UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
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(Mark one)
X Quarterly Report Under Section 13 or 15(d) of the Securities
--------- Exchange Act of 1934
For the quarterly period ended September 30, 2006
Transition Report Under Section 13 or 15(d) of the Securities
--------- Exchange Act of 1934
For the transition period from ______________ to _____________
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Commission File Number: 000-51185
Signet International Holdings, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 16-1732674
(State of incorporation) (IRS Employer ID Number)
205 Worth Avenue, Suite 316, Palm Beach, Florida 33480
(Address of principal executive offices)
(561) 832-2000
(Issuer's telephone number)
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act):
YES X NO
----- ------
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
November 14, 2006: 4,102,000
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Transitional Small Business Disclosure Format (check one): YES NO X
---- ---
Signet International Holdings, Inc.
Form 10-QSB for the Quarter ended September 30, 2006
Table of Contents
Page
Part I - Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 14
Item 3 Controls and Procedures 16
Part II - Other Information
Item 1 Legal Proceedings 17
Item 2 Recent Sales of Unregistered Securities and Use of Proceeds 17
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 17
Item 6 Exhibits 17
Signatures 17
2
Item 1
Part 1 - Financial Statements
Signet International Holdings, Inc. and Subsidiary
(a development stage enterprise)
Balance Sheets
September 30, 2006 and 2005
(Unaudited)
September 30, September 30,
2006 2005
----------------------------------------
ASSETS
------
Current Assets
Cash in bank $170,947 $156,980
------- -------
Total Assets $170,947 $156,980
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
---------------------------------------------
Liabilities
Current Liabilities
Note payable $ - $ 90,000
Accounts payable - trade 12,877 -
Other accrued liabilities 102,337 39,171
Accrued officer compensation 199,920 133,170
------- -------
Total Current Liabilities 315,134 262,341
------- -------
Commitments and Contingencies
Shareholders' Equity (Deficit)
Preferred stock - $0.001 par value
5,000,000 shares authorized
5,000,000 shares issued and outstanding, respectively 5,000 5,000
Common stock - $0.001 par value
50,000,000 shares authorized.
4,102,000 and 3,621,000
shares issued and outstanding, respectively 4,102 3,621
Additional paid-in capital 737,592 257,554
Deficit accumulated during the development stage (890,881) (371,536)
------- -------
Total Shareholders' Equity (Deficit) (144,187) (105,361)
------- ---------
Total Liabilities and Shareholders' Equity $170,947 $156,980
======= =======
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. 3
Signet International Holdings, Inc. and Subsidiary
(a development stage enterprise)
Statements of Operations and Comprehensive
Loss Nine and Three months ended September 30, 2006 and 2005 and
Period from October 17, 2003 (date of inception) through September 30, 2006
(Unaudited)
Period from
October 17,
2003
(date of
Nine months Nine months Three months Three months inception)
ended ended ended ended through
September 30, September 30, September 30, September 30, September 30,
2006 2005 2006 2005 2006
----------- ----------- ----------- ----------- -----------
Revenues $ -- $ -- $ -- $ -- $ --
Expenses
Organizational and
formation expenses -- 48,991 -- 48,991 89,801
Officer compensation 52,500 52,500 17,500 17,500 204,170
Other salaries 26,375 16,500 9,502 6,000 61,625
Other general and
administrative expenses 279,888 23,903 36,751 14,027 344,855
"Compensation expense" related
to sale of common stock at
less than "fair value" 125,000 56,430 -- 56,430 181,430
----------- ----------- ----------- ----------- -----------
Total Expenses 483,763 198,324 63,753 142,948 881,881
----------- ----------- ----------- ----------- -----------
Loss from Operations (483,763) (198,324) (63,753) (142,948) (881,881)
Other Expense
Interest expense (4,436) (2,296) -- (2,296) (9,000)
----------- ----------- ----------- ----------- -----------
Loss before Provision for
Income Taxes (488,199) (200,620) (63,753) (145,244) (890,881)
Provision for Income Taxes -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net Loss (488,199) (200,620) (63,753) (145,244) (890,881)
Other Comprehensive Income -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Comprehensive Loss $ (488,199) $ (200,620) $ (63,753) $ (145,244) $ (890,881)
=========== =========== =========== =========== ===========
Loss per weighted-average share
of common stock outstanding,
computed on Net Loss -
basic and fully diluted $ (0.12) $ (0.06) $ (0.02) $ (0.04) $ (0.27)
=========== =========== =========== =========== ===========
Weighted-average number of shares
of common stock outstanding 3,956,084 3,465,150 4,102,000 3,467,413 3,312,502
=========== =========== =========== =========== ===========
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. 4
Signet International Holdings, Inc. and Subsidiary
(a development stage enterprise)
Statements of Cash Flows
Nine months ended September 30, 2006 and 2005 and
Period from October 17, 2003 (date of inception) through September 30, 2006
(Unaudited)
Period from
October 17,
2003
(date of
Nine months Nine months inception)
ended ended through
September 30, September 30, September 30,
2006 2005 2006
--------- --------- ---------
Cash Flows from Operating Activities
Net Loss $(488,198) $(200,620) $(890,881)
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation -- -- --
Organizational expenses paid with issuance
of common and preferred stock -- 10,000 50,810
Expenses paid with common stock 125,000 -- 125,000
"Compensation expense" related
to sale of common stock at
less than "fair value" 125,000 56,430 181,430
Increase (Decrease) in
Accounts payable - trade 12,877 -- 12,877
Accrued liabilities 68,398 14,671 102,337
Accrued officers compensation 51,500 51,500 199,920
--------- --------- ---------
Net cash used in operating activities (105,423) (68,019) (218,507)
--------- --------- ---------
Cash Flows from Investing Activities -- -- --
--------- --------- ---------
Cash Flows from Financing Activities
Cash proceeds from note payable -- 90,000 90,000
Cash paid to retire note payable (90,000) -- (90,000)
Cash proceeds from sale of common stock 15,000 135,570 416,089
Purchase of treasury stock (50,000) -- (50,000)
Cash paid to acquire capital -- (10,447) (10,447)
Capital contributed to support operations -- 9,876 33,812
--------- --------- ---------
Net cash provided by financing activities (125,000) 224,999 389,454
--------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents (230,423) 156,980 170,947
Cash and cash equivalents at beginning of period 401,370 -- --
--------- --------- ---------
Cash and cash equivalents at end of period $ 170,947 $ 156,980 $ 170,947
========= ========= =========
Supplemental Disclosures of Interest and Income Taxes Paid
Interest paid during the period $ -- $ -- $ --
========= ========= =========
Income taxes paid (refunded) $ -- $ -- $ --
========= ========= =========
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. 5
Signet International Holdings, Inc. and Subsidiary
(a development stage enterprise)
Notes to Consolidated Financial Statements
September 30, 2006 and 2005
Note A - Organization and Description of Business
Signet International Holdings, Inc. (Company) was incorporated on February 2,
2005 under the Laws of the State of Delaware as 51142, Inc. The Company's
initial business plan was to engage in any lawful corporate undertaking,
including, but not limited to, selected mergers and acquisitions.
On September 8, 2005, pursuant to a Stock Purchase Agreement and Share Exchange
(Agreement) by and among the Company, Signet Entertainment Corporation (SIG) and
the shareholders of Signet Entertainment Corporation (a private Florida
corporation) (Shareholders) (collectively SIG and the SIG shareholders shall be
known as SIG Group); the Company acquired 100.0% of the then issued and
outstanding shares of SIG in exchange for the issuance of an aggregate 3,421,000
shares of the Company's common stock to the SIG shareholders. Pursuant to the
Agreement, SIG became a wholly owned subsidiary of the Company. At the
transaction date, the then-sole shareholder of the Company was also the
controlling shareholder, chief executive officer and director of SIG.
Signet Entertainment Corporation (SIG) 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 acquisition of the SIG by the Company effected a change in control of the
Company and will be accounted for as a "reverse acquisition" whereby the Company
is the accounting acquiror for financial statement purposes. Accordingly, for
all periods subsequent to the combination transaction, the financial statements
of the Signet International Holdings, Inc. will reflect the historical financial
statements of the Company and the operations of Signet International Holdings,
Inc. subsequent to the transaction date.
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 $827,000.
Note B - Preparation of Financial Statements
The acquisition of the SIG by the Company effected a change in control of the
Company and will be accounted for as a "reverse acquisition" whereby the SIG is
the accounting acquiror for financial statement purposes. Accordingly, for all
periods subsequent to the combination transaction, the financial statements of
the Signet International Holdings, Inc. will reflect the historical financial
statements of the SIG and the operations of Signet International Holdings, Inc.
subsequent to the 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 which contains the
Company's audited financial statements for the year ended December 31, 2005. 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.
6
Signet International Holdings, Inc. and Subsidiary
(a development stage enterprise)
Notes to Consolidated Financial Statements - Continued
September 30, 2006 and 2005
Note B - Preparation of Financial Statements - Continued
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, 2006.
Note C - Going Concern Uncertainty
The Company is still in the process of developing it's business plan and raising
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 future sales of equity securities to facilitate either
the consummation of a business combination transaction or to raise working
capital to support and preserve the integrity of the corporate entity. However,
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 operating capital is received during the next twelve months,
the Company will be forced to rely on existing cash in the bank and upon
additional funds 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 advances from management and/or significant
stockholders, 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.
2. Organization costs
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.
7
Signet International Holdings, Inc. and Subsidiary
(a development stage enterprise)
Notes to Consolidated Financial Statements - Continued
September 30, 2006 and 2005
Note D - Summary of Significant Accounting Policies - Continued
4. Advertising expenses
The Company does not utilize direct solicitation advertising. All other
advertising and marketing expenses are charged to operations as incurred.
5. Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. At September 30, 2006 and 2005, 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, 2006 and 2005, 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, 2006 and 2005, 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.
8
Signet International Holdings, Inc. and Subsidiary
(a development stage enterprise)
Notes to Consolidated Financial Statements - Continued
September 30, 2006 and 2005
Note F - Note Payable
Note payable consists of the following at September 30, 2006 and 2005,
respectively:
September 30, September 30,
2006 2005
------------- -----------
$90,000 note payable to an individual. Interest at 10.0%.
Principal and accrued interest due at maturity in June
2006. Collateralized by controlling interest in the
common stock of Signet International Holdings, Inc.
Note paid in full on June 30, 2006. $ - $90,000
============= ===========
Note G - Income Taxes
The components of income tax (benefit) expense for each of the nine month
periods ended September 30, 2006 and 2005 and for the period from October 17,
2003 (date of inception) through September 30, 2006, are as follows:
Period from
October 17,
2003 (date
Nine months Nine months of inception)
ended ended through
September 30, September 30, September 30,
2006 2005 2006
------- ------ ------
Federal:
Current $ - $ - $ -
Deferred - - -
------- ------ ------
- - -
------- ------ ------
State:
Current - - -
Deferred - - -
------- ------ ------
- - -
------- ------ ------
Total $ - $ - $ -
====== ====== ======
As of September 30, 2006, the Company has a net operating loss carryforward of
approximately $350,000 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)
9
Signet International Holdings, Inc. and Subsidiary
(a development stage enterprise)
Notes to Consolidated Financial Statements - Continued
September 30, 2006 and 2005
Note G - Income Taxes - Continued
The Company's income tax expense (benefit) each of the nine month periods ended
September 30, 2006 and 2005 and for the period from October 17, 2003 (date of
inception) through September 30, 2006, respectively, differed from the statutory
federal rate of 34 percent as follows:
Period from
October 17,
2003 (date
Nine months Nine months of inception)
ended ended through
September 30, September 30, September 30,
2006 2005 2006
--------- --------- ---------
Statutory rate applied to
income before income taxes $(166,000) $ (68,000) $(303,000)
Increase (decrease) in income taxes
resulting from:
State income taxes -- -- --
Non-deductible officers compensation 18,000 18,000 69,000
Non-deductible charge for common stock
issued at less than "fair value" 43,000 19,000 62,000
Other, including reserve for deferred
tax asset and application of net
operating loss carryforward 105,000 31,000 172,000
--------- --------- ---------
Income tax expense $ -- $ -- $ --
========= ========= =========
Temporary differences, consisting primarily of the prospective usage of net
operating loss carryforwards give rise to deferred tax assets and liabilities as
of September 30, 2006 and 2005, respectively:
September 30, September 30,
2006 2005
-------------- --------------
Deferred tax assets
Net operating loss carryforwards $119,000 $ 62,000
Officer compensation deductible when paid 69,000 45,000
Less valuation allowance (188,000) (107,000)
------- -------
Net Deferred Tax Asset $ - $ -
======== ========
Note H - Preferred Stock
The Company's By-Laws allow for the issuance of up to 50,000,000 shares of
$0.001 par value Preferred Stock.
Holders of shares of preferred stock are entitled to one vote for each share on
all matters to be voted on by the stockholders. Holders of preferred stock do
not have cumulative voting rights. Holders of preferred stock are entitled to
share ratably in dividends, if any, as may be declared from time to time by the
Board of Directors in its discretion from funds legally available therefore. In
the event of a liquidation, dissolution or winding up of the Company, the
holders of preferred stock are entitled to share pro rata all assets remaining
after payment in full of all liabilities. All of the outstanding shares of
preferred stock are fully paid and non-assessable. Holders of preferred stock
have no preemptive rights to purchase our preferred stock. There are no
conversion or redemption rights or sinking fund provisions with respect to the
preferred stock.
10
Signet International Holdings, Inc. and Subsidiary
(a development stage enterprise)
Notes to Consolidated Financial Statements - Continued
September 30, 2006 and 2005
Note H - Preferred Stock - Continued
The Board of Directors has the authority, without further action by the
shareholders, to issue from time to time the 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 the
Company, the Company issued 4,000,000 shares of preferred stock to the
incorporating persons.
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.
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, the Company 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
will recognize a charge to operations 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 as "Compensation expense related to common stock sold at less than "fair
value".
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 June 30, 2006, the Company has sold 381,000 shares for gross
proceeds of $381,000 under this Memorandum.
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 will recognize a charge to
operations 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 as
"Compensation expense related to common stock issued at less than "fair value".
11
Signet International Holdings, Inc. and Subsidiary
(a development stage enterprise)
Notes to Consolidated Financial Statements - Continued
September 30, 2006 and 2005
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 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, 2005 and 2004, the Company paid an
aggregate of $16,738 and $16,702 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.
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) 1/2% (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.
12
Signet International Holdings, Inc. and Subsidiary
(a development stage enterprise)
Notes to Consolidated Financial Statements - Continued
September 30, 2006 and 2005
Note J - Commitments - Continued Triple Play Management Agreement - continued
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. 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. Broadcast Property Acquisition On April 13, 2006, Signet executed
a Letter of Agreement to Purchase with Freehawk Productions, Inc. of Royal Palm
Beach, Florida whereby Signet would acquire 20 original one-half hour
screenplays and four (4) additional episodes per screenplay for a total of 100
separate broadcast properties to be delivered over a 36-month period from April
13, 2006. The agreed-upon purchase price for the total 20 one half-hour
ready-to-air shows and the accompanying supplemental 80 one half- hour
ready-to-air episodes is $3,000,000.00. This price includes all of the rights,
title and privileges related to the ownership of said broadcast properties. On
August 19, 2006, by mutual agreement, Signet and Freehawk rescinded this
Agreement and intend to enter into a restructured agreement in a future period.
(Remainder of this page left blank intentionally)
13
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
Quarters Ended September 30, 2006 and 2005
The Company had no revenue for either of the respective nine or three month
periods ended September 30, 2006 and 2005, respectively.
General and administrative expenses for the nine months ended September 30, 2006
and 2005 were approximately $359,000 and $92,900, respectively. Net loss for the
nine months ended September 30, 2006 and 2005, respectively, was approximately
$(488,000) and $(201,000). Earnings per share for the respective quarters ended
September 30, 2006 and 2005 was approximately $(0.12) and $(0,06) on the
weighted-average shares issued and outstanding.
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, 2006 and 2005, respectively, the Company had working capital of
approximately $(144,000) and $(105,000).
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 the last quarter of fiscal year 2006, we expect to begin implementation of
that part of our business plan relating to the acquisition for stock of Low
Power Television (LPTV) stations. Although we have had no revenues generated to
date, we expect to realize revenues commencing with the first acquisition of an
LPTV station. Consideration needed for the initial acquisition is anticipated to
come from the issuance of new shares of our common stock and cash on hand which
14
was obtained through our private placement memorandum which commenced in
September 2005 and was completed in January 2006.
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 public
offerings of equity, securities convertible into equity or debt, private
offerings of securities.
Concurrent with our acquisition of LPTV stations using our common stock as
anticipated to start in the first quarter of 2007, we intend to seek additional
equity or debt financing. To date, we have been able to raise funds in two
funding rounds through both debt and equity offerings. We anticipate that the
funds we secure from our next round will enable us to purchase additional LPTV
stations, some with a cash consideration, and provide additional working capital
to enable us to possibly acquire some stations incurring net operating losses;
but, are located in areas which management believe are sufficient to grow into
profitable operations, 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 LPTV
stations, plus up to $15 million to support the Triple Play contract. This phase
of our plan is anticipated to continue throughout Calendar 2007.
We have filed a Registration Statement on Form SB-2, pursuant to the Securities
Act of 1933, as amended, and it is in the review and approval process with the
U. S. Securities and Exchange Commission (SEC). Once our Registration Statement
is declared effective, we will explore the LPTV market to identify stations
which are available for acquisition using the following criteria: a spectrum of
at least 550,000 TV households, are rated Class A, and are located in a growing
market. In order to approach the market efficiently, we have adopted an order of
occurrences to be followed by priority.
1. Review markets of dominant influence (the ratings of TV households in
each market). We are currently in the process of reviewing the markets
and will continue to so through the fourth quarter of Calendar 2006
and the first quarter of Calendar 2007. We expect the cash
requirements for this effort to be insignificant and to be paid from
our current cash in hand.
2. Identify which LPTV stations that are currently operating at a profit
and are in good standing with the Federal Communications Commission
(FCC). We are currently in the process of reviewing the markets and
will continue to so through the fourth quarter of Calendar 2006 and
into the first quarter of Calendar 2007. We expect the cash
requirements for this effort to be insignificant and to be paid from
our current cash in hand.
3. Identify those LPTV stations for sale; initiate contact with LPTV
station owner(s) and appropriate legal counsel; sign non-circumvention
agreements and issue "Letters of Intent.". We are currently
identifying the stations for sale and will commence negotiations at
such time that our Registration Statement is deemed effective by the
SEC and our shares are approved to trade by the National Association
of Securities Dealers (NASD) on the NASD Electronic Bulletin Board. We
currently anticipate signing at least one letter of intent by the end
of the year. We expect the cash requirements for this effort to be
immaterial and to be paid from our current cash in hand.
4. 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. We
intend to commence due diligence as soon as we have signed letter(s)
of intent as set forth above. The cash requirements for this effort
are anticipated to be met through our current cash in hand.
5. Negotiate and finalize agreement to purchase the LPTV stations and
file, through appropriate legal counsel, the requisite FCC
applications for approval to operate the target LPTV stations. This
process will be undertaken when we have completed our due diligence.
We anticipate, based on the best of management's knowledge, that the
approval period will take between 60-90 days per application. The cash
requirements for these efforts are anticipated to be met through our
current cash on hand. We intend to purchase these LPTV stations for a
combination of cash and an amount of our common stock to be negotiated
for each acquisition. We anticipate that the cash for the purchase of
these stations will come from additional new financing to be received
once our Registration Statement is deemed effective and the NASD has
cleared our common stock for trading. At this time, we have no
commitment for this financing.
6. Once the FCC has granted approval of our acquisition and operation of
each LPTV station, we will then become owner and will be responsible
for the daily expenses associated with operating the business. The
cash requirements for operating these stations will be paid from the
revenues generated from the stations.
15
We anticipate that the process of locating, identifying, negotiating the Letter
of Intent, receiving FCC approval and closing our initial acquisition will take
approximately 120 days after our Registration Statement is deemed effective and
our common stock is approved to trade on the NASDAQ Electronic Bulletin Board
(OTCBB).
To date, management has identified several potential station acquisition targets
by name and/or location only. The management and/or ownership of these
identified LPTV stations will not be approached until our Registration Statement
is deemed effective by the SEC. Currently, we have only ascertained that certain
stations are for sale by searching the Internet. The name and call letters of
these stations are posted on various web sites. It is our intention to finance
payment of these stations by issuing the sellers newly issued shares of our
common stock as well as 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
twelve months with our current cash reserves. The cash balance at September 30,
2006 is approximately $171,000. We anticipate for the next 12 months, excluding
the costs of any LPTV station acquisitions, our operational as well as general
and administrative expenses will total approximately $126,000. We anticipate
that will be able to cover these expenses with our current cash reserves.
Management is of the opinion that our average ongoing operating expenses, on a
monthly basis, are as follows:
Accounting Fees $ 2,000
Legal fees 3,500
General and administrative expenses 2,500
Travel & Surveys 1,500
Other Expenses 1,000
-------
Total $10,500
======
Our operating expenses for the first nine months of Calendar 2006 were
approximately $358,000 and required cash resources of approximately $105,000.
These expenses include the accrual for executive and other compensation, which
will not be paid until some future period where adequate resources are
available, and various charges for legal, auditing, other fees incurred in the
process of preparing and filing our Registration Statement on Form SB-2. We
anticipate that our actual cash requirements will be remain relatively stable
for the next 12 months and we anticipate a significant reduction in future
overhead expense levels as discussed above.
There will be no expenses recognized or cash requirements associated with the
Big Vision contract until such time that services have been provided by Big
Vision. At the time Big Vision starts providing services, we will be generating
revenues from acquired LPTV stations to cover these commitments. Until such time
that our common stock is approved for public trading, we receive additional
financing and proceed with the implementation of our business, 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 or fully
implement our business plan. Even without significant new funding during the
fourth quarter of Calendar 2006 or the first quarter of Calendar 2007, we
anticipate that we will still be able to acquire some profitable LPTV stations
with only our common stock, after the effectiveness of our Registration
Statement, and integrate their financial operations in future periods.
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 enlarging our Board of Directors and integrating the employees of any
LPTV stations that we may acquire in the future, we do not expect any
significant changes in the number of our employees.
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, 2006.
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
16
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 quarter ended
September 30, 2006 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Part II - Other Information
Item 1 - Legal Proceedings
None
Item 2 - Recent Sales of Unregistered Securities and Use of Proceeds
None
Item 3 - Defaults on Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Company has held no regularly scheduled, called or special meetings of
shareholders during the reporting period.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
Exhibits
31.1 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002
-------------------------------------------------------------------------------
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.
Signet International Holdings, Inc.
Dated: November 14, 2006 /s/ Ernest W. Letiziano
----------------- ----------------------------------
Ernest W. Letiziano
President and Director
17