<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
-----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File Number
March 31, 1997 33-80629
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ADVANTAGE MARKETING SYSTEMS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Oklahoma 73-1323256
- --------------------------------- ---------------------------------
(State or Other Jurisdiction (IRS Employer Identification
of Incorporation or Organization) Number)
2601 N.W. Expressway, Suite 1210W, Oklahoma City, Oklahoma 73112
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(Address of Principal Offices) (Zip Code)
(405) 842-0131
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (i) 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 (ii) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, $.0001 par value 2,526,597
- --------------------------------- ---------------------------------
Title of Class Number of Shares outstanding
at March 31, 1997
Exhibit Index appears on page 16 .
----
Page 1 of 17
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ADVANTAGE MARKETING SYSTEMS, INC.
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QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1997
------------------------------------
Table of Contents
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Part I - Financial Information
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II - Other Information 16
Page 2
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ADVANTAGE MARKETING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS, MARCH 31, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
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<TABLE>
<CAPTION>
ASSETS MAR. 31, DEC. 31,
- ------ 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash $ 842,802 $ 169,569
Receivables - net of allowance of $25,804 48,170 52,013
Receivable from stock transfer agent 1,464,032 -
Receivable from affiliate 13,304 13,042
Commission advances 58,570 44,821
Inventory 289,728 217,945
Deferred income taxes 149,791 157,853
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Total current assets 2,866,397 655,243
COMMISSION ADVANCES - NONCURRENT 4,341 4,341
RECEIVABLES - NONCURRENT 18,545 18,000
RECEIVABLE FROM AFFILIATE - NONCURRENT 51,354 54,780
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $350,204 and
$327,344, respectively 421,155 377,190
GOODWILL, Net 284,845 109,232
COVENANTS NOT TO COMPETE, Net 68,038 52,222
DEFERRED INCOME TAXES 317,000 341,760
OTHER ASSETS 2,107 177,573
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TOTAL ASSETS $ 4,033,782 $ 1,790,341
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
CURRENT LIABILITIES:
Accounts payable $ 235,048 $ 268,433
Accrued expenses 474,714 247,883
Accrued promotion expense 50,000 46,370
Notes payable - Other 13,427 9,446
Capital lease obligations 80,024 66,758
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Total current liabilities 853,213 638,890
LONG-TERM LIABILITIES:
Notes payable - other 37,010 19,049
Capital lease 217,207 210,973
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TOTAL LIABILITIES 1,107,430 868,912
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STOCKHOLDERS' EQUITY:
Preferred stock - $.0001 par value; - -
authorized 5,000,000 shares; none issued
Common stock - $.0001 par value; authorized
495,000,000 shares; issued and outstanding
2,526,597 and 2,143,441, respectively 253 214
Paid-in capital 3,932,621 1,981,380
Accumulated deficit (1,006,522) (1,060,165)
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Total stockholders' equity 2,926,352 921,429
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TOTAL $ 4,033,782 $ 1,790,341
========== ==========
</TABLE>
See notes to financial statements.
Page 3
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ADVANTAGE MARKETING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
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<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
REVENUE:
Sale of products and programs $1,950,134 $1,255,889
Sale of promotional material 89,629 62,684
Other 13,032 13,876
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Total 2,052,795 1,332,449
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EXPENSES:
Cost of products and programs 399,166 302,879
Cost of promotional material 75,002 35,745
Selling 1,101,102 683,164
Interest expense 7,548 7,359
General and administrative 383,512 221,598
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Total 1,966,330 1,250,745
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INCOME BEFORE TAXES 86,465 81,704
TAX EXPENSE 32,822 -
---------- ----------
NET INCOME $ 53,643 $ 81,704
========== ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES (thousands) 3,194 3,074 *
NET INCOME PER COMMON SHARE $ .02 $ .03 *
========== ==========
</TABLE>
* Restated for one-for-eight reverse stock split effective October 29, 1996.
See notes to financial statements.
Page 4
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ADVANTAGE MARKETING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
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<TABLE>
<CAPTION>
MAR. 31, MAR. 31,
1997 1996
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 53,643 $ 81,704
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 32,794 19,439
Deferred Income tax 32,822 -
Changes in assets and liabilities
which provided (used) cash:
Inventory (23,459) (61,951)
Receivables, advances and prepaids (36,302) (12,651)
Accounts payable and accrued expenses 45,410 136,468
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Net cash provided by operating activities 104,908 163,009
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (7,101)
Advances to affiliate (751) (3,083)
Repayment of advances to affiliate 9,118 1,358
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Net cash provided (used) by investing activities 8,367 (8,826)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 726,361 -
Payment of deferred offering costs (147,228) (21,776)
Payment on notes payable (2,896) (1,662)
Principal payment on capital leases (16,278) (1,776)
Payment on notes payable - stockholder - (17,281)
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Net cash provided (used) by financing activities 559,959 (42,495)
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NET INCREASE IN CASH 673,234 111,688
BEGINNING CASH BALANCE 169,568 112,087
-------- --------
ENDING CASH BALANCE $ 842,802 $ 223,775
======== ========
</TABLE>
(Continued)
See notes to financial statements.
Page 5
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ADVANTAGE MARKETING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
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<TABLE>
<CAPTION>
MAR. 31, MAR. 31,
1997 1996
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Cash paid during the year for:
Interest $ 3,674 $7,359
Taxes - -
Noncash financing and investing activities:
Proceeds from offerings held in escrow by
stock transfer agent $1,464,032 -
Property and equipment acquired by capital lease - 6,700
The Company acquired all the capital stock of
Chambre International, Inc. for issuance of
the Company's common stock. In conjunction with
the acquisition, liabilities were assumed as
follows:
Fair value of assets acquired $ (63,985) -
Common stock issuance, advances and transaction
costs (135,341) -
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Liabilities assumed (199,326) -
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</TABLE>
(Concluded)
See notes to financial statements.
Page 6
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ADVANTAGE MARKETING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
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1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited financial statements and related notes 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 accompanying financial statements and related
notes should be read in conjunction with the audited consolidated financial
statements of the Company, and notes thereto, for the fiscal year ended
December 31, 1996.
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 ending December 31, 1997.
Certain reclassifications have been made to prior period balances to
conform with the presentation for the current period.
2. CHAMBRE INTERNATIONAL, INC.
Pursuant to a Stock Purchase Agreement having an effective date of January
31, 1997 (the "Purchase Agreement"), the Company acquired all of the issued
and outstanding capital stock of Chambre International, Inc., a Texas
corporation ("CII"), and CII became a wholly-owned subsidiary of the
Company (the "CII Acquisition"). The CII Acquisition was closed on January
31, 1997. The CII Acquisition was accounted for under the purchase method
of accounting. CII is a multi-level marketer of various third-party
manufactured cosmetics, skin care and hair care products. Pursuant to the
Purchase Agreement and in connection with the CII Acquisition, the Company
issued and delivered to the shareholders of CII 6,482 shares of the
Company's common stock. In addition, the Company agreed to issue and
deliver an additional 7,518 shares of the Company's common stock to the
shareholders of CII on or before May, 31, 1997, pending determination of
certain liabilities.
In connection with the CII Acquisition, the excess of the purchase price of
$135,340, which includes $3,549 of transaction costs, over the negative
$63,985 fair market value of assets of CII acquired, net of liabilities
assumed, has been allocated $179,325 to Goodwill and $20,000 to a covenant
not to compete. Goodwill and the covenant not to compete will be amortized
over 20 year and 47 month periods, respectively.
Page 7
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Sales and net income for the periods ended March 31, 1997 and 1996 would
not have been significantly different than the reported amounts if the
Company had undertaken the CII Acquisition at the beginning of each period.
3. STOCK OPTIONS
The Company established the Advantage Marketing Systems, Inc. 1995 Stock
Option Plan (the "Stock Option Plan" or the "Plan") in June 1995. The Plan
provides for the issuance of incentive stock options ("ISO Options") with
or without stock appreciation rights ("SARS") and nonincentive stock
options ("NSO Options") with or without SARS to employees and consultants
of the Company, including employees who also serve as Directors of the
Company. The total number of shares of the Company's common stock
authorized and reserved for issuance under the Plan is 1,125,000. During
the quarter ended March 31, 1997, the Company issued 21,000 options under
the Plan. As of March 31, 1997, 21,000 options had been granted under the
Plan.
4. WARRANT MODIFICATION OFFERING AND RIGHTS OFFERING
On January 31, 1997, at 5:00 p.m. Central Standard Time, the Company
distributed, at no cost, non-transferable rights ("Rights") to the holders
of record of shares of its common stock, par value $.0001 per share. The
Rights entitled the holders (the "Rights Holders") to subscribe for and
purchase up to 2,148,191 units (each unit consisting of one share of common
stock and one 1997-A warrant) for the price of $6.80 per unit (the "Rights
Offering"). The record date holders of the Company's common stock received
one Right for each share of common stock held by them as of the record
date. The Rights expired at 5:00 p.m. Central Standard Time, on March 17,
1997. Pursuant to the Rights, Rights Holders could purchase one unit for
each Right held.
Concurrent with the Rights Offering, the Company elected to redeem all of
its outstanding Class A and Class B common stock Purchase Warrants (the
"Public Warrants") for $.0008 per warrant (the "Warrant Redemption") at
5:00 p.m. Central Standard Time, on March 17, 1997. However, in connection
with the Warrant Redemption, the Company, pursuant to modification of the
terms of the Public Warrants, offered to the Public Warrant holders (the
"Warrant Holders") the right to exercise the Public Warrants to purchase
units, each comprised of one share of common stock and one 1997-A warrant,
at an exercise price of $6.00 per unit (the "Warrant Modification
Offering").
The share of common stock and 1997-A warrant comprising each unit were
separately transferable immediately after the sale of the units to the
Rights Holders and Warrant Holders. Each 1997-A warrant is exercisable at
any time 90 days after January 16, 1997, and on or before January 31, 1999,
to purchase one share of common stock for $12.00, subject to adjustment in
certain events, and may be redeemed by the Company at any time upon 30
days' notice, at a price of $.0001 per 1997-A warrant.
Page 8
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The units in the offerings described above were offered on a best efforts
basis by the Company and its officers and Directors, without commissions,
selling fees or direct or indirect remuneration. The Rights Holders and
Warrant Holders were not required to pay any brokerage commissions or fees
with respect to the exercise of their Rights or Public Warrants. The
Company paid all charges and expenses of the subscription and warrant
agents.
Proceeds to the Company from the Warrant Modification Offering and the
Rights Offering (the "Offerings") were $2,154,357. Accumulated offering
costs of $323,076 were charged against the net proceeds from these
offerings. Pursuant to the Offerings the Company issued 337,211 shares of
common stock and a corresponding number of 1997-A warrants.
5. SUBSEQUENT EVENTS
Pursuant to an Asset Purchase Agreement having an effective date of April
16, 1997 (the "Purchase Agreement"), Advantage Marketing Systems, Inc. (the
"Company") acquired all of the assets of Stay 'N Shape International, Inc.,
a Georgia corporation ("SSII"), Solution Products International, Inc., a
Georgia corporation ("SPII"), Nation of Winners, Inc., a Georgia
corporation ("NWI"), Now International, Inc., a Georgia corporation
("NII"), (collectively SSII, SPII, 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 multi-level marketer of various third-party manufactured nutritional
supplements and was under common ownership.
Pursuant to the Asset Purchase Agreement and in connection with the SSII
Asset Purchase, the Company paid cash of $1,174,584 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 multi-level marketing organization and
sales to Market America, Inc. (an unrelated multi-level 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
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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 multi-level marketing organization and sales to Market America,
Inc. (an unrelated multi-level 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.
Page 10
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
- ------------------------------------------------------------
Total revenues during the three months ended March 31, 1997 (the "1997 First
Quarter") increased by $720,000 (a 54.0 percent increase) to $2,052,000 from
$1,332,000 during the three months ended March 31, 1996 (the "1996 First
Quarter"). The increase was primarily attributable to the increased sales
volume of the Company's nutrition products and expansion of the Company's
network of its independent distributors. At March 31, 1997, the Company had
16,244 "active" independent distributors compared to 11,494 at March 31, 1996.
A distributor is considered to be "active" if he or she has made a product
purchase from the Company within the previous 12 months. During the 1997 First
Quarter the Company made aggregate sales of nutrition products of $1,800,000 to
12,400 distributors, compared to aggregate sales during the 1996 First Quarter
of $1,200,000 to 8,269 distributors. Promotional material revenue increased
$26,900 (a 42.9 percent increase) to $89,600 in the 1997 First Quarter from
$62,700 in the 1996 First Quarter. In addition, other revenue remained
essentially constant at approximately $13,000.
Total costs and expenses of products and programs, promotional material and
selling during the 1997 First Quarter increased by $553,000 (a 54.1 percent
increase) to $1,575,000 from $1,022,000 during the 1996 First Quarter. This
increase was attributable to an increase of (i) $418,000 (a 61.2 percent
increase) in selling expenses, and (ii) $96,000 (a 31.7 percent increase) in the
cost of products and programs, and (iii) $39,000 (a 109.1 percent increase) in
promotional material expenses. The costs and expenses of products and programs,
promotional materials and selling, as a percentage of product and program sales
revenue, decreased from 81.4 percent during the 1996 First Quarter to 80.8
percent during the 1997 First Quarter due to a decrease in the costs of products
and programs as a percentage of product and program sales from 24.1 percent to
20.5 percent as a result of price reductions obtained from vendors on the
product costs associated with the Company's nutrition products offset by an
increase in selling costs as a percentage of product and program sales revenue
from 54.4 percent to 56.5 percent. The Company achieved a net profit on sales
of promotional materials of $14,600 during the 1997 First Quarter compared to a
net profit of $26,900 during the 1996 First Quarter.
The Company's gross profit on product and program sales and promotional material
sales revenue (product and program sales and promotional material sales revenue
less product and program costs, promotional material costs and selling expenses)
increased $168,000 (a 56.8 percent increase) to $464,000 in the 1997 First
Quarter from $296,000 in the 1996 First Quarter. The gross profit on product
and program sales and promotional material sales revenues increased as a
percentage of total revenue from 22.4 percent in the 1996 First Quarter to 22.7
percent in the 1997 First Quarter. The increase in the Company's gross profit
margin on product and program sales and promotional material sales revenues
resulted from the combination of a decrease in product and program costs and
promotional materials costs as a percentage of product and program sales and
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promotional material sales revenues, offset by an increase in selling costs and
expenses as a percentage of product and program sales and promotional material
sales revenues.
General and administrative expenses increased $161,900 (a 73.1 percent increase)
to $383,500 during the 1997 First Quarter from $221,600 during the 1996 First
Quarter. This increase was attributable to expansion of the Company's
administrative infra-structure necessary to support increased levels of sales.
The Company expanded its administrative infra-structure by hiring 14 additional
employees. Consequently, payroll and employee costs increased by $102,000
during the 1997 First Quarter as the Company increased its number of employees
from 16 to 30. The balance of the increase in general and administrative
expenses resulted from the higher level of activity and corresponding increases
in variable general and administrative costs such as postage, telephone, and
supplies. Interest expense during the 1997 First Quarter remained essentially
constant at $7,500.
Income before taxes increased $4,700 (a 5.7 percent increase) to $86,400 during
the 1997 First Quarter from $81,700 during the 1996 First Quarter. Income before
taxes as a percentage of total revenue decreased from 6.1 percent during the
1996 First Quarter to 4.2 percent during the 1997 First Quarter.
Net income decreased $28,000 (a 34.3 percent decrease) to $53,600 during the
1997 First Quarter from $81,700 during the 1996 First Quarter. Net income as a
percentage of total revenue decreased from 6.1 percent during the 1996 First
Quarter to 2.6 percent during the 1997 First Quarter. This decrease was
primarily the result of the Company recording income tax expense in the 1997
First Quarter.
Liquidity and Capital Resources
- -------------------------------
On January 31, 1997, at 5:00 p.m. Central Standard Time, the Company
distributed, at no cost, non-transferable rights ("Rights") to the holders of
record of shares of its common stock, par value $.0001 per share. The Rights
entitled the holders (the "Rights Holders") to subscribe for and purchase up to
2,148,191 units (each unit consisting of one share of common stock and one 1997-
A warrant) for the price of $6.80 per unit (the "Rights Offering"). The record
date holders of the Company's common stock received one Right for each share of
common stock held by them as of the record date. The Rights expired at 5:00
p.m. Central Standard Time, on March 17, 1997. Pursuant to the Rights, Rights
Holders could purchase one unit for each Right held.
Concurrent with the Rights Offering, the Company elected to redeem all of its
outstanding Class A and Class B common stock Purchase Warrants (the "Public
Warrants") for $.0008 per warrant (the "Warrant Redemption") at 5:00 p.m.
Central Standard Time, on March 17, 1997. However, in connection with the
Warrant Redemption, the Company, pursuant to modification of the terms of the
Public Warrants, offered to the Public Warrant holders (the "Warrant Holders")
the right to exercise the Public Warrants to purchase units, each comprised of
one share of common stock and one 1997-A warrant, at an exercise price of $6.00
per unit (the "Warrant Modification Offering").
Page 12
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The share of common stock and 1997-A warrant comprising each unit were
separately transferable immediately after the sale of the units to the Rights
Holders and Warrant Holders. Each 1997-A warrant is exercisable at any time 90
days after January 16, 1997, and on or before January 31, 1999, to purchase one
share of common stock for $12.00, subject to adjustment in certain events, and
may be redeemed by the Company at any time upon 30 days' notice, at a price of
$.0001 per 1997-A warrant.
The units in the offerings described above were offered on a best efforts basis
by the Company and its officers and Directors, without commissions, selling fees
or direct or indirect remuneration. The Rights Holders and Warrant Holders were
not required to pay any brokerage commissions or fees with respect to the
exercise of their Rights or Public Warrants. The Company paid all charges and
expenses of the subscription and warrant agents.
Proceeds to the Company from the Warrant Modification Offering and the Rights
Offering (the "Offerings") were $2,154,357. Accumulated offering costs of
$323,076 were charged against the net proceeds from these offerings. Pursuant
to the Offerings the Company issued 337,211 shares of common stock and a
corresponding number of 1997-A warrants.
The Company had working capital of approximately $2,013,000 at March 31, 1997,
as compared to approximately $16,000 at December 31, 1996. The increase was
primarily related to the net proceeds from the Offerings in the current quarter
consisting of approximately $560,000 in cash and $1,464,000 which had not been
released from escrow by the stock transfer agent at March 31, 1997. Management
believes that cash flows from operations will be sufficient to fund its working
capital needs over the next 12 months. During the three months ended March 31,
1997, net cash provided by operating activities was $104,908, net cash provided
by investing activities was $8,367 and net cash provided by financing activities
was $559,959 (consisting primarily of proceeds from the Offerings less payment
of deferred offering costs). This represents an average monthly positive cash
flow from operating activities of approximately $35,000, and an average monthly
net positive cash flow of approximately $224,000, after investing and financing
activities. The Company had a net increase in cash during this period of
$673,234. The Company's working capital needs over the next 12 months consist
primarily of administrative and operating overhead. For the three months ended
March 31, 1997, the Company's administrative and operating overhead averaged
approximately $125,000 per month. The Company anticipates that this level of
administrative and operating overhead will continue over the next 12 months.
The Company made non-interest bearing advances to the John Hail Agency, Inc.
("JHA"), a company of which the Company's Chief Executive Officer and major
shareholder is the sole director and shareholder, of $-0-, and $22,000 during
the three months ended March 31, 1997, and the year ended December 31, 1996,
respectively. During the three months ended March 31, 1997, JHA made repayments
of $3,164. JHA made repayments of these advances of $9,860 during the year
ended December 31, 1996. Furthermore,
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effective June 30, 1996, the Company adopted a policy to not make any further
advances to JHA, and JHA executed a promissory note payable to the Company in
the principal amount of $73,964 bearing interest at eight percent per annum and
payable in 60 installments of $1,499 per month, including interest.
The Company's primary source of liquidity is net cash provided by operating
activities. Other than loans made available to the Company by its Chief
Executive Officer and major shareholder, the Company does not have any outside
liquidity sources.
Pursuant to a Stock Purchase Agreement having an effective date of January 31,
1997 (the "Purchase Agreement"), the Company acquired all of the issued and
outstanding capital stock of Chambre International, Inc., a Texas corporation
("CII"), and CII became a wholly-owned subsidiary of the Company (the "CII
Acquisition"). The CII Acquisition was closed on January 31, 1997. The CII
Acquisition was accounted for under the purchase method of accounting. CII is a
multi-level marketer of various third-party manufactured cosmetics, skin and
hair care products. Pursuant to the Purchase Agreement and in connection with
the CII Acquisition, the Company issued and delivered to the shareholders of CII
6,482 shares of the Company's common stock. In addition, the Company agreed to
issue and deliver an additional 7,518 shares of the Company's common stock to
the shareholders of CII on or before May, 31, 1997, pending determination of
certain liabilities.
In connection with the CII Acquisition, the excess of the purchase price of
$135,340, which includes $3,549 of transaction costs, over the negative $63,985
fair market value of assets of CII acquired, net of liabilities assumed, has
been allocated $179,325 to Goodwill and $20,000 to a covenant not to compete.
Goodwill and the covenant not to compete will be amortized over 20 year and 47
month periods, respectively.
Pursuant to an Asset Purchase Agreement having an effective date of April 16,
1997 (the "Purchase Agreement"), Advantage Marketing Systems, Inc. (the
"Company") acquired all of the assets of Stay 'N Shape International, Inc., a
Georgia corporation ("SSII"), Solution Products International, Inc., a Georgia
corporation ("SPII"), Nation of Winners, Inc., a Georgia corporation ("NWI"),
Now International, Inc., a Georgia corporation ("NII"), (collectively SSII,
SPII, 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 multi-level marketer of various third-party manufactured
nutritional supplements and was under common ownership.
Pursuant to the Asset Purchase Agreement and in connection with the SSII Asset
Purchase, the Company paid cash of $1,174,584 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,
Page 14
<PAGE>
$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 multi-level marketing organization and sales to
Market America, Inc. (an unrelated multi-level 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 multi-level marketing organization and sales to
Market America, Inc. (an unrelated multi-level 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 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.
Page 15
<PAGE>
PART II. OTHER INFORMATION
- -------------------------------------------------------------------------------
Item 1. LEGAL PROCEEDINGS
-----------------
None
Item 2. CHANGES IN SECURITIES
---------------------
None
Item 3. DEFAULTS IN SECURITIES
----------------------
None
Item 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
--------------------------------------------------
None
Item 5. OTHER INFORMATION
-----------------
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
EXHIBITS: None.
REPORTS ON FORM 8-K:
The Company filed a Form 8-K with the Commission on February 17,
1997. Included in the report was "Item 2. Acquisition or
Disposition of Assets". The Company acquired all of the issued
and outstanding capital stock of Chambre International, Inc., a
Texas corporation ("CII"). Pursuant to Reg. (S) 228.310, none of
the conditions of the acquisition specified in paragraph (c)(2)
of Item 310 exceeded 20%, therefore, financial statements were
not required.
Page 16
<PAGE>
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 thereunto duly authorized.
Date: May 13, 1997 By: /s/ Roger P. Baresel
------------------- ------------------------------------
Roger P. Baresel
President
Page 17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 842,802
<SECURITIES> 0
<RECEIVABLES> 1,595,405
<ALLOWANCES> 25,804
<INVENTORY> 289,728
<CURRENT-ASSETS> 2,866,397
<PP&E> 421,155
<DEPRECIATION> 350,204
<TOTAL-ASSETS> 4,033,782
<CURRENT-LIABILITIES> 853,213
<BONDS> 254,217
0
0
<COMMON> 253
<OTHER-SE> 2,926,099
<TOTAL-LIABILITY-AND-EQUITY> 4,033,782
<SALES> 1,950,134
<TOTAL-REVENUES> 2,052,795
<CGS> 1,575,270
<TOTAL-COSTS> 1,958,782
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,548
<INCOME-PRETAX> 86,465
<INCOME-TAX> 32,822
<INCOME-CONTINUING> 53,643
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,643
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
