-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FULC0ozRKY+VCWCIbkTb4QdFokLX3CJQ54wJDYA/7Kre2nQDm0FnDtPGGDMAvrFE 4d7jsnJ6J7FVueI3jpRhkQ== 0000891554-97-000613.txt : 19970704 0000891554-97-000613.hdr.sgml : 19970704 ACCESSION NUMBER: 0000891554-97-000613 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970703 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: METRO DISPLAY ADVERTISING INC CENTRAL INDEX KEY: 0000944742 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 33093323 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-25982 FILM NUMBER: 97636070 BUSINESS ADDRESS: STREET 1: 15265 ALTON PARKWAY STREET 2: STE 100 CITY: IRVINE STATE: CA ZIP: 92718 BUSINESS PHONE: 7147273333 MAIL ADDRESS: STREET 1: 15265 ALTON PARKWAY STREET 2: STE 100 CITY: IRVINE STATE: CA ZIP: 92718 10KSB/A 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB/Amended [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1996. or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _______________ to _______________. Commission file number 0-25982 METRO DISPLAY ADVERTISING, INC. (Name of small business issuer in its charter) California 33-0093323 (State of incorporation) (I.R.S. Employer Identification No.) 15265 Alton Parkway, Suite 100, Irvine, California 92618 (Address of principal executive offices) (zip code) Issuer's telephone number: (714) 727-3333 Securities to be registered pursuant to Section 12(b) of the Act: None Securities to be registered pursuant to Section 12(g) of the Act: Common Stock Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 filing requirements for the past 90 days. YES__X__ NO_____ Check mark indicates that disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] The issuer's revenues for its most recent fiscal year were $7,571,268. . The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 28, 1997 was approximately $8,799,162. No public trading market exists for the issuer's voting stock, and no bid or asked prices are quoted. The foregoing estimated value represents the book value of the issuer's voting stock, based on the registrant's December 31, 1996 audited financial statements, held by non-affiliates as of April 12, 1997. There were 963,030 shares outstanding of registrant's common stock as of February 28, 1997. The following documents are incorporated by reference into this report: None PECK & LOPEZ Certified Public Accountants INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Metro Display Advertising, Inc. We have audited the accompanying consolidated balance sheets of Metro Display Advertising, Inc., and subsidiary as of December 31, 1996 and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended. The consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits. The financial statements of Metro Display Advertising, Inc. and subsidiary as of December 31,1995, were audited by other auditors whose report dated April 15, 1996, expressed an unqualified opinion on those statements. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Metro Display Advertising, Inc. and the subsidiary as of December 31, 1996, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. Peck & Lopez Certified Public Accountants Newport Beach, CA May 20, 1997 1400 Bristol Street North, Suite 170, Newport Beach, CA 92660 714 225-7010 Fax 714 222-0481 Member of American Institute of CPAs, California Society of CPAs METRO DISPLAY ADVERTISING, INC. CONSOLIDATED BALANCE SHEETS
ASSETS December 31, 1996 1995 ------------ ------------ CURRENT ASSETS: Cash $ 74,947 $ 225,524 ------------ ------------ Accounts receivable, net of allowances of $143,539 and $117,775 (Note 1) 989,804 1,377,859 Prepaid expenses and other assets (Note 7) 226,844 39,330 Deferred taxes - current portion (Note 5) 196,000 235,000 ------------ ------------ TOTAL CURRENT ASSETS 1,487,595 1,877,713 ------------ ------------ PROPERTY AND EQUIPMENT: (Note 1 and 4) Office furniture and equipment 343,472 282,230 Leasehold improvements 24,280 24,280 Machinery and equipment 82,588 70,500 Vehicles 463,470 397,305 Bus stop shelters 7,892,783 7,813,534 ------------ ------------ 8,806,593 8,587,849 Less: accumulated depreciation (2,633,934) (1,821,408) ------------ ------------ 6,172,659 6,766,441 ------------ ------------ OTHER ASSETS: Performance bond deposits ( Note 3) 734,722 694,722 Deferred taxes - less current portion (Note 5) 3,052,000 2,924,000 Other assets (Note 2 and 6) 186,528 102,033 ------------ ------------ 3,973,250 3,720,755 ------------ ------------ $ 11,633,504 $ 12,364,909 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt (Note 4) $ 693,065 $ 751,622 Accounts payable and other accrued liabilities 269,746 372,237 Due to municipalities 596,052 757,569 Due to joint venture (Note 6) 87,538 -- Accrued payroll and related taxes 77,781 57,954 Advanced payments 226,067 214,118 TOTAL CURRENT LIABILITIES 1,950,249 2,153,500 ------------ ------------ LONG TERM DEBT - LESS CURRENT PORTION (Note 4) 833,785 1,320,848 COMMITMENTS AND CONTINGENCIES (Note 7 and 8) STOCKHOLDERS' EQUITY: Preferred stock, 1,000,000 shares authorized, no par value, no shares issued Common stock, 5,000,000 shares authorized, no par value, 823,030 shares issued 9,504,532 9,504,532 Accumulated deficit (655,062) (613,971) ------------ ------------ 8,849,470 8,890,561 ------------ ------------ $ 11,633,504 $ 12,364,909 ============ ============
See notes to consolidated financial statements METRO DISPLAY ADVERTISING, INC. CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996 1995 ----------- ----------- REVENUES: $ 7,571,268 $ 7,437,210 COST OF SALES: City fees (Note 7) 1,455,660 1,805,548 Advertising commissions and expenses 2,192,772 2,101,507 Installation and maintenance 1,099,513 913,700 Other costs 198,675 73,188 ----------- ----------- TOTAL COST OF SALES 4,946,620 4,893,943 ----------- ----------- GROSS PROFIT 2,624,648 2,543,267 ----------- ----------- OPERATING EXPENSES: Wages and related expenses 589,873 558,124 Professional fees 163,425 67,083 Bad debts 62,814 72,500 Office expenses 218,769 192,314 Depreciation (Note 1) 923,299 911,332 Other operating expenses 501,685 493,397 ----------- ----------- TOTAL OPERATING EXPENSES 2,459,865 2,294,750 ----------- ----------- INCOME FROM OPERATIONS 164,783 248,517 ----------- ----------- OTHER INCOME (EXPENSE): Gain (Loss) on sale of assets (73,897) 2,060 Investment loss (27,882) -- Interest income 20,638 11,033 Other income 11,474 45,688 Interest expense (224,407) (180,301) ----------- ----------- TOTAL OTHER INCOME (EXPENSE) (294,074) (121,520) INCOME (LOSS) BEFORE TAXES (129,291) 126,997 PROVISION (BENEFIT) FOR INCOME TAXES (NOTE 5) (88,200) 47,000 ----------- ----------- NET INCOME (LOSS) $ (41,091) $ 79,997 =========== =========== NET INCOME (LOSS) PER SHARE $ (0.04) $ 0.09 =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 983,030 906,364 =========== ===========
See notes to consolidated financial statements METRO DISPLAY ADVERTISING, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996 and 1995
COMMON ACCUMULATED STOCK DEFICIT TOTAL ----------- ----------- ----------- Balance at January 1, 1995 $ 4,027,358 $ (693,968) $ 3,333,390 Net Income -- 79,997 79,997 Exchange for Minority Interest 19,139 -- 19,139 Stock Options (Note 9) 79,880 -- 79,880 Deferred tax adjustment (Note 5) 5,378,155 -- 5,378,155 ----------- ----------- ----------- Balance at January 1, 1996 $ 9,504,532 $ (613,971) $ 8,890,561 Net Income -- (41,091) (41,091) ----------- ----------- ----------- Balance at December 31, 1996 $ 9,504,532 $ (655,062) $ 8,849,470 =========== =========== ===========
See notes to consolidated financial statements METRO DISPLAY ADVERTISING, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 7,919,931 $ 7,044,080 Cash paid to suppliers and employees (6,841,155) (6,280,225) Interest received 20,638 11,798 Interest paid (217,993) (139,787) Franchise tax paid (800) (800) ----------- ----------- Net cash provided by operating activities 880,621 635,066 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of assets 158,646 -- Purchase of property and equipment (570,063) (361,251) Performance bond deposits (71,500) (25,000) Investment in joint venture (20,000) -- Proceeds from joint venture 87,538 -- Loans made (72,052) -- ----------- ----------- ----------- ----------- Net cash used in investing activities (487,431) (386,251) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from loans -- 360,000 Payments on notes payable (543,767) (504,559) ----------- ----------- Net cash used in financing activities (543,767) (144,559) ----------- ----------- NET INCREASE IN CASH (150,577) 104,256 CASH AT BEGINNING OF YEAR 225,524 121,268 ----------- ----------- CASH AT END OF YEAR $ 74,947 $ 225,524 =========== =========== SUPPLEMMENTAL DISCLOSURE SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Purchase of vehicle in exchange for debt $ 30,000 $ -- =========== =========== Issuance of common stock options in exchange for loan and debt service costs $ -- $ 79,880 =========== =========== Increased deferred tax asset due to a change in tax attributes (Note 5) $ -- $ 3,205,200 =========== =========== Decrease deferred tax liability due to a change in tax attributes (Note5) $ -- $ 2,172,155 =========== =========== Exchange of minority interest for common stock of parent $ -- $ 19,139 =========== ===========
See notes to consolidated financial statements METRO DISPLAY ADVERTISING, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - SUPPLEMENTAL SCHEDULE
Years Ended December 31, 1996 1995 --------- --------- RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES NET INCOME (LOSS) $ (41,091) $ 79,997 ADJUSTMENTS TO RECONCILE TO NET CASH PROVIDED BY OPERATING ACTIVITIES Depreciation 923,299 911,332 (Gain) loss on sale of assets 73,897 (2,060) Investment loss in joint venture 27,882 -- (Increase) decrease in accounts receivable 388,055 (370,568) (Increase) in other receivables (19,029) -- Decrease (increase) in other assets (150,810) 44,373 (Decrease) increase accounts payable & accrued liabilities (282,444) (155,237) Increase in advance payments 11,949 4,250 (Increase) decrease in deferred tax (89,000) 46,200 Increase in accrued interest 6,413 41,279 Bonds paid to cities 31,500 35,500 --------- --------- Net cash provided by operating activities $ 880,621 $ 635,066 ========= =========
See notes to consolidated financial statements METRO DISPLAY ADVERTISING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Metro Display Advertising, Inc., "the Company", incorporated in California in 1984. The Company has agreements with municipalities to install and maintain bus stop shelters and benches. Revenue is generated by renting advertising space on the installed shelters. The shelters are owned, installed and maintained by the Company and are currently located in approximately 63 municipalities throughout Southern California. The Company also rents advertising space in shelters located in Clark County, Nevada, including the City of Las Vegas, through its wholly owned subsidiary. Advertising sales for the Company's shelters are effected primarily by a national outdoor advertising agency under an advertising and marketing agreement dated January 1993. The marketing agreement provides the Company with both regional and national advertisers. The marketing agreement term expires March 1999, subject to an automatic five-year renewal. Approximately 80 percent of the Company's sales are generated through this marketing and sales agreement. The Company and its wholly owned subsidiary Continental Shelters, Inc., a California Corporation, filed a consolidated voluntary petition for relief under Chapter 11 of Title 11 of the United States Code on January 22, 1992. Continental Shelters, Inc., in the business of manufacturing and installing bus stop shelters exclusively for the Company, ceased operations February of 1992. All assets and liabilities of the subsidiary were transferred to the Company. On November 19, 1993, the Bankruptcy Court confirmed the Company's plan of reorganization, effective January 7, 1994. The accounting for the bankruptcy and the forgiveness of debt and adjustment to assets were recorded on a fresh start reporting basis for the year ending December 31, 1993. PRINCIPLES OF CONSOLIDATION The accompanying financial statements present the consolidated accounts of the Company and its wholly-owned subsidiary, Bustop Shelters of Nevada, Inc., a Nevada Corporation. All significant inter-company transactions and balances have been eliminated. USE OF ESTIMATES Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing the financial statements. REVENUE RECOGNITION The Company's revenue is derived primarily from providing advertising services under contract arrangements. The company prepares its financial statements on the accrual basis of accounting in accordance with generally accepted accounting principles. Advertising revenue is recognized when earned, and expenses are recorded when incurred. -7 METRO DISPLAY ADVERTISING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company has adopted the allowance for doubtful accounts method of accounting for losses from uncollectible accounts. Under this method, an allowance is provided based on historical experience and management's evaluation of outstanding accounts receivable at the end of each year. PROPERTY AND EQUIPMENT Property and equipment were re-stated at their estimated fair market value at January 7, 1994, the effective date of the Company's plan of reorganization, in accordance with fresh-start reporting. For years ended December 31, 1995 and 1996, property and equipment are depreciated over the remaining estimated useful lives, generally one to seven years, of the related assets using the straight-line method. The bus stop shelters are depreciated over ten years, using the straight-line method. NET INCOME PER SHARE Net income per common and common share equivalent share is computed on the basis of the weighted average number of common shares outstanding and dilutive common equivalent shares. Common stock equivalent shares include dilutive stock options. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, investments, and trade accounts receivable. Investments that potentially subject the Company to credit risk include investments in joint ventures and partnerships. Future changes in economic conditions may make the investments less valuable. A majority of the Company's trade receivables are derived from sales generated by a national outdoor advertising agency to whom payments are made. The national outdoor advertising agency then remits collections to the Company on a monthly basis. Amounts due from the national outdoor agency accounted for 70 percent and 72 percent of accounts receivables at December 31, 1996 and 1995 respectively. The company performs ongoing credit evaluations of its customers' financial condition and limits its exposure to accounting losses by limiting the amount of credit extended whenever deemed necessary and generally does not require collateral. Reserves are maintained for potential credit losses, and such losses have been within management's expectations. The carrying amounts reported on the balance sheet for cash, investments, and trade accounts receivable approximate fair value. INCOME TAXES Effective January 1, 1993, the Company adopted statement of Financial Accounting Standards No. 109, the objective of accounting for income taxes is to recognize the amount of current and deferred taxes payable (or refundable) at the date of the financial statements as measured by the provision of the enacted tax laws. Deferred income taxes have been provided for the future tax effects of temporary differences between financial reporting and tax basis of assets, liabilities, and operating loss carryforwards. -8- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED RECLASSIFICATIONS Certain reclassifications to the year-end 1995 income statement have been made to conform to classifications adopted in 1996. These classifications have no effect on net income. LONG-LIVED ASSETS Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for the Impairment for Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The adoption of SFAS 121 did not have a material impact on the results of operations or financial position of the Company. NOTE 2 - OTHER ASSETS The Company entered into an agreement with Busline Media to provide administrative services and support. Busline Media is a sole proprietorship that became subject to a receivership by order of the United States District Court on or about July 1993. As part of this agreement, the Company agreed to make operating expense advances to Busline Media. As of December 31, 1996, the Company advanced $156,410 to Busline Media. On June 20, 1996, the plan was approved, a new corporation called Bay Area Transit Shelters, Inc. ("BATS"), was formed. The Company is expected to receive 25 percent of the new issue common stock of BATS in exchange for services and the amount owed. The stock will be issued May 1997. NOTE 3 - PERFORMANCE BOND DEPOSITS The Company, under terms of its agreements with various municipalities, is required to maintain either cash bond deposits or certificates of deposit pledged to municipalities, which guarantee the removal of shelters. The bond deposits are required for the duration of the agreements, generally five to ten years. NOTE 4 - LONG TERM DEBT The long term debt at December 31, 1996, consists of the following: Current Long Term Total ------- --------- ----- Notes payable to bank, secured by vehicle, payable in monthly installments of $944, including interest at 8 percent maturing October 1999. $ 9,378 $ 19,224 $ 28,602 Note payable to National Display Advertising, Inc., secured by 124 bus stop shelters, payable in monthly installments of $8,067, including interest at 10%, maturing January 1997. 7,992 0 7,992 -9- NOTE 4 - LONG TERM DEBT, CONTINUED Current Long Term Total ------- --------- ----- Unsecured note payable to National Display Advertising, Inc., payable in monthly installments of $12,000, including interest at 7 percent maturing November 1997. See Note 7 for contingent liability relating to this loan. $ 119,361 0 $ 119,361 Line of credit provided by a related party. See Note 9 and 10. 201,022 116,913 317,935 Note payable secured by corporate assets. Interest only at 10 percent for four years, thereafter monthly installments of $9,130, maturing September, 2003. See Note 9 and 10. 0 326,351 326,351 Settlement of a loan guarantee, payable in monthly installments of $3,000, discounted at 7% maturing December, 1997. 33,913 0 33,913 Trade and other miscellaneous obligations, payable in monthly installments of $1,689, discounted at 7 percent, maturing, January, 1998. 19,486 1,679 21,165 Trade obligations due to a related party payable in monthly installments of $11,237, discounted at 7 percent through January 1998. See Note 10 for additional information. 211,133 312,438 523,571 Obligations to municipalities, payable in monthly installments of $7,944, discounted at 7 percent, maturing 1998 and 1999. 90,780 57,180 147,960 --------- --------- ---------- $ 693,065 $ 833,785 $1,526,850 ========= ========= ========== Future maturities of long-term debt are as follows: Year Ended December 31 ---------------------- 1998 $ 281,922 1999 118,530 2000 184,562 2001 82,260 2002 and after 166,511 ----------- $ 833,785 =========== -10- NOTE 5 - INCOME TAXES Under SFAS 109, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and operating loss carryforwards. The tax effects of significant items composing the Company's net deferred tax assets are as follows:
December 31, 1996 1995 ----------- ----------- Deferred tax liabilities: Difference between book and tax basis property $ (260,995) $ (311,913) ----------- ----------- Deferred tax assets: Doubtful accounts allowance not currently deductible 54,847 36,648 Shareholder interest not currently deductible 28,214 46,268 Federal net operating loss carryforward 4,062,155 4,060,815 State net operating loss carryforward 564,332 508,957 Other 16,207 34,985 ----------- ----------- 4,725,755 4,687,673 ----------- ----------- Valuation allowance (1,216,760) (1,216,760) ----------- ----------- Net deferred tax asset $ 3,248,000 $ 3,159,000 ----------- ----------- Reflected in the consolidated balance sheets as: Current deferred asset- net $ 196,000 $ 235,000 Noncurrent deferred asset - net 3,052,000 2,924,000 ----------- ----------- Net deferred tax asset $ 3,248,000 $ 3,159,000 ----------- ----------- The income tax components of the provision (benefit) for income taxes consist of the following: December 31, 1996 1995 ----------- ----------- Current: State $ 800 $ 800 Deferred: Federal (28,500) 38,000 State (60,500) 8,200 ----------- ----------- $ (89,000) $ 46,200 ----------- ----------- $ (88,200) $ 47,000 ----------- ----------- The (benefit) provision for income taxes differs from the amount computed by applying the statutory federal rate to pretax income as follows: December 31, 1996 1995 ----------- ----------- Expected income tax (benefit) provision at The U.S. federal statutory rate (35%) 35% Adjust inter-company activity (31%) -- (Benefit) provision for state income taxes, net of federal effect (6%) 6% Other 4% (4%) ----------- ----------- (Benefit) provision for income tax (68%) 37% ----------- -----------
-11- NOTE 5 - INCOME TAXES, CONTINUED The Company has a federal net operating loss carryforward of approximately $12 million and a state net operating loss carryforward of approximately $6 million. The federal net operating loss carryforward expires beginning 2004 through 2009 and the state net operating loss carryforward expires beginning 2000 through 2004. Due to additional information regarding the bankruptcy and treatment of the leasehold creditors, the Company, on the advice of counsel, is applying Internal Revenue Code Section 108 and 382. Based upon the rule of Section 108, the exchange of stock for debt by the corporation does not result in any recognition of income for the Company, therefore there is no reduction in tax attributes from that exchange. Section 382 requires the Company to reduce it's net operating loss carryforwards by 50 percent. This resulted in an increase to deferred tax asset of $3,205,200 and a decrease to deferred tax liability of $2,172,955 providing a total tax benefit of $5,378,155 to common stock for year ended December 31, 1995. NOTE 6 - JOINT VENTURE AND PARTNERSHIP On November 18, 1994, the Company and a national outdoor advertising agency entered into a joint venture agreement ( the "Joint Venture") for the purpose of seeking additional franchises and/or licenses for bus shelters advertising from municipalities throughout the United States, and to manage, develop, and operate all such bus stop shelters and sell advertising space in connection therewith. The national outdoor advertising agency made an initial capital contribution of $30,000 to the Joint Venture while the Company will contribute all fabricated shelters and shelter parts needed by the Joint Venture. Under a separate marketing agreement, the agency also provides sales support for the Company. The Joint Venture agreement provides for a fifteen-year term, subject to earlier termination by mutual consent of the parties, a default in the performance of obligations under the joint venture agreement which is not cured within the time to cure such default or the insolvency of one of the parties. The Joint Venture will include all new agreements with municipalities and will also include the assignment of the Company's agreement with the city of La Habra to the extent that such city permits the assignment of such contract. All other territories under pre-existing contracts that the Company has entered into shall remain outside of the Joint Venture. The investment value at December 31, 1996 is $4,051. The amount due to the joint venture at December 31, 1996 is $87,538 for revenue collected on behalf of the joint venture. In October 1996, the Company entered into a partnership, which is primarily involved in operating, maintaining, and managing aircraft transportation used by each partner. The investment represents a 50 percent ownership in the partnership. The investment value in the partnership - income tax basis at December 31, 1996 is $26,067. The Company uses the equity method of accounting for joint venture and partnership investments. -12- NOTE 7 - COMMITMENTS The future minimum rental payments required by operating leases that have non-cancelable lease terms beyond the balance sheet date are as follows: Fiscal year ended ----------------- 1997 $ 92,478 1998 42,654 1999 23,604 2000 3,934 --------- Total $ 162,670 ========= The Company's lease for the office in Irvine, California expires June 30, 1998. The subsidiary's lease for an office in Las Vegas, Nevada expires February 29, 2000. The Company also rents storage space on a month-to-month basis. Rent expense was approximately $101,708 and $95,410 for the years ended December 31, 1996 and 1995 respectively. The Company has entered into an agreement, pursuant to the terms of a settlement and compromise in the plan of reorganization, with National Display Advertising, Inc. Under the terms of the settlement, the debt will increase by at most $500,000 if $250,000 is not paid against principal on or before January 1998. The Company is currently making payments and expects to have the loan paid off prior to its maturity date to avoid any further liability. See Note 4 for loan balance. MUNICIPAL CONTRACTS The Company and its subsidiary have contracts with various municipalities in southern California and Nevada for the installation and maintenance of bus shelters. Many of these contracts provide exclusive rights to operate advertising bus shelters, while others allow other bus shelter companies to share the area. The municipalities receive a guarantee fee and/or a percentage of the advertising revenue depending on the respective agreement. The contracts extend three to ten years, with options to renew upon approval by both parties. The guaranteed payments for the next five years, according to current contracts, are approximately $1,410,000 per year. The guaranteed payments, included in city fees, for year ended December 31, 1996, were approximately $1,400,000. Included in prepaid expenses and other assets are overpayments of $113,046 to Clark County for payments made for the periods 1994 through 1996. NOTE 8 - CONTINGENCIES The Company was the plaintiff in an action filed against the City of Las Vegas, filed November 15, 1995. The Company provided shelters located in the City pursuant to a contract entered into July 3, 1985. As the contract approached its expiration, the City asserted the contract provided for the City's retention and ownership of the shelters. The Company asserted the shelters remained property of the Company, and could be removed by the Company in the event the contract was not renewed. The matter was resolved through negotiations that resulted in the signing of a long-term contract. A stipulation order dismissing the case without prejudice was filed on September 20, 1996. -13- NOTE 8 - CONTINGENCIES, CONTINUED On December 20, 1995, the Company filed a complaint against the City of Laguna Hills. The complaint involves the Company's bus shelters located in the City of Laguna Hills. The lawsuit was commenced as a result of action taken by the City on or about September 12, 1995, to eliminate all bus shelters within the City. As a result of this decision, the City has made demand that the Company remove all of its shelters immediately. On May 23, 1996, the Company filed a complaint against the City of Lake Forest. The complaint was based on the decision by the City of Lake Forest to terminate the Company's operations within the City and to grant an exclusive franchise to a competitor of the Company. On November 15, 1995, the Company filed a complaint against the City of Victorville, two of its City Council members and one member of the staff. This dispute arose as a result of efforts by the City of Victorville to have the Company's bus shelters removed after a dispute regarding the Company's display of advertising by the U.F.C.W. Union. The City officials strongly objected to the Union's advertisement and placed pressure on the Company to remove such advertising. The Company presently believes that the resolution of these matters will not have a material adverse effect on its financial condition as reported in the accompanying financial statements. NOTE 9 - STOCK OPTION PLANS In February 1995, the Board of Directors approved and in April 1995, the Company's shareholders ratified the Company's 1995 Incentive Stock Option Plan ( the "Option" Plan"). The Option Plan provides for the grant of options to officers, directors and other key employees of the Company to purchase up to an aggregate of 200,000 shares of Common Stock. The Option Plan is to be administered by the Stock Option committee of the Board of Directors, which has complete discretion to select the optionee and to establish the terms and conditions of each option, subject to the provisions of the Option Plan. As of December 31, 1996, the board of directors of the Company authorized the President to be eligible to participate in an Incentive stock option plan. Under the Plan, the Company has offered the President an option to purchase 20,000 shares of common stock for a price of $5 per share. This option expires December 31, 1999 one year after expiration of his employment contract. In 1994, as part of an exclusive sales representation agreement, a national outdoor advertising agency received an option to purchase 20,000 shares of new issue common stock at $21 per share. The option expires January 1, 1998. In 1994, as part of the terms of acquiring a line of credit, a related party received an option to purchase 40,000 shares of new issue common stock for a total purchase price of $100. On September 1, 1995, the original loan agreement was modified, increasing the option to include a total of 80,000 shares of new issue common stock. A discount of $40,000 was recorded for the additional 40,000 stock options to be amortized over the life of the loan. See Note 10 for additional details of the credit line. -14- NOTE 9 - STOCK OPTION PLANS, CONTINUED As part of the terms of acquiring a $360,000 loan, a related party received an option to purchase 40,000 shares of new issue common stock for a total price of $100. A discount of $39,880 was recorded for the 40,000 stock options to be amortized over the life of the loan. The option expires December 31, 1998. NOTE 10 - RELATED PARTY TRANSACTIONS The Company had an unsecured debt of $523,571, discounted at 7 percent, payable to a corporate stockholder in 48 equal installments. The Company has not made the scheduled payments on the stockholder's unsecured debt as required by the agreement. The Company modified the loan agreement on April 11, 1996 to allow the Company to either accrue or pay the stated monthly amount. Accrued payments will accrue interest at the 8 percent, adjusted on February 1, and August 1, each year, to 5 percent above the Federal Discount Rate. Stockholder can demand payments, start at any time, to be paid over 48 equal installments. Total interest payments were $67,423 for the year ended December 31, 1996. The same stockholder has provided a credit line to finance the implementation of the bankruptcy plan. On January 7, 1994, the effective date of the plan, $1,200,000 was made available, secured by all the assets of the Company, subordinate only to holders of secured debt. Interest is at an initial rate of 8 percent, adjusted on February 1 and August 1, each year, to 5 percent above the Federal Discount Rate. On September 1, 1995, the Company modified the terms of its original agreement and repayment terms. Principal and interest are payable in monthly installments of $20,000, due on the first day of each month, until paid in full. The amount utilized at December 31, 1996 was $317,935. Total payments made including interest and principal were $240,000 for the year ended December 31, 1996. As part of the loan modification dated September 1, 1995, the same stockholder loaned the Company $360,000, secured by all the assets of the Company payable interest only at 10 percent for four years, thereafter, monthly installments of $9,130 until paid in full. Total interest payments were $36,000 for the year ended December 31, 1996. NOTE 11 - SUBSEQUENT EVENT Subsequent to year-end, the Company signed a memorandum of understanding with a buyer for the sale of all of the Company's stock. The transaction is subject to stockholder ratification and completion of due diligence procedures to be performed by the buyer. -15- Item 6. Management's Discussion and Analysis or Plan of Operation. The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this Form 10-KSB. General From January 22, 1992 until January 7, 1994, the Company was in bankruptcy. In addition, since 1992, management of the Company has been implementing a revised business plan. See "Item 1 - Business - Background of the Company/Prior Bankruptcy." The Company's financial statements for each of the fiscal years ended December 31, 1994 ("fiscal 1994") and December 31 1995 ("fiscal 1995") are included in this Registration Statement. During fiscal 1993, the Company's principal focus was on merely maintaining the Company's existence, on resolving the various bankruptcy claims, and on confirming the Company's plan of reorganization. During fiscal 1994, the Company commenced its transition from a company operating under the supervision of the Bankruptcy Court to a company that had a revised business plan. Accordingly, during fiscal 1994, the Company reduced its work force, revised its marketing agreement with Van Wagner, entered into the Joint Venture agreement with Van Wagner, and turned its focus to renting and maintaining the advertising space available at the Company's shelters. Other than changing or entering into agreements with Van Wagner, the Company continued the implementation of its business plan throughout fiscal 1996. The Company believes that the new business plan will, in the long turn, increase the Company's revenues, reduce its overall operating costs, and increase the Company's presence in additional geographic markets. Accordingly, the enclosed financial statements may not necessarily be indicative of the Company's expected on-going operating results under its revised business plan. Results of Operations Revenues during fiscal 1995 and fiscal 1996 were derived from advertising fees received by the Company from the rental of the advertising panels located in the Company's installed shelters. Revenues for fiscal 1996 exceeded fiscal 1995 revenues by $134,058, or 2%, due to the implementation of management's new business plan, which plan was adopted in 1992 and has been incrementally implemented during fiscal 1995 and fiscal 1996. In accordance with the new business plan, the Company's objectives were to increase (i) the number of installed shelters, (ii) the occupancy rate for advertising in the panels of each shelter, and (iii) the average rental rate paid per advertising panel. The increased revenues in fiscal 1996 were the result of an increase in the per panel rental rate during fiscal 1996 over fiscal 1995. The Company's total costs of sales in fiscal 1996 increased by $52,677, or 1%, over 1995. Cost of sales as a percentage of revenues increased slightly from 66% in fiscal 1995 to 65% in fiscal 1996. Advertising commissions increased in fiscal 1996 as the result of increased advertising sales. Since the Company pays commissions based on a percentage of advertising sales, such commissions will increase as advertising sales increase. Gross profit percentage for fiscal 1996 and 1995 remained stable at 34% of sales. Installation and maintenance expenses for fiscal 1996 increased 20% compared to the prior fiscal year due primarily to new bus shelter installations. City advertising fees decreased by 19% in fiscal 1996, due to a decrease in fees to cities on a percentage basis. In addition, the Company had discovered certain overpayments in prior years to the city of Clark County, which were taken as credits in the current year. Since the Company pays fees to cities and municipalities for the right to maintain shelters in the cities and municipalities, such fees will increase as advertising revenues increase. -16- The Joint Venture obtained its first city contract in 1995. However, only minimal revenues were received in fiscal 1995 as the shelter installations were not completed until late in the year. Revenues for fiscal 1996 were also minimal due to the lack of market recognition by advertising clients. The Company believes that the Joint Venture will in the future enter into agreements with additional municipalities to establish and operate shelters, which operations will generate additional revenues for the Company. Because the Company has approximately 650 fabricated bus stop shelters in inventory, the Company will not have to expend any cash in connection with the establishment of shelters by the Joint Venture. The amount of revenues, to be generated in the future from the operation of the Joint Venture is, however, dependent on the future success of the Joint Venture in obtaining the right to establish shelters, the terms of the agreements to be entered into with the municipalities, the amount of advertising revenues generated by the Joint Venture's shelters, and on other factors. The revenues generated from this joint venture during fiscal 1996 amounted to $87,538. The Company's total operating expenses increased in fiscal 1996 by $165,115. The primary reasons for this increase was an increase in professional fees of $96,342 and an increase in wages and related expenses of $31,749. In fiscal 1996, the Company incurred $224,407 of interest expense compared to $180,301 in fiscal 1995. The increase in interest expense is primarily attributable to an increase in debt. For the fiscal year ended December 31, 1996, the Company recorded a net loss of $41,091 compared to a net income of $79,997 for fiscal 1995. This represents a change of $121,088 in fiscal 1996 over fiscal 1995. Liquidity and Capital Resources As of December 31, 1996, the Company's current liabilities exceeded the Company's current assets by $393,456. This represents an increase of $117,669 in fiscal 1996 over fiscal 1995. Approximately $412,155 of the current liability consists of indebtedness owed to Dr. Ross under the Plan. Dr. Ross is a Director and principal shareholder of the Company. See "Item 9. Directors, Executive Officers, Promoters, and Control Persons," and "Item 12. Certain Relationships and Related Transactions." The Company and Dr. Ross restructured this current liability in order to allow the Company the opportunity to implement its new business plan. Under this restructured agreement with Dr. Ross, the Company believes that it can fund the remaining portion of its working capital deficit through borrowings under the unused portion of its Credit Facility and through cash generated from operations. For a description of the Credit Facility, see "Item 12. Certain Relationships and Related Transactions." The Company is considering obtaining private financing from unaffiliated investors to pay off the working capital deficit and to provide the Company with working capital for the possible future expansion of its business into other geographic markets. No assurances can, however, be given that the Company will be able to continue to fund its current working capital deficit. Failure to satisfy its vendors and other creditors could result in the loss of business with such vendors/creditors, could cause a change in the terms the Company receives from such vendors/creditors, and could result in the initiation of bankruptcy proceedings against the Company. During fiscal 1996, the Company had a positive cash flow from operating activities of $880,621. This represents an increase of $245,555 in fiscal 1996 over fiscal 1995. This was primarily due to the increase in cash received from advertising clients. In addition, the Company used a total of $561,967 to fund its purchases of new property and equipment and for other investing activities. At December 31, 1996, the Company's outstanding accounts receivable decreased the amount of accounts receivable outstanding as of December 31, 1995 by $388,055. The decrease is due to an increase in collections. Pursuant to the Plan, the Company borrowed $800,000 under the Credit Facility in January 1994. Under the Credit Facility, the Company was required to make monthly payments of principal and interest and did not do so until the Company restructured the Credit Facility effective September 1, 1995. Since September 1, 1995, the Company has made all required payments of $20,000 per month and is current under the terms of the Credit Facility. The current balance as of December 31, 1996 was $317,935. The Company currently has approximately 650 shelters in its inventory. Accordingly, the Company's future capital expenditures related to the installation of additional shelters is expected to be insignificant, and its marginal cost of maintaining additional shelters is expected to be low. Because the Company's marginal cost of installing and maintaining additional shelters is low, the Company could increase its operating cash flow by installing additional shelters (directly or through the Van Wagner Joint Venture) and by renting the space on such additional shelters. Based on its currently pending RFPs and on increased shelter installation in existing municipalities, the Company believes that it will be able to increase its base of installed shelters during the current fiscal year. In connection with obtaining additional Municipal Contracts and Municipal Permits, the Company is typically required to post a performance bond with the municipality to guarantee the removal of the shelter upon the termination of the Municipal Contract. Under the Credit Facility, the Company is entitled to obtain up to $300,000 of irrevocable letters of credit to satisfy future bonding requirements. The Company has funded all such bonding requirements to date with operating capital, and as such all $300,000 is available for use for such bonding. As of the date hereof, the Company believes that the letter of credit portion of the Credit Facility is sufficient to satisfy the Company's needs for at least 12 months. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Metro Display Advertising, Inc. April 11, 1997 By /s/SCOTT KRAFT ---------------------------- Scott Kraft Chief Executive Officer and President In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Capacity Date --------- -------- ---- /s/ SCOTT KRAFT Chief Executive Officer and April 11, 1997 - ------------------------ President (Principal Executive, Scott Kraft Financial and Accounting Officer /s/ ALLAN L. ROSS, M.D. Chairman of the Board of April 11, 1997 - ------------------------ Directors Allan L. Ross, M.D. /s/ MARK R. BOILEAU Director April 11, 1997 - ------------------------ Mark R. Boileau Director and Secretary April 11, 1997 - ------------------------ William M. Slater EX-27 2 FDS --
5 12-MOS DEC-31-1996 DEC-31-1996 74,947 0 1,133,343 (143,539) 0 1,487,595 8,806,593 (2,633,934) 11,633,504 1,950,249 0 0 0 9,504,532 0 11,633,504 7,571,268 7,571,268 4,946,620 4,946,620 2,459,865 0 224,407 (129,291) (88,200) 0 0 0 0 (41,091) (0.04) 0
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