<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period _______ to ________
Commission File number 1-10799
ADDVANTAGE MEDIA GROUP, INC.
(Exact name of small business issuer as specified in its charter)
OKLAHOMA 73-1351610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5100 East Skelly Drive
Meridian Tower, Suite 1080
Tulsa, Oklahoma 74135-6552
(Address of principal executive office) (Zip Code)
(918) 665-8414
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No
--- ---
Shares outstanding of the issuer's $.01 par value common stock as of May 14,
1996 is 4,942,620. Transitional Small Business Issuer Disclosure Format (Check
one): Yes No x
--- ---
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADDVANTAGE MEDIA GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
-----------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,344 $ 20,444
Accounts receivable 316,563 6,926
Deferred income taxes 667,000 667,000
Other current assets 5,491 8,514
-----------------------------
Total current assets 997,398 702,884
Property and equipment, at cost:
Calculators 1,035,755 749,107
Office and production equipment 351,142 341,575
Furniture and fixtures 64,417 64,417
-----------------------------
1,451,314 1,155,099
Accumulated depreciation 364,544 331,385
-----------------------------
1,086,770 823,714
Deferred income taxes 3,243,000 3,243,000
Patent, net of accumulated amortization of
$468,237 and $445,533 at March 31, 1996
and December 31, 1995, respectively 439,873 462,577
Deferred charges 45,847 12,064
-----------------------------
Total assets $5,812,888 $5,244,239
=============================
</TABLE>
-1-
<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Note payable to bank $ 700,000 $ 519,968
Notes payable to shareholders and directors 176,808 176,808
Accounts payable 589,842 558,748
Accrued interest 368,837 252,677
Other accrued liabilities 667,280 687,782
Accrued preferred stock dividends 444,400 416,777
Unearned advertising revenue 234,900 -
-------------------------------
Total current liabilities 3,182,067 2,612,760
Long-term obligations 554,938 515,163
Long-term bank debt 3,406,656 3,406,656
Stockholders' equity (net capital deficiency)
Preferred stock, $1.00 par value, 1,000,000
shares authorized; Series A, 10% cumulative
convertible, preferred stock - 277,750 shares
issued and outstanding at March 31, 1996 and
December 31, 1995; liquidation preference, $1,111,000 927,167 927,167
Common stock, $.01 par value, 10,000,000 shares
authorized; 4,942,620 and 4,927,620 shares
issued and outstanding at March 31, 1996 and
December 31, 1995, respectively 49,426 49,276
Capital in excess of par value 5,995,590 5,991,428
Accumulated deficit (8,302,956) (8,258,211)
------------------------------
Net capital deficiency (1,330,773) (1,290,340)
------------------------------
Total liabilities and net capital deficiency $ 5,812,888 $ 5,244,239
==============================
</TABLE>
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<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
--------------------------------
<S> <C> <C>
Revenues:
Advertising $ 604,800 $ -
Sales of calculators 2,033 13,728
Other 235 56
--------------------------------
607,068 13,784
Costs and expenses:
Cost of advertising services 219,140 45,034
Cost of sales of calculators 1,662 4,748
Selling expenses 5,957 12,067
General and administrative expenses 266,320 120,999
Litigation expense - 50,607
--------------------------------
493,079 233,455
--------------------------------
Operating income (loss) 113,989 (219,671)
Interest expense 131,111 115,565
--------------------------------
Net loss (17,122) (335,236)
Preferred stock dividends (27,623) (27,623)
--------------------------------
Net loss applicable to common stock $ (44,745) $ (362,859)
================================
Net loss per common share $(0.01) $(0.09)
================================
Shares used in computing net loss
per common share 5,515,644 3,908,620
================================
</TABLE>
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<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
--------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (17,122) $(335,236)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 55,863 37,842
Long-term obligation accrual 39,775 2,241
Changes in assets and liabilities:
Accounts receivable (309,638) (663)
Inventory - 4,482
Other current assets 3,023 2,588
Deferred charges (33,783) 3,251
Accounts payable 31,095 17,818
Accrued interest 116,160 112,060
Other accrued liabilities (20,502) 37,963
Unearned advertising revenue 234,900 -
--------------------------------
Net cash provided by (used in) operating activities 99,771 (117,654)
INVESTING ACTIVITIES
Purchases of property and equipment (296,215) -
--------------------------------
Net cash used in investing activities (296,215) -
</TABLE>
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<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF CASH FLOWS (continued)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
--------------------------------
<S> <C> <C>
FINANCING ACTIVITIES
Proceeds from issuance of bank notes $180,032 $ -
Proceeds from issuance of investor notes - 220,000
Exercise of stock options 4,312 -
--------------------------------
Net cash provided by financing activities 184,344 220,000
--------------------------------
Increase (decrease) in cash (12,100) 102,346
Cash and cash equivalents, beginning of period 20,444 169
--------------------------------
Cash and cash equivalents, end of period $ 8,344 $102,515
================================
</TABLE>
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<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with Regulation S-B for interim financial statements
required to be filed with the Securities and Exchange Commission and do not
include all information and footnotes required by generally accepted accounting
principles for complete financial statements. However, the information furnished
reflects all adjustments, consisting only of normal recurring adjustments which
are, in the opinion of management, necessary in order to make the financial
statements not misleading.
NOTE B - DESCRIPTION OF THE BUSINESS
The Company markets and sells in-store advertising to national advertisers.
The advertising is positioned on solar powered calculators attached to the
handles of shopping carts. The patented calculators are marketed under the
registered trademark "Shoppers Calculators". The Company also sells Shoppers
Calculators(R) to third parties, including independent retailers and
international licensees.
The Company entered into separate agreements with Wal-Mart Stores, Inc.
("Wal-Mart") in July 1993 and June 1994 which provided for the installation of
the Company's calculators in certain Wal-Mart stores. These contracts were
never implemented, and in January 1995, the Company filed a suit against Wal-
Mart for the alleged breach of the terms of those contracts. On September 1,
1995, the Company and Wal-Mart entered into a new contract in settlement of the
lawsuit.
Under the terms of a new four-year contract, the Company will install and
maintain Shoppers Calculators(R) in all of Wal-Mart's Supercenters in the
continental United States and Wal-Mart is responsible for selling the
advertising for the calculators during the initial phase of the contract.
During the term of the contract in which Wal-Mart is responsible for selling the
advertising, Wal-Mart has agreed to guarantee advertising revenues to the
Company in excess of $23.5 million, subject to the Company's obligation to
install and service the Shoppers Calculators(R) during the revenue guaranty
period. After the Company has received payment of the total guaranteed
advertising revenues, the Company has the option to continue the contract and
assume the advertising sales responsibilities for the program. If the Company
elects to continue the contract, the program will then continue on this basis
for a fixed period of time, and upon conclusion of the term of the contract, the
program will be subject to re-evaluation by both parties. Through March 31,
1996, cumulative advertising revenues have totaled $731,700 reducing the
guaranteed advertising revenues to be received in future periods to $22,823,100.
Certain terms of the contract were determined based on the following
assumed schedule with respect to the number of Supercenter stores to be
participating in the Company's program. The following table sets forth the
assumed schedule of Supercenter installations pursuant to the Wal-Mart
contract's operating plan and the actual installations in Supercenters to date.
-6-
<PAGE>
<TABLE>
<CAPTION>
Operating Plan Actual Installations
-------------------------- ---------------------------
Stores to Shopping Carts Stores Shopping
Year be Added to be added Installed Carts Installed
- -------- --------- -------------- --------- ---------------
<S> <C> <C> <C> <C>
1995 33 39,600 41 31,925
1996 200 240,000 116/(1)/ 87,297/(1)/
1997 100 120,000 N/A N/A
1998 100 120,000 N/A N/A
--- ------- --------- ---------------
Total 433 519,600
=== =======
</TABLE>
- ------------
/(1)/ Through April 30, 1996. The Company currently plans to complete
installations in 278 Supercenters during 1996.
The cost of Shoppers Calculator components and installation hardware not
yet installed was $223,789 at March 31, 1996 and is included in the balance
sheet under property and equipment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
- -------------------------------------------------------------------------------
Business activity was primarily related to managing a Shoppers Calculator
program in Wal-Mart Supercenters and developing programs with other mass
merchants. Advertising revenues totaled $604,800 during the first three months
of 1996. The Company's first revenue period under the Wal-Mart contract began
on November 6, 1995, and there were no advertising revenues for the comparable
period last year.
Revenues from sales of calculators declined from $13,700 for the three
months ended March 31, 1995 to $2,000 for the three months ended March 31, 1996.
Approximately 921 units were sold during the first quarter of fiscal 1995, in
the domestic market compared to approximately 116 units sold in the first
quarter of fiscal 1996.
Cost of services representing primarily labor to supervise, service and
clean the installed units and to change advertising messages, and depreciation
of installed units, increased approximately $174,100 (387%) in 1996, compared to
1995 as a result of higher labor costs due to the increase in the number of
calculators installed and serviced during the respective periods.
Cost of sales of calculators, representing the manufacturing costs of units
sold, decreased approximately $3,100 (65%) in 1996 as compared to 1995. This
was due to the decreased number of units sold during the first quarter of 1996
as compared to 1995.
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<PAGE>
Selling expense decreased approximately $6,100 (51%) in the first quarter
of 1996. This was primarily due to reductions during 1996 in payroll, and
payroll related expenses.
General and administrative expenses increased $145,300 (120%) for the first
quarter of 1996 as compared to the same period in 1995. During 1996, payroll and
payroll related expenses increased $36,600 as the Company began to increase
staff to handle the increased work load required from the Wal-Mart Supercenter
contract. Executive retirement plan accruals, including insurance cost to fund
future payments totaled $68,600 during the 1996 first quarter. Expenses related
to broker and analyst meetings and other shareholder expenses increased $15,300
over 1995. Increases amounting to $33,300 occurred in professional fees,
occupancy costs, business taxes and other expenses. The increase was offset by
a decrease in investment banking fees of $8,500 from the first quarter of 1995.
Litigation expenses in the amount of $50,600 were incurred during the first
quarter of 1995 in connection with the Company's lawsuit against Wal-Mart.
Interest expenses increased approximately $7,600 (7%) in the first quarter
of 1996 due primarily to high levels of borrowing. Also during 1996, interest
has been accrued on amounts due investors which has been recorded in the
financial statements as long-term obligation payable.
FINANCIAL CONDITION AND LIQUIDITY
During the first quarter of 1995, the Company completed an offering of
promissory notes and warrants for an aggregate consideration of $200,000. The
offering included (a) a total of 500,000 warrants, each of which, upon exercise,
entitled the holder to acquire one share of the Company's Common Stock at a
price of $.20 per share, and were exercisable within 24 months from the date of
issuance; (b) a total of 10% of the net recovery from the Wal-Mart lawsuit
described elsewhere herein; and (c) promissory notes in an aggregate principal
amount of $200,000 and bearing interest at the rate of 10% per annum due on or
before 20 days after the final resolution, by settlement, final judgment or
otherwise, of the Wal-Mart litigation. On November 30, 1995, investors holding
warrants to purchase 425,000 shares of Common Stock exercised such warrants by
converting promissory notes in the principal amount $85,000 to acquire the
shares. At the same date, new promissory notes totaling $130,808 (representing
$115,000 principal and $15,808 accrued interest on the original notes) were
issued. These notes mature on June 30, 1997.
The present value of the amount payable to the participants in the
Company's private placement (including Messrs. Hood and Young who provided the
initial funding for the lawsuit), who have the right to receive an aggregate of
12% of the net recovery from the Wal-Mart contract which was entered into in
settlement of the litigation has been calculated by the Company to be $527,787
including accrued interest through March 31, 1996, and has been recorded in the
financial statements as long-term obligation payable.
The Wal-Mart contract provided the Company with additional bank financing,
which has been guaranteed by Wal-Mart in the amount of $700,000 all of which was
advanced at March 31, 1996.
On March 6, 1996, the Company completed a restructuring of all past due
bank debt effective as of October 1, 1995. The $1,800,000 revolving line of
credit, other notes totaling $1,132,622 and accrued interest through September
30, 1995 of $474,034 were combined into a new note in the amount
-8-
<PAGE>
of $3,406,656. This new loan bears interest at the Chase Manhattan Bank prime
rate (8.25% on March 31, 1996) plus 1%. The loan has a maturity date of May 31,
1998 with payment terms tied to the Company's projected revenues under the Wal-
Mart contract. Payments of interest and principal on the $3,406,656 note will
commence after the $700,000 note guaranteed by Wal-Mart has been paid, which is
anticipated to be in January 1997. Based on the operating plan, payments on the
restructured bank debt will commence in February 1997.
On July 17, 1991, the Company completed an initial public offering of
600,000 units (the "Units"), each unit consisting of two shares of common stock
and one redeemable common stock purchase warrant (the "warrants") to purchase
one share of common stock. Each of the 600,000 outstanding Warrants entitles
the holder, upon exercise, to purchase one share of common stock at a price of
$4.00 per share. The expiration date of the Warrants has been extended by the
Company to June 26, 1996, unless redeemed or extended again by the Company prior
to that time. The Warrants may be redeemed by the Company at a price of $0.05
per Warrant on 30 days prior written notice if the closing bid price of the
common stock for ten consecutive trading days ending within 15 days of the date
of notice of redemption equals or exceeds $5.00 per share.
In connection with the 1991 public offering of common stock and common
stock purchase warrants, the Company sold to the underwriter warrants to
purchase up to 60,000 units at a price of $.001 per warrant. The warrants are
exercisable in whole or in part at $7.20 per unit for a period of four years
commencing June 26, 1992. Each unit consists of two shares of common stock and
one warrant to purchase one share of common stock for $4.80 per share
exercisable until June 26, 1996. The warrants provide for adjustment of the
exercise price upon the occurrence of certain events.
The Company's first revenue period under the Contract began on November 6,
1995. Through March 31, 1996, cumulative advertising revenues have totaled
$731,700 reducing the guaranteed advertising revenues to be received in future
periods to $22,823,100. The cash flow from the Wal-Mart contract is expected to
allow the Company to meet its anticipated cash requirements for the foreseeable
future, including repayment of all past due obligations.
All statements other than statements of historical facts, including,
without limitation, statements concerning the anticipated dates of repayment of
certain indebtedness of the Company, are "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended. Although the
Company believes that such forward-looking statements are reasonable, such
statements are subject to various risks and uncertainties which could cause
actual results to differ from the Company's expectations, including, but not
limited to, general economic conditions and conditions affecting the mass
merchandising industry in general and Wal-Mart specifically, the availability of
manufactured components and the Company's ability to fund the costs thereof, and
the Company's ability to comply with its obligations under the Wal-Mart
contract.
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<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description
----------- -----------
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
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<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.
ADDVANTAGE MEDIA GROUP, INC.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------- -------------------------------------------- ------------
<S> <C> <C>
/s/ Charles H. Hood Director and President May 10, 1996
- ---------------------- (Principal Executive Officer)
Charles H. Hood
/s/ Gary W. Young Director, Executive Vice President - May 10, 1996
- ---------------------- Finance
Gary W. Young and Administration and Treasurer
(Principal Financial Officer)
</TABLE>
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<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- -------------- --------------------------------------
<S> <C>
11 Statement re: Computation of Per
Share Earnings
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
Three Months ended March 31, 1996
<TABLE>
<CAPTION>
Primary
-------------
<S> <C>
Net loss $ (17,122)
Less preferred stock dividends (27,623)
-------------
Net loss applicable to common stock (44,745)
Weighted average shares outstanding 4,935,202
Effect of options and warrants 580,442
-------------
Weighted average common and common
equivalent shares 5,515,644
-------------
Net loss per common share $(.01)
=============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1995
<CASH> 8,344
<SECURITIES> 0
<RECEIVABLES> 316,563
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 997,398
<PP&E> 1,451,314
<DEPRECIATION> 364,544
<TOTAL-ASSETS> 5,812,888
<CURRENT-LIABILITIES> 3,182,067
<BONDS> 0
0
927,167
<COMMON> 49,426
<OTHER-SE> (2,307,366)
<TOTAL-LIABILITY-AND-EQUITY> 5,812,888
<SALES> 606,833
<TOTAL-REVENUES> 607,068
<CGS> 0
<TOTAL-COSTS> 493,079
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131,111
<INCOME-PRETAX> (17,122)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,122)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
