<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number 2-74785-B
Next Generation Media Corp.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0169543
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 N. Stafford St., Suite 2003
Arlington, VA 22203
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(703) 516-9888
--------------
(Registrant's telephone number, including area code)
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ] No [X]
<PAGE> 2
The total number of issued and outstanding shares of the registrant's
common stock, par value $0.01, as of July 31, 1998 was 3,183,984.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [x]
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS.
<PAGE> 4
NEXT GENERATION MEDIA
CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<PAGE> 5
NEXT GENERATION MEDIA
CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<PAGE> 6
<TABLE>
<CAPTION>
December 31, JUNE 30,
1997 1998
- --------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT
<S> <C> <C>
Cash $ - $ 289
Notes receivable current portion (Note 3) - 187,500
Accounts receivable, less allowance for doubtful
accounts of $42,560 198,335 173,811
Accrued interest receivable 15,785 2,253
Commissions receivable - 11,001
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 214,120 374,854
- --------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT 71,135 118,773
Less: Accumulated depreciation (3,354) (11,951)
- --------------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 67,781 106,822
- --------------------------------------------------------------------------------------------------------------------
OTHER
Intangibles, net of accumulated amortization of $12,529
and $30,923 192,648 174,254
Deferred acquisition costs - 39,233
Investment in UNICO (Note 4) - 25,537
TOTAL ASSETS $474,549 $720,700
====================================================================================================================
</TABLE>
1
<PAGE> 7
NEXT GENERATION MEDIA CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, JUNE 30,
1997 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Checks issued against future deposits $ 44,821 $ 21,773
Accounts payable 248,666 282,848
Wages payable - 248,480
Notes payable 25,449 60,000
Due to shareholders 10,255 -
Accrued interest payable 235 334
Note payable employee 11,669 -
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 341,095 613,435
LONG TERM DEBT
Note payable - employees 85,027 33,420
Due to shareholders 24,400 -
Note payable 27,505 27,505
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 478,027 674,360
- --------------------------------------------------------------------------------------------------------------------
COMMITMENTS (Note 9)
REDEEMABLE PREFERRED STOCK (Note 5) - 339,955
- --------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01, 930,000 shares authorized, 250,000 shares
allocated to Series A issued and
outstanding (Note 6) - 934,000
Common stock, $.01 par value, 50,000,000 authorized
3,113,450 and 3,330,318 issued and outstanding (Note 7) 31,134 33,301
Additional paid in capital (Note 7) 419,616 502,341
Accumulated deficit (95,178) (1,763,257)
Less stock subscription receivable (Note 8) (359,050) -
- --------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' (DEFICIT) (3,478) (293,615)
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 474,549 $720,700
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statement.
2
<PAGE> 8
NEXT GENERATION MEDIA CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------------------- --------------------------------
1997 1998 1997 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $ - $ 512,457 $ - $ 947,353
COST OF GOODS SOLD - 202,244 - 362,880
- --------------------------------------------------------------------------------------------------------------------
GROSS PROFIT - 310,213 - 584,473
- --------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Selling, general and administrative 12,583 281,977 25,052 888,582
Forgiveness of stock subscription
receivable and note receivable
(Note 8) - 329,996 - 329,996
Depreciation and amortization 1,250 13,674 2,083 26,994
- --------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 13,833 625,647 27,135 1,245,572
- --------------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (13,833) (315,434) (27,135) (661,099)
- --------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest income 5,868 853 5,863 6,014
Other income - 19,010 - 21,648
Interest expense (663) (543) (663) (642)
- --------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) 5,200 19,320 5,200 27,020
- --------------------------------------------------------------------------------------------------------------------
NET LOSS BEFORE EXTRAORDINARY ITEM $ (8,633) $ (296,114) $ (21,935) $(634,079)
EXTRAORDINARY LOSS ON EXTINGUISHMENT
OF DEBT (NOTE 10) - (1,034,000) - (1,034,000)
- --------------------------------------------------------------------------------------------------------------------
NET LOSS (8,633) (1,330,114) (21,935) (1,668,079)
BASIC AND DILUTED LOSS PER
COMMON SHARE BEFORE EXTRAORDINARY
item $ (.01) $ (.09) $ (.003) $ (.20)
EXTRAORDINARY ITEM - (.32) - (.33)
- --------------------------------------------------------------------------------------------------------------------
BASIC AND DILUTED LOSS PER
COMMON SHARE (01) (.41) (.003) (.53)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,950,889 3,230,225 2,019,056 $3,172,160
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 9
NEXT GENERATION MEDIA CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended June 30, 1997 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(21,935) $(1,668,079)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Extraordinary loss on debt extinguishment - 1,034,000
Depreciation and amortization (2,083) 26,981
Forgiveness of subscription receivable - 329,996
(INCREASE) DECREASE IN ASSETS
Accounts receivable -
Note receivable (9,000) 24,524
Accrued interest receivable (5,862) (6,014)
Commissions receivable - (11,001)
INCREASE (DECREASE) IN LIABILITIES
Accounts payable 21,052 34,183
Note payable 4,000 -
Wages payable - 248,480
Accrued interest payable 663 99
- --------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 13,168 13,169
- --------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of property and equipment - (47,628)
Deferred acquisition costs - (39,233)
- --------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES - (86,861)
- --------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase in checks issued against future deposits - (23,048)
Issuance of notes receivable - (275,500)
Issuance of preferred stock 339,955
Net proceeds of loans from shareholders 9,000 61,299
Proceeds of note payable - 60,000
Repayment of note payable - (25,449)
Repayments of employee notes payable - (63,276)
- --------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES - 73,981
- --------------------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of period $ - $ -
- --------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ - $ 289
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 10
NEXT GENERATION MEDIA CORPORATION
SUMMARY OF ACCOUNTING POLICIES
BASIS OF The consolidated financial statements include the
PRESENTATION statements of Next Generation Media Corporation (the
"Company") and its wholly owned subsidiary
Independent News, Inc. All significant intercompany
transactions have been eliminated.
BUSINESS The Company operates a newspaper publishing business
DESCRIPTION distributing free newspapers, supported by local
advertising in New Jersey. Primarily all of its
customers are located in New Jersey.
INTERIM FINANCIAL In the opinion of management, the interim financial
INFORMATION information as of June 30, 1998 and for the six
months ended June 30, 1997 and 1998 contains all
adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of
the results for such periods. Results for interim
periods are not necessarily indicative of results
to be expected for an entire year.
RISK AND The publishing industry is highly competitive. The
UNCERTAINTIES Company's revenue consists of amounts received for
advertising space in the newspaper. Publication of
the newspaper is dependent on future advertising
revenue or obtaining additional outside financing.
Management believes that it can continue to meet
working capital requirements as they arrive.
USE OF ESTIMATES The preparation of financial statements in
accordance with generally accepted accounting
principles requires management to make certain
estimates and assumptions, particularly regarding
valuation of accounts receivable, recognition of
liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements.
Actual results could differ from those estimates.
CONCENTRATION Financial instruments that potentially subject the
OF CREDIT RISK Company to concentrations of credit risk consists
primarily of accounts receivable.
5
<PAGE> 11
NEXT GENERATION MEDIA CORPORATION
SUMMARY OF ACCOUNTING POLICIES
LOSS PER COMMON SHARE Loss per share has been computed using the weighted
average number of shares outstanding. The
outstanding stock options were not considered in the
computation because their inclusion would have been
anti-dilutive.
INCOME TAXES Income taxes are calculated using the liability
method specified by Statement of Financial
Accounting Standards No. 109, "Accounting for Income
Taxes". Deferred income tax reflects the net tax
effect of temporary differences between the carrying
amounts of assets and liabilities for financial
purposes and the amounts used for income tax
purposes. The net deferred tax asset is reduced, if
necessary, by a valuation allowance for the amount
of any tax benefits that, based on available
evidence, are not expected to be realized.
RECENT In March 1997, the Financial Accounting Standards
ACCOUNTING Board issued Statement of Financial Accounting
PRONOUNCEMENTS Standards No. 128, Earnings Per Share (SFAS 128").
SFAS 128 provides a different method of calculating
earnings per share than is currently used in APB
Opin8ion 15. SFAS 128 provides for the calculation
of basic and diluted earnings per share. Basic
earnings per share includes no dilution and is
computed by dividing income available to common
stockholders by the weighted average number of
common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution
of securities that could share in the earnings of an
entity, similar to existing fully diluted earnings
per share. The Company adopted the provisions for
computing earnings per share set forth in SFAS 128
in December 1997. There is no difference in basic
and diluted earnings per share.
6
<PAGE> 12
NEXT GENERATION MEDIA CORPORATION
SUMMARY OF ACCOUNTING POLICIES
In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income
("SFAS 130"), which establishes standards for
reporting and display of comprehensive income, its
components, and accumulated balances. Comprehensive
income is defined to include all changes in equity
except those resulting from investments by owners
and distributions to owners. Among other
disclosures, SFAS 130 requires that all items that
are required to be recognized under current
accounting standards as components of comprehensive
income be reported in a financial statement that is
displayed with the same prominence as other
financial statements. The Company presently has no
items considered as comprehensive income. Therefore,
adopting SFAS 130 will not impact financial
statement disclosure in 1998.
Statement of Financial Accounting Standards No. 131,
Disclosure about Segments of a Business Enterprise
("SFAS 131"), establishes standards for the way that
public enterprises report information about
operating segments in interim financial statements
issued to the public. It also establishes standards
for disclosures regarding products and services,
geographic areas, and major customers. SFAS 131
defines operating segments as components of an
enterprise about which separate financial
information is available that is evaluated regularly
by the chief operating decision maker in deciding
how to allocate resources and in assessing
performance. Presently, the Company operates in one
business segment.
7
<PAGE> 13
NEXT GENERATION MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PURCHASE OF On February 6, 1997, an unrelated third party
MICROTECH purchased 85.72% of the outstanding stock of
INDUSTRIES Microtech Industries, Inc., from its majority
shareholder for $50,000 in cash. Effective March 31,
1997 Microtech Industries changed its name to Next
Generation Media Corporation. Current management
believes that prior to February 6, 1997, the Company
was a "shell" company for at least five years
without assets and liabilities. Current management
is unaware of any operating history of the Company
prior to February 6, 1997. As a result of the
transaction, goodwill of $50,000 was recorded and is
being amortized on a straight line basis over ten
years.
2. ACQUISITION On September 29, 1997, Pompton Valley Publishing
OF POMPTON Co. (PVP) sold to Independent News, Inc. (INI) all
VALLEY of its tangible property, all accounts receivable,
PUBLISHING CO. all intellectual property, certain contracts, and
all other business property. INI assumed certain
liabilities of PVP. In addition to the assumption of
certain liabilities, INI also paid PVP 100,000
shares of the Company's common stock and $15,000 in
cash for a covenant not to compete. The shares were
valued at $16,700 based on a recent stock sale. The
acquisition was accounted for as a purchase. In
conjunction with this transaction the Company has
recorded approximately $140,000 of goodwill that is
being amortized on a straight line basis over 5
years.
The following unaudited pro forma summary presents
the combined results of operations of the Company
and the acquired business, as if the acquisition had
occurred on January 1, 1997. The pro forma amounts
give effect to certain adjustments, including the
amortization of intangibles. This pro forma summary
does not necessarily reflect the results of
operations as they would have been if the businesses
had constituted a single entity during such period
and is not necessarily indicative of results which
may be obtained in the future.
<TABLE>
<CAPTION>
Six months ended June 30, 1997 (Unaudited)
--------------------------------------------------------------------------------
<S> <C>
Net sales $457,605
Net loss (40,575)
Loss per common share (.02)
================================================================================
</TABLE>
8
<PAGE> 14
NEXT GENERATION MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. NOTES RECEIVABLE On May 12, 1998, the Company executed a promissory
note with UNICO, Inc. for $175,500 and assumed an
existing note receivable of $12,000. These notes
will be cancelled in conjunction with the proposed
acquisition of United Marketing Solutions (Note 11)
and have therefore been classified as current
assets.
4. INVESTMENT IN On May 12, 1998, the Company purchased 359,931
UNICO shares of common stock of UNICO, Inc. in exchange
for shares in the Company (Note 6). It is intended
that these shares will be transferred to T.C.
Equities, Ltd. in connection with the proposed
purchase of United Marketing Solutions, Inc.
(Note 10). Until such transfer, the Company is
accounting for its investment in UNICO, Inc. using
the cost method.
5. REDEEMABLE On May 4, 1998, the Company issued 70,000 shares of
PREFERRED STOCK Redeemable Cumulative Convertible Series B Preferred
Stock par value $.01 with a redemption price of
$5.00 per share to TC Equities Ltd. The holder can
redeem 35,000 shares after November 4, 1998, 17,500
shares after February 1998, and the remaining 17,500
shares after May 4, 1999. The Company also issued
250,000 warrants to T.C. Equities, Ltd. for the
purchase of one share of common stock in the Company
at an exercise price of $.16 per warrant, valid for
five years from May 4, 1998. Gross proceeds from the
issuance, net of expenses, were $339,955.
9
<PAGE> 15
NEXT GENERATION MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. PREFERRED STOCK On March 18, 1998, the Company executed an agreement
with the holders of certain subordinated debentures
of UNICO, Inc. to purchase these debentures totaling
in the aggregate $1,034,000, plus all of the
outstanding shares of UNICO's Series C Preferred
Stock which they held in exchange for $100,000 and
250,000 shares of the Company's Convertible
Cumulative Preferred Stock, (the "Series A
Preferred Stock"), par value $.01, with a
redemption price of $5 per share. Each 1 1/2
shares of the Company's Preferred Stock was
accompanied by one stock purchase warrant (subject
to adjustment) which entitles the holder to
purchase one share of the Company's common stock
for $.0.16, valid for five years from May 7, 1998.
The Series A Preferred Stock is callable at the
sole option of the Company at any time. The shares
have a $5 per share preference on liquidation or
dissolution of the Company. An amount of $934,000
was allocated to the Series A preferred stock
based on the dollar value of the subordinated
debentures purchased from the debentureholders.
7. COMMON STOCK On May 12, 1998, the Company issued 79,281 shares of
common stock in exchange for a note receivable in
the amount of $12,000, plus accrued interest of
$1,400, and 359,931 common shares of UNICO, Inc.
stock valued at $25,537.
Also on May 12, 1998, the Company issued 137,587
shares of common stock in exchange for the
cancellation of various notes payable to officers of
the Company amounting to $45,954.
On May 7, 1998, the Company granted stock options to
purchase 150,000 shares of the Company's common
stock at an exercise price of $.50 to a director
and consultants to the Company. The options expire
on May 7, 2008.
10
<PAGE> 16
NEXT GENERATION MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. STOCK SUBSCRIPTION On May 12, 1998, $156,145 of the stock subscription
RECEIVABLE receivable from Joel Sens, a significant
shareholder, was transferred into a promissory note
receivable from Gerard Bernier, a director of UNICO,
Inc. This note was subsequently cancelled and
recorded as compensation expense to Mr. Bernier.
Also, the stock subscription receivable was reduced
$15,000 to reflect a reduction in a note payable
due Joel Sens. In addition, the Company forgave
$152,905, plus accrued interest of $20,946 due
from Joel Sens. These amounts are recorded as
compensation expense to Mr. Sens. Finally, the
remaining $35,000 was transferred to a shareholder
in exchange for his cancellation of a note payable
in the same amount.
9. INCOME TAXES The Company, based on the information currently
available, does not believe it will generate taxable
income, after considering net operating loss
carry-forwards, for the year ending December 31,
1998. Accordingly, the Company did not recognize an
income tax benefit for the period ended June 30,
1998.
10. EXTRAORDINARY LOSS On March 18, 1998, the Company entered into an
ON FORGIVENESS agreement with holders of certain subordinated
OF DEBT debentures of UNICO, Inc., to purchase these
debentures aggregating $1,034,000 (Note 6). This
transaction was executed on May 7, 1998. Effective
May 8, 1998, the Company canceled UNICO's obligation
to the Company arising from the Company's assumption
of UNICO'ssubordinated debt. This release is
effective regardless of the ultimate outcome of the
proposed Stock Purchase Agreement and Plan of Merger
(Note 12). Accordingly, the Company wrote off the
receivable from UNICO, Inc. of $1,034,000 and
classified it as an extraordinary item in the
accompanying statement of operations.
11. COMMITMENTS On May 1, 1998, the Company entered into a
consulting agreement with Joel Sens, a significant
shareholder. The agreement is for a three year
period and provides for annual compensation of
$120,000. During the first year, amounts due in
excess of $60,000 will be deferred until the
redemption or conversion of the Company's Series A
and Series B preferred stock. If the conversion does
not take place by May 1, 1999, the deferred
compensation will be forfeited. After the first
year, the annual compensation will be $60,000 per
year until the conversion is completed.
11
<PAGE> 17
NEXT GENERATION MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. PROPOSED STOCK The Company is currently negotiating an agreement to
PURCHASE AGREEMENT acquire all of the issued and outstanding stock of
AND PLAN OF MERGER United Marketing Solutions, Inc. (UMSI). This
proposed Plan of Merger is scheduled to close in
early 1999. UMSI is engaged in the cooperative
direct mail marketing business and is a subsidiary
of UNICO, Inc. In accordance to the proposed plan of
merger, UMSI will be merged into a special purpose
subsidiary of the Company with UMSI as the surviving
corporation. In exchange for the capital stock of
UMSI, the Company will pay cash of $172,665. In
addition, the Company has agreed to forgive the
indebtedness of UNICO, Inc. in the amount of
$175,500 (Note 3) and to extinguish certain debts of
UNICO, Inc. up to $164,000. Further, the Company
will assume a secured loan from Banc First not to
exceed $450,000. In addition, the Company has agreed
to provide additional consideration to TC Equities,
Ltd., in the form of the Series C Preferred Stock it
purchased on March 18, 1998 (Note 5) and the 359,931
shares of common stock it purchased on May 12, 1998
(Note 4). UMSI had sales of approximately $5,500,000
and a net loss of approximately $(600,000) for the
year ended December 31, 1997.
12
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Quarterly Results of Operations
Management cannot fully assess material changes in the
registrant's results of operations with respect to the 1998 fiscal year to June
30, 1998 from the corresponding year to date period of the preceding fiscal
year, for the reasons set forth in the registrant's Quarterly Report on Form
10-Q for the period ended March 31, 1997.
The following discussion is based on assumptions made by
management as to the registrant's results of operations and financial condition
as of June 30, 1997 and for the period then ended as reported in the
registrant's Quarterly Report on Form 10-Q for that period. No assurances can be
given as to the accuracy of such assumptions. However, management has no
knowledge of any information that would make reliance on such assumptions
unwarranted.
As of June 30, 1997, the registrant had $62,780 in total assets.
As of June 30, 1998, the registrant had assets totaling $720,700. This increase
is due primarily to the acquisition by the registrant of Independent News, Inc.
("INI") in the third quarter of 1997.
The registrant had current liabilities as of June 30, 1997 of
$34,715. As of June 30, 1998, the registrant had current liabilities of $613,435
and total liabilities of $674,360. The increase in current liabilities is due
primarily to the assumption of liabilities of INI.
The registrant had revenues of $512,457 from operations during
the period covered by this report, all of which derived from the operations of
its sole operating subsidiary, INI. INI engages in the community newspaper
publishing business in several townships in northern New Jersey. During the
quarter, the registrant forgave stock subscription receivables and a note
receivable totaling $329,996, resulting in an operating loss of $315,434. The
registrant had revenues of $5,863 in the three month period through June 30,
1997.
<PAGE> 19
The registrant had a net loss per share during the second fiscal
quarter of 1997 of $0.003 and a cumulative net loss per share during the first
six months of fiscal 1997 of $0.01. During the period covered by this report,
the registrant had a net loss per share of $0.41 on both a basic and diluted
basis and a cumulative net loss per share during the first six months of 1998 of
$0.53. The primary reason for the net loss was an extraordinary loss upon the
cancellation of indebtedness acquired by the registrant from holders of certain
subordinated debt of Unico, Inc. ("Unico").
Liquidity and Capital Resources
The registrant's principal sources of liquidity are shareholder
loans which amounted to approximately $61,299 for the period covered by this
report. In addition, the registrant sold 70,000 shares of preferred stock during
the second quarter of 1998, as further described below.
The registrant entered into several transactions in partial
consummation of the acquisition of Unico's sole operating subsidiary, United
Marketing Solutions, Inc. ("UMSI") during the period covered by this report. On
May 12, 1998, Gerard R. Bernier ("Bernier"), Joel P. Sens ("Sens") and all of
the members of the Board of Directors of the registrant entered into a Stock
Purchase and Shareholders Agreement pursuant to which (1) Bernier purchased
935,000 shares of common stock of the registrant from Sens in exchange for a
note in the amount of $156,145 (the "Bernier Note"); (2) Sens transferred the
Bernier Note to the registrant in partial payment of a stock subscription note
payable Sens previously gave to the registrant in the principal amount of
$359,050 (the "Sens Note"); (3) the registrant cancelled the Bernier Note as
compensation to Bernier for acting as a consultant to the registrant in
conjunction with the acquisition by the registrant of UMSI; (4) while the
registrant was still owed $202,905 from Sens on the Sens Note, the registrant
owed Sens $37,198.91 in loans advanced by Sens for working capital, and the
registrant netted indebtedness in the amount of $15,000, resulting in a
remaining balance of $187,905 on the Sens Note; (5) the registrant issued 66,464
shares of common stock at a price of $0.334 per share to Sens in payment of the
registrant's remaining indebtedness to Sens in a private transaction; (6) the
registrant, in recognition of Sens'
<PAGE> 20
contribution to its business then forgave $152,905 owed on the Sens Note
(leaving $35,000 still owed on the Sens Note); (7) the registrant transferred
the remaining $35,000 debt owed on the Sens note to Kenneth Brochin, a
shareholder and director of the registrant ("Brochin") in satisfaction of a
working capital loan previously extended by Brochin to the registrant; (8) Sens
agreed to assume obligations of the registrant in the amounts of $6,255 and
$17,500 owed to Lawrence Grimes and W.B. Grimes & Co. (collectively, "Grimes"),
respectively, in exchange for 71,123 shares of the registrant's common stock.
In addition to these transactions, and as a part of the UMSI
acquisition, the registrant sold 70,000 shares of its Series B Preferred Stock
(as defined and discussed below) to T.C. Equities Ltd., a Bahamian investment
company ("T.C. Equities"), for $350,000 in a private sale under Section 3(b) of
the Securities Act of 1933, as amended (the "Securities Act"). The proceeds from
this sale were used to facilitate the UMSI acquisition.
UMSI Transaction and Proposed Merger
In addition to the transactions described above, the registrant
undertook several other transactions in connection with the UMSI acquisition in
the period covered by this report. On May 8, 1998, the registrant acquired
428,185 shares of the Series C Preferred Stock and certain subordinated debt
totaling $1,034,000 in Unico and cancelled that indebtedness, resulting in an
extraordinary loss to the registrant. In exchange for Unico's preferred stock
and debt, the registrant paid $100,000 and issued 250,000 shares of callable,
cumulative, preferred stock, par value $0.001 per share (the "Series A Preferred
Stock") together with 166,667 stock purchase warrants for the purchase of one
share of common stock each at an exercise price of $0.16 per share and valid for
five years from the date of issue.
The holders of the Series A Preferred Stock, as a class, shall
alone be entitled to vote for the election of one director of the registrant's
board of directors (the "Board") for the first nine months from the date of
issue and shall be entitled to vote for the election of two directors of the
Board following nine months from the date of issue. Further, in the event that
the registrant proposes to engage in a sale of
<PAGE> 21
substantially all of its assets, merge with or into another corporation, change
its primary lines of business (those businesses being the direct mail marketing
business and community newspaper business), incur more than $5,000,000 in
indebtedness or acquire property valued in excess of $5,000,000 and not in the
ordinary course of business, such transaction must be approved in advance by at
least a majority of the Series A Preferred Stock issued and outstanding at the
time of such vote in addition to any other requirements for the registrant to
take such action. The Series A Preferred Stock was sold in a private transaction
under Section 3(b) of the Securities Act.
On May 8, 1998, the registrant and Unico executed a Stock
Purchase Agreement (the "Stock Purchase Agreement") to provide for the
acquisition of all of the issued and outstanding stock of UMSI and the merger of
UMSI into a special purpose subsidiary of the registrant with UMSI as the
surviving corporation, thereby resulting in UMSI becoming a wholly-owned
subsidiary of the registrant (the "Transaction"). Pursuant to the Stock Purchase
Agreement, the registrant shall pay consideration in the form of 200,000 shares
of the registrant's common stock in exchange for 100% of the capital stock of
UMSI. Alternatively, the Stock Purchase Agreement provides that shareholders in
Unico (who must approve the Transaction) may receive $0.10 cash per share of
Unico common stock if such holder so elects at the time of the Unico shareholder
vote on the Transaction in lieu of such Unico common stock holder's
proportionate amount of the 200,000 shares of the registrant's common stock.
The proposed acquisition by the registrant of UMSI is being
funded in part through the issuance of common stock and/or cash, as described
above. In addition, the registrant agreed, pursuant to the Stock Purchase
Agreement, to extinguish certain debts of Unico up to $150,000, to assume
certain debts of Unico (principally a secured loan from BancFirst, an Oklahoma
banking corporation, in the principal amount of approximately $450,000) and to
provide additional cash to Unico of $210,000 in the form of a loan that will be
transferred by Unico to its subsidiary, UMSI, to be used as working capital. The
cash consideration for the Transaction has been obtained, in part, by the
registrant through the sale, in a separate transaction, of 70,000 shares of
redeemable, cumulative, preferred stock, par value $0.001 per share (the "Series
B Preferred Stock") together with 250,000
<PAGE> 22
stock purchase warrants for the purchase of one share of common stock each at an
exercise price of $0.16 per share and valid for five years from the date of
issue to T.C. Equities in exchange for $350,000 in cash. The sale of the Series
B Preferred Stock was a private transaction under Section 3(b) of the Securities
Act.
In exchange for the $350,000, the registrant has agreed to
provide additional consideration to T.C. Equities in the form of the Series C
Preferred stock and certain common stock (described below) of Unico acquired by
the registrant. These transactions would result in the transfer of all of the
registrant's interests in Unico to T.C. Equities and the acquisition of
effective control of Unico by T.C. Equities upon consummation of the
Transaction.
The registrant has obtained or intends to obtain 13,187, 168,744
and 178,000 shares, respectively, of common stock of Unico (and the cancellation
of any options to purchase shares of Unico) (the "Directors' Unico Shares") held
by Leon Zajdel ("Zajdel"), Bernier and Gerald Bomstad, Jr. ("Bomstad"), members
of Unico's board of directors, for transfer to T.C. Equities, as described
above. The Directors' Unico Shares (and in the case of Bomstad, the acquisition
of a promissory note from Unico to Bomstad in the principal amount of $12,000
and with accrued interest of $1,400 that would be forgiven by the registrant)
has been or will be obtained through the sale of common stock of the registrant
in private transactions to Zajdel, Bernier and Bomstad.
Certain shareholders of the registrant, contemporaneous with the
above-described transactions, entered into a shareholder agreement whereby they
agreed to vote their shares in order to bring about certain changes in the
registrant's management. As a result of (1) this shareholder agreement, (2) a
resolution of the Board and (3) the terms of the Series A Preferred Stock, the
Board will, upon consummation of the Transaction, be comprised of five
directors: one member of the Board will be nominated and elected by the holders
of the Series A Preferred Stock; two members of the Board will be nominated by
Bernier; one member of the Board will be nominated by Sens; and one member of
the Board will be nominated by the other members of the Board. The composition
of the Board may change in the future based on certain events or the failure of
<PAGE> 23
certain events to occur. The Board intends to appoint Bernier, currently the
President and Chief Executive Officer ("CEO") of Unico and UMSI, as President
and CEO of the registrant and confirm Bernier as President and CEO of UMSI upon
consummation of the Transaction. The registrant has appointed Bernier as a
consultant pending consummation of the Transaction.
As indicated above, the cash components of the foregoing
transactions were funded in part by the proceeds of the sale of the Series B
Preferred Stock and other consideration to T.C. Equities. The registrant hopes
to engage in other transactions which may include further sales of common stock
and/or loans in order to obtain sufficient funds to complete the Transaction.
However, there can be no assurance that the registrant will be able to engage in
such transactions or obtain such funds. If the registrant is unable to obtain
sufficient additional funds, it will be unable to complete the Transaction, the
registrant will be in breach of its contractual obligations to, among others,
Unico, and the registrant's business, financial condition and results of
operations will be materially adversely affected.
United Marketing Solutions, Inc.
The registrant will acquire from Unico as part of the
Transaction, all of the capital stock of UMSI. UMSI is engaged in cooperative
direct mail advertising through franchising and production. UMSI's business
involves the design, layout, printing, packaging and distributing of public
relations, marketing materials and promotional coupons for private businesses,
usually involved in retailing goods or providing professional services.
Franchising activities related to this business involve the granting and
administering of independent franchise operations to conduct cooperative direct
mail advertising sales. As of December 31, 1997, UMSI had approximately 65
active franchise operations. UMSI operates its corporate headquarters and its
coupon sales and franchise activities through an office and production facility
at 8380 Alban Road, Springfield, VA 22150. UMSI had approximately 95 employees
as of December 31, 1997. The registrant intends to continue such use of such
property and facilities.
<PAGE> 24
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
Series A Preferred Stock
On May 8, 1998, the registrant issued 250,000 shares of callable,
cumulative, preferred stock, par value $0.001 per share (the "Series A Preferred
Stock") together with 166,667 stock purchase warrants for the purchase of one
share of common stock each at an exercise price of $0.16 per share and valid for
five years from the date of issue.
The holders of the Series A Preferred Stock shall be entitled to
receive, prior to the payment of any dividends on the common stock, a cumulative
dividend of $0.30 per share per annum for the first six months and $0.50 per
share per annum thereafter. Dividends will accrue and not be payable until
eighteen months following the date of issue.
The holders of the Series A Preferred Stock shall be entitled to
vote on equal terms with the holders of the common stock as a single class of
the registrant, that is one vote per share of Series A Preferred Stock.
Notwithstanding the foregoing, the holders of the Series A Preferred Stock, as a
class, shall alone be entitled to vote for the election of one director of the
registrant's Board for the first nine months from the date of issue and shall be
entitled to vote for the election of two directors of the Board following nine
months from the date of issue. In the event that the registrant proposes to
engage in a sale of substantially all of its assets, merge with or into another
corporation, change its primary lines of business (those businesses being the
direct mail marketing business and community newspaper business), incur more
than $5,000,000 in indebtedness or acquire property valued in excess of
$5,000,000 and not in the ordinary course of business, such transaction must be
approved in advance by at least a majority of the Series A Preferred Stock
issued and outstanding at the time of such vote in addition to any other
requirements for the registrant to take such action.
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the registrant, the holders of the
Series A Preferred Stock then
<PAGE> 25
outstanding shall be entitled, for each share of Series A Preferred Stock, to be
paid out of assets of the registrant available for distribution to its
stockholders $5.00 (such amount payable being adjusted appropriately to reflect
any stock split, stock dividend,, reverse stock split, or any transaction with
comparable effect on the capital stock of the registrant) (the "Liquidation
Preference"). This entitlement of the holders of the Series A Preferred Stock,
to the extent equal to $5.00 for each share of Series A Preferred Stock, shall
be satisfied before any similar payment shall be made or any assets distributed
to the holders of the common stock or any other security junior in rank to the
Series A Preferred Stock as to distribution of assets upon such dissolution,
liquidation or winding up (it being understood that the Series B Preferred Stock
ranks equal to the Series A Preferred Stock for purposes of liquidation
preference) and otherwise shall be satisfied on a pari passu basis with the
holders of the common stock.
The shares of Series A Preferred Stock are convertible into
shares of the common stock of the registrant according to the following
provisions:
a. The conversion price for shares of the Series A Preferred Stock
will be affected by whether or not the registrant has filed a
preliminary Form S-1 (or other applicable registration statement
form for an initial public offering) with the Securities and
Exchange Commission for an offering of the registrant's common
stock (an "IPO") prior to the expiration of six months after the
acquisition by the registrant of 100% of the capital stock of
UMSI which will result in UMSI becoming a wholly owned
subsidiary of the registrant (the "Merger").
b. IPO Before Six Months: The Series A Preferred Stock will be
convertible into common stock, at the holder's option, beginning
six months after the closing of the Merger at a conversion price
which is the lesser of (a) $5.00 and (b) 110% of the price for
common stock issued in a private placement or IPO (a "Corporation
Stock Sale"). For example, if a Corporation Stock Sale occurs at
$6.00 per share, the conversion price used will be $5.00 and the
250,000 shares of Series A Preferred Stock would be convertible
into 250,000
<PAGE> 26
shares of common stock. If a Corporation Stock Sale occurs at
$4.50 per share, the conversion price would be $4.95 (110%), and
the 250,000 shares of Series A Preferred Stock would be
convertible into approximately 252,525 shares of common stock.
c. No IPO Before Six Months: The Series A Preferred Stock will be
convertible into common stock at a conversion price which is the
lesser of (a) $4.50 and (b) 110% of the price for the stock in a
Corporation Stock Sale. For example, if a Corporation Stock Sale
occurs at $5.00 per share of common stock, the conversion price
used will be $4.50 and the 250,000 shares of Series A Preferred
Stock would be convertible into approximately 277,778 shares of
common stock. If a Corporation Stock Sale occurs at $3.00 per
share, the conversion price would be $3.30 (110%), and the
250,000 shares of Series A Preferred Stock would be convertible
into approximately 378,789 shares of common stock.
The conversion price for shares of Series A Preferred Stock is
subject to adjustment in the event of a stock split, stock combination or
similar adjustment in the number of shares of common stock outstanding. All
shares of common stock issued upon conversion of any shares of Series A
Preferred Stock shall be fully paid and nonassessable.
The Series A Preferred Stock is redeemable, in whole or in part,
at the sole option of the registrant at any time. If the Series A Preferred
Stock is called within the first six months after the Merger, such shares will
have a redemption price of $5.00 per share plus all accrued but unpaid
dividends. If the Series A Preferred Stock is called more than six months after
the Merger, the redemption price will be $6.00 per share plus all accrued but
unpaid dividends. Holders of the Series A Preferred Stock will have an
opportunity to convert their shares following a call by the registrant but prior
to their redemption.
The Series A Preferred Stock will be redeemable, at the sole
option of the holder, five years from their date of issuance at a price of $6.00
per share plus all accrued but unpaid dividends.
<PAGE> 27
The registrant shall use part of the proceeds of any private
placement or initial public offering of the registrant's common stock following
the consummation of the Merger (the "NexGen Placement/Offering"). The registrant
shall use 50% of any net proceeds from the NexGen Placement/Offering to redeem
shares of the Series A Preferred Stock.
Series B Preferred Stock
On May 8, 1998, the registrant issued 70,000 shares of
redeemable, cumulative, preferred stock, par value $0.001 per share (the "Series
B Preferred Stock") together with 250,000 stock purchase warrants for the
purchase of one share of common stock each at an exercise price of $0.16 per
share and valid for five years from the date of issue.
The Series B Preferred Stock shall be entitled to receive, prior
to the payment of any dividends on the Common Stock, a cumulative dividend of
$0.50 per share per annum. Dividends will accrue and shall only be payable upon
redemption of the Series B Preferred Stock.
The Holders of the Series B Preferred Stock shall be entitled to
vote on equal terms with the holders of the common stock as a single class of
the registrant, that is one vote per share of Series B Preferred Stock.
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of the
Series B Preferred Stock then outstanding shall be entitled to a Liquidation
Preference equal to that of the holders of the Series A Preferred Stock.
The shares of Series B Preferred Stock are convertible into
shares of the Common Stock of the registrant on the same terms and bases as the
Series A Preferred Stock.
The Series B Preferred Stock will be redeemable, in whole or in
part, at the sole option of the registrant on the same terms and bases as the
Series A Preferred Stock.
The Series B Preferred Stock will be redeemable, at the sole
option of the holder, at the following times and in the
<PAGE> 28
following amounts: (1) 50% redeemable six months from the date of issue; (2) 25%
redeemable nine months from the date of issue; (3) 25% redeemable one year from
the date of issue. The redemption price shall be $5.00 per share plus all
accrued but unpaid dividends upon written notice by the holder to the
registrant.
If the registrant sells additional shares of common stock after
the consummation of the Merger then (a) if such sale occurs within six months
from May 1, 1998, then the registrant shall cause 50% of the Series B Preferred
Stock issued and outstanding to be redeemed and (b) if another sale occurs
within the six months from November 1, 1998, then the registrant shall cause all
of the remaining issued and outstanding Series B Preferred Stock to be redeemed,
each in connection with the new sale of the registrant's common stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 17, 1998, a majority of the shareholders of the
registrant acted by written consent in lieu of a special meeting to authorize
1,000,000 shares of a new class of preferred securities, par value $0.001 per
share (the "NexGen Preferred"). See Item 2 of this report and the registrant's
current report filed on Form 8-K on May 26, 1998 for additional information
about the authorization and issuance of NexGen Preferred in two series, the
Series A Preferred Stock and the Series B Preferred Stock.
ITEM 5. OTHER INFORMATION.
The registrant has renegotiated the agreements by which the
registrant intends to consummate its acquisition of UMSI from Unico. The details
of the renegotiated terms are explained in a current report filed on Form 8-K on
the same date as the filing of this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit 4.1 Written Consent of the shareholders of
the registrant authorizing the creation
<PAGE> 29
of the NexGen Preferred as of April 17, 1998
Exhibit 4.2 Board Resolution and Statement of
Designations for the Series A Preferred
Stock and the Series B Preferred Stock as of
May 1, 1998
Exhibit 27 Financial data schedule.
(b) Reports on Form 8-K:
A report on Form 8-K was filed during the period covered by this
report on May 26, 1998.
<PAGE> 30
Pursuant to the requirements 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.
NEXT GENERATION MEDIA CORP.
Date: January 7, 1999 By: s/s Larry Grimes
-----------------------------
Larry Grimes, President
(Duly Authorized Officer)
Date: January 7, 1999 By: s/s Kenneth Brochin
-----------------------------
Kenneth Brochin, Treasurer
(Principal Financial Officer)
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Description Page
- ------- ----------- -----------
<S> <C> <C>
4.1 -- Written Consent of the shareholders of the registrant
authorizing the creation of the NexGen Preferred as of
April 17, 1998
4.2 -- Board Resolution and Statement of Designations for the
Series A Preferred Stock and the Series B Preferred
Stock as of May 1, 1998
27 -- Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4.1
WRITTEN CONSENT OF THE
SHAREHOLDERS OF NEXT GENERATION MEDIA CORP.
The undersigned, whose shareholdings constitute a majority of the
issued and outstanding shares of NEXT GENERATION MEDIA CORP., a Nevada
corporation (the "Corporation"), entitled to vote, pursuant to Section 78.390 of
the General Corporation Law of the State of Nevada (the "NGCL"), does hereby
take the following actions as of April 17, 1998, by written consent in lieu of a
special meeting and does hereby consent that the resolutions set forth below
shall be deemed to have been adopted to the same extent and to have the same
force and effect as if adopted at a formal meeting of the shareholders of the
Corporation, duly called and held for the purpose of acting upon proposals to
adopt such resolutions. The undersigned does hereby waive all formal
requirements, including the necessity of holding a formal meeting and any
requirements that notice of such meeting be given.
The following resolutions are hereby adopted:
NOW, THEREFORE, BE IT RESOLVED, that the recommendation of the
Board of Directors of the Corporation that the shareholders adopt
a resolution to create a new class of preferred securities, par
value $0.001 per share (the "NexGen Preferred") with 1,000,000
shares of NexGen Preferred authorized is hereby adopted, and the
officers of the Corporation are hereby directed to file all
necessary forms with the Secretary of State of the State of
Nevada to effect such change.
This consent may be executed by facsimile.
IN WITNESS WHEREOF, the undersigned, whose shareholdings
constitute a majority of issued and outstanding shares entitled to vote, has
executed this consent as of the day and year first above written.
/s/ Joel Sens
----------------------------------------
Joel Sens
<PAGE> 1
EXHIBIT 4.2
UNANIMOUS WRITTEN CONSENT OF THE
BOARD OF DIRECTORS
OF NEXT GENERATION MEDIA CORP.
The undersigned, being all the members of the Board of Directors
(the "Board of Directors") of NEXT GENERATION MEDIA CORP., a Nevada corporation
(the "Corporation"), pursuant to Sections 78.315, 78.390 and 78.403 of the
General Corporation Law of the State of Nevada (the "NGCL"), do hereby take the
following actions as of May 1, 1998, by unanimous written consent in lieu of a
special meeting and do hereby consent that the resolutions set forth below shall
be deemed to have been adopted to the same extent and to have the same force and
effect as if adopted at a formal meeting of the Board of Directors of the
Corporation, duly called and held for the purpose of acting upon proposals to
adopt such resolutions. Each of the undersigned does hereby waive all formal
requirements, including the necessity of holding a formal meeting and any
requirements that notice of such meeting be given.
The following resolutions are hereby adopted:
WHEREAS, the undersigned constitute all of the members of the Board of
Directors of the Company, and the Bylaws of the Company and the
corporation laws of the State of Nevada permit actions without a meeting
of the directors if all of the members of the Board of Directors consent
to such actions in writing;
WHEREAS, the Board of Directors has determined that it is in the best
interests of the Corporation to purchase all of the outstanding shares
of capital stock of United Marketing Solutions Inc., a Virginia
corporation ("UMSI"), and as the sole shareholder of United Merger
Company Inc. ("Newco"), for the Corporation and Newco to engage in
certain transactions in connection with the merger of Newco into UMSI
(the "Merger") with the result that UMSI will become a wholly owned
subsidiary of the Corporation and, in connection with and to facilitate
the Merger, the Board of Directors has determined that it is in the best
interests of the Corporation to engage in certain other transactions
including a purchase of the Series C Preferred Shares and subordinated
debt of UNICO, Inc., a Delaware corporation ("Unico") and the sale of
certain shares of the Corporation for cash and securities to Gerard R.
Bernier, Gerald
<PAGE> 2
Bomstad, Jr., Leon Zajdel and T.C. Equities Ltd., a Bahamian corporation
(collectively, with the Merger, the "Transactions"); and
WHEREAS, the Board of Directors approved the Transactions in a
resolution as of April 17, 1998 that, among other things, recommended
the creation of a new class of preferred stock divided into two series,
the Series A Preferred Stock and the Series B Preferred Stock; and
WHEREAS, for purposes of carrying out these Resolutions, a majority of
the shareholders of the Corporation have executed a consent as of April
17, 1998 to amend the Articles of Incorporation of the Corporation to
provide for the creation of the Series A Preferred Stock and the Series
B Preferred Stock; and
WHEREAS, in connection with the Transactions, it is deemed to be in the
best interests of the Corporation (a) to set forth in greater detail in
a Certificate of Determination for each of the Series A Preferred Stock
and the Series B Preferred Stock, as attached hereto as Annex A and
Annex B, respectively, providing the terms approved in the resolutions
of the Board of Directors as of April 17, 1998 and certain additional
clarifications concerning the redemption rights of the Series A
Preferred Stock and the Series B Preferred Stock in certain
circumstances; and (b) to establish certain other provisions concerning
the capital structure of the Corporation prior to the issuance of the
Series A Preferred Stock and the Series B Preferred Stock;
CERTIFICATES OF DETERMINATION FOR THE
SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors finds that
it is advisable and in the best interests of the Corporation to adopt
the Certificates of Designation for the Series A Preferred Stock and the
Series B Preferred Stock as set forth in Annex A and Annex B,
respectively, with all of the rights, preferences, privileges and
restrictions with respect to said shares as set forth in Annex A and
Annex B attached hereto; and
BE IT FURTHER RESOLVED, each of the Certificates of Designation is
hereby approved in the form presented,
<PAGE> 3
together with all such changes, additions and deletions as to any or all
of the terms thereof as any officer executing any such instrument may
deem necessary or desirable, such execution by such officer to be
conclusive evidence that he deems all of the terms and provisions
thereof to be necessary and advisable; and
BE IT FURTHER RESOLVED, that each officer, or any of them, is authorized
to execute, in the name and on behalf of the Corporation (and, if
required, under the Corporation's corporate seal), as the case may be,
and deliver any other agreements, certificates, instruments or documents
such officer deems necessary, advisable or proper in connection with or
pursuant to the issuance of the Series A Preferred Stock and the Series
B Preferred Stock; and
BE IT FURTHER RESOLVED, that each officer, or any of them, is authorized
to attest the signature of any officer executing on behalf of the
Corporation any Transaction Documents and any other agreement,
certificate or instrument related thereto, and is further authorized to
affix the corporate seal thereto; and
BE IT FURTHER RESOLVED, that each and every officer of the Corporation,
or any of them, is authorized to take any action necessary to pay any
expenses incurred by the Corporation in connection with the execution
and delivery of or performance under any of agreement, instrument or
document executed in connection therewith or pursuant thereto; and
BE IT FURTHER RESOLVED, that each and every officer of the Corporation,
or any of them, is authorized to take such action from time to time on
behalf of the Corporation as he or she may deem necessary, advisable or
proper in order to carry out and perform the obligations of the
Corporation under any agreements, documents or instruments executed and
delivered on behalf of the Corporation pursuant to these resolutions and
in connection therewith, and is further authorized to take such action
from time to time on behalf of the Corporation as he or she may deem
necessary, advisable or proper in order to facilitate the Transactions
contemplated thereby; and
BE IT FURTHER RESOLVED, that each officer, or any of them, be and hereby
is authorized to certify to any parties to
<PAGE> 4
agreements, documents or instruments executed pursuant to these
resolutions a copy of these resolutions and the names and signatures of
the Corporation's officers and employees hereby authorized to act in the
premises, and such parties are hereby authorized to rely upon such
certificate until formally advised by a like certificate of any change
therein, and are hereby authorized to rely on any such additional
certificates; and
BE IT FURTHER RESOLVED, that all the actions of the officers and
directors of the Corporation to date in connection with the Transaction
Documents be, and they hereby are, ratified, approved and confirmed.
GENERAL AUTHORITY RESOLUTION
BE IT FURTHER RESOLVED, that the President and Secretary of the
Corporation are authorized, directed and empowered on behalf of the
Corporation and in its name to execute any applications, certificates,
agreements, or any other instruments or documents or amendments or
supplements thereto, or to do and to cause to be done any and all other
acts and things as such officers may in their discretion deem necessary
or appropriate to carry out the purposes of the foregoing resolutions.
IN WITNESS WHEREOF, the undersigned, being all of the members of the
Board of Directors, have executed this consent as of the day and year first
above written. This consent may be executed by facsimile.
[SIGNATURES APPEAR ON THE NEXT PAGE]
<PAGE> 5
/s/ Larry Grimes
------------------------------
Lawrence Grimes,
President and Director
/s/ Kenneth Brochin
------------------------------
Kenneth Brochin,
Secretary, Treasurer and
Director
/s/ David Grossman
------------------------------
David Grossman
Director
/s/ Jeffrey Sens
------------------------------
Jeffrey Sens
Director
<PAGE> 6
ANNEX A
Certificate of Determination for the
Callable Cumulative Convertible Preferred Stock
(Series A Preferred Stock)
1. DESIGNATION: The series of Preferred stock, the issuance of which is
hereby authorized, shall comprise 500,000 shares the distinctive serial
designation of which shall be "Preferred Stock, Series A", which is sometimes
referred to herein as "Callable Cumulative Convertible Preferred Stock." Each
share of Series A Preferred Stock shall be identical in all respects with all
other shares of Series A Preferred Stock. The number of shares of Series A
Preferred Stock that are purchased or otherwise acquired by the Corporation or
converted into Common Stock shall be canceled and shall revert to authorized but
unissued shares of Preferred Stock undesignated as to series.
2. DIVIDENDS: Each holder of record of a share or shares of Series A
Preferred Stock (a "Holder") of Series A Preferred Stock shall be entitled to
receive, prior to the payment of any dividends on the Common Stock, a cumulative
dividend of $0.30 per share per annum for the first six months and $0.50 per
share per annum thereafter. Dividends will accrue and not be payable until
eighteen months following the date of issue. Dividends will be payable provided
that the indebtedness of the Corporation to BancFirst, an Oklahoma banking
corporation ("BancFirst") is current, in accordance with the terms of the
Corporation's financing agreement with BancFirst. Dividends shall be payable
beginning eighteen months after the date of issue and on each anniversary
thereafter (each such date, a "Dividend Payment Date") by the Corporation.
Dividends payable in cash shall be paid by check to the addresses for the
respective Holders on the stock ledger of the Corporation or as designated by
the respective Holders in written notices given to the Corporation at least two
business days prior to the payment date or by such other means as may be agreed
to by the Corporation and the respective Holders. The Corporation will cause
written notice of each Dividend on the Series A Preferred Stock to be given to
each Holder within five business days after it is determined by the Board of
Directors.
3. VOTING RIGHTS: Except as otherwise required by law and as provided
herein, the Holders of the Series A Preferred Stock shall be entitled to vote on
equal terms with the holders
<PAGE> 7
of the Common Stock as a single class of the Corporation, that is one vote per
share of Series A Preferred Stock. Notwithstanding the foregoing, the Holders of
the Series A Preferred Stock, as a class, shall alone be entitled to vote for
the election of one director of the Corporation's Board of Directors for the
first nine months from the date of issue and shall be entitled to vote for the
election of two directors of the Corporation's Board of Directors following nine
months from the date of issue.
In the event that the Corporation proposes to engage in a sale of
substantially all of its assets, merge with or into another corporation, change
its primary lines of business (those businesses being the direct mail marketing
business and community newspaper business), incur more than $5,000,000 in
indebtedness or acquire property valued in excess of $5,000,000 and not in the
ordinary course of business, such transaction must be approved in advance by at
least a majority of the Series A Preferred Stock issued and outstanding at the
time of such vote in addition to any other requirements for the Corporation to
take such action.
4. LIQUIDATION PREFERENCE: In the event of any voluntary of involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
Holders of the Series A Preferred Stock then outstanding shall be entitled, for
each share of Series A Preferred Stock, to be paid out of assets of the
Corporation available for distribution to its stockholders $5.00 (such amount
payable being adjusted appropriately to reflect any stock split, stock
dividend,, reverse stock split, or any transaction with comparable effect on the
capital stock of the Corporation) (the "Liquidation Preference"). This
entitlement of the Holders of the Series A Preferred Stock, to the extent equal
to $5.00 for each share of Series A Preferred Stock, shall be satisfied before
any similar payment shall be made or any assets distributed to the holders of
the Common Stock or any other security junior in rank to the Series A Preferred
Stock as to distribution of assets upon such dissolution, liquidation or winding
up (it being understood that the Series B Preferred Stock ranks equal to the
Series A Preferred Stock for purposes of liquidation preference) and otherwise
shall be satisfied on a pari passu basis with the holders of the Common Stock.
If the assets of the Corporation are not sufficient to pay in full the
liquidation payments payable to all of the Holders of the outstanding share of
Series A Preferred Stock, the Holders of all such shares shall share
<PAGE> 8
ratably in such distribution of assets in accordance to the liquidation
preference to which they are entitled. For the purposes of this section, neither
the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the property
or assets of the Corporation nor the consolidation or merger of the Corporation
with one or more other corporations shall be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, unless such voluntary sale,
conveyance, exchange or transfer shall be in connection with a dissolution or
winding up of the business of the Corporation.
5. RESTRICTIONS ON TRANSFER: The shares of Series A Preferred Stock are
unregistered securities. Therefore, the following restrictions apply to their
transfer:
THE SHARES OF SERIES A PREFERRED STOCK HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED ("THE ACT") NOR QUALIFIED UNDER
THE SECURITIES LAWS OF ANY STATES, AND HAVE BEEN ISSUED IN RELIANCE UPON
EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION FOR NONPUBLIC
OFFERINGS. ACCORDINGLY, THE SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR
OTHER DISPOSITION OF ANY SUCH SECURITIES OR ANY INTEREST THEREIN MAY NOT
BE ACCOMPLISHED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS,
OR PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE
TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION AND QUALIFICATION
ARE NOT REQUIRED.
6. CONVERSION: The shares of Series A Preferred Stock are convertible
into shares of the Common Stock of the Corporation according to the following
provisions:
a. The conversion price for shares of the Series A Preferred Stock
will be affected by whether or not the Corporation has filed a
preliminary Form S-1 (or other applicable registration statement form
for an initial public offering) with the Securities and Exchange
Commission for an offering of the Corporation's Common Stock (an
"IPO") prior to the expiration of six months after the acquisition by
the Corporation of 100% of the capital stock of United Marketing
Solutions, Inc. ("UMSI") which will result in UMSI becoming a wholly
owned subsidiary of the Corporation (the "Merger").
<PAGE> 9
c. IPO Before Six Months: The Series A Preferred Stock will be
convertible into Common Stock, at the Holder's option, beginning six
months after the closing of the Merger at a conversion price which is
the lesser of (a) $5.00 and (b) 110% of the price for Common Stock
issued in a private placement or IPO (a "Corporation Stock Sale").
For example, if the a Corporation Stock Sale occurs at $6.00 per
share, the conversion price used will be $5.00 and the 250,000 shares
of Series A Preferred Stock would be convertible into 250,000 shares
of Common Stock. If a Corporation Stock Sale occurs at $4.50 per
share, the conversion price would be $4.95 (110%), and the 250,000
shares of Series A Preferred Stock would be convertible into
approximately 252,525 shares of Common Stock.
c. No IPO Before Six Months: The Series A Preferred Stock will be
convertible into Common Stock at a conversion price which is the
lesser of (a) $4.50 and (b) 110% of the price for the stock in a
Corporation Stock Sale. For example, if a Corporation Stock Sale
occurs at $5.00 per share of Common Stock, the conversion price used
will be $4.50 and the 250,000 shares of Series A Preferred Stock
would be convertible into approximately 277,778 shares of Common
Stock. If a Corporation Stock Sale occurs at $3.00 per share, the
conversion price would be $3.30 (110%), and the 250,000 shares of
Series A Preferred Stock would be convertible into approximately
378,789 shares of Common Stock.
d. The conversion price for shares of Series A Preferred Stock is
subject to adjustment in the event of a stock split, stock
combination or similar adjustment in the number of shares of Common
Stock outstanding. All shares of Common Stock issued upon conversion
of any shares of Series A Preferred Stock shall be fully paid and
nonassessable.
e. Any Holder of Series A Preferred Stock desiring to convert any or
all such shares into Common Stock shall so indicate in writing to the
Corporation. The Corporation shall, within three business days after
receipt of such written exercise, cause to be issued
<PAGE> 10
and delivered, to such Holder a certificate(s) representing the
number of full shares (rounded to the nearest whole number) of Common
Stock to which such Holder shall be entitled pursuant to the
then-applicable conversion price. Such conversion shall be deemed to
have been made on the date of receipt of such written notice from
such Holder, and such Holder shall be treated for all purposes as the
record holder of such Common Stock on such date and thereafter.
7. SECURITIES CERTIFICATES: Shares of the Series A Preferred Stock shall
be certificated securities, and the transfer agent shall maintain the stock
ledger containing the names of the Holders and the amounts of such Holders'
shares of Series A Preferred Stock. Upon written request to the Corporation, the
Corporation shall forward to any Holder a copy of the page of the Corporation's
stock ledger indicating such Holder's amount of Series A Preferred Stock
recorded therein. The Corporation shall transmit to each Holder of Series A
Preferred Stock upon issuance of such stock certificate a statement containing
the terms herein. Each certificate shall bear a legend in the form of the legend
in paragraph 5 herein. No transfer of Series A Preferred Stock shall be recorded
in the stock ledger of the Corporation in violation of the restrictions stated
on such stock certificate.
8. REDEMPTION/CORPORATION'S RIGHT TO CALL: The Series A Preferred Stock
will be redeemable, in whole or in part, at the sole option of the Corporation
at any time. Upon a call in writing by the Corporation mailed to the Holders
(the date of such mailing, the "Call Date"), Holders of Series A Preferred Stock
will have twenty (20) days to elect to convert their Series A Preferred Stock
into Common Stock. Following twenty-three (23) days after the Call Date, the
Corporation may redeem such Series A Preferred Stock and forward to the Holder
the redemption price, calculated as follows. If the Series A Preferred Stock is
called within the first six months after the Merger, such shares will have a
redemption price of $5.00 per share plus all accrued but unpaid dividends up
through the date ten days following the Call Date. If the Series A Preferred
Stock is called more than six months after the Merger, the redemption price will
be $6.00 per share plus all accrued but unpaid dividends up through the date ten
days following the Call Date.
<PAGE> 11
9. REDEMPTION/HOLDER'S RIGHT TO PUT: The Series A Preferred Stock will
be redeemable, at the sole option of the Holder, five years from their date of
issuance at a price of $6.00 per share plus all accrued but unpaid dividends
upon written notice by the Holder to the Corporation.
10. CORPORATION'S OBLIGATION TO REDEEM: In addition to the provisions of
Paragraphs 8 and 9 hereof, the Corporation shall use part of the proceeds of any
private placement or initial public offering of the Corporation's Common Stock
following the consummation of the merger between United Marketing Solutions Inc.
and United Marketing Merger Corp. (the Corporation's merger subsidiary) (the
"NexGen Placement/Offering"). The Corporation shall use 50% of any net proceeds
from the NexGen Placement/Offering to redeem shares of the Series A Preferred
Stock.
<PAGE> 12
ANNEX B
Redeemable Cumulative Convertible Preferred Stock
1. DESIGNATION: The series of Preferred stock, the issuance of which is
hereby authorized, shall comprise 500,000 shares the distinctive serial
designation of which shall be "Preferred Stock, Series B", which is sometimes
referred to herein as "Redeemable Cumulative Convertible Preferred Stock." Each
share of Series B Preferred Stock shall be identical in all respects with all
other shares of Series B Preferred Stock. The number of shares of Series B
Preferred Stock that are purchased or otherwise acquired by the Corporation or
converted into Common Stock shall be canceled and shall revert to authorized but
unissued shares of Preferred Stock undesignated as to series.
2. DIVIDENDS: Each holder of record of a share or shares of Series B
Preferred Stock (a "Holder") of Series B Preferred Stock shall be entitled to
receive, prior to the payment of any dividends on the Common Stock, a cumulative
dividend of $0.50 per share per annum. Dividends will accrue and shall only be
payable upon redemption of the Series B Preferred Stock. Dividends will be
payable provided that the indebtedness of the Corporation to BancFirst is
current, in accordance with the terms of the Corporation's financing agreement
with BancFirst. Dividends payable in cash shall be paid by check to the
addresses for the respective Holders on the stock ledger of the Corporation or
as designated by the respective Holders in written notices given to the
Corporation at least two business days prior to the payment date or by such
other means as may be agreed to by the Corporation and the respective Holders.
The Corporation will cause written notice of each Dividend on the Series B
Preferred Stock to be given to each Holder within five business days after it is
determined by the Board of Directors.
3. VOTING RIGHTS: Except as otherwise required by law and as provided
herein, the Holders of the Series B Preferred Stock shall be entitled to vote on
equal terms with the holders of the Common Stock as a single class of the
Corporation, that is one vote per share of Series B Preferred Stock.
<PAGE> 13
4. LIQUIDATION PREFERENCE: In the event of any voluntary of involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
Holders of the Series B Preferred Stock then outstanding shall be entitled, for
each share of Series B Preferred Stock, to be paid out of assets of the
Corporation available for distribution to its stockholders $5.00 (such amount
payable being adjusted appropriately to reflect any stock split, stock
dividend,, reverse stock split, or any transaction with comparable effect on the
capital stock of the Corporation) (the "Liquidation Preference"). This
entitlement of the Holders of the Series B Preferred Stock, to the extent equal
to $5.00 for each share of Series B Preferred Stock, shall be satisfied before
any similar payment shall be made or any assets distributed to the holders of
the Common Stock or any other security junior in rank to the Series B Preferred
Stock as to distribution of assets upon such dissolution, liquidation or winding
up (it being understood that the Series A Preferred Stock ranks equal to the
Series B Preferred Stock for purposes of liquidation preference) and otherwise
shall be satisfied on a pari passu basis with the holders of the Common Stock.
If the assets of the Corporation are not sufficient to pay in full the
liquidation payments payable to all of the Holders of the outstanding share of
Series B Preferred Stock, the Holders of all such shares shall share ratably in
such distribution of assets in accordance to the liquidation preference to which
they are entitled. For the purposes of this section, neither the voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Corporation nor the consolidation or merger of the Corporation with one or more
other corporations shall be deemed to be a liquidation, dissolution or winding
up, voluntary or involuntary, unless such voluntary sale, conveyance, exchange
or transfer shall be in connection with a dissolution or winding up of the
business of the Corporation.
5. RESTRICTIONS ON TRANSFER: The shares of Series B Preferred Stock are
unregistered securities. Therefore, the following restrictions apply to their
transfer:
THE SHARES OF SERIES B PREFERRED STOCK HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED ("THE ACT") NOR QUALIFIED UNDER
THE SECURITIES LAWS OF ANY
<PAGE> 14
STATES, AND HAVE BEEN ISSUED IN RELIANCE UPON EXEMPTIONS FROM SUCH
REGISTRATION AND QUALIFICATION FOR NONPUBLIC OFFERINGS. ACCORDINGLY,
THE SALE, TRANSFER, PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION OF
ANY SUCH SECURITIES OR ANY INTEREST THEREIN MAY NOT BE ACCOMPLISHED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS, OR PURSUANT
TO AN OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO THE
COMPANY TO THE EFFECT THAT SUCH REGISTRATION AND QUALIFICATION ARE
NOT REQUIRED.
6. CONVERSION: The shares of Series B Preferred Stock are convertible
into shares of the Common Stock of the Corporation according to the following
provisions:
a. The conversion price for shares of the Series B Preferred
Stock will be affected by whether or not the Corporation has
filed a preliminary Form S-1 (or other applicable registration
statement form for an initial public offering) with the
Securities and Exchange Commission for an offering of the
Corporation's Common Stock (an "IPO") prior to the expiration of
six months after the acquisition by the Corporation of 100% of
the capital stock of United Marketing Solutions, Inc. ("UMSI")
which will result in UMSI becoming a wholly owned subsidiary of
the Corporation (the "Merger").
<PAGE> 15
d. IPO Before Six Months: The Series B Preferred Stock will be
convertible into Common Stock, at the Holder's option, beginning
six months after the closing of the Merger at a conversion price
which is the lesser of (a) $5.00 and (b) 110% of the price for
Common Stock issued in a private placement or IPO (a "Corporation
Stock Sale"). For example, if the a Corporation Stock Sale occurs
at $6.00 per share, the conversion price used will be $5.00 and
the 70,000 shares of Series B Preferred Stock would be
convertible into 70,000 shares of Common Stock. If a Corporation
Stock Sale occurs at $4.50 per share, the conversion price would
be $4.95 (110%), and the 70,000 shares of Series B Preferred
Stock would be convertible into approximately 70,707 shares of
Common Stock.
e. No IPO Before Six Months: The Series B Preferred Stock will be
convertible into Common Stock at a conversion price which is the
lesser of (a) $4.50 and (b) 110% of the price for the stock in a
Corporation Stock Sale. For example, if a Corporation Stock Sale
occurs at $5.00 per share of Common Stock, the conversion price
used will be $4.50 and the 70,000 shares of Series B Preferred
Stock would be convertible into approximately 77,778 shares of
Common Stock. If a Corporation Stock Sale occurs at $3.00 per
share, the conversion price would be $3.30 (110%), and the 70,000
shares of Series B Preferred Stock would be convertible into
approximately 106,060 shares of Common Stock.
f. The conversion price for shares of Series B Preferred Stock is
subject to adjustment in the event of a stock split, stock
combination or similar adjustment in the number of shares of
Common Stock outstanding. All shares of Common Stock issued upon
conversion of any shares of Series B Preferred Stock shall be
fully paid and nonassessable.
g. Any Holder of Series B Preferred Stock desiring to convert any
or all such shares into Common Stock shall so indicate in writing
to the Corporation. The Corporation shall, within three business
days after
<PAGE> 16
receipt of such written exercise, cause to be issued and
delivered, to such Holder a certificate(s) representing the
number of full shares (rounded to the nearest whole number) of
Common Stock to which such Holder shall be entitled pursuant to
the then-applicable conversion price. Such conversion shall be
deemed to have been made on the date of receipt of such written
notice from such Holder, and such Holder shall be treated for all
purposes as the record holder of such Common Stock on such date
and thereafter.
7. SECURITIES CERTIFICATES: Shares of the Series B Preferred Stock shall
be certificated securities, and the transfer agent shall maintain the stock
ledger containing the names of the Holders and the amounts of such Holders'
shares of Series B Preferred Stock. Upon written request to the Corporation, the
Corporation shall forward to any Holder a copy of the page of the Corporation's
stock ledger indicating such Holder's amount of Series B Preferred Stock
recorded therein. The Corporation shall transmit to each Holder of Series B
Preferred Stock upon issuance of such stock certificate a statement containing
the terms herein. Each certificate shall bear a legend in the form of the legend
in paragraph 5 herein. No transfer of Series B Preferred Stock shall be recorded
in the stock ledger of the Corporation in violation of the restrictions stated
on such stock certificate.
8. REDEMPTION/CORPORATION'S RIGHT TO CALL: The Series B Preferred Stock
will be redeemable, in whole or in part, at the sole option of the Corporation
at any time. Upon a call in writing by the Corporation mailed to the Holders
(the date of such mailing, the "Call Date"), Holders of Series B Preferred Stock
will have twenty (20) days to elect to convert their Series B Preferred Stock
into Common Stock. Following twenty-three (23) days after the Call Date, the
Corporation may redeem such Series B Preferred Stock and forward to the Holder
the redemption price, calculated as follows. If the Series B Preferred Stock is
called within the first six months after the Merger, such shares will have a
redemption price of $5.00 per share plus all accrued but unpaid dividends up
through the date ten days following the Call Date. If the Series B Preferred
Stock is called more than six months after the Merger, the redemption price will
be $6.00 per share plus all accrued but
<PAGE> 17
unpaid dividends up through the date ten days following the Call Date.
9. REDEMPTION/HOLDER'S RIGHT TO PUT: The Series B Preferred Stock will
be redeemable, at the sole option of the Holder, at the following time and in
the following amounts: (1) 50% redeemable six months from the date of issue; (2)
25% redeemable nine months from the date of issue; (3) 25% redeemable one year
from the date of issue. The redemption price shall be $5.00 per share plus all
accrued but unpaid dividends upon written notice by the Holder to the
Corporation.
10. ACCELERATED REDEMPTION: Notwithstanding the provisions of Paragraphs
8 and 9 hereof, if the Corporation sells additional shares of common stock after
the consummation of the merger between United Marketing Solutions Inc. and
United Marketing Merger Corp. (the Corporation's merger subsidiary) then (a) if
such sale occurs within six months from May 1, 1998, then the Corporation shall
cause 50% of the Series A Preferred Stock issued and outstanding to be redeemed
and (b) if another sale occurs within the six months from November 1, 1998, then
the Corporation shall cause all of the remaining issued and outstanding Series A
Preferred Stock to be redeemed, each in connection with the new sale of the
Corporation's common stock.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 289
<SECURITIES> 0
<RECEIVABLES> 374,565
<ALLOWANCES> 42,650
<INVENTORY> 0
<CURRENT-ASSETS> 374,854
<PP&E> 118,773
<DEPRECIATION> 11,951
<TOTAL-ASSETS> 720,700
<CURRENT-LIABILITIES> 613,435
<BONDS> 0
934,000
0
<COMMON> 33,301
<OTHER-SE> (293,615)
<TOTAL-LIABILITY-AND-EQUITY> 720,700
<SALES> 512,457
<TOTAL-REVENUES> 512,457
<CGS> 202,244
<TOTAL-COSTS> 625,647
<OTHER-EXPENSES> 19,320
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (543)
<INCOME-PRETAX> (296,114)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (1,034,000)
<CHANGES> 0
<NET-INCOME> (1,330,114)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> (0.41)
</TABLE>
