<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 16, 1997
ADVANTAGE MARKETING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 33-80629 73-1323256
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
2601 NORTHWEST EXPRESSWAY, SUITE 1210W
OKLAHOMA CITY, OKLAHOMA 73112-7293
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 842-0131
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
The Company purchased all of the assets, including the network marketing
organizations, of Stay 'N Shape International, Inc., Solution Products
International, Inc., Nation of Winners, Inc., and Now International, Inc. (the
"SNSI Asset Purchase") pursuant to an Asset Purchase Agreement dated April 16,
1997 (the "SNSI Asset Purchase Agreement"). In connection with the SNSI Asset
Purchase, the Company paid cash of $1,174,584 and issued and delivered 125,984
shares of Common Stock at closing and agreed to either issue and deliver
additional shares of the Company's Common Stock having an aggregate market value
equal to, or make a cash payment of, or combination thereof, $750,000 and
$1,050,000 on or before June 29, 1998, and May 30, 1999, respectively. The
$750,000 aggregate market value of the additional shares of Common Stock and/or
cash payment is subject to a reduction adjustment in the event gross revenues,
net of returns and allowances, during the 12-month period ended April 30, 1998,
from (i) sales (other than Choc-Quilizer(TM)) of the purchased network marketing
organization and sales to Market America, Inc. (an unrelated network marketing
company) and sales to retail outlet stores, are less than $2,500,000 and/or (ii)
the Company's sales of Choc-Quilizer(TM) are less than $4,000,000 during such
12-month period. Furthermore, the $1,050,000 aggregate market value of the
additional shares of Common Stock and/or cash payment is subject to a reduction
adjustment in the event gross revenues, net of returns and allowances, during
the 12-month period ended March 31, 1999, from (i) sales (other than Choc-
Quilizer(TM)) of the purchased network marketing organization and sales to
Market America, Inc. (an unrelated network marketing company) and sales to
retail outlet stores, are less than $5,000,000 and/or (ii) the Company's sales
of Choc-Quilizer(TM) are less than $8,000,000 during such 12-month period. The
value of the Common Stock to be issued and delivered, if any, will be based upon
the average of the closing prices of the Common Stock on the last three trading
days of the month preceding the month in which the applicable 12-month period
ends.
The SNSI Asset Purchase was accounted for under the purchase method of
accounting. The $1,990,378 excess of purchase price of $2,074,441 which
includes $100,000 transaction costs, over the $84,063 fair market value of the
assets acquired pursuant to the SNSI Asset Purchase was allocated $1,490,378 to
goodwill and $500,000 to a covenant not to compete. The goodwill and covenant
not to compete are being amortized over 20-year and 10-year periods,
respectively.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS AND EXHIBITS.
The following financial statements of Stay 'N Shape International, Inc.,
Now International, Inc., Solution Products, Inc. and Nation of Winners, Inc. are
filed herewith and appear at the pages indicated:
STAY 'N SHAPE INTERNATIONAL, INC., NOW INTERNATIONAL, INC., SOLUTION PRODUCTS,
INC. AND NATION OF WINNERS, INC. AUDITED COMBINED FINANCIAL STATEEMENTS
Independent Auditors' Report......................................... F-1
Combined Balance Sheet as of December 31, 1996....................... F-2
Combined Statements of Operations for the Years Ended
December 31, 1996 and 1995......................................... F-3
Combined Statements of Stockholders' Equity for the Years Ended
December 31, 1996 and 1995......................................... F-4
Combined Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995......................................... F-5
Notes to Combined Financial Statements for the Years Ended
December 31, 1996 and 1995......................................... F-6
STAY 'N SHAPE INTERNATIONAL, INC., NOW INTERNATIONAL, INC., SOLUTION PRODUCTS,
INC. AND NATION OF WINNERS, INC. UNAUDITED COMBINED FINANCIAL STATEMENTS:
Combined Balance Sheets as of March 31, 1997 and December 31, 1996
(Unaudited)........................................................ F-8
Combined Statements of Operations for the Three Months
Ended March 31, 1997 and 1996 (Unaudited).......................... F-9
Combined Statements of Cash Flows for the Three Months
Ended March 31, 1997 and 1996 (Unaudited).......................... F-10
2
<PAGE>
Notes to Unaudited Combined Financial Statements for the Three Months
Ended March 31, 1997 and 1996...................................... F-11
(B) PRO FORMA FINANCIAL INFORMATION.
The following financial statements of Stay 'N Shape International, Inc.,
Now International, Inc., Solution Products, Inc. and Nation of Winners, Inc. are
filed herewith and appear at the pages indicated:
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1997.. F-12
Unaudited Pro Forma Consolidated Statement of Operations for the
Year Ended December 31, 1996....................................... F-13
Unaudited Pro Forma Consolidated Statement of Operations
for the Three Months Ended March 31, 1997.......................... F-14
Notes to Unaudited Pro Forma Consolidated Financial Statements....... F-15
(C) EXHIBITS.
2.1 Asset Purchase Agreement having an effective date of April 16, 1997,
between Advantage Marketing Systems, Inc., Stay 'N Shape
International, Inc., Now International, Inc., Solution Products
International, Inc., Nation of Winners, Inc., Carl S. Rainey and Danny
Gibson as filed with the Commission on May 1, 1997.
SIGNATURES
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 hereunto duly authorized.
ADVANTAGE MARKETING SYSTEMS, INC.
(Registrant)
By: /s/ ROGER P. BARESEL
---------------------------------
Roger P. Baresel, President
Date: June 24, 1997
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Stay 'N Shape International, Inc.,
Now International, Inc., Solution Products, Inc.
and Nation of Winners, Inc.
Atlanta, Georgia
We have audited the accompanying combined balance sheet of Stay 'N Shape
International, Inc., Now International, Inc., Solution Products, Inc. and Nation
of Winners, Inc. (Collectively the "Companies") as of December 31, 1996, and the
related combined statements of operations, stockholder's equity, and cash flows
for the years ended December 31, 1996 and 1995. These financial statements are
the responsibility of the Companies' management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined 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 audits provide a reasonable basis for our
opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of the Companies at December
31, 1996, and the results of their combined operations and their combined cash
flows for the years ended December 31, 1996 and 1995, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
April 11, 1997
F-1
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.,
NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
COMBINED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
------
CURRENT ASSETS:
Cash....................................................... $ 48,041
Inventory.................................................. 145,150
Prepayments................................................ 9,508
---------
Total current assets............................. 202,699
PROPERTY AND EQUIPMENT, Net................................... 4,337
---------
TOTAL......................................................... $ 207,036
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Accounts payable and accrued expenses...................... $ 51,090
Due to stockholders........................................ 16,102
---------
Total liabilities................................ 67,192
---------
STOCKHOLDERS' EQUITY:
Common stock............................................... 325,000
Accumulated deficit........................................ (185,156)
---------
Total stockholders' equity........................ 139,844
---------
TOTAL......................................................... $ 207,036
=========
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-2
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.,
NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Net sales............................................ $2,377,022 $2,486,565
Cost of sales........................................ 1,497,811 1,316,350
---------- ----------
Gross profit..................................... 879,211 1,170,215
Marketing, distribution and administrative expenses.. 937,470 1,063,911
---------- ----------
NET INCOME (LOSS).................................... $ (58,259) $ 106,304
========== ==========
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-3
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.,
NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON TOTAL
STOCK ACCUMULATED STOCKHOLDERS'
(NOTE 3) DEFICIT EQUITY
-------- ----------- -------------
<S> <C> <C> <C>
BALANCE,
JANUARY 1, 1995................... $325,000 $(233,201) $ 91,799
Net income........................... -- 106,304 106,304
-------- --------- --------
BALANCE,
DECEMBER 31, 1995................. 325,000 (126,897) 198,103
Net loss............................. -- (58,259) (58,259)
-------- --------- --------
BALANCE,
DECEMBER 31, 1996................. $325,000 $(185,156) $139,844
======== ========= ========
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-4
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.,
NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $(58,259) $106,304
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 5,268 4,927
Changes in assets and liabilities which provided
(used) cash:
Due to/from stockholders 34,000 (17,898)
Inventory 28,182 (64,350)
Prepayments (6,236) (3,272)
Accounts payable and accrued expenses (10,916) 33,018
-------- --------
Net cash provided by (used in )
operating activities (7,961) 58,729
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of property and equipment -- (2,727)
-------- --------
NET INCREASE (DECREASE) IN CASH (7,961) 56,002
BEGINNING CASH BALANCE 56,002 --
-------- --------
ENDING CASH BALANCE $ 48,041 $ 56,002
======== ========
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-5
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.,
NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMBINATION - The financial statements include the combined accounts of
Stay 'N International, Inc., Now International, Inc., Solution Products,
Inc. and Nation of Winners, Inc. (collectively, the "Companies"). The
Companies have common owners. All balances with affiliates have been
eliminated in combination.
NATURE OF BUSINESS - The Companies are engaged in marketing consumer
products through a network sales organization of independent sales
associates. The Companies also sell supplies and materials to their sales
associates.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
INVENTORY - Inventory consists of consumer product inventory, and training
and promotional material such as video tapes, cassette tapes and paper
supplies held for sale to customers and independent sales associates.
Inventory is stated at the lower of cost (first-in, first-out) or market.
The Company purchased approximately 47% and 55% of its merchandise
inventory from one vendor for the years ended December 31, 1996 and 1995,
respectively.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost and
are depreciated using the straight-line method over the estimated useful
lives of the assets.
INCOME TAXES - The Companies have elected to be treated as "S Corporations"
as permitted by the Internal Revenue Code. Tax liabilities, if any, are
therefore the direct obligations of the Companies' stockholders.
REVENUE RECOGNITION - Revenue is recognized when products are shipped.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of office furniture, fixtures, and
equipment of $21,410 less accumulated depreciation of $17,073 at December
31, 1996.
3. STOCKHOLDERS' EQUITY
Details of the Companies' common stock at December 31, 1996 and 1995 are:
<TABLE>
<CAPTION>
SHARES ISSUED AND DOLLAR VALUE
AUTHORIZED OUTSTANDING PAR VALUE COMMON STOCK
---------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Stay 'N Shape International, Inc.... 100,000 None Issued $1.25 $ --
Now International, Inc.............. 100,000 100,000 1.00 100,000
Solution Products, Inc.............. 100,000 100,000 1.25 125,000
Nation of Winners, Inc.............. 100,000 100,000 1.00 100,000
--------
$325,000
--------
</TABLE>
4. SIMPLIFIED EMPLOYEE BENEFIT PLANS
The Companies maintain two simplified employee benefit plans ("SEP's") for
their executives. Contribution amounts are determined annually based on
performance of the Companies. Contribution expense related to these plans
aggregated $60,000 and $45,000 for the years ended December 31, 1996 and
1995, respectively.
F-6
<PAGE>
5. SUBSEQUENT EVENTS
On April 16, 1997, Advantage Marketing Systems, Inc. ("AMS") acquired all
of the assets of the Companies. AMS is a network marketer of various third
party manufactured nutritional supplements. AMS purchased all of the
assets of the Companies, free and clear of all liens and encumbrances, for
a combination of $1,174,584 cash and shares of AMS' restricted
(unregistered) common stock (the "Purchase Price") with an estimated fair
value of up to $2,600,000, dependent upon meeting certain future sales
targets. The cash portion of the Purchase Price was paid at closing. The
stock portion of the Purchase Price will be issued and delivered over a 25-
month period with stock valued at $800,000 delivered at closing, $750,000
due within 14 months of closing, and $1,050,000 due within 25 months from
closing. AMS has the option of substituting cash for any portion of the
remaining purchase price. The number of shares of common stock to be
issued and delivered, if any, is subject to the market value of the AMS'
common stock prior to the date of issuance and delivery as set forth in the
purchase agreement. The Purchase Price is subject to adjustment based on
sales performance over a two-year period.
* * * * * *
F-7
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.
NOW INTERNATIONAL, INC.
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
COMBINED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
--------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash....................................... $ 92,608 $ 48,041
Inventory.................................. 132,416 145,150
Prepayments................................ 6,258 9,508
--------- ---------
Total current assets............. 231,282 202,699
PROPERTY AND EQUIPMENT, Net.................. 3,761 4,337
--------- ---------
TOTAL........................................ $ 235,043 $ 207,036
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued liabilities... $ 55,400 $ 51,090
Due to stockholders........................ - 16,102
--------- ---------
Total liabilities................ 55,400 67,192
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock............................... 325,000 325,000
Accumulated deficit........................ (145,357) (185,156)
--------- ---------
Total stockholders' equity....... 179,643 139,844
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY... $ 235,043 $ 207,036
========= =========
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS.
F-8
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.,
NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
COMBINED STATEMENTS OF OPERATION
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1997 1996
------------ ------------
<S> <C> <C>
Net sales.............................................. $583,461 $604,419
Cost of sales.......................................... 313,249 409,821
-------- --------
Gross profit....................................... 270,212 194,598
Marketing, distribution and administrative expenses.... 230,413 195,507
-------- --------
NET INCOME (LOSS)...................................... $ 39,799 $ (909)
======== ========
</TABLE>
SEE NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS.
F-9
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.,
NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (Loss)........................................................... $ 39,799 $ (909)
Adjustments to reconcile net income (loss) to net cash used by operating
Depreciation and amortization........................................... 576 1,317
Changes in assets and liabilities which provided cash:
Inventory............................................................. 12,734 15,251
Other assets.......................................................... 3,250 --
Accounts payable and accrued expenses................................. 4,310 13,709
-------- -------
Net cash provided by operating activities......................... 60,669 29,368
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans from stockholders..................................................... -- 7,000
Payment on notes payable - stockholders..................................... (16,102) --
-------- -------
Net cash provided (used) by financing activities.................. (16,102) 7,000
-------- -------
NET INCREASE IN CASH.......................................................... 44,567 36,368
BEGINNING CASH BALANCE........................................................ 48,041 56,002
-------- -------
ENDING CASH BALANCE........................................................... $ 92,608 $92,370
======== =======
</TABLE>
SEE NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS.
F-10
<PAGE>
STAY 'N SHAPE INTERNATIONAL, INC.,
NOW INTERNATIONAL, INC.,
SOLUTION PRODUCTS, INC. AND
NATION OF WINNERS, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
1. UNAUDITED COMBINED FINANCIAL STATEMENTS
The unaudited combined financial statements and related notes of Stay 'N
Shape International, Inc. ("SSII"), NOW International, Inc.("NII"), Solution
Products, Inc. ("SPI") and Nation of Winners, Inc.("NWI"), (collectively
SSII, NII, SPI and NWI are referred to as the "SSII Group"), have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to such
rules and regulations. The members of the SSII Group have common owners.
All balances with affiliates have been eliminated in combination.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the results of the interim periods presented. Operating
results of the interim period are not necessarily indicative of the amounts
that will be reported for the fiscal year ended December 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Each member of the SSII Group is engaged in the
marketing of consumer products through a network sales organization of
independent sales associates developed by the SSII Group. The SSII Group
also sells supplies and materials to its sales associates.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION - Revenue is recognized when products are shipped.
INVENTORY - Inventory consists of consumer product inventory, and training
and promotional material such as video tapes, cassette tapes and paper
supplies held for sale to customers and independent sales associates.
Inventory is stated at the lower of cost or market. Cost is determined on a
first-in, first-out method.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost and
depreciated using the straight-line method over the estimated useful lives of
the assets.
INCOME TAXES - The members of the SSII Group have elected to be treated as "S
Corporations" as permitted by the Internal Revenue Code. Tax liabilities, if
any, are therefore the direct obligations of the members' stockholders.
3. SUBSEQUENT EVENTS
Pursuant to an Asset Purchase Agreement having an effective date of April 16,
1997 (the "Purchase Agreement"), Advantage Marketing Systems, Inc. ("AMS")
acquired all of the assets of the SSII Group, free and clear of any lien,
charge, claim, pledge, security interest or other encumbrance of any type or
kind whatsoever, known or unknown (the "SSII Asset Purchase"). The SSII
Asset Purchase was closed on April 16, 1997. The SSII Asset Purchase will be
accounted for by AMS under the purchase method of accounting.
* * * * * *
F-11
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
STAY 'N SHAPE
INT. INC., NOW
INT. INC., SOLUTION
ADVANTAGE PRODUCTS, INC.,
MARKETING NATION OF PRO FORMA PRO FORMA
SYSTEMS, INC. WINNERS, INC. ADJUSTMENTS COMBINED
-------------- -------------------- ------------------ ------------
<S> <C> <C> <C> <C>
NOTE 2
ASSETS
- ------
CURRENT ASSETS:
Cash........................................ $ 842,802 $ 92,608 $ - $ 935,410
Receivables................................. 48,170 - - 48,170
Receivable from stock transfer agent........ 1,464,032 - (1,182,416) (a) 281,616
Receivable from affiliate................... 13,304 - - 13,304
Commission advances......................... 58,570 - - 58,570
Inventory................................... 289,728 132,416 (44,139) (a) 378,005
Prepayments................................. - 6,258 (6,258) (a) --
Deferred income taxes....................... 149,791 - - 149,791
----------- --------- -------------- -----------
Total current assets........................ 2,866,397 231,282 (1,232,813) 1,864,866
COMMISSION ADVANCES......................... 4,341 - - 4,341
RECEIVABLES................................. 18,545 - - 18,545
RECEIVABLE FROM AFFILIATE................... 51,354 - - 51,354
PROPERTY AND EQUIPMENT, Net................. 421,155 3,761 - 424,916
GOODWILL, Net............................... 284,845 - 1,397,770 (a) 1,682,615
COVENANT NOT TO COMPETE, Net................ 68,038 - 500,000 (a) 568,038
DEFERRED INCOME TAXES....................... 317,000 - - 317,000
OTHER ASSETS................................ 2,107 - - 2,107
----------- --------- -------------- -----------
TOTAL....................................... $ 4,033,782 $ 235,043 $ 664,957 $ 4,933,782
=========== ========= ============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable............................ 235,048 55,400 (55,400)(b) 235,048
Accrued expenses............................ 474,714 - 100,000 (a) 574,714
Accrued promotion expense................... 50,000 - - 50,000
Note payable................................ 13,427 - - 13,427
Capital lease obligation.................... 80,024 - - 80,024
----------- --------- -------------- -----------
Total current liabilities................... 853,213 55,400 44,600 953,213
----------- --------- -------------- -----------
LONG-TERM LIABILITIES:
Notes payable............................... 37,010 - - 37,010
Capital lease obligation.................... 217,207 - - 217,207
----------- --------- -------------- -----------
Total liabilities........................... 1,107,430 55,400 44,600 1,207,430
----------- --------- -------------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock............................. - - - -
Common stock................................ 253 325,000 (325,000)(b) 266
13 (b)
Paid-in capital............................. 3,932,621 - 799,987 (b) 4,732,608
Accumulated deficit......................... (1,006,522) (145,357) 145,357 (b) (1,006,522)
----------- --------- -------------- -----------
Total stockholders' equity.................. 2,926,352 179,643 620,357 3,726,352
----------- --------- -------------- -----------
TOTAL....................................... $ 4,033,782 $ 235,043 $ 664,957 $ 4,933,782
=========== ========= ============== ===========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.
F-12
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
STAY 'N SHAPE
INT. INC., NOW
INT. INC., SOLUTION
ADVANTAGE PRODUCTS, INC.,
MARKETING NATION OF PRO FORMA PRO FORMA
SYSTEMS, INC. WINNERS, INC. ADJUSTMENTS COMBINED
-------------- -------------------- ------------ -----------
<S> <C> <C> <C> <C>
NOTE 2
Net sales........................................... $6,129,916 $2,377,022 $ - $8,506,938
Cost of sales....................................... 4,349,280 1,497,811 - 5,847,091
---------- ---------- ----------- ----------
Gross profit................................... 1,780,636 879,211 - 2,659,847
Marketing, distribution & administrative expenses... 1,478,378 937,470 119,889 (c) 2,535,737
---------- ---------- ----------- ----------
Income from operations......................... 302,258 (58,259) (119,889) 124,110
Other income (expense):
Interest, net....................................... (10,538) - - (10,538)
Other income........................................ 33,824 - - 33,824
---------- ---------- ----------- ----------
Total other income (expense)................... 23,286 - - 23,286
---------- ---------- ----------- ----------
Income (loss) before taxes.......................... 325,544 (58,259) (119,889) 147,396
Tax benefit......................................... 499,613 - 66,075 (d) 565,688
---------- ---------- ----------- ----------
Net income (loss)................................... $ 825,157 $ (58,259) $ (53,814) $ 713,084
========== ========== =========== ==========
Weighted average common
shares outstanding.............................. 3,770,874 126,000 3,896,874
========== =========== ==========
Net income per common share......................... $ .29 $ .25
========== ==========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.
F-13
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
STAY 'N SHAPE
INT. INC., NOW
INT. INC., SOLUTION
ADVANTAGE PRODUCTS, INC.,
MARKETING NATION OF PRO FORMA PRO FORMA
SYSTEMS, INC. WINNERS, INC. ADJUSTMENTS COMBINED
-------------- --------------- --------------- -----------
<S> <C> <C> <C> <C>
NOTE 2
Net sales........................................... $2,039,763 $583,461 $ - $2,623,224
Cost of sales....................................... 1,553,874 313,249 - 1,867,123
---------- -------- ----------- ----------
Gross profit.................................... 485,889 270,212 - 756,101
Marketing, distribution & administrative expenses... 404,908 230,413 29,972 (c) 665,293
---------- -------- ----------- ----------
Income from operations.......................... 80,981 39,799 (29,972) 90,808
Other income (expense):
Interest, net....................................... (4,176) - - (4,176)
Other income........................................ 9,660 - - 9,660
---------- -------- ----------- ----------
Total other income (expense).................... 5,484 - - 5,484
---------- -------- ----------- ----------
Net income before taxes............................. 86,465 39,799 (29,972) 96,292
Tax expense......................................... (32,822) - (3,730)(d) ( 36,552)
---------- -------- ----------- ----------
Net income (loss)................................... $ 53,643 $ 39,799 $ (33,702) $ 59,740
========== ======== =========== ==========
Weighted average common shares
outstanding..................................... 3,194,000 126,000 3,320,000
========== =========== ==========
Net income per common share......................... $ .02 $ .02
========== ==========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.
F-14
<PAGE>
ADVANTAGE MARKETING SYSTEMS, INC.
(FORMERLY AMS, INC.) AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS FOR PRESENTATION
The pro forma balance sheet and statements of operations present the pro
forma effects of the acquisition by the Company of all the assets of Stay
'N Shape International, Inc., a Georgia corporation ("SSII"), Solution
Products, Inc., a Georgia corporation ("SPI"), Nation of Winners, Inc., a
Georgia corporation ("NWI"), Now International, Inc., a Georgia corporation
("NII"), (collectively SSII, SPI, NWI and NII are referred to as the
"Selling Group"), free and clear of any lien, charge, claim, pledge,
security interest or other encumbrance of any type or kind whatsoever,
known or unknown (the "SSII Asset Purchase"). The SSII Asset Purchase was
closed on April 16, 1997. The SSII Asset Purchase will be accounted for
under the purchase method of accounting. Each company in the Selling Group
is a network marketer of various third-party manufactured nutritional
supplements.
Pursuant to the Asset Purchase Agreement and in connection with the SSII
Asset Purchase, the Company paid cash of $1,174,441 and issued and
delivered 125,984 shares of the Company's common stock at closing and
agreed to either issue and deliver additional shares of the Company's
common stock having an aggregate market value equal to, or make cash
payments of, or at the Company's sole option any combination thereof,
$750,000 and $1,050,000 on or before June 29, 1998, and May 30, 1999,
respectively. The $750,000 aggregate market value of the additional shares
of the Company's common stock and/or cash payment is subject to a reduction
adjustment in the event gross revenues, net of returns and allowances,
during the 12-month period ended April 30, 1998, from (i) sales (other than
Choc-Quilizer/TM/) of the purchased network marketing organization and
sales to Market America, Inc. (an unrelated network marketing company) and
sales to retail outlet stores, are less than $2,500,000 and/or (ii) the
Company's sales of Choc-Quilizer/TM/ are less than $4,000,000 during such
12-month period. Furthermore, the $1,050,000 aggregate market value of the
additional shares of the Company's common stock and/or cash payment is
subject to a reduction adjustment in the event gross revenues, net of
returns and allowances, during the 12-month period ended March 31, 1999,
from (i) sales (other than Choc-Quilizer/TM/) of the purchased network
marketing organization and sales to Market America, Inc. (an unrelated
network marketing company) and sales to retail outlet stores, are less than
$5,000,000 and/or (ii) the Company's sales of Choc-Quilizer/TM/ are less
than $8,000,000 during such 12-month period. The value of the Company's
common stock to be issued and delivered will be based upon the average of
the closing prices of the Company's common stock on the last three trading
days of the month preceding the month in which the applicable 12-month
period ends.
The accompanying unaudited pro forma statements of operations are presented
assuming the SSII Asset Purchase occurred or was consummated on the first
day of each period presented. The historical information presented for the
Company and the Selling Group as of and for the year ended December 31,
1996, is derived from the audited financial statements of the Company and
the Selling Group as of such date or for such year. The historical
information presented for the Company and the Selling Group as of and for
the period ended March 31, 1997, is derived form the unaudited financial
statements of the Company and the Selling Group as of such date or for such
period.
The pro forma financial information presented in the unaudited pro forma
financial statements is not necessarily indicative of the results of
operations that would have been achieved had the operations been those of a
single corporate entity. The results of operations presented in the
unaudited pro forma statements of operations are not necessarily indicative
of the consolidated results of future operations of the Company following
consummation of the SSII Asset Purchase.
F-15
<PAGE>
2. ADJUSTMENTS
The accompanying unaudited pro forma consolidated financial statements have
been adjusted to record and give effect to the following:
(a) The excess of the purchase price of $2,082,416, which includes
$100,000 of transaction costs over the $184,646 fair market value of
the assets of the Selling Group has been allocated $1,397,770 to
goodwill and $500,000 to the covenant not to compete. Goodwill and
the covenant not to compete will be amortized over 20 and 10 year
periods, respectively.
(b) Issuance of 125,984 shares of Common Stock of the Company in exchange
for all of the assets of the Selling Group free and clear of any lien,
charge, claim, pledge, security interest or other encumbrance of any
type or kind whatsoever, known or unknown.
(c) Amortization of goodwill over 20 years, $69,889 and $17,472 for the
year ended December 31, 1996, and for the three months ended March 31,
1997, respectively. Amortization of the covenant not to compete over
10 years, $50,000 and $12,500 for the year ended December 31, 1996,
and for the three months ended March 31, 1997, respectively.
(d) Income taxes are adjusted to reflect the above-mentioned adjustments
for amortization and for the effects of removing the "S Corporation"
election made by the shareholders of the Selling Group.
3. NET INCOME PER SHARE
Pro forma per share calculations for the Company are based upon the number
of shares of Common Stock to be outstanding after giving effect to the SSII
Asset Purchase.
* * * * * *
F-16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-31-1996 JAN-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 48,041 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 145,150 0
<CURRENT-ASSETS> 9,508 0
<PP&E> 4,337 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 207,036 0
<CURRENT-LIABILITIES> 67,192 0
<BONDS> 0 0
0 0
0 0
<COMMON> 325,000 0
<OTHER-SE> (185,156) 0
<TOTAL-LIABILITY-AND-EQUITY> 207,036 0
<SALES> 2,377,022 2,486,565
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 1,497,811 1,316,350
<OTHER-EXPENSES> 937,470 1,063,911
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (58,259) 106,304
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 0 0
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
