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
<PAGE>
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
<PAGE>
METRO DISPLAY ADVERTISING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS December 31,
1996 1995
------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE>
METRO DISPLAY ADVERTISING, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
METRO DISPLAY ADVERTISING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 and 1995
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
----------- ----------- -----------
<S> <C> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
METRO DISPLAY ADVERTISING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
METRO DISPLAY ADVERTISING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - SUPPLEMENTAL SCHEDULE
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
See notes to consolidated financial statements
<PAGE>
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
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
December 31,
1996 1995
----------- -----------
<S> <C> <C>
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%
----------- -----------
</TABLE>
-11-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 74,947
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<RECEIVABLES> 1,133,343
<ALLOWANCES> (143,539)
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