signet’s Network including providing
funds for the budgeted operations of the business for the term
of this agreement
plus extensions to Big Vision, with an automatic extension of
an additional five
years unless the dissenting parry gives proper notice. Signet has
agreed to pay a reduced fee to Big Vision, at a discount negotiated
off of Big
Vision’s published standard rate card, for the first year of Signer’s
operations. After the initial year, Signet has agreed to pay Big
Vision based on Big Vision’s published standard rate card at that
point in time plus an additional 15% in consideration of Big Vision’s
concession in rates for the first year. Signet has agreed to continue
paying pursuant to Big Vision’s published standard rate card plus 15% for as
long as this agreement is in place. All fees will be paid as they
become due and payable according to Big Vision’s requirements.
(Remainder
of this page left blank intentionally)
Part
I - Item 2
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
(1)
|
Caution
Regarding Forward-Looking
Information
|
Certain
statements contained in this quarterly filing, including, without
limitation,
statements containing the words "believes", "anticipates", "expects"
and words
of similar import, constitute forward-looking statements. Such
forward-looking
statements involve known and unknown risks, uncertainties and other
factors that
may cause the actual results, performance or achievements of the
Company, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements.
Such
factors include, among others, the following: international, national
and local
general economic and market conditions: demographic changes; the
ability of the
Company to sustain, manage or forecast its growth; the ability
of the Company to
successfully make and integrate acquisitions; raw material costs
and
availability; new product development and introduction; existing
government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; the loss of significant
customers
or suppliers; fluctuations and difficulty in forecasting operating
results;
changes in business strategy or development plans;
business disruptions; the ability to attract and retain qualified
personnel; the ability to protect technology; and other factors
referenced in
this and previous filings.
Given
these uncertainties, readers of this Form 10-QSB and investors
are cautioned not
to place undue reliance on such forward-looking statements. The
Company
disclaims any obligation to update any such factors or to publicly
announce the
result of any revisions to any of the forward-looking statements
contained
herein to reflect future events or developments.
(2) Results
of Operations, Liquidity and Capital Resources or Plan of
Operation
Period
ended September 30, 2007 compared to September 30, 2006
We
had no
revenue for either of the respective nine or three month periods
ended September
30, 2007 and 2006, respectively.
General
and administrative expenses for the nine months ended September
30, 2007 and
2006 were approximately $218,000 and $295,000, respectively. These
costs relate
principally to the maintenance of our corporate offices and the
implementation
of our business plan.
For
the
nine and three months ended September 30, 2007 and 2006, we accrued
compensation
to our chief executive officer, Ernie Letiziano of $52,500 ($17,500
for each
respective three month period). Effective January 1, 2007, we engaged
the services of and commenced the accrual of executive compensation
of $17,500
per quarter to Thomas Donaldson for his role in implementing the
Company’s
business plan for future growth and/or acquisitions in the broadcast
marketplace.
Our
net
loss for the nine months ended September 30, 2007 and 2006, respectively
was
approximately $(218,000) and $(424,000). Our earnings per share for
the respective quarters ended September 30, 2007 and 2006 was approximately
$(0.05) and $(0.12) based on the respective weighted-average shares
issued and
outstanding at the end of each quarter.
The
Company does not expect to generate any meaningful revenue or incur
operating
expenses for purposes other than fulfilling the obligations of
a reporting
company under The Securities Exchange Act of 1934 unless and until
such time
that the Company’s operating subsidiary begins meaningful
operations.
At
September 30, 2007 and 2006, respectively, the Company had working
capital of
approximately $(55,000) and $56,000, exclusive of accrued officer
compensation. Both Mr. Letiziano and Mr. Donaldson have both agreed
to defer payment of their accrued compensation until such time
that we have
adequate cash flows to service these obligations without undue
hardship to our
operations and expansion plans.
It
is the
intent of management and significant stockholders, if necessary,
to provide
sufficient working capital necessary to support and preserve the
integrity of
the corporate entity. However, there is no legal obligation for
either management or significant stockholders to provide additional
future
funding. Should this pledge fail to provide financing, the Company
has not identified any alternative sources. Consequently, there is
substantial doubt about the Company's ability to continue as a
going
concern.
The
Company's need for capital may change dramatically as a result
of any business
acquisition or combination transaction. There can be no assurance
that the Company will identify any such business, product, technology
or company
suitable for acquisition in the future. Further, there can be no
assurance that
the Company would be successful in consummating any acquisition
on favorable
terms or that it will be able to profitably manage the business,
product,
technology or company it acquires.
Plan
of Operations
In
March
2007, upon the approval of our equity securities for trading on
the Over the
Counter Bulletin Board, we began implementation of that part of
our business
plan relating to the acquisition of LPTV stations by offering Sale
& Share
Exchange Contracts with the LPTV Stations. Although we have had no
revenues generated to date, we expect to realize revenues from
operations of the
LPTV stations once agreements are finalized and executed and we
take control of
an LPTV station. Our intention is to not relinquish control of the
Company to any of the acquired LPTV stations resulting from any
future
acquisition agreement. In addition, since the acquisition of the LPTV
stations will be based upon issuing our stock in exchange for the
LPTV station’s
stock, we will incur no cash expenditures other than incidental
expenses such as
telephone, travel and general and administrative expenses. The
anticipated expenses that we will incur related to any LPTV acquisition
have
been budgeted for as a component of our monthly expenses in the
total amount of
$10,500.00 per month as set forth below. The funds provided for the
monthly expenses, including the expenses for acquisition of the
LPTV stations,
came from the issuance of shares raised by us in our private placement
which
commenced in September 2005, which was completed in January 2006,
and subsequent
individual private placements of our common stock. Our cash flow
requirements of $10,500.00 per month are anticipated to be accommodated
adequately by our September 30, 2007 cash balance of approximately
$73,000. The first nine months of Calendar 2007 have required the use
of approximately $100,000, inclusive of unanticipated legal fees
of
approximately $15,000 in the third quarter of 2007. We believe that
we are on target for our current and previously disclosed
projections. We anticipate that our cash requirements will remain
fairly consistent until such time that we complete an acquisition
or
acquisitions of operating broadcast properties. We do not anticipate
significant expenses for the negotiating and finalizing of the
agreements since
we will undertake the due diligence ourselves and do not have to
incur travel
expenses to visit the stations. In addition, we have already
anticipated these expenses as part of monthly budget.
It
is the
intent of management and significant stockholders, if necessary,
to provide
sufficient working capital necessary to support and preserve the
integrity of
the corporate entity. Although we have verbal assurances from Mr.
Letiziano that he will provide such interim working capital, there
is no legal
obligation for either management or significant stockholders to
provide
additional future funding. We may raise additional funds through
additional public offerings of equity, securities convertible into
equity or
debt, private offerings of securities.
Concurrent
with our anticipation of acquiring LPTV stations for stock during
2007, we intend to seek additional equity or debt financing. To date,
we have been able to raise funds in four funding rounds through
both debt and
equity offerings.
We
anticipate that the funds we secure from our next round of financing will
enable
us to acquire our initial LPTV stations, some with a cash consideration,
and
provide additional working capital to enable us to possibly acquire some
stations making losses, purchase programming and initiate Triple Play Media
operations. Cash costs for this phase of our plan will include:
$25,000 related to the funding round plus up to $30 million to support the
acquisitions of more LPTV stations, plus up to $15 million to support Triple
Play. This phase of our plan will continue throughout 2007 and into
2008. Currently, we have no specific plans to raise additional
financing and we do not have any specific source(s) of such potential
financing. However, since our shares were approved for trading, we
have begun negotiations with several potential funding sources to assist
with
the acquisitions of the stations. To date, we have no agreements or
understandings in place for this funding.
We
waited
until our Registration Statement on Form SB-2 was declared effective to commence
negotiating in earnest with at least one LPTV station. In previous
periods, we began to identify target LPTV station(s). We continue to
use the online site,
www.LPTV.com
, to identify stations that are for
sale. We have, to date, identified various station(s) that we plan to
approach in order to initiate acquisition negotiations. Our selection
criteria is principally focused on station(s) that are currently available
for
sale, have a potential audience of at least 550,000 TV households, are rated
Class A, and are located, in our opinion, in a growing market. As
stated above, we have identified several stations or groups of stations under
common control; however, we have not entered into any substantive agreements
and
continue to participate in either preliminary contacts or ongoing negotiations
to facilitate the acquisition(s) of LPTV stations and implement our business
plan. Based upon our review of the marketplace, we believe that we
will be able to take the following steps to effectuate the acquisition of
LPTV
stations in the time periods set forth below. However, the time
periods set forth below are only based upon our estimates and may or may
not be
completed as anticipated due to the variances in the time it takes to complete
the necessary negotiations and/or consummating business transactions in the
current business climate in the United States and the ultimate willingness
of
the sellers to consummate the transaction(s).
|
1.
|
Building
upon our activities which started in the 4
th
quarter
of
2006, we continue the targeting and acquisition process of reviewing
those
markets of dominant influence (the ratings of TV households in
each
market.). We expect the expenses for our review of the markets
to be limited to the time spent by Mr. Letiziano, our sole officer
and
director. We anticipate that any additional expenses will be
under $1,000 can be paid from our current cash in
hand.
|
|
2.
|
During
2007, we have continued to identify and contact the selected LPTV
stations
that are currently operating at a profit and in good standing with
the
FCC. We expect the expenses for same to be to be limited to the
time spent by Mr. Letiziano, our sole officer and director. We
anticipate that any additional expenses will be under $1,000 and
will be
paid from our current cash in hand.
|
|
3.
|
After
identification of appropriate stations, we have initiated contact
with
some the LPTV station owners and their legal counsel and have initiated
negotiations to sign non-circumvention agreements and Letters of
Intent. Upon the execution of a letter of intent, we will
perform due diligence which will include the review of financial
statements, customer base, survey of equipment and the review of
compliance with FCC regulations researched through public
records. Since our arrangements will be based upon a share
exchange contract, we will not incur any cash expenses other than
those
incidental expenses already budgeted in our monthly expenses. We
will not
need to travel to undertake our due diligence and intend to have
the due
diligence completed and reviewed by Mr. Letiziano. Based upon
same we do not expect the expenses for the due diligence and negotiations
to be more than $1,000 and will be paid from our current cash in
hand.
|
|
4.
|
At
the present time, we are continuing to negotiate, towards finalization,
an
agreement to purchase at least one LPTV station and file though
FCC
counsel applications for approval from the FCC to operate the target
LPTV
station(s) by the end of Calendar 2007. The FCC approval period
takes from 60-90 days. We expect the expenses, which shall
include legal fees and application fees to be less than $5,000
and will be
paid from our current cash on
hand.
|
|
5.
|
Once
the FCC has granted approval, we will then become the registered
owner of
the LPTV station and will be responsible for the daily expenses
associated
with operating the business. The operating expenses for these
stations will be paid from the revenues which we anticipate will
be
generated from the operation of the respective LPTV station. At
this time, we are unsure of the expenses for operating the stations
since
we have not commenced our due diligence on any specific
station. However, in the event that the stations do not
generate self-supporting revenues, we anticipate paying the operating
expenses from either available cash on hand, new shareholder loans
or
future offerings of equity or debt securities to cover such operating
costs until the station generates sufficient
revenues.
|
|
6.
|
After
our first acquisition, we will continue to identify and negotiate
with
additional LPTV stations. The funds to operate the LPTV
stations will be derived from revenues generated by the respective
LPTV
station(s) or from cash on hand. In the event that the stations
do not generate the anticipates revenues, at this time, we anticipate
paying such operating expenses from our current cash on hand or
will rely
on shareholder loans to cover such costs until the station generates
sufficient revenues or until we can obtain additional debt or equity
financing. The fees and expenses for the due diligence,
negotiations and expenses for the additional stations will be the
same as
set above and will be paid from current cash on hand, revenues
or
stockholder loans.
|
To
date,
we continue to primarily identify target stations by searching the
Internet. The name and call letters of these stations are posted on
various web sites. Our intention is to finance payment of these
stations by issuing the sellers common stock as well cash payments to be
negotiated. We can not be certain that any of the stations will agree
to a purchase and/or share exchange arrangement. Since our research
and contacts will be made through our office, we do not expect to incur any
additional expenses other than the normal general and administrative expenses
presently being paid.
We
believe we can satisfy our cash requirements for our operations over the
next
six months with our current cash reserves. We anticipate that our
operational and general and administrative expenses will approximate $126,000
on
an annual basis, based on the acquisition of one LPTV
station. Management currently anticipates that we will be able to
cover these expenses with our current remaining cash reserves of approximately
$73,000 as of September 30, 2007. The components that went into our
determination of required on going expenses include the following monthly
estimated cash requirements:
Accounting
fees,
|
|
$
|
2,000
|
|
Legal
fees
|
|
|
3,500
|
|
General
and administrative expenses
|
|
|
2,500
|
|
Travel
and station survey expenses
|
|
|
1,500
|
|
Other
miscellaneous
|
|
|
1,000
|
|
|
|
|
|
|
Total
|
|
$
|
10,500
|
|
As
set
forth above, this monthly outlay does not include any operating costs for
any
potential LPTV acquisition. We are unable to anticipate with any
reasonable predictability the amount and nature of these expenses as we have
not
commenced our due diligence on any specific station. However, in the
event that any acquired station does not generate self-supporting revenues,
we
will have to pay these operating expenses from our current cash on hand or
will
rely on shareholder loans to cover such costs until the station generates
sufficient revenues or until we can obtain additional debt or equity
financing. The fees and expenses for the due diligence, negotiations
and expenses for the additional stations will be paid from current cash on
hand,
revenues or stockholder loans.
There
will be no costs associated with the Big Vision contract/agreement until
services have been provided by Big Vision at which time we will be generating
revenues to cover these costs. Until such time we receive additional
financing and proceed with our business plan, we have no other contractually
obligated expenses. We cannot assure investors that we will be able
to raise sufficient capital. In the absence of additional funding, we
may not be able to purchase some of the stations we have
identified. Even without significant new funding later this year or
early 2008, we still anticipate being able to acquire some profitable LPTV
stations for stock and consolidate both their revenues and
earnings.
The
foregoing represents our best estimate of our cash needs based on current
planning and business conditions. The exact allocation, purposes and
timing of any monies raised in subsequent funding rounds may vary significantly
depending upon the exact amount of funds raised and status of the implementation
of our business plan when these funds are raised.
Apart
from building the board of directors and employees of LPTV stations we acquire
as subsidiaries, we do not expect any significant changes in the number of
employees.
Critical
Accounting Policies
Our
financial statements and related public financial information are based on
the
application of accounting principles generally accepted in the United States
(“GAAP”). GAAP requires the use of estimates; assumptions, judgments
and subjective interpretations of accounting principles that have an impact
on
the assets, liabilities, revenue and expense amounts reported. These
estimates can also affect supplemental information contained in our external
disclosures including information regarding contingencies, risk and financial
condition. We believe our use if estimates and underlying accounting
assumptions adhere to GAAP and are consistently and conservatively
applied. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances. Actual results may differ materially from these
estimates under different assumptions or conditions. We continue to monitor
significant estimates made during the preparation of our financial
statements.
Our
significant accounting policies are summarized in Note D in our accompanying
financial statements. While all these significant accounting policies
impact our financial condition and results of operations, we view certain
of
these policies as critical. Policies determined to be critical are
those policies that have the most significant impact on our financial statements
and require management to use a greater degree of judgment and
estimates. Actual results may differ from those
estimates. Our management believes that given current facts and
circumstances, it is unlikely that applying any other reasonable judgments
or
estimate methodologies would cause effect on our consolidated results of
operations, financial position or liquidity for the periods presented in
this
report.
Item
3 - Controls and Procedures
(a)
Evaluation of Disclosure Controls and Procedures
Under
the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted
an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
as
amended (Exchange Act), as of September 30, 2007. Based on this
evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures are effective in alerting
them on a timely basis to material information relating to our Company required
to be included in our reports filed or submitted under the Exchange
Act.
(b)
Changes in Internal Controls
There
were no significant changes (including corrective actions with regard to
significant deficiencies or material weaknesses) in our internal controls
over
financial reporting that occurred during the three months ended September
30,
2007 that has materially affected, or is reasonably likely to materially
affect,
our internal control over financial reporting.