UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-KSB
| [X] | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 | |||
| OR | ||||
| [ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-32295 |
SIGNATURE HORIZONS GROUP, INC.
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DELAWARE
(State of Incorporation) |
95-4735254
(I.R.S. Employer Identification Number) |
3480 Preston Ridge Road, Suite 500
Alpharetta, Georgia 30005
(Address of principal executive offices and zip code)
Issuer’s telephone number: (770) 343-8196
LUMMI DEVELOPMENT, INC.
(Former name, former address and former fiscal year, if changed since last
report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class: | Name of each exchange on which registered: | |
| Common Stock, $.0001 par value | OTC Bulletin Board |
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will 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. x
The Issuer’s revenues for the fiscal year ended December 31, 2002 were $0.
The aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked price of such stock, as of April 30, 2003 was approximately $.09.
As of April 30, 2003, there were 40,171,776 shares of common stock, par value $.0001 per share, outstanding.
The index to exhibits appears on page 24 of this document.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional small business disclosure format: Yes o No x
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TABLE OF CONTENTS
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PART I
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Item 1.
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Description of Business
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Item 2.
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Description of Property
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Item 3.
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Legal Proceedings
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Item 4.
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Submission of Matters to a Vote of Securities Holders
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PART II
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Item 5.
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Market for Registrant's Common Equity and Related Stockholder Matters
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Item 6.
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Management's Discussion and Analysis or Plan of Operation
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Item 7.
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Financial Statements
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Item 8.
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Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosures
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PART III
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Item 9.
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Directors, Executive Officers, Promoters and Control Persons;
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Compliance with Section 16(a) of the Exchange Act
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Item 10.
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Executive Compensation
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Item 11.
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Security Ownership of Certain Beneficial Owners and Management
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Item 12.
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Certain Relationships and Related Transactions
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Item 13.
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Exhibits and Reports on Form 8-K
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Item 14.
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Controls and Procedures
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SIGNATURES
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PART I
Item 1. Description of Business.
Introduction
Signature Horizons Group, Inc., a Delaware corporation together with its subsidiaries, is referred to herein as the “Company.”
Some of the information in this report may contain forward-looking statements. These statements can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “continue” or similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition or state other “forward-looking” information. Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements (“Cautionary Statements”) include: the general strength or weakness of the Company’s products, the industry, and the pricing policies of competitors. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on behalf of the Company are expressly qualified in their entirety by such Cautionary Statements.
Business Development
Signature Horizons Group, Inc. f/k/a Lummi Development, Inc. was incorporated in the State of Delaware on January 19, 1999. The Company’s original business plan was to become actively engaged in the business of selling related marine accessories. The Company intended to implement its business strategy by initially manufacturing Marine Safety Kits for sale through wholesale and retail distribution for pleasure boats (including sport fishers, sport sedans, sailboats, motor sailors, speedboats and inflatables).
Pursuant to a Plan and Agreement of Share Exchange (the “Agreement”) dated October 28, 2002, the Company acquired all of the issued and outstanding shares of common stock, no par value, of Signature Horizons, Inc. (“Signature”), a privately held Georgia corporation, in exchange for newly-issued shares of common stock, $0.0001 par value, of the Company (the “Acquisition Shares”). The Company issued 15,972,400 Acquisition Shares to the stockholders of Signature in exchange for the 15,972,400 issued and outstanding shares of common stock of Signature held by them. As a result of the Agreement and the transactions in connection therewith (the “Share Exchange”), (i) the shareholders of Signature became the beneficial owners of approximately 64% of the outstanding shares of common stock of the Company and the shareholders of the Company were the beneficial owners of approximately 36% of the outstanding shares of the Company, and (ii) Signature is now a wholly-owned subsidiary of the Company.
Signature is a corporation organized under the laws of the State of Georgia on November 22, 1999.
Business of Issuer
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As a result of the Share Exchange with Signature, the Company’s business model is predicated upon the acquisition, development and operation of premier golf course residential and resort communities targeted at primary, second home and retirement markets. The corporate business plan is to develop geographical and revenue diversified golf resorts with gated residential country club communities for both permanent and second home purchases with practical and inventive residential and commercial real estate developments complimented by added services. The Company looks to produce recurring revenues by creating predictable, recurring, long-term revenue streams from lot sales, home sales, commercial parcel sales, lease property management services and general resort and golf course operations.
The Company’s plan is to aggressively develop “Signature Horizons” as an international “brand name” associated with high quality real estate developments. The Company plans to utilize joint ventures and strategic alliances with recognized land use planners, golf course developers and designers, and resort hotel and amenity operators. The continuing goal of the Company’s management is to build shareholder value by means of accretive acquisitions of real estate assets, including properties for development and existing income producing properties.
During the prior two years of its development stage, Signature has acquired properties and secured contractual purchase and sale agreements in locations for development consistent with its core-operating plan.
Principal Markets
As of December 31, 2002, the Company owned four real estate properties (or collections of properties) located in California, Wisconsin, Wyoming and South Dakota. The Company is currently negotiating the acquisition of property located in North Carolina, which, if acquired, the Company expects will be its first operating entity. On April 11, 2003, the Company sold its property located in Wyoming for $245,000, with net proceeds of approximately $221,000. On May 2, 2003, the Company sold its property located in South Dakota for $120,000, with net proceeds of $110,810.
Employees
As of December 31, 2001, the Company employed six full-time employees, including executive officers.
Item 2. Description of Property.
Corporate Offices
The corporate office of the Company is located at 3480 Preston Ridge Park, Suite 500, Alpharetta, Georgia. The corporate office is subleased by the Company under a commercial sublease agreement expiring on October 31, 2003 which provides for monthly rental of $7,456 plus annual increases in exchange for the use of approximately 5,773 sq. ft. of office space. Total lease rentals payable over the lease period are $80,822 through October 31, 2003. The Company does not intend to exercise the extension option on the lease and will seek smaller, less expensive office space upon expiration of its term.
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The Company owns the following properties which comprise greater than Ten Percent (10%) of the Company’s assets.
Wisconsin-Dell . The Wisconsin Dell property is located in the city limits of the Village of Lake Delton, Sauk County, Wisconsin and consists of approximately 136 acres at U.S. Highway 12 and I-90/94. The property is located directly across from the Great Wolf Resort. The property was acquired September 23, 2002 for a purchase price of $6,798,000.
The property is owned in fee simple by Signature Wisconsin Dell, LLC, a wholly owned subsidiary of Signature Horizons, Inc., our wholly owned subsidiary. The property is pledged as security for two promissory notes. The first note was issued on September 16, 2002 in the principal amount of $4,000,000 with an interest rate of Twelve Percent (12%) and a one year maturity which may be extended for an additional one year period by the Company and, at the discretion of the lender, successive one year periods thereafter. Extensions bear the interest rate of Sixteen and Thirty-Six One-Hundredths Percent (16.36%). This note includes a provision allowing the Company to prepay the note without penalty. The second note is in the principal amount of $2,000,000 with a Thirty Percent (30%) interest rate and maturity date of December 26, 2003. This note includes a provision allowing the Company to prepay the note without penalty.
The property is unimproved land and the Company has not yet determined a development plan. Because the property is currently unimproved, no portion of the appraised value is subject to depreciation. In the opinion of management, the property is adequately covered by insurance.
Palm Springs. The Palm Springs property is comprised of 28 assembled land parcels located in Southern California with a cumulative acreage total of approximately 3,004.81 acres. The property is owned in fee simple by Signature Palm Springs, LLC, a wholly owned subsidiary of Signature Horizons, Inc. our wholly owned subsidiary and was acquired on May 9, 2002 for Four Million Nine Thousand Eight Hundred Thirty Dollars ($4,009,830). The property is encumbered by two promissory notes executed with the Seller in the aggregate principal amount of $3,950,000, both dated May 3, 2002. See Notes to Financial Statements for additional terms of the promissory notes.
The property is unimproved land and the Company has not yet determined a development plan. Because the property is currently unimproved, no portion of the appraised value is subject to depreciation. In the opinion of management, the property is adequately covered by insurance.
The Palm Springs property is currently the subject of litigation in the state of California. See Legal Proceedings.
Investment Policies
Investment in Real Estate or Interest in Real Estate
The Company may invest in real estate or interest in real estate located anywhere in or out of the continental Unites States, but plans to focus on those states where the Company owns property and those markets of substance for the target market and business development model. The Company may invest in any type of real estate or interest in real estate including, but not
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limited to, golf course communities, office buildings, apartment building, shopping centers, industrial and commercial properties, special purpose buildings and undeveloped acreage. The officers of the Company and the board of directors of the Company shall approve the acquisition of all real estate and real estate interest.
There is no limitation on the number or amount of mortgages which may be placed on any one piece of property. However, in the event the Company would seek to borrow an amount which is more than 300% or 3 times the company’s total net assets, approval must be sought by the board of directors and disclosed to the shareholders in the next quarterly report. In addition to the 300% limitation on total indebtedness, the Company has a policy that may be changed at anytime without shareholder approval of not exceeding an 85% debt level on our real estate assets.
The method of financing the purchase of real estate shall be primarily from borrowed funds and the sale of shares. The officers and the board of directors of the Company shall approve the financing of all real estate and real estate interest.
It is not our policy to acquire assets primarily for capital gain through sale in the short term. Rather, it is our policy to acquire assets with the intention to hold the asset for the long term unless an imminent sale is strongly accretive and warrants consideration. During the holding period it is our policy to develop the real estate or hold for capital appreciation through an increase in our stock price as a result of the increase in value of the underlying real estate portfolio. The board of directors as it relates to investments in real estate or interest in real estate may change any policy anytime without notice to or a vote of the shareholders.
The officers of the Company shall delegate the method of operating the real estate to internal employees, consultants and independent contractors. The officers of the Company and the board of directors shall make all major operating decisions concerning the operation of our real estate.
Investments in Real Estate Mortgages
The Company does not presently hold investments in real estate mortgages nor is it the intent of the Company to invest in real estate mortgages in the near future. However, this policy may be changed at anytime without notice to or a vote of the shareholders.
Securities of or Interests in Persons Primarily Engaged in Real Estate Activities
The Company intends to form separate limited liability companies for each development that it owns and operates, which will be structured and accountable as independent profit centers. The Company will be the managing member of all the limited liability companies, and have the exclusive power under the Operating Agreement to manage and conduct the business of the company.
The limited liability companies will acquire real estate and will be formed under the laws of the states in which the real estate is located. The separate limited liability companies will be subsidiaries of the Company and reported on and accounted for based on the membership participation interest of the Company.
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Item 3. Legal Proceedings
On March 21, 2003, a complaint was filed in Sparkasse Aschaffenburg-Alzenau v. Silver State Funding, Ltd., Libuse Hornak, Charles McLaughlin, Bobbee Lou McLaughlin and Signature Horizons, Inc. in the United States District Court, Central Division of California — Riverside Division (Case No. EDCV 03-0326 VAP (SGLX)) alleging that Ms. Hornak lacked the proper authority to transfer the Palm Springs properties to the Company. The plaintiff has prayed for equitable relief against the Company and other defendants, including that the transfer of the property to the Company be set aside.
The Company is engaged in various other litigation matters from time to time in the ordinary course of business.
Item 4. Submission of Matters to a Vote of Securities Holders
None.
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
The Company’s common stock is listed on OTCBB under the symbol “SHZO.” The
following table sets forth the high and low bid prices for the common stock.
The quotations listed below reflect inter-dealer prices, without retail
mark-up, mark-down or commissions and do not necessarily represent actual
transactions.
2001
High
Low
n/a
n/a
n/a
n/a
n/a
n/a
2.00
.78
2002
High
Low
n/a
n/a
.03
.03
.04
.04
2.50
1.35
2003
High
Low
.99
.11
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Holders
On December 31, 2002 there were approximately 120 shareholders of record of the Company’s common stock, based on information provided by the Company’s transfer agent. This number may not include individuals whose shares are held in “street names.”
Dividends
The Company has never paid dividends on its Common Stock and does not anticipate that it will do so in the foreseeable future. For the foreseeable future any future earnings or funds otherwise available, if any, for the payment of dividends will be used for reinvestment in the Company’s business. Any future determination to pay cash dividends on the Common Stock will be at the discretion of the Board of Directors and will reflect such other factors (including contractual requirements) as the Board of Directors deem relevant.
Recent Sales of Unregistered Securities
On October 31, 2002, the Company issued 15,972,400 shares of its common stock to the stockholders of Signature in exchange for the 15,972,400 issued and outstanding shares of common stock of Signature held by them, which represented all of the issued and outstanding shares of common stock, no par value, of Signature Horizons, Inc., a privately-held Georgia corporation, pursuant to a Share Exchange Agreement dated October 28, 2002. The newly-issued Lummi common stock, issued in the share exchange, was issued by Lummi relying on an exemption from registration pursuant to Section 4(2) under the Securities Act and Regulation D thereunder or similar exemptions under the Securities Act, and the certificates representing the shares of newly-issued Lummi common stock bear the appropriate legend to identify such shares as “restricted securities” under the Securities Act and to comply with applicable state securities laws. Each Signature shareholder understands that the newly issued Lummi common stock is “restricted” within the meaning of the Securities Act of 1933, as amended, subject to limitations on resale under Rule 144.
Item 6. Management’s Discussion and Analysis or Plan of Operation
Forward Looking-Statements and Associated Risks
This Annual Report on Form 10-KSB contains certain forward-looking statements. These forward-looking statements are based largely on the Company’s current expectations and are subject to a number of risks and uncertainties. Actual results could differ materially from these forward-looking statements. In view of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this annual report on Form 10-KSB will in fact transpire.
Plan of Operation
Signature’s business plan for the next twelve months includes future acquisitions or investments in real property, other companies, facilities or technologies, the development of existing properties and completion of financing to close Sea Trail Plantation as detailed below.
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Development will be targeted at geographical and revenue diversified golf resorts with gated residential country club communities for both permanent and second home purchases with practical and inventive residential and commercial real estate developments complimented by added services. The business plan is not to acquire assets primarily for capital gain through sale in the short term. Rather, the policy is to acquire assets with the intention to hold the asset long term unless an imminent sale is strongly accretive and warrants consideration. The company will own, develop and manage through Signature Horizons, Inc., its wholly owned subsidiary, golf community residential and commercial resort real estate and neighborhood retail shopping centers in staged expansion by utilizing senior securities, offering securities in exchange for property, placing acquisition and development debt instruments and by engaging in the purchase and sale or turnover of investments and land.
Signature expects to minimize capital requirements by structuring joint ventures to minimize land cost and place equity partners in certain developments therein, building an asset-based portfolio, while minimizing the risk of the traditional leveraged real estate developments. Signature expects to create predictable, recurring long-term revenue streams from lot sales, home sales, commercial parcel sales, lease property management services and general resort and golf course operations.
Signature Wisconsin-Dell was acquired September 23, 2002 for 145,083 shares of the Company’s common stock (on a post Share Exchange basis) and cash to the seller of $1,575,000. The property is currently listed with a broker for sale.
Signature Joe Creek was acquired in July 2002 for 20,834 shares of the Company’s common stock (on a post Share Exchange basis). The property was sold on April 11, 2003 for $245,000.
Signature Plum Creek was acquired in July 2002 for 12,222 shares of the Company’s common stock (on a post Share Exchange basis). The property was sold on May 2, 2003 for $120,000.
Signature Palm Springs was acquired May 9, 2002. The purchase and sale agreement for the acquisition closed for $50,000 cash to the seller, and two promissory notes in the aggregate principal amount of $3,950,000 to seller. The long-term business role of the land inventory is to have availability of liquidity in the form of land sales. The exit strategy for the land bank will be to divest the property at the most profitable price points.
Signature Horizons, Inc. and Sea Trail Corporation (“Sea Trail”) are currently
negotiating the purchase and sale agreement for the acquisition of the Sea
Trial assets. Seal Trail Plantation is a master-planed golf; resort and
residential community located approximately 30 miles north of Myrtle Beach, SC
and 40 miles south of Wilmington, NC. The 2,000 acre property contains four
championship golf courses, 2 clubhouses totaling 42,000 square feet, and a
recently completed 32,000 square foot full service conference center with and
adjoining hotel site.
Liquidity and Capital Resources
Signature anticipates the need for additional capital as it pursues is business
strategy. The Company is currently seeking financing for proposed real estate
acquisitions and working capital. Signature expects to close on acquisitions
of performing assets that will generate cash flow from operations.
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Signature’s operations currently do not generate cash flow and are not expected
to do so until the third or fourth quarter of 2003. As a result Signature has
been and remains dependent upon raising funds through the issuance of equity
and placement of debt. The Company’s former Chief Executive Officer and former
Chief Financial Officer have made loans to the Company and have contributed
capital to the company. Additionally, the Officers and Board of Directors have
determined to sell all the non-performing assets of raw land to have available
funds for working capital. The Joe Creek and Plum Creek land parcels have been
sold and the Wisconsin-Dell property is actively listed for sale. The company
has terminated numerous consulting agreements and will continue to do so to
reduce operating costs. Since inception, the company has issued almost 16
million shares of common stock for services in lieu of cash payments of
approximately $865,000.
Risk Factors
We may be unable to raise additional capital necessary to conduct our business.
We intend to raise additional capital through a combination of the new debt
issuances and equity sales (from private as well as public sources),
traditional acquisition and development loans potentially utilizing any largely
unencumbered properties as collateral for such loans. Implementation of our
strategy and our business plan is contingent upon the availability of such
funding sources. No assurance can be given that we will be able to raise
additional capital, at terms that are acceptable to it, or at all. Our failure
to raise additional capital within the next months would have an adverse
effect on our financial condition and results of operations.
Our real estate investments are relatively illiquid.
Because real estate investments are relatively illiquid, our ability to vary
our portfolio promptly in response to economic or other conditions is limited.
The foregoing may impede our ability to respond to adverse changes in the
performance of our investments and could have an adverse effect on our
financial condition and results of operations.
Our business plan includes the acquisition of real property and/or businesses
which may disrupt our day-to-day operations.
We may not realize the anticipated benefits of any acquisition or investment.
If we make any acquisition, we will be required to assimilate the operations,
products and personnel of the acquired businesses and to train, retain and
motivate key personnel from the acquired businesses. Similarly, acquisitions
may cause disruptions in our operations and divert our management’s attention
from day-to-day operations, which could impair our relationships with our
employees, customers and strategic partners. In addition, our profitability
may suffer because of acquisition related costs, amortization costs for certain
intangible assets, and impairment losses related to goodwill.
Development and construction risks could impact our performance.
We may be unable to obtain, or may face delays in obtaining, necessary zoning,
land-use, building, occupancy and other required governmental permits and
authorizations, which could result in increased development costs. We may also
incur construction costs on a project that
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exceeds original estimates due to increased materials, labor or other costs,
which would make completion of the project no economical.
We have not obtained environmental analyses on our properties.
We have not obtained independent Phase I environmental site assessments for all
of our property acquisitions. As a result, there may be environmental
contamination at our properties of which we are unaware. As the owner or
operator, we may be liable for the costs of removal of the releases of certain
hazardous or toxic substances. The presence of hazardous or toxic substances on
or nears our properties, or the failure to properly clean them up, may
adversely affect our ability to sell, develop, rent or lease the property or to
use such property as collateral for our borrowings.
Some potential losses are not covered by insurance.
We carry comprehensive liability insurance on all of our properties, and
believes that our insurance coverage is reasonably adequate. Certain types of
losses, such as lease and other contract claims, generally are not insured.
Should an uninsured loss or a loss in excess of insured limits occur, we could
lose some or all of our investment in a property, and the anticipated future
revenue from the property could be adversely affected. Notwithstanding any
such loss, we would still owe mortgage debt or other financial obligations
related to the property.
Table of Contents
Table of Contents
Item 7. Financial Statements
See “Financial Statements and Notes to Financial Statements” set forth on page through of this Annual Report on Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
As disclosed on Form 8-K/A filed with the Commission on November 21, 2002, the Company engaged Braverman & Company, P.C. as its principal accountant to replace its former principal accountant, Armando C. Ibarra, C.P.A. as of November 14, 2002. The decision to dismiss Armando C. Ibarra, C.P.A was approved by the Board of Directors of the Company.
Neither of the reports of the former principal accountant on the financial statements for the fiscal years ending December 31, 2000 and December 31, 2001, for the Company contained an adverse opinion or disclaimer of opinion, nor was either qualified or modified as to uncertainty, audit scope, or accounting principles. During the two most recent fiscal years and the subsequent interim period preceding the dismissal, there were no disagreement(s) with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former account, would have caused it to make reference to the subject matter or the disagreement(s) in connection with its reports.
During the audited period ending December 31, 2001, and the subject unaudited interim period, the Company had not consulted Braverman & Company, P.C., regarding any matter requiring disclosure under Regulation 8-K, Item 304(a)(2).
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The Company filed Armando C. Ibarra, C.P.A.’s letter addressed to the Securities and Exchange Commission as Exhibit 16.1 to the Form 8-K/A.
Further, as disclosed on Form 8-K/A filed with the Commission on January 31, 2003, on or about December 14, 2001, Powell & Booth, PC declined to stand for re-election as Signature Horizons, Inc.’s f/k/a Oasis Group (our wholly-owned subsidiary) independent accountants because Powell & Booth, PC does not perform audit work for reporting companies. Powell & Booth, PC had been engaged to audit Signature Horizons, Inc.’s financial statements for the year ended December 31, 2000 and for the period from November 16, 1999 (inception) to December 31, 2000. On or about January 29, 2002 Signature Horizons, Inc. retained the firm of Braverman & Company, P.C., as its independent accountants to conduct the audit of the Company’s financial statements for the fiscal year 2001 and thereafter. The decision to engage Braverman & Company, P.C., was approved by the Board of Directors of Signature Horizons, Inc.
During the two most recent fiscal years and the subsequent interim period through December 14, 2001, there were no disagreements with Powell & Booth, PC on any matter of accounting principles, financial disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement.
The audit report of Powell & Booth, PC on the financial statements for the year ended December 31, 2000 and for the period from November 16, 1999 (inception) to December 31, 2000, did not contain any adverse opinion or disclaimer of opinion, nor was it modified as to uncertainty, audit scope or accounting principles.
During the two most recent fiscal years and the subsequent interim period through January 29, 2002, Signature Horizons, Inc. did not consult with Braverman & Company, P.C. regarding the application of generally accepted accounting principles to a specific transaction, either proposed or completed, or the type of audit opinion that might be rendered on Signature Horizons, Inc.’s Financial Statements.
The Company filed Powell & Booth, PC’s letter addressed to the Securities and Exchange Commission as Exhibit 16.1 to the Form 8-K/A.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act
The following table sets forth all the directors, executive officers and
significant employees of the Company as of May 1, 2003.
NAME
AGE
POSITION
Ronald A. Potts
55
Chairman of the Board and Director
Peggy A. Evans
55
Chief Executive
Officer, Chief Operating Officer and Director
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NAME
AGE
POSITION
Lewis C. Bivens
57
Director
William Bryant
60
Chief Financial Officer
Ronald A. Potts became President, Chief Executive Officer and a Director of the Company in connection with the Share Exchange in October 2002. On May 1, 2003, Mr. Potts was appointed as Chairman of the Board, and resigned as President and Chief Executive Officer. Mr. Potts is a financial expert with 30 years experience in the investment industry. During his career, Mr. Potts has facilitated more than $500 million in financing for both the private and public sectors. Mr. Potts was employed by RBC Dominion Securities, one of Canada’s largest investments firms. His work as an independent investment and merchant banker has made him an invaluable asset for the Company in creating their capital structure and guiding their financing strategies. Mr. Potts is a graduate of the University of Western Ontario.
Lewis Carl Bivens became a Director of the Company in connection with the Share Exchange in October 2002. Mr. Bivens is currently employed as the Director of Promotions for Sports Belle, Inc. He has been an employee of the corporation since April of 1996. Prior to coming to Sports Belle, Inc. Mr. Bivens was an educator in the public school system for 29 years; he taught academic classes and was also a head coach in the athletic department. Mr. Bivens obtained his B.S. from Tennessee Wesleyan College, Athens, Tennessee; and his Masters from Union College, Kentucky. Mr. Bivens has been a member of numerous civic and social organizations.
Peggy A. Evans became Chief Financial Officer, Chief Operating Officer and a Director of the Company in connection with the Share Exchange in October 2002. On May 1, 2003, Ms. Evans resigned as Chief Financial Officer and was appointed as Chief Executive Officer. Ms. Evans has over twenty five years experience in business and financial management, hotel and restaurant development, operations and construction. Ms. Evans was Chief Financial Officer and Operation Officer of a hotel investment company based in Palm Desert, California where she was responsible for the financial management and operation arm of the company, including 11 full service hotels located throughout the U.S. Previously she was the business manager of a commercial contracting firm and Chief Financial Officer and business manager of a newspaper company where she was responsible for the publication of three daily newspapers located in Palm Desert, California. She was recently the developer, operator and co-owner of Eston Hospitality, Inc. Ms. Evans holds a B.S. degree in business from Pepperdine University.
William Bryant became Chief Financial Officer on May 1, 2003. Prior to this Mr. Bryant served as Controller of the Company. Mr. Bryant has a background in banking with over 25 years of experience in accounting, financial management, strategic planning, and loan administration. He has served as a Senior Vice President for three financial institutions as well as a member of the executive committee, asset liability committee, and a member of the investment committee. Mr Bryant is a graduate of the University of Tennessee, Knoxville, with a Bachelor of Science degree in accounting. Mr. Bryant has been a member of financial management organizations and numerous civic organizations.
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There are no family relationships among any of the officers listed above. No officer was selected pursuant to any arrangement between himself and any other person. Officers are elected annually to serve for the following year or until the election and qualification of their successors.
Board Composition
Each member of the Board of Directors is elected by the shareholders. Each director serves for a one (1) year term.
Each officer is elected by, and serves at the discretion of, the Board of Directors. There are no family relationships among any of the directors or executive officers.
Committees of the Board
The Board has not appointed any committees to date, but intends to appoint an audit committee and compensation committee. The entire Board currently performs audit and compensation committee functions.
Compliance with Section 16(a) of the Exchange Act
The members of the Company’s Board of Directors, its executive officers and holders of 10% or more of its outstanding common stock are subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended, which require them to file reports with respect to their ownership of the Company’s common stock and their transactions in such common stock. Based upon (1) the copies of Section 16(a) reports that the Company received from such persons for transactions in the common stock and their common stock holdings for the fiscal year ended December 31, 2002, and (2) the written representations received from one or more of such persons that no annual Form 5 reports were required to be filed by them for such period, the Company believes that all reporting requirements under Section 16(a) for such period were met in a timely manner by its executive officers, Board members and greater than 10% shareholders.
Code of Ethics
Signature has adopted a code of ethics that applies to every employee, officer and director of the Company. The code of ethics is filed as an exhibit to this Form 10-KSB.
-15-
Item 10. Executive Compensation
SUMMARY COMPENSATION TABLE
ANNUAL
LONG TERM
Securities
Name and Principal
Other Annual
Restricted Stock
Underlying
All other
Position
Year
Salary ($)
Bonus ($)
Compensation ($)
Award(s)
Options/SARs
LTIP Pay-outs (s)
Compensation ($)
2000
2001
2002
2000
2001
2002
2000
Chief Financial
2001
2002
| (1) | Compensation listed for 2001 and for the period of 2002 prior to the Share Exchange represents compensation paid by Signature Group, Inc., our subsidiary for services as President and CEO. Mr. Potts resigned as President and Chief Executive Officer on May 1, 2003. | |
| (2) | Includes miscellaneous compensation of $30,381 and payments for federal and state income taxes of $277,650. | |
| (3) | Mr. Stannell resigned as President and Chief Executive Officer on October 31, 2002. | |
| (4) | Compensation listed for 2001 and for the period of 2002 prior to the Share Exchange represents compensation paid by Signature Group, Inc., our subsidiary for services as Chief Financial Officer. Ms. Evans resigned as Chief Financial officer on May 1, 2003 and was appointed President and Chief Executive Officer. |
-16-
| (5) | Includes miscellaneous compensation of $9,389 and payments for federal and state income taxes of $124,728. |
DIRECTOR COMPENSATION
During the most recently completed financial year ended December 31, 2002, there was no compensation paid, by the Company to its directors for services as a director. There are no standard arrangements for any such compensation to be paid other than reimbursement for expenses incurred in connection with their services as directors, although the Company from time to time may grant options to acquire Common Shares for directors. As at the date hereof the Company has no outstanding options to the directors that has been granted for their services.
EMPLOYEE CONTRACTS
Mr. Potts entered into an employment agreement with the Company as its Chief Executive Officer and Chairman of the Board, dated as of November 1, 2002. The term of the agreement is three years.
The agreement entitles Mr. Potts to a base salary of $264,000 per year, with a performance bonus of up to $100,000, if Mr. Potts achieves the goals and objectives determined by the Board of Directors with respect to each year. Mr. Potts may elect to receive the bonus payable in cash or stock of the Company. In addition, the agreement grants Mr. Potts a five-year option to purchase 500,000 shares of the Company’s common stock at a price of $1.00 per share. The options shall vest at a rate of 20% per year.
In the event that Mr. Potts’ employment is terminated for any reason other than cause, Mr. Potts is entitled to receive a severance payment equal to three times his annual compensation payable over twelve months. If such termination is a result of a change in control, Mr. Potts severance payment shall equal four times his annual compensation. In addition, all unvested stock options shall immediately vest and be exercisable for a period of eighteen months after the termination.
The agreement contains a non-disclosure provision that prohibits Mr. Potts from disclosing any trade secrets of the Company for an indefinite period of time after termination of the agreement and from disclosing any confidential information for a period of two years after termination of the agreement.
Ms. Evans entered into an employment agreement with the Company as its Chief Operating Officer and Chief Financial Officer, dated as of November 1, 2002. The term of the agreement is three years.
The agreement entitles Ms. Evans to a base salary of $240,000 per year, with a performance bonus of up to $100,000, if Ms. Evans achieves the goals and objectives determined by the Board of Directors with respect to each year. Ms. Evans may elect to receive the bonus payable in cash or stock of the Company. In addition, the agreement grants Ms. Evans a five-year option to purchase 500,000 shares of the Company’s common stock at a price of $1.00 per share. The options shall vest at a rate of 20% per year. The agreement further provides for health, life and disability insurance, a term life insurance policy of $500,000, and an automobile allowance.
-17-
In the event that Ms. Evans’ employment is terminated for any reason other than cause, Ms. Evans is entitled to receive a severance payment equal to three times her annual compensation payable over twelve months. If such termination is a result of a change in control, Ms. Evans severance payment shall equal four times his annual compensation. In addition, all unvested stock options shall immediately vest and be exercisable for a period of eighteen months after the termination.
The agreement contains a non-disclosure provision that prohibits Ms. Evans from disclosing any trade secrets of the Company for an indefinite period of time after termination of the agreement and from disclosing any confidential information for a period of two years after termination of the agreement.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of April 30, 2003 certain information regarding beneficial ownership of common stock by:
| • | Each person known to the Company who owns beneficially more than five percent (5%) of the common stock; |
| • | The directors; |
| • | The executive officers; and |
| • | All executive officers and directors as a group. |
Beneficial ownership is determined in accordance with the rules and regulations
of the Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are
currently exercisable or exercisable within sixty (60) days of the date of this
Registration Statement are deemed outstanding. These shares, however are not
deemed outstanding for the purposes of computing the percentage ownership of
any other person. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, each shareholder named in the
table has sole voting and investment power with respect to the shares set forth
opposite such shareholder’s name. Unless otherwise indicated, the address for
the following shareholders is c/o Signature Horizons Group, Inc.
5% Beneficial Owners
Name and Address of
Amount and Nature
Title of Class
Beneficial Owner
of Beneficial Owner
Percent of Class
3,000,000
4,103,333
9,049,868
-18-
663,533
110,000
13,926,734
| * | Represents less than 1%. |
| (1) | Unless otherwise noted, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them. Under the rules of the Securities and Exchange Commission, a person is deemed to be a “beneficial” owner of securities if he or she has or shares the power to vote or direct the voting of such securities or the power to direct the disposition of such securities. A person is deemed to be the beneficial owner of any securities of which that person has the right to acquire beneficial ownership within 60 days. More than one person may be deemed to be a beneficial owner of the same securities. |
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits: The following exhibits are filed as part of this report:
2.1
Plan and Agreement of Share Exchange with Signature Horizons, Inc.
dated as of October 28, 2002 (2)
3.1
Certificate of Incorporation (1)
3.2
Amendment to Certificate of Incorporation (3)
3.3
Bylaws (1)
10.1
10.2
10.3
Employment Agreement with Ronald A. Potts
10.4
Employment Agreement with Peggy A. Evans
21.1
List of the Company’s subsidiaries
99.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 executed by Peggy A.
Evans, Chief Executive Officer and President of Signature Horizons
Group, Inc.
99.2
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 executed by William
Bryamt, Chief Financial Officer of Signature Horizons Group, Inc.
99.3
Code of Ethics
(1)
Incorporated by reference to our registration statement on Form 10-SB12G,
filed on February 5, 2001.
-19-
| (2) |
Incorporated by reference to our current report on Form 8-K, filed on
October 31, 2002.
|
| (3) | Incorporated by reference to Exhibit A of our information statement on Schedule 14C, filed on February 19, 2003. |
(b) Reports on Form 8-K
1. On October 31, 2002, the Company filed a Current Report on From 8-K reporting the closing of the Share Exchange Agreement, the change in control of the Company, the resignation of the Company’s officers and directors (and appointment of new officers and directors), and a 46 to 1 forward stock split of the Company’s shares with a record date of October 29, 2002.
2. On November 20, 2002, the Company filed a Current Report on From 8-K reporting a change in its principal accountant from Armando C. Ibarra, CPA to Braverman & Company, P.C. as of November 14, 2002.
3. On November 21, 2002, the Company filed a Current Report on From 8-K/A amending the report filed on November 20, 2002.
4. On November 27, 2002, the Company filed a Current Report on From 8-K/A amending the report filed on October 31, 2002 to include the Audited Financial Statements of Signature Horizons, Inc. as of and for the year ended December 31, 2001, the unaudited Financial Statements of Signature Horizons, Inc. for the nine months ended September 30, 2002, and the Pro Forma Financial Information as of September 30, 2002.
5. On January 16, 2003, the Company filed a Current Report on From 8-K/A amending the report filed on October 31, 2002 to include information about Signature’s change in accountant that occurred on December 14, 2001 and January 29, 2002.
6. On January 31, 2003, the Company filed a Current Report on From 8-K/A amending the report filed on October 31, 2002, as amended on November 27, 2002 and January 16, 2003, with respect to Signature’s change in accountant.
Item 14. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Within ninety (90) days prior to the date of this report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective in bringing to their attention material information relating to the Company required to be included in the Company’s periodic SEC filings.
-20-
Changes in Internal Controls
There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the most recent evaluation conducted by the CEO and CFO.
TABLE OF CONTENTS
| PAGE | ||||
|
|
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|
INDEPENDENT AUDITOR’S REPORT
|
22 | |||
|
CONSOLIDATED BALANCE SHEET
|
23 | |||
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
24 | |||
|
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
|
25 | |||
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
26 | |||
|
NOTES TO FINANCIAL STATEMENTS
|
27 | |||
INDEPENDENT AUDITOR’S REPORT
To the Board of Directors and Stockholders
We have audited the accompanying balance sheet of Signature Horizons Group,
Inc. and subsidiary (a Delaware corporation in the development stage) as of
December 31, 2002, and the related statements of operations and comprehensive
loss, changes in stockholders’ equity and cash flows for each of the years in
the two year period then ended, and for the period from November 16, 1999
(inception), through December 31, 2002. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the 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 audit provides a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Signature Horizons Group, Inc. as of
December 31, 2002, and the results of its operations and comprehensive loss,
and its cash flows for each of the years in the two year period then ended, and
for the period from November 16, 1999 (inception) through December 31,2002, in
conformity with accounting principles generally accepted in the United States
of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company is dependent on its ability to develop additional
sources of capital, and to ultimately achieve profitable operations. These
present financial condition of the Company raises substantial doubt about its
ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Braverman & Company, P.C.
22
Signature Horizons Group, Inc.
Atlanta, Georgia
Prescott, Arizona
April 28, 2003
Table of Contents
SIGNATURE HORIZONS GROUP, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
December 31, 2002
$
459,580
18,869
978,392
11,314,794
12,771,635
12,408
11,457
675,000
481,259
1,167,716
$
13,951,759
$
11,884,382
637,052
670,853
168,674
499,000
306,786
14,166,747
—
2,685
8,523,297
(8,583,670
)
(157,300
)
(214,988
)
$
13,951,759
The accompanying notes are an integral part of these financial statements
23
SIGNATURE HORIZONS GROUP, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)
November 16,
1999
Year Ended
(Inception)
December 31,
through
December 31,
2002
2000
2002
$
2,453
$
2,453
4,541,466
1,119,019
6,162,889
303,012
19,500
322,512
42,982
42,982
359,484
243,212
602,696
32,030
114,925
146,955
592,088
592,088
499,000
499,000
217,000
217,000
6,587,063
1,496,656
8,586,123
(6,587,063
)
(1,494,203
)
(8,583,670
)
7,500
(107,500
)
(217,000
)
217,000
$
(6,579,563
)
$
(1,601,703
)
$
(8,583,670
)
$
(0.66
)
$
(2.10
)
10,016,287
713,150
The accompanying notes are an integral part of these financial statements
24
SIGNATURE HORIZONS GROUP, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(DEFICIT)
ACCUMULATED
ACCUMULATED
COMMON STOCK
OTHER
DURING THE
TREASURY STOCK
PAID-IN
COMPREHENSIVE
DEVELOPMENT
SHARES
AMOUNT
CAPITAL
(LOSS)
STAGE
SHARES
AMOUNT
TOTAL
$
—
$
—
$
—
$
—
$
—
$
—
—
75,000
8
309,161
309,169
26,667
3
366,997
367,000
867
0
26,000
26,000
—
5,000
1
119,999
120,000
166,000
166,000
(117,000
)
(502,404
)
—
—
(619,404
)
107,533
11
988,158
(117,000
)
(502,404
)
—
—
368,765
867
0
2,500
2,500
3,717
0
10,000
10,000
6,667
1
49,999
50,000
20,000
2
249,998
250,000
30,000
3
49,997
50,000
10,000
1
49,999
50,000
39,412
4
100,496
100,500
29,333
3
37,497
37,500
1,333
0
20,000
20,000
11,667
1
199,999
200,000
—
—
—
—
964,567
96
289,274
289,370
13,333
1
3,999
4,000
26,667
3
7,997
8,000
—
—
—
—
92,333
9
2,761
2,770
184,888
184,888
(107,500
)
(1,494,203
)
—
—
(1,601,703
)
1,357,428
136
2,247,561
(224,500
)
(1,996,607
)
—
—
26,590
—
14,604,858
1,460
436,685
438,145
2,000
0
120,000
120,000
417
0
25,000
25,000
5,958
1
357,499
357,500
—
33,056
3
396,664
396,667
145,083
15
5,222,985
5,223,000
—
(16,133
)
(2
)
(149,998
)
(150,000
)
(400,000
)
(40
)
(599,960
)
(600,000
)
(30,267
)
(3
)
(9,077
)
(9,080
)
270,000
27
337,473
337,500
9,062,000
906
(906
)
—
30,000
3
29,997
30,000
310,165
31
155,050
155,081
3,000,000
300
3,000,000
(300
)
—
(1,527,643
)
(153
)
(45,677
)
(45,829
)
30,000
(12,000
)
(12,000
)
10,000
(20,000
)
(20,000
)
100,000
(125,000
)
(125,000
)
7,500
7,500
217,000
(6,587,063
)
(6,370,063
)
26,846,922
$
2,685
$
8,523,297
$
—
$
(8,583,670
)
3,140,000
$
(157,300
)
$
(214,988
)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
25
SIGNATURE HORIZONS GROUP, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
November 16,
1999
Year Ended
(Inception)
December 31,
through
December 31,
2002
2001
2002
$
(6,587,063
)
$
(1,494,203
)
$
(8,583,670
)
42,982
42,982
593,225
486,258
1,271,483
(54,909
)
(54,909
)
297,167
297,167
217,000
217,000
(18,869
)
(18,869
)
(6,142
)
(6,142
)
670,851
670,851
499,000
499,000
306,787
306,787
384,254
125,802
480,056
(3,655,717
)
(882,143
)
(4,878,264
)
42,573
—
18,347
57,051
(15,602
)
(675,000
)
(675,000
)
(13,734
)
(13,734
)
(670,387
)
99,624
(704,336
)
870,000
770,500
2,069,668
(600,000
)
(600,000
)
4,415,838
4,415,838
(42,000
)
(42,000
)
138,356
15,317
168,674
4,782,194
785,817
6,012,180
456,090
3,298
429,580
3,490
192
—
$
459,580
$
3,490
$
429,580
$
(150,000
)
$
367,000
$
—
$
7,213,377
$
—
$
6,845,287
$
7,500
$
(107,500
)
$
—
$
157,000
$
—
$
157,000
$
5,619,667
$
2,770
$
5,622,437
$
394,963
$
—
$
394,963
The accompanying notes are an integral part of these financial statements
26
SIGNATURE HORIZONS GROUP, INC. AND SUBSIDIARY
(a Development Stage Company)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company Background
Signature Horizons Group, Inc. (the Company or Signature), formerly Lummi Development, Inc., is a Delaware corporation formed January 18, 1999. It is a publicly traded company in the development stage as defined under SFAS #7. The Company acquired all of the outstanding common stock of Signature Horizons, Inc. (SHI), formerly Oasis Group, Inc. and Oasis Communities, Inc. on October 28, 2002. SHI, which is a privately held Georgia corporation incorporated on November 16, 1999, formed to develop residential and commercial real estate projects and acquire existing businesses. The share exchange is a qualifying reorganization under Section 368(a)(1)(B) of the Internal Revenue Code of 1986. Since inception SHI’s activities have been limited to investigating real estate and business acquisition opportunities. No significant revenues have been earned. The fiscal year for financial and tax reporting purposes is December 31.
Principles of Consolidation
The Company’s consolidated financial statements as of December 31, 2002 and 2001 include the financial statements of the Company, its 100% owned real estate limited liability companies, and a 100% owned subsidiary for all periods presented. All significant intercompany accounts and transactions have been eliminated.
Financial Statement Presentation
The historical cost basis of all assets and liabilities of SHI have been presented from November 16, 1999 (date of inception) to December 31, 2002. For accounting purposes, the acquisition has been treated as a recapitalization of SHI. SHI is considered the accounting acquirer, because it became the owner of 64% of the total shares outstanding after the stock exchange, on a fully diluted basis. The consolidated statements of operations included herein are those of SHI. The former operating results of Signature were insignificant and have been eliminated. The consolidated balance sheet presented herein includes all assets and liabilities of Signature as of the date of recapitalization at fair value.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent amounts in the Company’s financial statements and the accompanying notes. Actual results could differ from those estimates.
27
SIGNATURE HORIZONS GROUP, INC. AND SUBSIDIARY
(a Development Stage Company)
Notes to Consolidated Financial Statements
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash Equivalents
The Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents. The Company occasionally maintains its bank account balance in excess of federally insured limits.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures about fair value of financial instruments, defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying values of the Company’s financial instruments, which include cash, accounts receivable and accounts payable, approximate fair values due to the short maturities of such instruments. The fair value of the Company’s long-term debt, which approximates carrying value, is estimated based on the current rates offered to the Company for debt of the same remaining maturities.
Preacquisition Costs
The principal activities of the Company presently involve search for and assessment of potential acquisitions of real estate projects and active businesses. Costs directly identifiable with specific probable acquisitions are capitalized. All internal pre-acquisition costs are expensed.
Basis of Presentation and Management’s Actions to Overcome Operating and Liquidity Problems
The Company’s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. It has suffered substantial losses since inception, It has a negative working capital, a deficit in stockholders’ equity, past due on payment of principal and interest on debt servicing, reporting and payment of payroll taxes, and on majority of amounts comprising accounts payable. The Company’s ability to continue in existence is dependent on its ability to develop additional sources of capital, and ultimately achieve profitable operations. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. Management’s plan is to raise additional debt or equity financing, or acquire real estate projects intended to produce sufficient cash flows and/or profitable operations to sustain the existence of the Company.
28
SIGNATURE HORIZONS GROUP, INC. AND SUBSIDIARY
(a Development Stage Company)
Notes to Consolidated Financial Statements
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
Income taxes are provided for using the liability method of accounting in accordance with Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes”. A deferred tax asset or liability is recorded for all temporary difference between financial and tax reporting of which depreciation is the most significant. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to more likely than not be realized in future tax returns. Tax law and rate changes are reflected in income in the period such changes are enacted.
Year 2001
A net loss of $1,494,203 was sustained during 2001, of which approximately $185,000 was non-deductible contributed compensation of management, non-deductible meals and entertainment expenses of approximately $20,000, and capital contributed to an affiliate, Rainwire Partners, Inc. of $114,923 resulting in a timing difference of approximately $1,175,000 for the year. The majority of this timing difference for 2001 was start-up expenses. The deferred income tax benefit relating to this amount was approximately $411,000, however, due to the uncertainty of the future utilization of this amount, a valuation allowance of $411,000 was provided for the year, resulting in no deferred tax benefit being realized for 2001.
Year 2002
During May 2002, the Company acquired undeveloped real estate for which start-up costs incurred from inception through that date, deferred for income tax purposes, will commence amortization over a 5 year period. As of that date accumulated start-up costs totaled approximately $2,128,000.
A net loss of $6,587,063 for the year resulted in a net loss for tax purposes of $5,652,000 after additional start-up costs of $811,000, non-deductible expenses of $91,000, and a capital contribution to an affiliate, Rainwire Partners, Inc. of $32,000. The deferred tax benefit of approximately $2,262,000 which has not been recorded due to uncertainty that such benefit can be realized at the present time. Accordingly, a valuation allowance for $2,262,000 has also been provided to reduce the deferred tax benefit to zero as of December 31, 2002. The net operating loss carry-forward as of December 31, 2002 was approximately $5,800,000 which will expire if unused in year 2022.
29
SIGNATURE HORIZONS GROUP, INC. AND SUBSIDIARY
(a Development Stage Company)
Notes to Consolidated Financial Statements
NOTE 2 – RELATED PARTY TRANSACTIONS AND OBLIGATIONS
Available For Sale Securities
On July 15, 2000, the president/chief executive officer/chairman of the board/director exchanged 500,000 shares of common stock in an OTC Bulletin Board company he owned, Lahaina Acquisitions, Inc., for 800,000 shares of restricted common stock of the Company. Although the value of the acquired shares was $734,000 ($1.47 per share) on the date of the exchange per the last quoted market OTC Bulletin Board price on the date of exchange, the value assigned by the Company to those securities was $367,000, due to the current restriction on tradeability by the Company of the securities. The value of the Lahaina shares at December 31, 2001 was $142,500, based on 50% of the quoted value at that date ($.29 per share). This investment was valued at $150,000 as of September 30, 2002 and exchanged at that date for 16,133 restricted common shares held by the president of SHI. Accordingly, the accumulated realized loss of $217,000 was reclassified from a separate equity account, accumulated other comprehensive loss, to a realized loss of $217,000 in the accompanying consolidated financial statements.
Advances to Rainwire Partners, Inc.
Advances totaling approximately $150,000 were made to Rainwire Partners, Inc. an affiliated public company, over the two year period ended December 31, 2002 of which approximately $35,000 was made during 2002. All advances were expensed during the years in which the funds were advanced based on the doubtful collection of these advances.
Other Transactions
Since inception, the Company has issued almost 16 million shares of common stock for services to various persons including management and related parties, valued at approximately $865,000. All of the shares issued for services were approved by the Board of Directors.
During 2002, Osprey Investments, LLC, a company owned 100% by the president of Rainwire Partners, Inc., an affiliated public company, was paid $292,225 for consulting services and $600,000 for the redemption of 400,000 shares of the Company’s common stock.
30
SIGNATURE HORIZONS GROUP, INC. AND SUBSIDIARY
(a Development Stage Company)
Notes to Consolidated Financial Statements
NOTE 2 – RELATED PARTY TRANSACTIONS AND OBLIGATIONS
Other Transactions (continued)
The CEO and CFO of the Company have provided funds during the year for working capital. At December 31, 2002 they were owed $61,815 and $106,859, respectively.
Contributed Capital
Management of the Company has contributed a significant portion of its
services, principally compensation, to the Company from inception through
December 31, 2001, of
$350,888, based on the estimated fair value for time actually spent by them,
and other overhead, which would have been otherwise paid or incurred by the
Company. Contributed capital is included in the accompanying consolidated
statement of shareholders’ equity as paid-in capital.
NOTE 3 – AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities are recorded at fair value in investments on the
balance sheet, with the change in fair value during the period excluded from
results of operations, and recorded net of tax as a separate component of
equity (accumulated other comprehensive income). The following summarizes the
information relating to available-for-sale securities as of December 31, 2002:
$
150,000
367,000
$
217,000
The Company utilizes the specific identification method of computing realized gains and losses from the sales of its available-for-sale securities. Realized losses from the sale of securities are shown in the other income section of the income statement, and proceeds from the sale of securities are shown in the statement of cash flows. As of September 30, 2002 this account balance was brought to a total loss of $217,000 at which time the securities, valued at $150,000 were sold to a related party in exchange for 16,133 outstanding common shares of the company held by its president.
31
SIGNATURE HORIZONS GROUP, INC. AND SUBSIDIARY
(a Development Stage Company)
Notes to Consolidated Financial Statements
NOTE 3 – AVAILABLE-FOR-SALE SECURITIES (continued)
The following is a summary of the activity from inception in accumulated
other comprehensive income (loss):
NOTE 4 – UNDEVELOPED REAL ESTATE HELD FOR SALE
The Company acquired several undeveloped properties during the year with the
original intent to develop them. Due to pressing financial obligations outlined
herein, management has decided to sell the properties as soon as possible. The
following is a summary of the properties for sale as of December 31, 2002:
$
0
(117,000
)
(107,500
)
7,500
(217,000
)
217,500
0
Location
Fair
Market Value
$
4,051,157
6,866,970
250,000
146,667
$
11,314,794
The first two properties collateralize notes payable having outstanding balances as of December 31, 2002, of $ 10,209,831 as stated in Note 6. In addition, accrued interest outstanding on these obligations totaled $106,000. See subsequent footnote regarding litigation relating to the Palm Springs, California property.
32
SIGNATURE HORIZONS GROUP, INC. AND SUBSIDIARY
(a Development Stage Company)
Notes to Consolidated Financial Statements
NOTE 5 — MANAGEMENT EMPLOYEE AGREEMENTS
Effective in November 2002 the CEO and COO/CFO of the Company each received 3
year employment agreements with benefits provided for, among other things, base
annual compensation of $264,000 and $240,000, respectively, and each is to
receive a performance bonus of $100,000, non qualifying stock options to
purchase 500,000 shares of the Company’s common stock at $1 per share,
exercisable over a 5 year period from and after the date they first become
exercisable, automobile allowance and other benefits.
NOTE 6 — NOTES PAYABLE
The following is a summary of notes payable by as of December 31, 2002,
classified as a current liability:
Regular/
Penalty
Real Estate
Loan
Maturity
Interest
Outstanding
Pledged
Date
Date
Rate %
Principal
5/2002
5/2007
6/8
$
3,000,000
(a)
5/2002
5/2003
4/8
950,000
5/2002
5/2003
6/
259,831
9/2002
9/2003
12/18
4,000,000
12/2002
12/2003
30/36
2,000,000
(c)
10,209,831
1/2002
2/2002
15/
100,000
(b)(c)
1/2002
2/2002
12/
125,000
(b)(c)
4/2002
7/2002
10/
75,000
(c)
4/2002
4/2003
8/15
600,000
7/2002
7/2003
8/15
500,000
9/2003
9/2003
8/13
264,258
10/2002
1/2003
10/
10,293
(c)
$
11,884,382
(a) This note has been included in the total of current notes payable since the underlying property is being held for sale as of December 31, 2002, which is classified as a current asset at the lower of cost or fair market value at that date.
33
SIGNATURE HORIZONS GROUP, INC. AND SUBSIDIARY
(a Development Stage Company)
Notes to Consolidated Financial Statements
NOTE 6 — NOTES PAYABLE (continued)
(b) As of December 31, 2002, the Company recorded a liability relating to a liquidating damages provision of the notes, which provided for a $1,000 a day penalty if the notes and accrued interest were not paid when due. Accordingly, a total of $499,000 was provided in the accompanying financial statements for the penalties on both notes. Management of the Company believes that such penalties are unreasonable even though agreed to at the time the notes were entered into.
(c) Personally guaranteed by the CEO/President/Chairman of the Board
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Environmental Concerns
The Company has not obtained independent Phase I environmental site assessments for all of the property acquisitions. As a result, there may be environmental contamination of which we are unaware. As the owner or operator, we may be liable for the costs of removal of the releases of certain hazardous or toxic substances. The presence of hazardous or toxic substances on or near our properties, or the failure to properly clean them up, may adversely affect our ability to sell, develop, rent or lease the property or to use such property as collateral for our borrowings.
Former Leased Premises
The Company entered into a three year sublease agreement for office facilities in Atlanta, Georgia commencing June 1, 2002. The minimum rentals were $2,800 per month plus annual increase for certain occupancy expenses incurred. The following are the lease rentals payable over the lease period:
|
2003
|
33,600 | |||
|
2004
|
33,600 | |||
|
2005
|
14,000 | |||
|
|
|
|||
|
Total
|
$ | 98,000 | ||
|
|
|
The Company vacated the above premises in late 2002, due to the unsafe conditions therein. No written acceptance was received in connection with the early termination of the lease and no liability for unpaid rentals was recorded as of December 31, 2002. Management of the Company believes there will be no significant balance due under the agreement which is in the process of settlement.
34
SIGNATURE HORIZONS GROUP, INC. AND SUBSIDIARY
(a Development Stage Company)
Notes to Consolidated Financial Statements
Present Office Facilities
The Company has subleased office space in Alpharetta, Georgia for a period of one year commencing November 2002,which requires monthly payments of approximately $7,500. See subsequent event footnote regarding legal action taken by lessor for collection of all past due rentals.
Unpaid Payroll Taxes
As of December 31, 2002, the Company had recorded approximately $670,000 of
unpaid payroll taxes, interest and penalties relating to year 2001 and 2002
cash and stock compensation for its CEO and CFO. The Company has not reported
the earned compensation relating to these payroll taxes to taxing authorities,
nor has it reported approximately $700,000 of stock compensation given to
related and unrelated parties for non-employee services which are subject to
form 1099 reporting. If and when the taxing authorities are provided with this
information, the Company will be required to pay the liability and if unable to
do so may be subject to additional adverse consequences. Failure to report
compensation would result in the related expenses not being deductible for
income tax purposes.
NOTE 8 — SUBSEQUENT EVENTS
Liquidating Damages on Notes Payable
As mentioned above, the Company recorded liquidating damages on two notes
payable as of December 31, 2002. The Company is optimistic that such penalties
will be avoided. If avoided the previously recorded penalties and those
accruing in 2003 would be treated as debt forgiveness.
Compensation
In addition to the two employment agreements with officers of the Company,
which provided for monthly compensation of $42,000, the Board of Directors
approved the issuance of restricted common stock of the Company valued at
approximately $1,322,000, as additional compensation to them, including the
payment of all related withholding payroll taxes.
35
SIGNATURE HORIZONS GROUP, INC. AND SUBSIDIARY
Loss of the First Quarter of 2003
The Company incurred a 3 million dollar loss for the first quarter of 2003,
over 2 million dollars of which related to compensation earned by officers,
related parties and others for services rendered during the quarter. Payment,
which was approved by the Board of Directors, was substantially in the form of
13,124,850 restricted shares of common stock of the Company, which was equal to
approximately 50 percent of the shares outstanding prior to their issuance.
Because of the volume of new shares issued, the Company’s net operating loss
carryovers for tax purposes will be limited as to the annual amount which can
be utilized.
Past Due Status of Creditors
The majority of accounts payable, and debt service on notes payable are past
due based on their terms of payment. The Company has no available cash and is
totally dependent on loans or the sale of existing properties to sustain its
existence.
Litigation
Palm Springs Real Estate
On March 21, 2003, a complaint was filed in Sparkasse Aschaffenburg-Alzenau v.
Silver State Funding, Ltd., Libuse Hornak, Charles McLaughlin, Bobbee Lou
McLaughlin and Signature Horizons, Inc. in the United States District Court,
Central Division of California – Riverside Division (Case No. EDCV 03-0326 VAP
(SGLX)) alleging that Ms. Hornak lacked the proper authority to transfer the
Palm Springs properties to the Company. The plaintiff has prayed for equitable
relief against the Company and other defendants, including that the transfer of
the property to the Company be set aside.
On March 6, 2003, a complaint was filed in Lee Simpson, Carl G. Nielsen and
William C. Dixon v. Signature Horizons, Inc., Ronald A. Potts, and Charles
McLaughlin in the Superior Court of California, County of San Bernardino (Case
No. MCV05213) alleging various causes of action against the defendants in
connection with the Company’s purchase of the Palm Springs property.
Plaintiffs pray for damages in the amount of $474,000 for compensation
allegedly owed. No liability has been recorded for this claim.
In the opinion of management, the
above actions are without merit.
36
SIGNATURE HORIZONS GROUP, INC. AND SUBSIDIARY
Other
On April 16, 2003, a complaint was filed in Martha Jarvis v. Signature
Horizons, Inc. in the State Court of Fulton County, State of Georgia (Case No.
03VS049075G) alleging general indebtedness to her by the Company, including
sums allegedly due under an unexecuted settlement agreement, and indebtedness
due to her by a shareholder of the Company. The amount of damages prayed by
Plaintiff against the Company are $181,833. Plaintiff also prays for damages
in the amount of $50,000 against a shareholder of the Company. No liability
has been recorded for this claim.
The Company has filed a number of
substantial counter claims and believes any settlement will not have
a material affect on the Company.
The Company is engaged in various other litigation matters from time to time in
the ordinary course of business.
Loss of Escrow Deposit
The Company’s $500,000 on deposit in connection with the purchase of the assets
of Sea Trails Corporation for 45 million dollars, became nonrefundable after 30
days, and was lost in April 2003, due to the expiration of the extended
purchase agreement. The Company is attempting to renegotiate this acquisition.
37
Table of Contents
(a Development Stage Company)
Notes to Consolidated Financial Statements
Table of Contents
(a Development Stage Company)
Notes to Consolidated Financial Statements
Table of Contents
CERTIFICATION PURSUANT TO
In connection with the Annual Report on Form 10-KSB of SIGNATURE HORIZONS
GROUP, Inc. for the year ending December 31, 2002 as filed with the Securities
and Exchange Commission on the date hereof, I, Peggy A. Evans, Chief Executive
Officer and President of registrant, certify, pursuant to 18 U.S.C. § 1350, as
adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002, that:
(1) I have reviewed this annual report on Form 10-KSB of Signature Horizons
Group, Inc.;
(2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
registrant as of, and for, the periods presented in this annual report; and
(4) The registrant’s other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(5) The registrant’s other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant’s auditors and the audit
committee of the registrant’s board of directors (or persons performing the
equivalent function):
38
(6) The registrant’s other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated May 15, 2003
This certification accompanies this Annual Report on Form 10-KSB pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 and shall not, except to the
extent required by such Act, be deemed filed by registrant for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.
39
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(a)
designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
(b)
evaluated the effectiveness of the registrant’s disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the “Evaluation Date”); and
(c)
presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(a)
all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant’s
ability to record, process, summarize and report financial data and
have identified for the registrant’s auditors any material
weaknesses in internal controls; and
Table of Contents
(b)
any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant’s
internal controls.
By
/s/ Peggy A. Evans
Chief Executive Officer and President,
Chief Operating Officer and Director
Table of Contents
CERTIFICATION PURSUANT TO
In connection with the Annual Report on Form 10-KSB of SIGNATURE HORIZONS
GROUP, Inc. for the year ending December 31, 2002 as filed with the Securities
and Exchange Commission on the date hereof, I, William Bryant, Chief Financial
Officer of registrant, certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 302 of the Sarbanes-Oxley Act of 2002, that:
(1) I have reviewed this annual report on Form 10-KSB of Signature Horizons
Group, Inc.;
(2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
registrant as of, and for, the periods presented in this annual report; and
(4) The registrant’s other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(5) The registrant’s other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant’s auditors and the audit
committee of the registrant’s board of directors (or persons performing the
equivalent function):
40
(6) The registrant’s other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated May 16, 2003
This certification accompanies this Annual Report on Form 10-KSB pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 and shall not, except to the
extent required by such Act, be deemed filed by registrant for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.
41
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SIGNATURE HORIZONS GROUP, INC.
Dated May , 2003
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Dated May , 2003
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(a)
designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
(b)
evaluated the effectiveness of the registrant’s disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the “Evaluation Date”); and
(c)
presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(a)
all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant’s
ability to record, process, summarize and report financial data and
have identified for the registrant’s auditors any material
weaknesses in internal controls; and
Table of Contents
(b)
any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant’s
internal controls.
By
/s/ William E. Bryant
Chief Financial Officer
Table of Contents
By
/s/
Chief Executive Officer and President,
Chief Operating Officer and Director
By
/s/
Chief Executive Officer and President,
Chief Operating Officer and Director
By:
/s/
Chief Financial Officer
By:
/s/
Chairman of the Board and Director
By:
/s/
Director
21
EXHIBIT 21.1
LIST OF SUBSIDIARIES
OF
SIGNATURE HORIZONS GROUP, INC.
Signature Horizons, Inc., a Georgia corporation
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-KSB of SIGNATURE
HORIZONS GROUP, Inc. (the "Company") for the year ending December 31, 2002 as
filed with the Securities and Exchange Commission on the date hereof, I, Peggy
A. Evans, Chief Executive Officer and President of the Company, certify,
pursuant to, and solely for the purpose of complying with, 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) the Annual Report on Form 10-KSB of the Company for the year ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 15, 2003 /s/ Peggy A. Evans
-----------------------------------------
Chief Executive Officer, President, Chief
Operating Officer and Director
|
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-KSB of SIGNATURE HORIZONS GROUP, Inc. (the "Company") for the year ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof, I, William Bryant, Chief Financial Officer and President of the Company, certify, pursuant to, and solely for the purpose of complying with, 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Annual Report on Form 10-KSB of the Company for the year ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 15, 2003 /s/ William E. Bryant
---------------------------------
Chief Financial Officer
|