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As filed with the Securities and Exchange Commission on September 20, 1996
Registration No. 33-39902-FW
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
POST-EFFECTIVE AMENDMENT NO. 4
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
____________________
ADDVANTAGE MEDIA GROUP, INC.
(Name of small business issuer in its charter)
____________________
OKLAHOMA 7310 73-1351610
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization)
5100 EAST SKELLY DRIVE
MERIDIAN TOWER, SUITE 1080
TULSA, OKLAHOMA 74135
(918) 665-8414
(Address and telephone number of principal
executive offices and principal place of business)
____________________
GARY W. YOUNG
ADDVANTAGE MEDIA GROUP, INC.
5100 EAST SKELLY DRIVE
MERIDIAN TOWER, SUITE 1080
TULSA, OKLAHOMA 74135
(918) 665-8414
(Name, address and
telephone number of agent for service)
Copies to:
LYNNWOOD R. MOORE, JR., ESQ.
CONNER & WINTERS, A PROFESSIONAL CORPORATION
2400 FIRST NATIONAL TOWER
15 EAST 5TH STREET
TULSA, OKLAHOMA 74103-4391
____________________
Approximate date of commencement of proposed sale to the public: FROM TIME TO
TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If this Form is filed to register additional securities for an offering
pursuant to 462(b) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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SUBJECT TO COMPLETION, DATED SEPTEMBER 20, 1996.
PROSPECTUS
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ADDVANTAGE MEDIA GROUP, INC.
660,000 Shares of Common Stock
______________________
This Prospectus relates to (i) 600,000 shares of the common stock, par
value $.01 per share (the "Common Stock"), of ADDvantage Media Group, Inc., an
Oklahoma corporation (the "Company"), which may be issued by the Company upon
the exercise of outstanding Redeemable Common Stock Purchase Warrants of the
Company (the "Warrants"); and (ii) 60,000 shares of Common Stock which may be
issued by the Company to Culverwell & Co., Inc. ("Culverwell") upon the exercise
of outstanding common stock purchase warrants acquired by Culverwell (the
"Culverwell Warrants"). The Warrants were issued in connection with the
Company's initial public offering which terminated during July 1991. See
"Redeemable Common Stock Purchase Warrants." The Company will receive the
proceeds from any exercise of Warrants or Culverwell Warrants, less, with
respect to the Warrants, the commissions as set forth in the following
table.
The Common Stock and Warrants are currently quoted on the OTC Bulletin
Board under the symbol "ADDM" and "ADDMW," respectively. On September 18, 1996,
the last reported sales price of the Common Stock on the OTC Bulletin Board was
$5 3/16 per share.
<TABLE>
<CAPTION>
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UNDERWRITING
NO. OF PRICE TO DISCOUNTS AND PROCEEDS TO
SHARES PUBLIC COMMISSIONS (2) THE COMPANY
(1) (3)
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<S> <C> <C> <C> <C>
Per share... -- $4.00 $.20 $3.80
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Total....... 600,000 $2,400,000 $120,000 $2,280,000
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</TABLE>
(1) Reflects shares of Common Stock issuable upon any exercise of Warrants
other than the 60,000 Culverwell Warrants which may be exercised by
Culverwell.
(2) Reflects commissions in the amount of 5% of the exercise price of the
Warrants to be paid to Culverwell as the exclusive agent for the
solicitation of the exercise of Warrants (other than the Culverwell
Warrants).
(3) Before deducting expenses related to the exercise of the Warrants payable
by the Company and estimated to be $50,000.
______________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS COMBINED PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED
BY ANYONE WHO CANNOT AFFORD THE LOSS OF HIS ENTIRE INVESTMENT. SEE "RISK
FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
THIS PROSPECTUS AMENDS AND SUPERSEDES THE PROSPECTUS DATED JUNE 26, 1991,
THE COMBINED PROSPECTUS DATED DECEMBER 31, 1992, AND THE PROSPECTUS DATED JUNE
12, 1996.
______________________
The date of this Prospectus is September __, 1996.
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In order for a holder of Warrants (a "Warrantholder") to exercise his
Warrants and as required by the Warrant Agreement (the "Warrant Agreement")
entered into between the Company and North American Transfer Co. ("the Warrant
Agent"), there must (i) be a current registration statement on file with the
Securities and Exchange Commission (the "Commission") at the time of the
exercise of the Warrants and (ii) the shares of Common Stock to be acquired in
connection with any such exercise must be the subject of an effective
registration statement under the state securities laws where the Warrantholder
resides or such exercise must be exempt from registration or qualification in
such state. This Prospectus is a part of a current and effective registration
statement on file with the Commission.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Commission. Such reports, proxy and information statements and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the following regional
offices of the Commission: Seven World Trade Center, Suite 1300, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Commission maintains a Web site
that contains reports, proxy and information statements and other information
filed electronically by the Company with the Commission which can be accessed
over the Internet at http://www.sec.gov.
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________________________________________________________________________________
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus.
THE COMPANY
ADDvantage Media Group, Inc. (the "Company") was organized under the laws
of the State of Oklahoma in September 1989. The Company markets solar-powered
calculators which are attached to the handles of shopping carts. These
calculators contain an advertising space available for sale to advertisers for
presenting an advertising message to consumers. The calculators are known by
the registered trademark of "Shoppers Calculators(R)."
The Company's business plan calls for marketing the Shoppers Calculator(R)
program to retail chains, principally mass merchandisers, and selling or
assisting in the sale of the advertising space available on the units to
advertisers and sharing the advertising revenues with the retail chains. The
Company has entered into an agreement with Wal-Mart Stores, Inc. ("Wal-Mart")
for the installation of its calculators in all of Wal-Mart's "Supercenter"
stores ("Supercenters") throughout the continental United States. The addition
of the Supercenters into the Shoppers Calculator(R) program currently
constitutes the Company's principal business operations. At June 30, 1996, the
Company had installed its calculators at 221 Supercenters. On June 3, 1996, the
Company entered into an agreement with Kmart Corporation ("Kmart") for the
installation of its calculators in designated Kmart and Super Kmart Center
Stores. See "Business--Wal-Mart Supercenters" and "Business--Kmart
Stores."
The Company's principal executive offices are located at 5100 East Skelly
Drive, Meridian Tower, Suite 1080, Tulsa, Oklahoma 74135 and its telephone
number is (918) 665-8414.
THE WARRANTS
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<S> <C>
Exercisability of Warrants........................ Each Warrant may be exercised to purchase one share
of Common Stock at any time through December 31,
1996, unless the Warrants are redeemed or extended
by the Company prior to that time. See "Redeemable
Common Stock Purchase Warrants."
Exercise Price.................................... The exercise price of the Warrants is $4.00 per share.
Use of Proceeds................................... The net cash proceeds received by the Company upon
any exercise of the Warrants will be used to reduce
certain debt obligations. See "Use of Proceeds."
Warrant Trading Symbol............................ "ADDMW"
Shares of Common Stock Outstanding(1)............. 5,138,182
Shares of Common Stock to
Be Outstanding(2)................................. 5,798,182
</TABLE>
__________________
(1) Represents issued and outstanding shares of Common Stock as of August 31,
1996, which number excludes (i) 512,318 shares of Common Stock currently
reserved for issuance under the Company's 1991 Employee Stock Plan, of
which 497,000 shares are subject to outstanding options which had been
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________________________________________________________________________________
granted under such plan as of August 31, 1996, of which options to purchase
430,000 shares are currently exercisable; (ii) 95,000 shares issuable upon
exercise of stock options granted to certain directors to the Company, all
of which are currently exercisable; (iii) 600,000 shares issuable upon
exercise of the Warrants; (iv) 60,000 shares issuable upon exercise of the
Culverwell Warrants; (v) 75,000 shares issuable upon exercise of warrants
purchased by investors in a private placement in 1995; (vi) 50,000 shares
issuable upon exercise of warrants granted to Culverwell in consideration
for services rendered in 1995; (vii) 50,000 shares issuable upon exercise
of warrants granted to the Company's public relations consultant in
consideration for services; (viii) 35,000 shares issuable upon exercise of
stock options granted to certain consultants to the Company; and (ix)
227,750 shares reserved for issuance upon the conversion of shares of the
Series A 10% Cumulative Convertible Preferred Stock, par value $1.00 per
share, of the Company (the "Series A Preferred Stock").
(2) Assumes the issuance of all shares issuable upon exercise of the Warrants
and Culverwell Warrants.
RISK FACTORS
Ownership of shares of Common Stock involves a number of significant risks,
including, among other factors, the Company's dependence on a single mass
merchandiser, losses from operations and negative net worth, dependence on a
single product, dependence on key personnel, future capital requirements,
competition and the commercial acceptance of the Shoppers Calculator(R) program
by advertisers. Purchasers of shares of Common Stock should carefully consider
the information presented under "Risk Factors."
________________________________________________________________________________
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RISK FACTORS
An investment in the Common Stock involves a high degree of risk and should
not be made by persons who cannot afford the loss of their entire investment.
The following factors, in addition to those discussed elsewhere in this
Prospectus, should be considered carefully in evaluating the Company and its
business.
DEPENDENCE ON WAL-WART. Virtually all of the Company's current revenues
are generated from its contract with Wal-Mart for the installation of the
Shoppers Calculator(R) in all of Wal-Mart's Supercenters. As a result, the
Company is substantially dependent on its relationship with Wal-Mart for both
its current operations and its future growth in the near term. While the
Company recently obtained a contract for the installation of the Shoppers
Calculator(R) program in certain Kmart Stores, their is no assurance at this
time that the Company will be successful in generating revenues from the sale of
advertising under the Kmart contract. Accordingly, any adverse development
affecting Wal-Mart, any decision by Wal-Mart to reduce the number of
Supercenters it plans to open, or any decision by Wal-Mart to close existing
Supercenter locations or any material breach by either Wal-Mart or the Company
of its obligations under the contract could have a material adverse effect on
the Company's operations and future prospects.
The Company's relationship with Wal-Mart is governed by an agreement
between Wal-Mart and the Company, pursuant to which Wal-Mart has agreed to pay
the Company, before October 7, 1998, revenues totaling $23,554,800. These
revenues are payable to the Company at a rate of $2,700 per four-week
advertising cycle for each Supercenter in which the Company has completed the
installation of its calculators, at no cost to Wal-Mart, until the Company has
received a total of $23,554,800; provided, however, if the Company has not
received revenues of $23,554,800 prior to October 7, 1998, Wal-Mart is obligated
to pay the difference between such amount and the amount actually paid to the
Company under the agreement prior to such date. Upon the receipt by the Company
of payments totaling $23,554,800, the Company has the option to continue the
agreement through October 6, 1999. If the Company elects to continue the
agreement, the Company will be responsible for generating revenues from the sale
of advertising on the calculators installed in the Supercenter chain and is
obligated to pay Wal-Mart 10% of such advertising gross revenues. Upon
expiration of the agreement, the parties would be required to enter into a new
agreement for the relationship to continue. The agreement is subject to
termination prior to its expiration upon any breach of any covenant, agreement,
representation or warranty under the agreement by any party, including the
Company's obligation to fulfill its installation obligations, that is not cured
within 30 days' written notice of such breach. If the Company became unable to
fulfill its installation and service obligations under the agreement for any
reason and, as a result, the agreement were terminated, such termination would
have a material adverse effect on the Company and could result in termination of
its operations. Pursuant to the agreement, Wal-Mart guaranteed the Company's
additional bank financing in the amount of $700,000. Wal-Mart's guarantee is
secured by the Company's patents on the Shoppers Calculator(R). The Company and
Wal-Mart are currently negotiating an amendment to the agreement which, in all
likelihood, will provide for the Company's immediate assumption of the primary
responsibility for marketing the advertising on the calculators. The
negotiations have also included discussions regarding a grant to the Company of
the exclusive right to place advertising on Wal-Mart's shopping carts in its
Supercenters in return for a reduction in the amount of revenues guaranteed by
Wal-Mart. However, there can be no assurance at this time as to the specific
terms of the amendment or that an amendment will be entered into by the parties.
See "Business--Wal-Mart Supercenters."
LIMITED OPERATING HISTORY; NEGATIVE NET WORTH; LOSSES FROM OPERATIONS. The
Company was formed in September 1989 but did not commence any significant
operations until 1990. The Company was a development stage company from
inception throughout a substantial portion of 1991 and generated only limited
revenues through its original business plan of selling the advertising space on
its calculators installed in its grocery chain network. Beginning in 1992, the
Company changed its marketing emphasis to the sale of the calculators to the
grocery chains, giving such chains a higher share of any advertising revenues
generated by the Company, in an effort to generate greater cash flow while
continuing to add grocery chains to its network. In addition, the Company found
it necessary to implement a cost reduction program commencing in 1992. In 1993,
the Company made a strategic
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decision to re-direct its marketing program to the mass merchandising industry
and removed its calculators from the grocery chain network. From 1993 through
most of 1995, the Company did not generate any revenues from the mass
merchandising industry. The Company began receiving revenues under its contract
with Wal-Mart in November of 1995 and, as of the date of this Prospectus, had
not commenced its Shoppers Calculator(R) program under the Kmart contract. As a
result, the Company has only a limited operating history under its current
business plan.
At June 30, 1996, the Company had negative net worth, calculated in
accordance with generally accepted accounting principles. The Company has yet
to earn revenues which are sufficient to cover its costs of sales and other
expenses during any full year of operations. The Company's activities and
related costs and expenses, along with interest expense, have resulted in losses
being incurred in all annual periods and on a cumulative basis since the
Company's inception. There can be no assurance that the Company will be able to
achieve or sustain profitability in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
REQUIREMENTS FOR CAPITAL. The Company's agreement with Wal-Mart
contemplates the expansion of the number of calculators to be installed to
approximately 519,600 calculators in 433 Supercenters by 1998. The Company
anticipates that the revenues generated under the Wal-Mart agreement and its new
bank financing have provided the Company with sufficient working capital to fund
the manufacturing and service costs anticipated to meet the Company's
commitments under the Wal-Mart agreement. In addition, the Company anticipates
that these sources, together with any proceeds received by the Company upon any
exercise of the Culverwell Warrants, will be sufficient to fund the proposed
installation of the Company's calculators under the Kmart agreement. The
Company will market its mass merchandising program to other mass merchandising
retail chains. If the Company is successful in obtaining contracts with such
chains, it is possible the Company would require additional funds to finance
future operations under those contracts. The amount of working capital which
the Company may have to obtain through additional third-party financing will
depend on the level of cash flow generated under the Wal-Mart agreement and the
specific terms of any contract entered into with additional retailers. The
Company currently has no commitments for any additional third-party financing,
and there can be no assurance that the Company will be able to obtain such
financing if it becomes necessary to do so or that, if such financing is
obtained, such financing will be on terms and conditions that are favorable to
the Company.
DEPENDENCE ON SINGLE PRODUCT. The Company's financial condition and
prospects are substantially dependent on the successful marketing of its solar-
powered calculator program (marketed under the registered trademark "Shoppers
Calculator(R)") to mass merchandising chains and the sale of advertising space
thereon. Although the Company intends to develop other in-store advertising
products in the future, the Company has no other products or services in the
planning stages at this time and the Shoppers Calculator(R) is its only product
currently available for commercial exploitation. Accordingly, the Company's
financial success may be substantially dependent on the commercial acceptance of
the Shoppers Calculator(R) by advertisers. See "Business--Shoppers
Calculator(R)."
COMMERCIAL ACCEPTANCE BY ADVERTISERS. The Company believes that the
commercial success of the Shoppers Calculator(R) is ultimately dependent on its
commercial acceptance by advertisers. The Company's previous efforts to
establish its Shoppers Calculator(R) program in the grocery chain industry
failed to achieve the desired level of acceptability by national advertisers
due, in the Company's belief, to the limited size and geographic scope of its
grocery chain network. See "Business--Development of the Business." While the
Company received favorable results and responses in its test marketing of the
Shoppers Calculator(R) in mass merchandising retail stores, no advertising has
been sold with respect to the units installed in the stores during such test
marketing and no advertising has been sold through June 30, 1996, with respect
to the units installed in the Wal-Mart Supercenters. Accordingly, there can be
no assurance at this time that the Company's Shoppers Calculator(R) program in
the mass merchandising industry will be commercially accepted by advertisers.
See "Business--Shoppers Calculator(R)."
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NO ASSURANCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. The
Company's Common Stock and Warrants are currently quoted on the OTC Bulletin
Board. Because the Company's securities are not traded on a securities exchange
or qualified for quotation on the Nasdaq National Market System or Nasdaq Small
Cap Market, public trading of the Company's securities may be significantly more
limited than would otherwise be the case and its securities may, from time to
time, be subject to the "penny stock restrictions" discussed below under "Penny
Stock Regulations."
The market price of the Company's securities may be highly volatile. There
have been periods of extreme fluctuation in the stock market that, in many
cases, are unrelated to the operating performance of the issuers of the affected
securities. Securities of issuers having relatively limited capitalization as
the Company are particularly susceptible to significant fluctuations in response
to variations in operating results.
PENNY STOCK REGULATIONS. The Company's Common Stock and Warrants may, from
time to time, be subject to certain restrictions pursuant to the "penny stock"
regulations under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Stocks selling for less than $5.00 per share may be designated as "penny
stocks" and may be subject to certain requirements imposed by Rules 15g-1
through 15g-9 under the Exchange Act. Among other things, Rule 15g-3 requires a
broker or dealer to advise potential purchasers of a penny stock of the lowest
offer and highest bid quotations for such stock, and Rule 15g-4 requires a
broker or dealer to disclose to the potential purchaser its compensation in
connection with such transaction. Under Rule 15g-9, a broker or dealer who
recommends such securities to persons other than established customers must make
a special written suitability determination for the purchaser and receive the
purchaser's prior agreement to such a transaction. The effect of these
regulations may be to delay transactions in stocks that are deemed to be penny
stocks.
Rule 3a51-1 under the Exchange Act provides an exemption from the "penny
stock restrictions" for any security trading at a price less than $5.00 if (i)
such securities are approved for registration on the National Association of
Securities Dealers Automated Quotation System ("Nasdaq") or (ii) the issuer has
tangible net assets in excess of $2,000,000. This exemption is not currently
available for the Company's Common Stock and Warrants. Accordingly, sales of
the Company's securities by brokers or dealers and resales by investors may be
adversely affected.
COMPETITION. The Company will primarily be competing with various other
companies to obtain in-store or on-site advertising from various clients. Many
of these companies which the Company will compete against have substantially
greater marketing, financial and human resources than the Company. See
"Business--Marketing."
DEPENDENCE ON THIRD-PARTY MANUFACTURERS. The Company presently has no
manufacturing facilities. As a result, it must rely upon third parties to
manufacture all components necessary to assemble the calculators, thus giving
the Company less control over the prices, quality and timing of its products
than it might otherwise have if it had sufficient resources to manufacture such
products itself. In addition, the manufacturer of a major component of the
Company's calculator units is located in Hong Kong which is scheduled to come
under the government of the People's Republic of China on June 30, 1997.
Accordingly, there is a risk that such relationship may be interrupted or
terminated requiring the Company to locate alternative manufacturers which may
result in increased costs to the Company. See "Business--Manufacturing."
DEPENDENCE ON KEY PERSONNEL. The Company's ability to develop and market
its product and to achieve and maintain a competitive position depends, in large
part, on its ability to attract and retain qualified personnel. Competition for
such personnel is intense and there can be no assurance that the Company will be
able to attract and retain such personnel. The Company is dependent in
particular upon the services of its executive officers. The loss of one or more
of its executive officers could have a materially adverse effect on the Company.
The Company currently maintains life insurance on each of Charles H. Hood, its
Chairman and President, and Gary W. Young, its Executive Vice President-Finance
and Administration and Treasurer, in an amount of $1,900,000 and $1,800,000,
respectively, for the benefit of the Company. See "Management."
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GOVERNMENT REGULATION. The furnishing of advertising allowances, credits
or compensation to retail establishments by manufacturers or distributors must
comply with certain federal laws and with regulations promulgated by the Federal
Trade Commission (the "FTC"). Advertisers may require that the programs in
which they participate comply with such laws and FTC regulations, which may
affect the timing and terms under which the Company's programs may be provided
and may make such programs more costly. In addition, the laws and FTC
regulations are very technical and may be subject to differing interpretations.
The Company will attempt to maintain compliance with such laws and regulations,
however, there can be no assurance that it will be able to do so.
PATENT RISKS. The Company has acquired all rights in a design patent
issued on the Shoppers Calculator(R) described as a "Calculator for a Shopping
Cart." In addition, the Company has been issued a design patent on the Shoppers
Calculator(R) described as a "Calculator with Advertising Space for a Shopping
Cart Handle" and additional design patents on package concept calculators.
There can be no assurance, however, that the design patents will provide
adequate protection against competing products. See "Business--Patents." The
Company's interests in its patent rights have been pledged by the Company to
Wal-Mart in consideration of Wal-Mart's guaranty of a $700,000 bank note
incurred by the Company to provide working capital necessary to fund the start-
up of the Supercenter program. If the Company should default on the note it
could lose such patent rights. See "Business--Wal-Mart Supercenters."
LIMITATION ON DIRECTOR LIABILITY UNDER OKLAHOMA LAW. Pursuant to the
Company's Certificate of Incorporation and under Oklahoma law, directors of the
Company are not liable to the Company or its shareholders for monetary damages
for breach of fiduciary duty, except for liability in connection with a breach
of duty of loyalty, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, for dividend payments or
stock repurchases that are illegal under Oklahoma law or for any transaction in
which a director has derived an improper personal benefit.
NO DIVIDENDS ON COMMON STOCK; PRIORITY OF PREFERRED STOCK DIVIDENDS. The
Company has paid no dividends to holders of its Common Stock since its inception
and is prohibited under the terms of its current bank loan from paying dividends
on its shares of Common Stock during the term of such loan (see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Financial Condition and Liquidity"). Following the termination of such
restrictions, the Company currently intends to retain any earnings in excess of
the dividends payable on its outstanding shares of Series A Preferred Stock to
finance future growth. At August 31, 1996, the Company had 227,750 shares of
Series A Preferred Stock outstanding on which all accrued dividends must be paid
to the holders thereof before dividends may be declared and paid on the
Company's Common Stock. Dividends accrue on the Preferred Stock at the rate of
$.40 per share per year, payable quarterly. See "Description of Securities." At
June 30, 1996, there were accrued but unpaid dividends of $472,023 and accrued
interest thereon in the amount of $95,669 payable with respect to the Preferred
Stock.
EXERCISABILITY OF WARRANTS. In order for a Warrantholder to exercise his
Warrants and as required in the Warrant Agreement, there must be a current
registration statement relating to the Common Stock underlying the Warrants then
in effect with the Commission and such shares of Common Stock must be qualified
for sale or exempt from qualification under the state securities laws where the
Warrantholder resides. The Company will be required to file post-effective
amendments to the registration statement when events require such amendments.
There can be no assurance that the registration statement can be kept current.
If the registration statement is not kept current for any reason or if the
Common Stock underlying the Warrants is not qualified or exempt from
qualification in the states in which the holders of Warrants reside, the
Warrants will not be exercisable and will have no value. Under the terms of the
Warrant Agreement, the Company has agreed to use its best efforts to maintain a
current registration statement to permit the issuance of the Common Stock upon
exercise of the Warrants.
POTENTIAL ADVERSE EFFECTS OF REDEMPTION OF WARRANTS. The Warrants may be
redeemed by the Company, at any time prior to the expiration, at a price of
$0.05 per Warrant upon at least 30 days' prior written notice mailed
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after the market value of the Common Stock has equalled or exceeded $5.00 per
share for a period of 10 consecutive trading days ending within 15 days of such
notice. The Company may only redeem the Warrants if at the time of redemption
the Company has a current registration statement effective with the Commission
covering the shares of Common Stock issuable upon exercise of such Warrants and
such shares have been registered or qualified or deemed to be exempt under the
securities laws of the state of residence of the holder. Redemption of the
Warrants could force the holders to exercise the Warrants and to pay the
exercise price at a time when it may be disadvantageous for the holders to do
so, to sell the Warrants at the then-current market price when they might
otherwise wish to hold the Warrants, or to accept the redemption price, which is
likely to be substantially less than the market value of the Warrants at the
time of redemption. See "Description of Securities--Warrants."
ANTI-TAKEOVER EFFECTS OF ISSUANCE OF PREFERRED STOCK. The Board of
Directors has the authority to issue shares of preferred stock in one or more
series, to fix the number of shares constituting any such series, and to fix the
rights and preferences of the shares constituting any series, without any
further vote or action by the stockholders. The issuance of preferred stock by
the Board of Directors could adversely affect the rights of the holders of
Common Stock. For example, such issuance could result in a class of securities
outstanding that would have preferences with respect to voting rights and
dividends and in liquidation over the Common Stock, and could (upon conversion
or otherwise) enjoy all of the rights appurtenant to Common Stock. The Board's
authority to issue preferred stock could discourage potential takeover attempts
and could delay or prevent a change in control of the Company through merger,
tender offer, proxy contest or otherwise by making such attempts more difficult
to achieve or more costly. There are 1,000,000 shares of preferred stock
authorized, of which 300,000 have been designated as Series A Preferred Stock,
and of which 227,750 shares are currently outstanding. The Board of Directors
has no present intention to issue any additional shares of preferred stock. See
"Description of Securities."
USE OF PROCEEDS
There are currently outstanding 600,000 Warrants, exercisable to purchase
one share of Common Stock at $4.00 per share at any time through December 31,
1996, unless extended by the Company. If the Warrants are exercised in their
entirety, the Company would realize approximately $2,230,000 in additional
capital after deduction of the commission in the amount of 5% of the exercise
price of the Warrants which may be paid to Culverwell and other expenses related
to the exercise of the Warrants. Under the terms of the Company's loan
agreement with its bank, until the outstanding principal balance of the
Company's indebtedness to the bank is repaid, the net proceeds realized by the
Company upon the exercise of the Warrants must be utilized for the repayment of
the loan. Accordingly, the Company will utilize any net proceeds realized on the
exercise of the Warrants to reduce its outstanding bank indebtedness. The
Company and its primary bank lender entered into a new loan arrangement on March
6, 1996. The Company's loan, in the principal amount of $3,404,656, represented
a consolidation and renewal of the Company's existing indebtedness to the bank.
The loan matures on May 1, 1998, and interest on the outstanding principal
balance of the loan accrues at a rate equal to the Chase Manhattan Bank prime
rate plus 1% (9 1/4% at June 30, 1996). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financial Condition
and Liquidity." In addition, the Company will realize an additional $288,000 if
the Culverwell Warrants are exercised in their entirety. The proceeds realized
by the Company from the exercise of the Culverwell Warrants are not committed to
repayment of the Company's existing bank loan and may be utilized for general
working capital purposes.
PLAN OF DISTRIBUTION
In connection with the public offering of the units described under
"Redeemable Common Stock Purchase Warrants," the Company agreed to pay
Culverwell & Co., Inc. ("Culverwell") a commission, as the exclusive agent for
the solicitation of exercises of the outstanding Warrants, in the amount of 5%
of the exercise price of such Warrants ($4.00 per Warrant) for each Warrant
exercised provided, among other things, that (i) the market price for the Common
Stock is greater than the exercise price of the Warrant; (ii) the Warrant was
not held in a discretionary account; and (iii) the solicitation or exercise of
the Warrants is not in violation of Rule 10b-6
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<PAGE>
promulgated under the Exchange Act. Culverwell will act as solicitation agent in
connection with the possible exercise of Warrants during their exercise period
(through December 31, 1996). The solicitation agent must disclose to the holders
of the Warrants the agent's compensation arrangement with the Company, which
disclosure must be confirmed in writing by the holders. Under applicable state
securities laws, Culverwell will be prohibited from soliciting holders of
Warrants residing in states in which Culverwell is not registered as a broker-
dealer and from receiving commissions with respect to the exercise of Warrants
by such holders. In such event, Culverwell may utilize the services of broker-
dealers registered in such states and, in such case, reallow commissions to such
broker-dealers.
Holders of Warrants electing to exercise their Warrants must deliver to the
Warrant Agent (i) their warrant certificates, or agree to deliver such
certificates if such later delivery is guaranteed by a commercial bank or trust
company, a member of a national securities exchange or a member of the National
Association of Securities Dealers, Inc., and (ii) a cashier's check or money
order payable to the Company for the full amount of the exercise price of $4.00
per Warrant.
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
On July 17, 1991, the Company completed an initial public offering of
600,000 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 Warrants expire at 5:00 p.m., New York time, on December 31, 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 $.05 per Warrant on 30
days prior written notice if the closing bid price of the Common Stock for 10
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 public offering, the Company sold to Culverwell
warrants (the "Unit Warrants") to purchase up to 60,000 units, at a price of
$.001 per Unit Warrant, which were exercisable in whole or in part at $7.20 per
unit. The Unit Warrants were exercised in June 1996. Each unit consisted of
two shares of Common Stock and one warrant to purchase one share of Common Stock
at a price of $4.80 per share (the "Culverwell Warrants"). The Culverwell
Warrants are exercisable at any time through December 31, 1996.
In order for a Warrantholder to exercise his Warrants and as required by
the Warrant Agreement, there must be a current registration statement on file
with the Commission at the time of the exercise of the Warrants and the shares
of Common Stock to be acquired in connection with any such exercise must be the
subject of an effective registration statement under the state securities laws
where the Warrantholder resides, or such exercise must be exempt from
registration in such state. This Prospectus is a part of a current and
effective registration statement on file with the Commission. The Company
currently intends to register the sale of the shares of Common Stock underlying
the Warrants in the States where the beneficial owners of the Warrants reside
where required under applicable state securities laws; however, there can be no
assurance that registration will be obtained in every such State. The Company
will be required to file post-effective amendments to its registration statement
when events require such amendments. There can be no assurance that the
registration statement can be kept current. If it is not kept current, the
Warrants will not be exercisable and will have no value.
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company for
the periods indicated. The selected statement of operations data for the years
ended December 31, 1995 and 1994, and selected balance sheet data as of December
31, 1995 and 1994, have been derived from the Company's audited financial
statements. The selected statement of operations data for each of the six
months ended June 30, 1996 and 1995, and the selected balance sheet data as of
June 30, 1996, have been derived from the Company's unaudited financial
statements. In the
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<PAGE>
opinion of management of the Company, such unaudited financial statements
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such data. The results for the six months
ended June 30, 1996 are not necessarily indicative of the results to be achieved
for the entire year. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31
------------------------- ----------------------------
1996 1995 1995 1994
----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues .............................. $1,986,889 $ 95,349 $ 249,552 $ 407,676
Cost of sales and services ............ 620,609 124,610 265,374 455,637
Write-off of calculators ............ -- -- 132,025 --
Selling expense ....................... 56,155 22,763 32,785 125,104
General and administrative expense .... 612,520 416,695 890,228 529,501
Litigation expense .................... -- 50,607 636,310 --
---------- ----------- ----------- -----------
Operating income (loss) ............... 697,605 (519,326) (1,707,170) (702,566)
Interest expense ...................... 266,227 221,090 503,897 308,820
---------- ----------- ----------- -----------
Income (loss) before income taxes ..... 431,378 (740,416) (2,211,067) (1,011,386)
Provision (benefit) for income taxes .. 163,899 -- (3,910,000) --
---------- ----------- ----------- -----------
Net income (loss) ..................... 267,479 (740,416) 1,698,933 (1,011,386)
Preferred stock dividends ............. (55,246) (55,246) (111,100) (111,100)
---------- ----------- ----------- -----------
Net income (loss) applicable
to common stock ..................... $ 212,233 $ (795,662) $ 1,587,833 $(1,122,486)
========== =========== =========== ===========
Net income (loss) per common share:
Primary ............................ $ .04 $ (.20) $ 0.35 $ (.30)
========== =========== =========== ===========
Fully diluted ...................... $ .04 $ (.20) $ 0.31 $ (.30)
========== =========== =========== ===========
Weighted average number of shares
outstanding:
Primary ............................ 5,680,109 3,958,896 4,600,078 3,744,236
========== =========== =========== ===========
Fully diluted ...................... 5,936,504 3,958,896 5,108,433 3,744,236
========== =========== ===========
<CAPTION>
June 30, December 31,
----------- ----------------------------
BALANCE SHEET DATA: 1996 1995 1994
----------- ----------- -------------
<S> <C> <C> <C>
Working capital (deficit) .......................... $(1,686,802) $(1,909,876) $(4,549,700)
Total assets ....................................... $ 6,730,017 $ 5,244,239 $ 1,254,740
Long-term debt and obligations ..................... $ 4,001,677 $ 3,921,819 $ --
Total liabilities .................................. $ 7,371,812 $ 6,534,579 $ 4,576,468
Stockholders' equity (net capital deficiency) ...... $ (641,795) $(1,290,340) $(3,321,728)
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 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 $1,980,600 during the first six 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 $87,800 for the six months
ended June 30, 1995 to $6,000 for the six months ended June 30, 1996.
Approximately 6,150 units were sold during the first six months of fiscal 1995,
compared to approximately 392 units sold in the first six months of 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 $535,600 (658%) in 1996 as compared
to 1995 as a result of higher labor costs and depreciation 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 $39,600 (91%) in 1996 as compared to 1995. This
was due to the decreased number of units sold during the first half of 1996 as
compared to 1995.
Selling expense increased approximately $33,400 (147%) in the first six
months of 1996. This was primarily due to increases during 1996 in payroll, and
payroll related expenses.
General and administrative expenses increased $195,800 (47%) for the first
six months of 1996 as compared to the same period in 1995. During 1996, payroll
and payroll related expenses increased $86,300 as the Company began to increase
staff to handle the increased work load required from the Wal-Mart Supercenter
contract. Officer bonus accruals decreased $120,800 during the first half of
1996 as compared to the same period in 1995. Executive retirement plan
accruals, including insurance cost to fund future payments, totaled $137,000
during the 1996 first half. Expenses related to broker and analyst meetings and
other shareholder expenses increased $21,700 over 1995. Increases amounting to
$80,100 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
half of 1995 in connection with the Company's lawsuit against Wal-Mart.
Interest expenses increased approximately $45,100 (20%) in the first half
of 1996 due primarily to higher levels of borrowing as compared to the same
period in 1995. Also during 1996, interest has been accrued on amounts due
investors which has been recorded in the financial statements as long-term
obligation payable.
Year Ended December 31, 1995 compared to Year Ended December 31, 1994
In early 1993, the Company implemented a strategic change in its business
plan by redirecting its managed in-store Shoppers Calculator program away from
the retail grocery industry into the mass merchandising segment. This strategic
change resulted in significant declines in revenues during 1993, 1994 and 1995.
Through September
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<PAGE>
30, 1995 business activity had been severely curtailed and was limited to
selling Shoppers Calculators while the lawsuit filed against Wal-Mart on January
18, 1995 was being processed. In September, 1995 the lawsuit was settled with a
new contract and operating plan. Future business activity will be primarily
related to managing a Shoppers Calculator program in Wal-Mart Supercenters and
developing programs with other mass merchants.
As a result of implementation of the new Wal-Mart contract, fourth quarter
1995 earnings were increased by $3,910,000 from the accounting recognition of
the future tax benefits of the Company's net operating losses and temporary
differences aggregating $10,290,000 at December 31, 1995.
Revenue from sales of calculators decreased from $402,000 for the year
ended December 31, 1994 to $114,900 for the year ended December 31, 1995.
Approximately 30,900 units were sold during 1994, of which 4,000 units were sold
in the domestic market and 26,900 units were sold in the international market.
This compares to approximately 8,300 units being sold in 1995, including sales
of 8,000 units in the domestic market and 300 units in the international market.
The average selling price per unit during 1995 was $13.84 as compared to $13.01
per unit during 1994.
Cost of sales of calculators representing the manufacturing costs of units
sold, decreased approximately $123,000 (72%) in 1995 as compared to 1994. This
was due to the decreased number of units sold in 1995 as compared to 1994. Cost
of services, representing primarily labor to supervise, service and clean the
installed units and to change advertising messages, and depreciation of
installed units, decreased approximately $67,300 (23.7%) in 1995, compared to
1994 as a result of lower labor costs due to a reduction in the number of
calculators installed and serviced during the respective periods.
The complete inventory of calculators, some of which was classified with
property and equipment in 1994 was inspected in preparation for installation in
Wal-Mart Supercenters. Calculators not suitable for installation costing
$132,000 were written off.
Selling expense decreased approximately $92,300 (74%) in 1995 as compared
to the same period in 1994. This was primarily due to reductions during 1995 in
payroll, payroll related expenses, marketing materials costs and travel expense.
General and administrative expenses increased $360,700 (68%) in 1995 as
compared to the same period in 1994. During 1995, payroll and payroll related
expenses increased $73,500 as the company began to increase staff to handle the
increased work load required from the Wal-Mart Supercenter contract. In June,
1995 officer bonuses amounting to $187,500 were paid by issuing common stock and
in December $100,000 of additional officer bonuses were accrued. Expenses
related to broker and analyst meetings increased $21,800 over 1994. Also,
investment banking fees of $8,500 were incurred for financial consulting during
the first quarter of 1995. Reductions amounting to $38,900 occurred in
insurance, legal and audit fees, and occupancy costs while other miscellaneous
expenses increased $8,300.
Litigation expense in the amount of $636,300 was incurred during 1995 which
consisted of legal expenses and amounts due to investors who provided funding to
process the lawsuit against Wal-Mart. See "--Financial Condition and Liquidity"
below.
Interest expenses increased approximately $195,100 (63%) in 1995 as
compared to 1994 due primarily to high levels of borrowing and higher interest
rates. Also during 1995, interest has been accrued on certain past due accounts
payable and accrued preferred stock dividends.
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<PAGE>
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
In early 1993, the Company implemented a strategic change in its business
plan by redirecting its managed in-store Shoppers Calculator program away from
the retail grocery industry into the mass merchandising segment. This strategic
change resulted in significant declines in advertising revenue during 1993 and
1994. Although unit sales revenues have increased during 1994 as compared to
1993, the Company does not expect significant revenue increases unless it is
successful in implementing the mass merchant programs discussed above.
The net loss for the year ended December 31, 1994 was $1,122,500 compared
to a net loss of $2,334,200 for the comparable period in 1993. The Company's
1993 net loss was substantially greater than the net loss for 1994 due to the
costs associated with the removal of the units from the retail grocery network
which were charged to expense during 1993.
Revenue from sales of calculators and components increased from $334,400
for the year ended December 31, 1993 to $402,000 for the year ended December 31,
1994. Approximately 24,400 units were sold during 1993, of which 5,800 units
were sold in the domestic market and 18,600 units were sold in the international
market, compared to approximately 30,900 units sold in 1994, including sales of
4,000 units in the domestic market and 26,900 units in the international market.
The average selling price per unit during 1994 was $13.01 as compared to $13.73
per unit during 1993.
Costs of sales of calculators, representing the manufacturing cost of units
sold, increased approximately $19,900 in 1994 as compared to 1993 due to the
increased number of units sold in 1994 as compared in 1993. Cost of services
decreased approximately $568,700 in 1994 compared to 1993 as a result of lower
labor costs, auto expense and depreciation expense due to the removal of all of
the Company's calculators from the retail grocery chain network by the end of
fiscal 1993.
Selling expenses increased approximately $9,400 (8%) in 1994 as compared to
the same period in fiscal 1993. Sales commissions, marketing materials and
travel increased by $28,000, however, reductions of $18,600 occurred in payroll
costs, contract services and other miscellaneous sales expenses.
General and administrative expenses decreased approximately $194,900 (27%)
in 1994 as compared to the same period in fiscal 1993. Reductions amounting to
$223,000 occurred in payroll costs and expenses, travel expense, consulting
fees, business taxes, printing expenses, financing expenses, and occupancy
costs. Cost increases amounting to $28,000 occurred in legal, audit and
insurance expenses.
Interest expense increased $104,300 during 1994 as compared to the same
period last year as a result of higher short-term borrowings and increased
interest rates in 1994.
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 of $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.
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<PAGE>
During the second quarter of 1995, the Company issued 200,000 shares of
Common Stock as a partial settlement of a past due account. As a result of this
transaction, accounts payable and accrued interest were reduced by $75,000 and
$14,800, respectively.
The Company entered into separate agreements with Wal-Mart Stores, Inc. in
July 1993 and June 1994 which provided for the installation of the Company's
calculators in certain Wal-Mart stores. The July 1993 and June 1994 contracts
were never implemented and on January 18, 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 the new four-year contract, the
Company will install the Shoppers Calculators in all of Wal-Mart's Supercenters
in the continental United States and Wal-Mart will be 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 the
advertising sales, Wal-Mart has guaranteed advertising revenues to the Company
in excess of $23.5 million subject to the Company's obligation to install and
service the Shoppers Calculators during the revenue guaranty period. After the
Company has received payment of the guaranteed revenues, it has the option to
continue the contract through October 6, 1999, by assuming the advertising sales
responsibilities for the program. Upon conclusion of the contract, continuation
of the program is subject to re-evaluation by both parties.
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 resulting from the Wal-Mart contract entered into in
settlement of the litigation, has been calculated by the Company to be $540,721
including accrued interest through June 30, 1996, and has been recorded as long-
term obligation payable in the financial statements.
In compliance with the terms of the new Wal-Mart contract, the Company
furnished Wal-Mart with a detailed "operating plan" which projected advertising
revenues, capital costs and operating expenses based on the new contract. The
operating plan covered years 1995, 1996, 1997 and 1998. The key assumptions
concerning the number of Supercenters available for installation used in
developing the operating plan were provided to the Company by Wal-Mart and were
as follows:
SUPERCENTER INSTALLATIONS
<TABLE>
<CAPTION>
YEAR STORES SHOPPING CARTS
---- ------ --------------
<S> <C> <C>
1995 33 39,600
1996 200 240,000
1997 100 120,000
1998 100 120,000
--- -------
Total Installations 433 519,600
=== =======
</TABLE>
The Wal-Mart contract provided the Company with additional bank financing,
which has been guaranteed by Wal-Mart, in the amount of $700,000.
On March 6, 1996, the Company completed a restructuring of all past due
bank debt effective as of October 1, 1995. The Company's $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 of
$3,406,656. This new loan bears interest at the Chase Manhattan Bank prime rate
(8.25% on December 31, 1995) 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 projected
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<PAGE>
revenues under the Wal-Mart contract, the Company anticipates that payments on
the restructured bank debt will commence in February 1997.
The Company's first revenue period under the Wal-Mart contract began on
November 6, 1995. Through June 30, 1996, cumulative revenues received from Wal-
Mart totaled $2,107,530, reducing the guaranteed revenues to be received in
future periods to $21,447,270. The Company believes the cash flow from the Wal-
Mart contract should allow the Company to meet its anticipated cash requirements
for the foreseeable future, including repayment of all past due obligations.
During June 1996, certain Unit Warrants to purchase up to 60,000 units
(each unit consisting of two shares of common stock and one warrant to purchase
one share of common stock for $4.80 per share) were exercised. These Unit
Warrants were issued in June 1991 to the selling agent in connection with the
Company's initial public offering. A total of 120,000 shares of Common Stock and
warrants to purchase 60,000 shares of Common Stock at $4.80 per share were
issued, and the net proceeds to the Company from the exercise totalled $432,000.
The warrants expire on December 31, 1996.
The Company's total stockholders' equity as reflected on its balance sheet
at December 31, 1992, fell below the minimum capital and surplus requirements
necessary to maintain the listing of the Common Stock and Warrants on the Nasdaq
Small Cap Market. Consequently, the Common Stock and Warrants were delisted from
the Nasdaq system on April 23, 1993 and from the Boston Stock Exchange on
January 14, 1994. Because the Common Stock and Warrants have been delisted from
the Nasdaq Small Cap Market and the Boston Stock Exchange, holders of such
securities may encounter greater difficulty in selling them should they desire
to do so, and it may prove to be more difficult for the Company to raise future
capital to meet its obligations. The Company's securities are now trading on the
OTC Bulletin Board with approximately eight market makers. The Company intends
to seek listing of its Common Stock for quotation on the Nasdaq Small Cap Market
if and when the Company's financial condition improves to the extent necessary
to satisfy Nasdaq's listing requirements.
All statements other than statements of historical facts, including,
without limitation, statements concerning the projected installations of
Shoppers Calculators(R) in the Supercenters and 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 other factors which may affect the Company's ability to
comply with its obligations under the Wal-Mart contract, including risks
discussed elsewhere in this Prospectus. See "Business--Wal-Mart Supercenters.
BUSINESS
GENERAL
The Company, ADDvantage Media Group, Inc., is in the business of marketing
Shoppers Calculators(R) which are solar-powered calculators which attach to the
handles of shopping carts. The calculators are marketed under the registered
trademark "Shoppers Calculator(R)" and are designed with the three-fold purpose
of increasing the retailer's sales, assisting shoppers while they are in the
store and presenting an advertising message targeted to that consumer (in the
space provided on the calculator unit). Principal operating revenues of the
Company have historically been generated by the sales of the calculators and of
the advertising placed on the calculators. The Company is currently installing
its Shoppers Calculator(R) program in all the Supercenter stores operated by
Wal-Mart Stores, Inc. See "--Wal-Mart Supercenters" below.
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<PAGE>
DEVELOPMENT OF BUSINESS
The Shoppers Calculator(R) was originally designed by Michael G. Brennan, a
former officer and director of the Company, who obtained a design patent on the
product in 1986. Mr. Brennan then granted an exclusive license to manufacture,
market and sublicense the product to Michael Brennan and Associates, Inc.
("Brennan & Associates"), a company formed by him.
The original business plan of Brennan & Associates was to sell the
calculators, without an advertising concept, to retail chains for use by their
customers. Approximately 10,000 calculators were test marketed by Brennan &
Associates during the period from 1986 to 1990, however, Brennan & Associates
did not fully execute its business plan.
Charles H. Hood, whose experience is in the area of advertising (having
been chairman and principal owner of a major national advertising agency),
believed that the real potential for the calculator was in its use as an in-
store advertising medium. The calculator was redesigned slightly to include a
space for the insertion of advertising material on its face. In September 1989,
Mr. Hood formed the Company for the purpose of producing the Shoppers
Calculator(R) and marketing them as in-store advertising vehicles. The Company
then obtained the exclusive license to produce and market the Shoppers
Calculator(R) from Brennan & Associates. In December 1990, the Company acquired
all of the patent and trademark rights in the Shoppers Calculator(R) from Mr.
Brennan and Brennan & Associates.
The Company's business efforts initially were directed toward placing the
calculators in retail grocery chains and then selling the advertising space on
those calculators to national advertisers. The Company entered into contractual
agreements with the grocery chains, whereby the Company would install the
calculators in each chain's stores at no cost to the chain and agree to pay the
chain a percentage (generally 10%) of the advertising revenue generated from the
calculators installed in that chain's shores. During 1991, the Company entered
into such agreements with 19 grocery chains, representing approximately 1,555
stores, and was able to complete the installation in 13 of those chains,
representing 794 stores. A total of 163,000 Shoppers Calculators(R) were
installed in those chains.
However, in an effort to develop a national advertising network, the
Company's overhead increased significantly during 1991. The Company opened six
regional sales offices which dramatically increased selling expenses. The
Company incurred a substantial increase in general and administrative expenses
due to an overall increase in the size and scope of the Company's operations.
Further, the costs to service the installed units became a substantial burden on
the Company.
The Company generated advertising revenues of approximately $617,000 in
1991, which was far less than the Company anticipated under its business plan.
Although independent marketing research substantiated the Company's belief in
the Shoppers Calculator(R) as an effective in-store advertising medium, the
Company believes that national advertisers were reluctant to commit their
advertising dollars because the Company lacked having calculators installed in
the required number of stores in the top market areas to be considered a
national advertising network.
Because of the capital investment necessary to manufacture and install the
units in additional stores, the disappointing advertising revenues and the
substantial increase in expenses in 1991, the Company shifted its primary
emphasis during 1992 from selling advertising on the installed calculators to
selling the calculator units directly to the grocery chains. The Company offered
grocery chains the choice of either purchasing the calculators (and receiving a
higher percentage of advertising revenues, generally 30%) or obtaining the units
at no cost on the condition that the Company was not obligated to install the
units until it received commitments for placing advertisements on such units. In
addition, the Company found it necessary to implement a cost reduction program.
-17-
<PAGE>
Although the shift in emphasis from advertising sales to unit sales provided
some short-term cash flow relief, the Company believed it was necessary to
change its long-term strategy in order to become successful.
In early 1993, the Company redirected its managed in-store Shoppers
Calculator(R) program away from the retail grocery chain industry to the mass
merchandising industry segment. This move was motivated substantially by the
following:
. The significant decline in advertising revenues from the units
installed in grocery chains during the last half of 1992 due, the
Company believes, to the limited size and location of the
Company's installed network.
. The opportunity to manage a Shoppers Calculator(R) program in a
retail environment that has not previously been available to
other in-store advertising companies.
. The available market penetration (and accompanying media value to
advertisers) of the mass merchants.
Because of the strategic change in direction and in an effort to reduce
operating costs, the Company removed its calculators from its retail grocery
chain network. During the fourth quarter of 1993, the Company recognized an
expense of $563,637 for the write-down of the value of its calculator inventory
due to depreciation and shrinkage and to accrue future costs of refurbishment.
Beginning in 1991, the Company began test marketing the Shoppers
Calculator(R) in several Wal-Mart discount stores and, in 1992, added several
Kmart stores to its test marketing efforts. The Company entered into agreements
with Wal-Mart in July 1993 and June 1994 which provided for the installation of
the Company's calculators in certain Wal-Mart stores. However, the July 1993 and
June 1994 contracts were never implemented. In January 1995, the Company
initiated a lawsuit against Wal-Mart based on Wal-Mart's alleged breach of the
terms of the agreements. The Company and Wal-Mart settled the lawsuit and, in
connection with such settlement, entered into a new contract, effective as of
September 1, 1995, whereby the Company will install and maintain its Shoppers
Calculator(R) in all of Wal-Mart's Supercenters in the continental United
States. In July 1996, the chief executive officer of Wal-Mart expressed concerns
over certain aspects of the current Wal-Mart contract. Since that time the
Company and Wal-Mart have maintained communications in an effort to address the
concerns while continuing the installation of the Company's Shoppers
Calculator(R) program in the Supercenter stores under the terms of such
contract. The Company and Wal-Mart are currently negotiating an amendment to the
existing contract and Wal-Mart issued a press release in August 1996 stating
that it remained committed to honoring its contractual obligations to the
Company. There can be no assurance at this time that the parties will enter into
an amendment to the current contract or that either party will not breach or
otherwise fail to perform its obligations under the contract. See "--Wal-Mart
Supercenters" below.
The Company had continuing negotiations with Kmart Corporation ("Kmart")
since the Company discontinued its test marketing in Kmart stores in 1993, and
eventually entered into an agreement with Kmart on June 3, 1996. Under the Kmart
agreement, the Company will install and maintain its Shoppers Calculators in
certain Kmart and Super Kmart Center stores and will be responsible for
generating revenues, which will be shared with Kmart, from the sale of the
advertising messages. See "--Kmart Stores."
SHOPPERS CALCULATOR(R)
Shoppers Calculator(R) is a 3" x 7 1/2" calculator which mounts on the
handles of retail shopping carts and includes an advertising image area of 2
9/16" x 2 1/8" within which advertising messages are positioned. The units
themselves are molded from high impact plastic and are constructed to be both
water and shock resistant. The units are attached to the handle of each shopping
cart with stainless steel clamps, brackets and headless screws. The
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<PAGE>
calculator performs the basic mathematical functions (add, subtract, multiply
and divide) and has an expected life of approximately five years based on the
life of the solar cell.
The Company began test marketing the Shoppers Calculator(R) in several Wal-
Mart stores in late 1991 and in several Kmart stores in 1992. The Company
continued this test marketing in nine Wal-Mart stores and ten Kmart stores
throughout 1993. The Company did not receive any revenues from this testing and
was obligated to service the units during such testing. The Company discontinued
the test marketing in the Kmart stores and de-installed all calculators from
such stores during the latter part of 1993. The Company continued its test
marketing in the nine Wal-Mart stores until mid-1994 when all stores were de-
installed except the Bentonville, Arkansas store. Other than the costs to
service the calculators installed at the various test sites, the Company has not
incurred costs in connection with research and development activities during
fiscal 1994 or 1995. Based on the Company's research and its test marketing
conducted in Wal-Mart and Kmart stores, the Company believes that budget-minded
shoppers will utilize the calculators to monitor more precisely the total cost
of the items being purchased and, in doing so, often spend more money with the
retailer. The Company's research also indicates that the calculator is also used
to determine which quantities or product sizes provide the best value.
WAL-MART SUPERCENTERS
As discussed above under "--Development of Business," the Company and Wal-
Mart entered into a contract, effective as of September 1, 1995, whereby the
Company will install and maintain its Shoppers Calculator(R) in all of Wal-
Mart's Supercenter stores in the continental United States. Initially under the
contract, the Company is responsible for installing its calculators in Wal-
Mart's Supercenters in accordance with the anticipated schedule set forth below
and Wal-Mart is responsible for selling the advertising to be placed on the
calculators. The Company is to assist Wal-Mart and potential advertisers with
respect to developing advertising messages and will be responsible for
coordinating and obtaining the necessary camera-ready art work, printing and
producing the advertising messages, placing and changing the messages on the
installed calculators, and servicing and maintaining the calculators. Under the
contract, Wal-Mart is obligated to pay the Company $2,700 per installed store,
per four week advertising cycle, during the term of the contract in which Wal-
Mart is responsible for selling the advertising and to pay the Company the
amount of any shortfall if the advertising revenues paid to the Company by
October 6, 1998 are less than $23,554,800. As noted above under "--Development
of Business," the Company and Wal-Mart are currently negotiating an amendment to
the current contract. The Company anticipates that the amendment will provide
for the Company to assume the primary responsibilities for obtaining the
advertising commitments for the calculators placed in the Supercenters and for
Wal-Mart to provide assistance to the Company in those efforts. The negotiations
have also included discussions regarding a grant to the Company of the exclusive
right to place advertising on Wal-Mart's shopping carts in its Supercenters in
return for a reduction in the amount of revenues guaranteed by Wal-Mart. There
can be no assurance at this time, however, that the parties will enter into such
an amendment to the existing contract.
After the Company has received a total of $23,554,800 from Wal-Mart, the
Company has the option under the current agreement to continue the agreement and
assume all of the advertising sales responsibilities through October 6, 1999,
the expiration date of the agreement. During this period, Wal-Mart has no
obligation to guarantee advertising revenues and all advertising revenues will
be split 90% to the Company and 10% to Wal-Mart. Upon expiration of the
contract, the Shoppers Calculator(R) program is subject to re-evaluation by both
parties. Accordingly, there can be no assurance that the Shoppers Calculator(R)
program will be continued in the Supercenter network upon the agreement's
expiration.
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.
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<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 200 240,000 180(1) 141,478(1)
1997 100 120,000 N/A N/A
1998 100 120,000 N/A N/A
Totals 433 519,600
___________
</TABLE>
(1) Through June 30, 1996. The Company currently plans to complete
installations in 284 Supercenters during 1996.
Also under the contract, Wal-Mart guaranteed the Company's additional bank
financing in the amount of $700,000 which has been utilized primarily to fund
the acquisition of component parts and injection molding equipment for
completing calculator units, initial installation and servicing of the
calculators at Supercenter locations, the repayment of a note due with respect
to the Company's acquisition of its interests in certain patent and trademark
rights and the repayment of certain past due trade accounts. See "--
Manufacturing" below and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financial Condition and Liquidity".
Upon receipt by the Company of total payments of $23,554,800 under the Wal-
Mart agreement (which would occur no later than October 6, 1998), the Company
has the option to continue the agreement, at which time it will assume, unless
previously assumed pursuant to an amendment to the agreement, all advertising
responsibilities or allow the agreement to terminate. If the Company elects to
maintain the Shoppers Calculator(R) program in the Supercenters, the agreement
will be continued through October 6, 1999. The agreement may be terminated upon
the breach of any covenant, agreement, representation or warranty under the
agreement which is not cured within 30 days after receipt of written notice of
such default. Under the agreement, the Company has agreed to reasonably adhere
to the operating plan's schedule for installations and to service and repair the
calculators and advertising messages to the extent necessary to assure the
proper functional performance and first class appearance of the calculator and
advertisement. The Company has warranted to Wal-Mart that each calculator will
be in good working order on its installation date and has covenanted to make all
necessary adjustments, repairs and replacements necessary to maintain the
calculators in good working order. In addition, upon the termination of the
agreement or upon its expiration (unless extended by the parties), the Company
will be solely responsible for de-installing all the calculators from the
Supercenters.
Under the agreement, the Company is responsible for submitting a bill to
Wal-Mart in the amount of $2,700 for each installed Supercenter at the beginning
of each four week advertising cycle. Wal-Mart is obligated to pay the Company
within ten business days of Wal-Mart's receipt of any advertising revenues from
third parties, but in no event later than 30 days from the beginning of an
advertising cycle. Through June 30, 1996, Wal-Mart has utilized the Shoppers
Calculator(R) program for advertising its private label products and had not
sold advertising to any national advertisers.
KMART STORES
On June 3, 1996, the Company and Kmart entered into an agreement whereby
the Company will install and maintain its Shoppers Calculator(R) in designated
Kmart and Super Kmart Centers stores at no cost to Kmart. Under the agreement,
the Company will be responsible for selling the advertising to be placed on the
calculators
-20-
<PAGE>
and has agreed to pay Kmart a fee equal to 15% of the gross advertising revenues
generated. The agreement is for an initial term of one year and continues
thereafter on a month to month basis until terminated by either party on 60
days' prior written notice. The agreement is subject to earlier termination by a
party in the event of (i) a material breach of the agreement by the other party,
(ii) a material failure of any covenant, representation or warranty set forth in
the agreement, (iii) the insolvency or certain events of bankruptcy of the other
party, or (iv) the cessation of operations of the other party.
The number of Kmart stores to initially be included in the Shoppers
Calculator program have not yet been determined by the parties; however, the
Company currently anticipates that the agreement will initially include
approximately 125 Super Kmart Centers and 50 Kmart "Pantry" Stores. The Company
anticipates that it will not commence installation of its calculators in the
Kmart stores until it has received sufficient advertising commitments necessary
to cover the manufacturing and installation costs of the calculators to be
installed in such stores.
MARKETING
MASS MERCHANDISING PROGRAM. As discussed above under "--Development of
Business," in early 1993 the Company redirected its efforts away from the retail
grocery chain network towards the mass merchandising industry. Under the
Company's current business plan, it will offer to install the Shoppers
Calculator(R) in a mass merchandiser's retail store chain at no cost to the
merchandiser. In consideration therefor, the Company will agree to pay each
chain a percentage of the advertising revenues generated from the units in that
chain's stores.
As previously discussed in more detail under "--Wal-Mart Supercenters," the
Company has entered into an agreement with Wal-Mart for the installation of the
Company's calculators in Wal-Mart Supercenter stores throughout the continental
United States. Revenues generated from the Wal-Mart agreement accounted for
approximately 51% of the Company's total revenues in 1995 and are anticipated to
account for a significantly greater portion of the Company's revenues in 1996.
In addition, as discussed above under "--Kmart Stores," the Company recently
entered into an agreement with Kmart for the installation of its calculators in
designated Kmart stores at no cost to Kmart. The Company has agreed to pay Kmart
15% of the gross advertising revenues generated from the calculators installed
in the Kmart stores.
The Company anticipates that it may be necessary to modify and tailor the
specific terms of its program to meet the specific requirements of each of the
potential mass merchandisers. There can be no assurance at this time what the
specific terms of any such agreements will be should the Company be successful
in its efforts to enter into an agreement with any additional mass
merchandisers.
ADVERTISING. Advertising contracts will be sold in cycles of four weeks
each (13 cycles per year). The advertising messages displayed on the calculators
are changed at the beginning of each cycle by the Company. It is currently
anticipated that the advertisers will generally be responsible for submitting
the proposed ad inserts in camera-ready art form and that the Company will then
reproduce the ads onto custom cut advertising inserts for installation on the
calculators.
Under the Company's Shoppers Calculator(R) program with Wal-Mart, Wal-Mart
is currently responsible for obtaining advertising contracts from national
advertisers. Wal-Mart has the option to advertise its own private label products
or to sell advertising space on the calculators to the national advertisers.
Under the current Wal-Mart agreement, after the expiration of the period in
which Wal-Mart is responsible for obtaining advertising contracts, the Company
will be responsible for obtaining advertising contracts for the calculators
installed in the Supercenters. As noted previously under "--Wal-Mart
Supercenters," the Company and Wal-Mart are currently negotiating an amendment
to the existing agreement. The Company anticipates that the amendment will
provide for the Company to assume primary responsibility during the term of the
agreement for obtaining advertising contracts for the calculators installed in
the Supercenters. Under the Kmart agreement, and under the program to be
initially offered to other mass merchandising retail chains, the Company will be
responsible for obtaining
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<PAGE>
advertising contracts covering the calculator units to be installed in each
merchandiser's chain. The Company anticipates that it will offer advertisers
contracts to place advertising messages on a certain percentage of the total
calculators installed for a particular mass merchandising chain (e.g., 25% of
the calculators installed in the Supercenters). In addition, the Company may
grant particular advertisers an exclusive product category for advertising which
prohibits the Company from advertising products of competitors in that product
category during the term of the advertising cycle.
The Company has developed "package concept" calculators, which are
calculators with the shape and design of canned products (such as a soup, soft
drink or beer can) or packaged products (such as a detergent box, rice package
or candy bar), which also are attached to shopping cart handles. These
calculators would duplicate the packaging and bear the trademark and trade name
of a particular brand of product manufactured by an advertiser. The Company
estimates that the tooling costs necessary to commence manufacturing the package
concept calculators would approximate $50,000. The Company intends to offer the
availability of the package concept calculator to national advertisers
contracting with the Company for advertising in any mass merchandising network;
however, the Company would need substantial commitments from such advertisers
before it would proceed to incur the significant expenditure necessary to
manufacture the package concept calculators.
The Company will initially use a combination of an in-house marketing staff
and independent sales representatives to obtain advertising commitments for the
Company's Shopper Calculator(R) program. The Company believes it would generally
be obligated to pay a sales commission of approximately 15% to 25% on the
advertising revenues generated by any independent sales representatives
utilized. Whether utilizing its own marketing force and/or independent
representatives, it is probable that the Company's costs will increase with
respect to its generation of advertising revenues in the future and, as a
consequence, without corresponding increases in the number of stores included in
its Shoppers Calculator(R) program or an increase in the advertising rates
obtained, the Company's net revenues may decline by the increased costs
incurred. In addition, the Company is currently obtaining guaranteed revenues
for each advertising cycle for each Supercenter which is fully installed with
the Shoppers Calculator(R). There can be no assurance that the Company will be
able to sell all or any available advertising slots during any advertising cycle
in the future or that it will be able to sell such advertising at prices that
are comparable with that received currently under the Wal-Mart agreement.
DOMESTIC SALES. During the period from 1993 through 1995, the majority of
the Company revenues were generated from the sales of the Shoppers Calculator(R)
to domestic retail grocery chains. During fiscal years 1995, 1994, and 1993, the
Company sold approximately 8,000, 4,000 and 5,800 units, respectively, to
domestic retail grocery chains, generating revenues of approximately $111,600,
$64,400 and $83,700, respectively. The Company currently anticipates that, for
the first two to three quarters of 1996, all of its calculator units will be
utilized for installation in the Supercenter network. Accordingly, the Company
does not intend to actively market the Shoppers Calculator(R) to retail grocery
chains in the immediate future. Depending on the availability of the calculators
and the demand therefor from grocery or other retailers, the Company may resume
efforts to sell the units to such retailers from time to time in the future.
INTERNATIONAL SALES. In addition to the sale of the Shoppers Calculators(R)
domestically, the Company has sold the calculators in the international
marketplace through the use of international licensees and the Company's own
sales force. The Company has entered into license agreements with several
companies to market the Company's calculators in countries located in the
British Isles, South America and in the Middle East. Pursuant to these
agreements, these companies have been granted the exclusive rights to purchase
the calculators in the specified territories and have agreed to utilize their
best efforts to promote the sale and distribution of the calculators within
those territories. During 1995, the Company terminated its license agreement
with respect to its licensee for the British Isles due to the failure of the
licensee to meet certain minimum purchase requirements.
Because the Company has directed its efforts toward establishing operations
in the mass merchandising industry and had depleted its inventory of new units
for resale, the Company did not actively market the sale of
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<PAGE>
calculators in the international market in 1995. While the Company intends to
pursue marketing the Shoppers Calculator(R) program internationally, the Company
anticipates that international sales will continue to be nominal in the near
future as the Company continues its efforts to complete the installation of the
Supercenter network and to establish programs with other mass merchandising
retailers. A total of approximately 300, 26,900 and 18,600 units were sold
primarily through international licensees during fiscal 1995, 1994 and 1993,
respectively, generating revenues of approximately $3,300, $310,000 and
$231,000, respectively.
COMPETITION
Currently, most major mass merchandising chains have not licensed third
parties to sell in-store advertising in their retail stores. As a result, the
Company may be one of the first advertising providers serving the mass
merchants' retail stores. However, there are numerous competitors providing
other types of in-store advertising mediums to other types of retailers
including the framed advertising on the front of each shopping cart, shelf and
aisle signs and displays, and check-out counter signage. Most of these possible
competitors have greater financial and human resources and generally a more
diversified product line than the Company. In addition, one or more of the
Company's competitors could develop a product similar or, should it choose to
dispute the validity of the design patent, identical to the Shoppers
Calculator(R) and compete directly against the Company.
OPERATIONS
The Company currently has two operating crews. Each crew consists of four
or five employees and/or independent contractors and is responsible for
installing the calculators on the shopping carts at the Wal-Mart Supercenter
locations. In addition, the Company is in the process of building and developing
its field service operations which will be responsible for maintaining and
servicing the installed units and for replacing the advertising inserts on each
calculator at the end of each advertising cycle. The Company currently
anticipates that it will employ one field service employee to cover
approximately five Supercenter locations. The Company also intends to employ
area supervisors who will have the responsibility for overseeing the field
service operations for approximately 40 to 50 Supercenter locations, the exact
number of such locations to be dependent primarily on the geographic
concentration of the stores.
MANUFACTURING
All of the calculators previously installed in the Company's grocery chain
network were manufactured by Texas Instruments pursuant to a manufacturing
services agreement between the parties entered into in 1991. The Company
purchased approximately 259,000 units from Texas Instruments under the
agreement. The agreement with Texas Instruments was terminated in 1992 when the
Company ceased manufacturing units due to the significant decline in advertising
revenues experienced. Texas Instruments recently ceased providing custom
manufacturing services and the Company has begun ordering components of the
Shoppers Calculator(R) from several manufacturers and intends to complete the
final assembly at its warehouse facility. The Company has engaged the services
of a purchasing agent to source the needed components for assembling the
complete calculator units. In consideration for such services, the Company is
paying the agent a consulting fee equal to 15% of the costs of the components
purchased by the Company.
The Company salvaged the internal assemblies (the primary internal
calculator components) from approximately 70,000 of the calculators previously
installed in the Company's grocery chain network. These assemblies have been
utilized to complete the calculator units initially installed in the Supercenter
network. The Company currently utilizes Gavco Plastics Incorporated ("Gavco"), a
manufacturing company located in Broken Arrow, Oklahoma, to manufacture the
plastic cases constituting the shell of the calculators. The Company was able to
acquire the injection molding tools for the calculator units from Texas
Instruments and provide such tools to Gavco for its manufacturing of the shells.
Gavco is currently manufacturing the calculator shells at a rate of
approximately 30,000 per month.
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<PAGE>
The Company was able to purchase 140,000 pcb boards (a part of the internal
assembly) from Texas Instruments' inventory and Texas Instruments was
responsible for obtaining the remaining internal assembly components from
outside sources necessary for assembling 140,000 complete internal assemblies.
The Company reached an agreement with OAI Electronics, Inc., a manufacturing
company located in Tulsa, Oklahoma, to have one of its plants assemble the
internal assembly components received from Texas Instruments' inventory and
sourcing services. The completed internal assemblies will then be returned to
the Company for final assembly of the calculator units.
The Company has entered into an agreement with Nam Tai Electronic &
Electrical Products Ltd. ("Nam Tai"), a manufacturing company located in Hong
Kong, for the manufacture of the internal assemblies which will be needed to
complete installation of the Supercenter network. The Company has received
shipment of 50,000 internal assemblies from Nam Tai through September 19, 1996.
The Company has purchase order commitments for delivery of 99,000 assemblies
through February 1997, and has posted a letter of credit for its purchase
commitments.
While the Company is currently dependent on its existing suppliers for
component parts needed to complete the calculators for installation in the
Supercenter network, it believes that there are a number of available suppliers
for its component parts.
Other components for installation of the units (brackets, clamps, screws
and washers) are purchased from various manufacturers in the United States.
DESIGN PATENTS AND TRADEMARKS
A design patent was issued to Michael G. Brennan on the Shoppers
Calculator(R) in December 1986 for a device described as a "Calculator for a
Shopping Cart." A design patent was issued in August 1992 for the Shoppers
Calculator(R) design which includes the advertising space. The Company acquired
all rights to the design patents in December 1990. Registration by the Company
of the trademark "Shoppers Calculator(R)" was granted in July 1992 for a 10 year
term. In December 1995, the Company filed an application for registration of the
trademark "Shoppers Calculator(R)" and design with respect to its new logo. This
application is still pending and the registration has not yet been granted.
In 1992, the Company filed seven applications for design patents for
additional "package concept" designs for the Shoppers Calculator(R). Patents for
these designs were granted in late 1994. The design patents issued expire 14
years after the date of their issuance. In February 1996, the Company filed a
U.S. application for a design patent for a calculator design in the form of
certain rectangular packaged goods. This application is pending.
The Company has filed the necessary documentation to seek design patents or
registered designs in Australia, Canada, France, Germany, the United Kingdom and
Venezuela. Design patents or registered designs for the Shoppers Calculator(R)
have been granted or registered in Australia, Canada, Germany and the United
Kingdom. There is no assurance that foreign design patents will ultimately be
granted in those countries where applications are pending. In addition, there is
no assurance that the granting of design patents or the registration of
registered designs will provide adequate protection against competing products.
The Company believes that the design patent is material and important to
its business because of (i) the protection it should provide against competitors
using this precise design of advertising medium, and (ii) the revenues it
believes it will be able to generate through leasing and sales of the Shoppers
Calculators(R) and licensing their use. However, the Company does not believe
that the design patent is essential to its success. Because of its development
and marketing activities to date and the size of the potential market, the
Company believes that it could operate profitably even if it did not have the
protection of the design patent. The granting of a patent by the U.S. Patent
Office is not determinative of the validity of a patent; such validity can be
disputed by third parties in legal
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<PAGE>
proceedings or the Company may be forced to institute legal proceedings to
enforce validity. If any such legal proceedings were commenced, the costs
thereof could be substantial and have a material adverse effect on the Company.
The Company will benefit from the design patent and pending design patent only
if it is successful in its efforts to market the advertising space to
advertisers, however, there is no assurance that such advertising will be
commercially accepted. Additionally, substitutes for successfully patented items
are frequently developed and there can be no assurance that a substitute for the
Shoppers Calculator(R) will not be successfully developed and marketed, which
could have a material adverse effect on the future operations of the Company.
PROPERTIES
The Company maintains its corporate offices at 5100 East Skelly Drive,
Meridian Tower, Suite 1080, Tulsa, Oklahoma 74135. The Company currently leases
approximately 6,300 square feet for its corporate offices from a third party
under a lease which expires on August 31, 1999. The lease provides for monthly
rental payments of $6,715, and the Company currently subleases a portion of its
rented space for which it receives $1,950 per month. The Company also leases
approximately 3,000 square feet of warehouse space in Tulsa, Oklahoma from a
third party. The lease for the warehouse space expires November 30, 1997, and
requires monthly rental payments of $900.
EMPLOYEES
At August 31, 1996, the Company had 92 employees, ten of which were
employed in the Company's corporate offices, 69 of which were employed in field
service operations and 13 of which were employed in the Company's warehouse and
installation operations. Management considers its relationships with its
employees to be excellent.
LITIGATION
There are no material legal proceedings to which the Company is a
party.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of the Company, their
ages and their positions held in the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Charles H. Hood 57 Chairman, President and Director
Gary W. Young 55 Executive Vice President -
Finance and Administration,
Treasurer and Director
Steve C. Oden 44 Vice President, Sales and Marketing
Robert B. Davis, Jr. 41 Director of Field Services
J. Larre Barrett 56 Director
John W. Condon 59 Director
</TABLE>
The following is a brief account of the business experience of each
director, executive officer and key employee of the Company:
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<PAGE>
Charles H. Hood. Mr. Hood has served as Chairman, President and a
---------------
director of the Company since its formation in September 1989. From 1987 to June
1990, he served as Chairman of the Board of Directors of Ackerman, Hood &
McQueen, Inc., an advertising agency headquartered in Oklahoma, with offices
located in Tulsa and Oklahoma City, Oklahoma, Dallas, Texas, Washington, D.C.,
Cleveland, Ohio and Fort Smith, Arkansas. From 1970 to 1987, Mr. Hood served as
Chairman of the Board of Directors of Hood, Hope and Associates, Inc., an
advertising agency he co-founded in 1970. Mr. Hood received a Bachelor of
Journalism degree from the University of Missouri.
Gary W. Young. Mr. Young joined the Company in December 1990 as
-------------
Executive Vice President - Finance and Administration and a director. Mr. Young
is also the owner and President of Young Ideas Inc., a financial consulting and
investment company he founded in 1987. From 1980 to 1986, he served as Executive
Vice President and a Director of Geodyne Resources, Inc., an oil and gas
acquisition and exploration company headquartered in Tulsa, Oklahoma. From 1970
to 1980, Mr. Young was Senior Vice President of Finance and Administration and a
Director of Cotton Petroleum Corporation, a Tulsa, Oklahoma, based oil and gas
exploration company. From 1963 to 1970, he was employed by Arthur Young &
Company (now Ernst & Young), a national accounting firm. Mr. Young received a
Bachelor of Science degree from Kansas State University and is a Certified
Public Accountant.
Steve C. Oden. Mr. Oden joined the Company in April 1996 as Vice
-------------
President, Sales and Marketing. From May 1988 to April 1996, he served as Vice
President, Sales for Lowrance Electronics, a manufacturer of sonar and
navigational equipment sold to retailers in the marine, sporting goods and
avionics markets. From June 1983 to May 1988, he served as Sales Manager for
Ramsey Industries, a manufacturer of winches, speed reducers, and transmissions
sold to various commercial users and other winches and accessories sold to
recreational markets. From 1974 to 1983, Mr. Oden served in various positions,
including Sales Manager and International Sales Manager, with the Auto Crane
Company, a manufacturer of electric and hydraulic cranes. Mr. Oden received
Bachelor of Arts degrees in Business Administration and Psychology from
Westminster College.
Robert B. Davis, Jr. Mr. Davis joined the Company in January 1996 as
--------------------
Director of Field Services. From January 1995 to December 1995, he owned and
managed Management & Business Consulting, a business management consulting firm,
Tulsa, Oklahoma. From January 1993 to December 1994, he served as Chairman of
Global Pipeline Equipment, Inc., a manufacturer of high and low pressure
pipeline fittings for the hydrocarbon industry located in Tulsa, Oklahoma. From
May 1989 to January 1993, Mr. Davis served as Manager of Domestic and
International Customer Service for T. D. Williamson, Inc., an international
manufacturer of pipeline maintenance products for the hydrocarbon industry
headquartered in Tulsa, Oklahoma. Mr. Davis received a Bachelor of Science
degree in Business Administration from Oklahoma State University.
J. Larre Barrett. Mr. Barrett was elected a director of the Company
----------------
in January, 1992. He has served as Vice President of Decker Communications,
Inc., a consulting firm dealing with communication and skills building, since
December 1994. From March 1993 to December 1994, Mr. Barrett served as Vice
President of Sales for Dorna USA. From 1989 to February 1993, he served as Vice
President - Olympic Marketing Sales of CBS, Inc. Prior to this position, Mr.
Barrett spent 24 years with the ABC Television Network, most recently serving as
its Vice President of Sports Sales and Vice President of Olympic Marketing and
Sales. Mr. Barrett received Bachelor of Journalism and Master of Arts in
Radio/Television Sales & Management degrees from the University of Missouri.
John W. Condon. Mr. Condon has been a director of the Company since
--------------
September 1989. He has been employed by United Graphics, Inc., a company
specializing in pre-printing negatives and color separation, since 1964 and has
served as its Executive Vice President since that time. Mr. Condon received a
Bachelor of Science degree in Commerce with a major in Marketing from the
University of Notre Dame.
Each director is elected for a period of one year at the Company's annual
meeting of stockholders and serves until his successor is duly elected by the
stockholders. Directors of the Company received no cash
-26-
<PAGE>
compensation for their services as a director for the year ended December 31,
1995, other than reimbursement for expenses. Officers are elected by and serve
at the will of the Board of Directors.
SUMMARY COMPENSATION TABLE
The following table sets forth certain information for each of the fiscal
years ended December 31, 1995, 1994 and 1993, with respect to the compensation
paid for services rendered in all capacities to the Company by the Company's
chief executive officer and each executive officer whose total compensation
exceeded $100,000 during fiscal 1995. No other executive officer received salary
and bonus of greater than $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------------------------- ---------------------------------------------
Number
Other of Shares
Annual Restricted Under- Long-Term
Compen- Stock lying Incentive
Name and Salary Bonus sation Awards Options Payouts
Principal Position Year ($) ($) ($)(4) ($) Granted ($)
- ------------------ ---- ------ ----- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles H. Hood, 1995 $106,250(1) $143,750(3) $16,000 -0- 50,000 -0-
President and 1994 100,000(1) -0- -0- -0- -0- -0-
Chairman 1993 100,000(1) -0- -0- -0- 95,000(5) -0-
Gary W. Young, 1995 $106,250(2) $143,750(3) $16,000 -0- 50,000 -0-
Executive Vice 1994 80,000(2) -0- -0- -0- -0- -0-
President 1993 80,000(2) -0- -0- -0- 145,000(6) -0-
</TABLE>
________________
(1) Commencing October 1, 1995, Mr. Hood was entitled to receive an annual base
salary of $125,000, and for the first nine months of 1995 and for each of
the fiscal years 1994 and 1993, he was entitled to receive an annual base
salary of $100,000. However, Mr. Hood elected to forego receiving any
salary until such time as the Company's working capital position improves
or conditions otherwise warrant the payment thereof. The salary has been
recorded as an expense during each of these years and a liability has been
accrued for the salary payable to Mr. Hood. During 1995, Mr. Hood received
payments of $30,000 with respect to his accrued salary.
(2) Commencing October 1, 1995, Mr. Young became entitled to receive an annual
base salary of $125,000. Mr. Young was entitled to receive an annual base
salary of $100,000 for the first nine months of fiscal year 1995, and
$80,000 for each of fiscal years 1994 and 1993. However, Mr. Young elected
to forego receiving any salary until such time as the Company's working
capital position improves or conditions otherwise warrant the payment
thereof. The salary has been recorded as an expense during each of these
years and a liability has been accrued for the salary payable to Mr. Young.
During 1995, Mr. Young received payments of $30,000 with respect to his
accrued salary.
(3) Represents a cash bonus in the amount of $50,000 to each of Mr. Hood and
Mr. Young and the fair market value at the date of award ($.625 per share)
of 150,000 shares of Common Stock awarded to each of Mr. Hood and Mr. Young
as bonus compensation in 1995. Neither Mr. Hood nor Mr. Young received
payment of the cash bonus in 1995 and payment of such amount was deferred
until the Company's working
-27-
<PAGE>
capital improves or conditions otherwise warrant payment thereof. The
bonuses have been recorded as an expense for 1995 and a corresponding
liability has been accrued for the bonuses payable.
(4) Other annual compensation represents payment of a non-accountable expense
allowance in 1995. Amounts do not include the value of perquisites or other
personal benefits because the amount of such compensation, if any, does not
exceed the lesser of $50,000 or 10% of the total amount of annual salary
and bonus.
(5) Mr. Hood was granted options to acquire 95,000 shares of Common Stock at an
exercise price of $0.375 per share in May of 1993 which replaced options
for 95,000 shares having an exercise price of $1.00 per share which had
been granted in November 1992.
(6) Mr. Young was granted options to acquire 145,000 shares of Common Stock at
an exercise price of $0.375 per share in May of 1993 which replaced options
for 145,000 shares having an exercise price of $1.00 per share which had
been granted in November 1992.
OPTION GRANTS
The following table sets forth information with respect to stock options
granted by the Company to each of the named executive officers during the year
ended December 31, 1995.
<TABLE>
<CAPTION>
Number of Shares Percent of Total
Underlying Options Options Granted to Exercise Price
Name Granted Employees in 1995 Per Share ($) Expiration Date
- ---- ------------------ ------------------ --------------- ----------------
<S> <C> <C> <C> <C>
Charles H. Hood 50,000 46.5% $0.20 1/15/2005
Gary W. Young 50,000 46.5% $0.20 1/15/2005
</TABLE>
FISCAL YEAR END OPTION VALUES
There were no stock options exercised by the named executive officers
during the year ended December 31, 1995. The following table sets forth
information regarding the value of unexercised stock options held by each of the
named executive officers as of the year ended December 31, 1995.
<TABLE>
<CAPTION>
Number of Shares of Common Value of Unexercised
Stock Underlying Unexercised In-The-Money Options at
Options at December 31, 1995(#) December 31, 1995($)(1)
------------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles H. Hood 145,000 -0- $357,475 $-0-
Gary W. Young 195,000(2) -0- $477,725 $-0-
</TABLE>
____________
(1) Calculated by determining the difference between the fair market value of
the Company's Common Stock as of December 31, 1995 ($2.78 per share based
on the average of the high and low bid price on such date) and the exercise
price of the underlying options.
-28-
<PAGE>
(2) Does not include an option granted by Mr. Hood to Mr. Young to purchase
60,000 shares at an exercise price of $1.00 per share.
EXECUTIVE RETIREMENT PLAN
In December 1995, the Company adopted the ADDvantage Media Group, Inc.
Supplemental Executive Retirement Plan, a nonqualified deferred compensation
plan (the "Retirement Plan"). The Retirement Plan is an unfunded plan maintained
to provide deferred compensation to certain highly compensated employees of the
Company. Participation in the Retirement Plan is limited to senior management
employees of the Company designated by the Company's Board of Directors. Mr.
Hood and Mr. Young have been designated by the Board of Directors as eligible
participants under the Retirement Plan.
Under the Retirement Plan, a participant terminating employment upon
reaching age 62 (the "early retirement date") will be entitled to receive
monthly benefits of approximately $6,770 a month for a period of ten years. Upon
reaching age 65 (the "normal retirement date") or such later date coinciding
with the executive's termination of or retirement from employment, each
executive will be entitled to receive monthly payments of $10,416.67 (the
"normal retirement benefits") for a period of ten years. In the event of a long-
term disability (as determined by the Board of Directors), the executive will be
entitled to the normal retirement benefits under the Retirement Plan commencing
on the early retirement date. In the event of the death of an executive
participant prior to the termination of employment, such executive's spouse or
designated beneficiary will be entitled to the normal retirement benefits under
the Retirement Plan. If the executive participant's employment with the Company
is terminated prior to the early retirement date, no benefits are payable under
the Retirement Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Amended Certificate of Incorporation of the Company (the "Certificate
of Incorporation") provides that, to the fullest extent permitted by the General
Corporation Act of the state of Oklahoma, Directors of the Company shall not be
liable to the Company or its shareholders for monetary damages for breach of
fiduciary duty as a Director. The Bylaws of the Company provides for the
indemnification of Directors, officers, employees or agents of the Company
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlements actually and reasonably incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or certain other capacities if they acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interest of the Company
and had no reason to believe that their conduct was unlawful, except in
connection with a proceeding brought by or in the right of the Company in which
such person was adjudged liable to the Company, unless a court, in light of all
of the circumstances, rules that such person remains entitled to indemnification
(only expenses, including attorneys' fees, are subject to indemnification with
respect to such proceedings). Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to Directors, officers and controlling
persons of the Company pursuant to the foregoing provisions or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
PRINCIPAL STOCKHOLDERS
As of August 31, 1996, the Company had issued and outstanding 5,138,182
shares of Common Stock and 227,750 shares of Series A Preferred Stock. The
following table sets forth, as of August 31, 1996, the number and percentage of
shares of Common Stock and Series A Preferred Stock of the Company owned
beneficially, by class and on a combined basis, by (i) each of the directors of
the Company and executive officers named in the "Summary Compensation Table"
above, (ii) all officers and directors as a group, and (iii) each person owning
more than 5% of the Common Stock or Series A Preferred Stock. Except as
otherwise indicated, the stockholders listed in the table have sole voting and
investment powers with respect to the shares.
-29-
<PAGE>
<TABLE>
<CAPTION>
Common Stock Series A Preferred Stock(8)
------------------------------------ --------------------------------
Percentage of
Name and Address Number of Shares Percent of Number of Shares Percent Total Combined
of Beneficial Owner Beneficially Owned Class(1) Beneficially Owned of Class Voting Power(8)
------------------- ------------------ ---------- ------------------ ---------- ---------------
<S> <C> <C> <C> <C> <C>
Charles H. Hood............ 586,650(2) 11.0% 65,000 28.5% 12.0%
3254 East 75th Street
Tulsa, OK 74136
Gary W. Young.............. 462,930(3) 8.6% 58,750 25.8% 9.6%
7417 South Florence
Tulsa, OK 74136
J. Larre Barrett........... 128,680(4) 2.5% -0- - - 2.3%
1055 Hardscrabble Road
Chappaqua, New York
10514
John W. Condon............. 139,580(5) 2.7% 12,750 5.6% 2.9%
1748 E. 30th Place
Tulsa, OK 74114
Robert W. Davis............ 170,150 3.3% 56,875 25.0% 4.7%
3129 S. Columbia Circle
Tulsa, OK 74105
William S. Atherton........ 290,000(6) 5.6% 12,500 5.5% 5.6%
759 Cal Cove Dr.
Fort Meyers, FL 33919
All officers and directors 1,317,840(7) 23.2% 136,500 59.9% 25.3%
as a group (4 persons)
</TABLE>
____________________
* Less than one percent.
(1) Shares of Common Stock which an individual has the right to acquire within
60 days pursuant to the exercise of options are deemed to be outstanding
for the purpose of computing the percentage ownership of such individual,
but are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table or the
percentage ownership of all officers and directors as a group.
(2) Includes 190,000 shares subject to options which are currently exercisable
and 12,500 shares subject to warrants which are currently exercisable.
(3) Includes 240,000 shares subject to stock options which are currently
exercisable and 12,500 shares subject to warrants which are currently
exercisable.
(4) Includes 60,000 shares subject to stock options which are currently
exercisable.
(5) Includes 35,000 shares subject to stock options which are currently
exercisable.
-30-
<PAGE>
(6) Includes 70,000 shares owned by Atherton & Murphy Investment Company, of
which Mr. Atherton is a partner and 50% owner.
(7) Includes an aggregate of 525,000 shares subject to stock options which are
currently exercisable and 25,000 shares subject to warrants which are
currently exercisable.
(8) Each share of Series A Preferred Stock is convertible into that number of
shares of Common Stock determined by dividing the sum of $4.00 plus the
amount of accrued but unpaid dividends by $4.00. Holders of Series A
Preferred Stock are entitled to vote on all matters together with the
holders of Common Stock and each share of Series A Preferred Stock is
entitled to the number of votes equal to the number of shares then issuable
to the holder upon its conversion. For purposes of this table, it has been
calculated that each share of Series A Preferred Stock is entitled to
approximately 1.5 votes. See "Description of Securities--Preferred
Stock."
CERTAIN TRANSACTIONS
On January 18, 1995, the Company filed suit against Wal-Mart Stores, Inc.
in the United States District Court for the Western District of Arkansas
stemming from the contractual relationship between the Company and Wal-Mart with
respect to the use of the Shoppers Calculator(R) in certain Wal-Mart stores. In
order to fund the initial filing of the Wal-Mart litigation, Charles H. Hood and
Gary W. Young, each an officer and director of the Company, each loaned the
Company $10,000 for which they received an unsecured promissory note from the
Company payable within 20 days after final resolution of the Wal-Mart
litigation. In addition, the Company has agreed to pay to each of Messrs. Hood
and Young one percent of any recovery (net of legal fees and costs related to
the litigation) received as a result of the Wal-Mart litigation. Pursuant to
the Company's calculation of the net recovery from the Wal-Mart contract entered
into in settlement of the litigation, each of Messrs. Hood and Young are
entitled to receive approximately $50,056.
During the first quarter of 1995, the Company completed a private placement
of notes and warrants for an aggregate consideration of $200,000. The notes
issued in the offering bear interest at a rate of 10% per annum and principal
and interest on the notes were due and payable on or before 20 days after the
final resolution, by settlement, judgment or otherwise, of the Wal-Mart
litigation. Each warrant issued entitled the holder thereof to purchase one
share of Common Stock at an exercise price of $0.20 per share at any time within
two years of the date of issuance. In addition, the Company agreed to pay to
the investors a total of 10% of the net recovery from the Wal-Mart lawsuit or
any settlement thereof. Investors in the private placement included Messrs.
Hood, Young and Barrett, directors of the Company, and Robert W. Davis and
William S. Atherton, each an owner of more than five percent of a class of the
Company's outstanding securities. The following table sets forth certain
information with respect to the securities acquired by such purchasers in the
private placement:
-31-
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PRINCIPAL NET
AGGREGATE CASH SHARES UNDERLYING AMOUNT RECOVERY
NAME CONSIDERATION WARRANTS OF NOTES AMOUNT(1)
- ---- ------------- -------- -------- ---------
<S> <C> <C> <C> <C>
Chuck H. Hood $ 5,000 12,500 $ 5,000 $12,514
Gary W. Young 5,000 12,500 5,000 12,514
J. Larre Barrett 20,000 50,000 20,000 50,056
Robert W. Davis 10,000 25,000 10,000 25,028
William S. Atherton 20,000 50,000 20,000 50,056
</TABLE>
______________
(1) Represents each investor's interest in the net after tax cash flow
estimated to be received under the Wal-Mart contract which was entered into
in settlement of the litigation. The Company has calculated the total net
after tax cash flow recovery from such contract to equal $5,005,000.
On November 30, 1995, Messrs. Barrett, Davis and Atherton exercised their
warrants to purchase the underlying shares of Common Stock in exchange for one-
half of the outstanding principal balance of the notes covered in the private
placement. At such date, the Company issued replacement notes to Messrs.
Barrett, Davis and Atherton in the amounts of approximately $11,468, $5,835 and
$11,671, respectively, representing the remaining outstanding principal balance
on the original notes and accrued interest on the original notes through such
date. Principal and interest are due and payable on such notes on or before
June 30, 1997. In addition, on such date Mr. Hood and Mr. Young exchanged the
notes purchased in the offering for new notes each in the principal amount of
$5,347 (representing the outstanding principal balance of the original notes and
accrued interest thereon through such date), which notes mature as to principal
and interest on June 30, 1997.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 11,000,000 shares,
including (a) 10,000,000 shares of Common Stock, par value $.01 per share, of
which (i) 5,138,182 shares were issued and outstanding as of August 31, 1996,
and (ii) 1,689,750 shares were reserved for issuance upon the exercise of
currently outstanding options and warrants, and for the conversion of shares of
Series A Preferred Stock and (b) 1,000,000 shares of serial preferred stock, par
value $1.00 per share, of which 300,000 have been designated as Series A 10%
Cumulative Convertible Preferred Stock (the "Series A Preferred Stock"), of
which 227,750 shares were issued and outstanding as of August 31, 1996.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote for each
share held of record on each matter submitted to shareholders. Shares of Common
Stock do not have cumulative voting rights for the election of directors. The
holders of shares of Common Stock are entitled to receive such dividends as the
Board of Directors may from time to time declare out of funds of the Company
legally available for the payment of dividends, subject to any prior rights of
holders of Series A Preferred Stock and any other outstanding preferred stock.
The holders of shares of Common Stock do not have any preemptive rights to
subscribe for or purchase any stock, obligations or other securities of the
Company and have no rights to convert their Common Stock into any other
securities. Upon any liquidation, dissolution or winding up of the Company,
holders of shares of Common Stock are entitled to receive pro rata all of the
assets of the Company available for distribution to shareholders, subject to any
prior rights of holders of Series A Preferred Stock and any other outstanding
preferred stock.
-32-
<PAGE>
PREFERRED STOCK
The Board of Directors of the Company has the authority at any time and
from time to time to establish and designate one or more series of preferred
stock, to fix the number of shares of any series (which number may vary between
series) and to fix the dividend rights and preferences, the redemption price and
terms, liquidation rights, sinking fund provisions (if any), conversion
provisions (if any) and the voting powers (if any). This type of preferred
stock is sometimes referred to as "blank check" preferred stock. The Board of
Directors, without shareholder approval, could issue preferred stock with voting
and conversion rights that could adversely affect the voting power of holders of
Common Stock. Certain companies have used the issuance of preferred stock as an
anti-takeover device and the Board of Directors of the Company could, without
shareholder approval, issue preferred stock with certain voting, conversion
and/or redemption rights that could discourage any attempt to obtain control of
the Company in a transaction not approved by its Board of Directors.
At August 31, 1996, there were 227,750 shares of Series A Preferred Stock
issued and outstanding, with a stated value of $4.00 per share. Holders of
Series A Preferred Stock are entitled to receive, when and as declared by the
Company's Board of Directors, cumulative cash dividends at the annual rate of
$.40 per share. Dividends are payable quarterly on the last day of March, June,
September and December of each year.
The Series A Preferred Stock is redeemable by the Company, at its sole
option, at any time at a redemption price of $4.00 per share plus accrued and
unpaid dividends and accrued and unpaid interest thereon. The Series A
Preferred Stock may, at the option of the holder at any time, be converted into
shares of Common Stock at the conversion rate. The conversion rate will be
equal to (a) the sum of (i) $4.00 multiplied by the number of shares of Series A
Preferred Stock surrendered plus (ii) the dollar amount of any accrued and
unpaid dividends and any accrued and unpaid interest thereon, (b) divided by
$4.00.
The holders of Series A Preferred Stock are entitled to vote on all matters
to be voted on by the shareholders of the Company. Each holder of Series A
Preferred Stock is entitled to that number of votes equal to the number of whole
shares of Common Stock into which all of his or her shares of Series A Preferred
Stock are then convertible.
WARRANTS
On July 17, 1991, the Company completed a public offering of the Units,
each Unit consisting of two shares of Common Stock and one Warrant to purchase
one share of Common Stock, and, in connection therewith, issued 600,000
Warrants. Each Warrant entitles the holder, upon exercise, to purchase one
share of Common Stock at a price of $4.00 per share. The Warrants expire
automatically at 5:00 p.m., New York time, on December 31, 1996, unless redeemed
by the Company prior to that time. The Warrants may be redeemed by the Company
at a price of $.05 per Warrant on 30 days prior written notice if the closing
bid price of the Company's Common Stock for 10 consecutive trading days ending
within 15 days of the date of notice of redemption equals or exceeds $5.00 per
share.
TRANSFER AND WARRANT AGENT
North American Transfer Co. is the transfer agent and warrant agent for the
Company's Common Stock and Warrants.
-33-
<PAGE>
MARKET FOR SECURITIES
The Common Stock and Warrants are currently quoted on the OTC Bulletin
Board (symbols "ADDM" and "ADDMW," respectively). The Common Stock and Warrants
were listed on the Boston Stock Exchange from August 27, 1991 through January
14, 1994, when registration for trading of the Common Stock and Warrants was
terminated because of the Company's noncompliance with certain capital and
surplus maintenance requirements of the Exchange. The following table sets
forth, for the periods indicated, the range of high and low closing bid
quotations for the Common Stock and Warrants as quoted on the OTC Bulletin
Board. On September 18, 1996, the last sales price "as reported" on the OTC
Bulletin Board was $5 3/16 per share.
<TABLE>
<CAPTION>
Common Stock Warrants
------------ --------
Period High Low High Low
------ ---- --- ---- ---
<S> <C> <C> <C> <C>
FISCAL YEAR 1996:
First Quarter........................... $6.50 $2.25 $2.38 $0.25
Second Quarter.......................... 9.00 4.75 4.75 1.13
Third Quarter (through
September 12, 1996).................. 7.00 1.25 3.25 0.69
FISCAL YEAR 1995:
First Quarter........................... $0.91 $0.13 $0.03 $0.03
Second Quarter.......................... $1.07 $0.28 $0.05 $0.03
Third Quarter........................... $3.00 $0.63 $0.13 $0.13
Fourth Quarter.......................... $3.38 $1.63 $0.50 $0.19
FISCAL YEAR 1994:
First Quarter........................... $0.94 $0.25 $0.00 $0.00
Second Quarter.......................... $0.81 $0.13 $0.06 $0.03
Third Quarter........................... $0.69 $0.44 $0.04 $0.04
Fourth Quarter.......................... $0.50 $0.09 $0.03 $0.03
</TABLE>
The above quotations represent inter-dealer bid quotations, without
retail mark-ups, mark-downs or commissions, and do not necessarily represent
actual transactions.
Substantially all of the holders of Common Stock maintain ownership of
their shares in "street name" accounts and are not, individually, stockholders
of record. At June 30, 1996, there were approximately 115 holders of record of
Common Stock. However, the Company believes there are in excess of 800
beneficial owners of Common Stock.
DIVIDENDS. The Company has not paid cash dividends with respect to the
Common Stock in the past and has no present plans to pay dividends on the Common
Stock in the foreseeable future. Pursuant to the terms of the Series A
Preferred Stock, the Company may not declare or pay dividends on the Common
Stock unless cumulative dividends on the Series A Preferred Stock have been
paid. At June 30, 1996, Series A Preferred Stock dividends in arrears were
$472,023 and accrued interest on such dividends was $95,669. Also, during the
term of the agreement for the Company's revolving line of credit, no dividends
may be paid on the Common Stock.
-34-
<PAGE>
LEGAL OPINIONS
Certain legal matters with respect to the securities covered hereby will be
passed upon for the Company by Conner & Winters, A Professional Corporation,
2400 First Place Tower, 15 East 5th Street, Tulsa, Oklahoma. At June 30, 1996,
the Company owed Conner & Winters approximately $208,000 for prior legal
services.
EXPERTS
The financial statements of the Company at December 31, 1995 and 1994 and
for the years ended December 31, 1995 and 1994, appearing herein have been
audited by Tullius Taylor Sartain & Sartain, independent auditors, as set forth
in their report thereon appearing elsewhere herein and in the registration
statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
registration statement under the Securities Act with respect to the registration
of the securities covered hereby. This Prospectus, which constitutes a part of
the registration statement, omits certain of the information contained in the
registration statement in accordance with the Rules and Regulations of the
Commission, and reference is hereby made to the registration statement and the
exhibits thereto for further information with respect to the Company and the
securities to which this Prospectus relates. Statements contained herein
concerning the provisions of any document are not necessarily complete and, in
each instance, reference is hereby made to the copy of such document filed as an
exhibit to the registration statement. Each such statement is qualified in its
entirety by such reference. Items of information omitted from this Prospectus
but contained in the registration statement can be obtained from the Commission
upon payment of the fees prescribed by the Rules and Regulations of the
Commission.
-35-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AUDITED FINANCIAL STATEMENTS OF ADDVANTAGE MEDIA GROUP, INC.:
<S> <C>
Report of Independent Auditors.................................................................... F-2
Balance Sheets as of December 31, 1995 and 1994................................................... F-3
Statements of Operations for the Years ended December 31, 1995 and 1994........................... F-5
Statements of Changes in Stockholders' Equity for the Years ended December 31, 1995
and 1994......................................................................................... F-6
Statements of Cash Flows for the Years ended December 31, 1995 and 1994........................... F-7
Notes to Financial Statements..................................................................... F-9
</TABLE>
<TABLE>
<CAPTION>
INTERIM FINANCIAL STATEMENTS OF ADDVANTAGE MEDIA GROUP, INC. (UNAUDITED):
<S> <C>
Balance Sheet as of June 30, 1996................................................................ F-15
Statements of Operations for the Six Months Ended June 30, 1996 and 1995......................... F-17
Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995......................... F-18
Notes to Condensed Financial Statements for the Six Months Ended June 30, 1996 and 1995.......... F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
ADDvantage Media Group, Inc.
We have audited the accompanying balance sheets of ADDvantage Media Group, Inc.
as of December 31, 1995 and 1994, and the related statements of operations,
changes in stockholders' equity (net capital deficiency), and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 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, the financial statements referred to above present fairly, in
all material respects, the financial position of ADDvantage Media Group, Inc. as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
TULLIUS TAYLOR SARTAIN & SARTAIN
Tulsa, Oklahoma
March 6, 1996
F-2
<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1994
----------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,444 $ 169
Accounts receivable 6,926 10,226
Calculator inventory, at lower of
average cost or market - 10,576
Deferred income taxes 667,000 -
Other current assets 8,514 5,797
----------------------------------------
Total current assets 702,884 26,768
Property and equipment, at cost:
Calculators 749,107 803,229
Office and production equipment 341,575 333,727
Furniture and fixtures 64,417 64,417
----------------------------------------
1,155,099 1,201,373
Accumulated depreciation 331,385 550,632
----------------------------------------
823,714 650,741
Deferred income taxes 3,243,000 -
Patent, net of accumulated amortization of
$445,533 and $354,717 at December 31,
1995 and 1994, respectively 462,577 553,393
Deferred charges 12,064 23,838
----------------------------------------
Total assets $5,244,239 $1,254,740
========================================
</TABLE>
See notes to financial statement.
F-3
<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1994
----------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Note payable to bank $ 519,968 $ 1,132,622
Notes payable to shareholders and directors 176,808 26,000
Accounts payable 558,748 457,849
Accrued interest 252,677 312,610
Other accrued liabilities 687,782 438,045
Accrued preferred stock dividends 416,777 305,677
Current portion of long-term debt - 1,800,000
Current portion of patent note payable - 103,665
----------------------------------------
Total current liabilities 2,612,760 4,576,468
Long-term obligation 515,163 -
Long-term bank debt 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 December 31, 1995
and 1994; liquidation preference, $1,111,000 927,167 927,167
Common stock, $.01 par value, 10,000,000 shares
authorized; 4,927,620 and 3,908,620 shares
issued and outstanding at December 31, 1995
and 1994, respectively 49,276 39,086
Capital in excess of par value 5,991,428 5,558,063
Accumulated deficit (8,258,211) (9,846,044)
----------------------------------------
Net capital deficiency (1,290,340) (3,321,728)
----------------------------------------
Total liabilities and net capital deficiency $ 5,244,239 $ 1,254,740
========================================
</TABLE>
See notes to financial statements.
F-4
<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994
-------------------------------------------------
<S> <C> <C>
Revenues:
Advertising $ 126,900 $ -
Sales of calculators 114,862 401,976
Other 7,790 5,700
-------------------------------------------------
249,552 407,676
Costs and expenses:
Cost of advertising services 216,660 283,947
Cost of sales of calculators 48,714 171,690
Write-off of calculators 132,025 -
Selling expenses 32,785 125,104
General and administrative expenses 890,228 529,501
Litigation expense 636,310 -
-------------------------------------------------
1,956,722 1,110,242
-------------------------------------------------
Operating loss (1,707,170) (702,566)
Interest expense 503,897 308,820
Income (loss) before provision (benefit)
for income taxes (2,211,067) (1,011,386)
Provision (benefit) for income taxes (3,910,000) -
-------------------------------------------------
Net income (loss) 1,698,933 (1,011,386)
Preferred stock dividends (111,100) (111,100)
-------------------------------------------------
Net income (loss) applicable to common stock $ 1,587,833 $(1,122,486)
=================================================
Net income (loss) per share:
Primary $ 0.35 $ (0.30)
=================================================
Fully diluted $ 0.31 $ (0.30)
=================================================
</TABLE>
See notes to financial statements.
F-5
<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
Capital in
Preferred Stock Common Stock Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit Total
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 277,750 $927,167 3,708,620 $37,086 $5,513,563 $(8,723,558) $ (2,245,742)
Issuance of shares for cash - - 200,000 2,000 44,500 - 46,500
Preferred stock dividends ($.40 - - - - - (111,100) (111,100)
per share)
Net loss - - - - - (1,011,386) (1,011,386)
-------------------------------------------------------------------------------------------------
Balance at December 31, 1994 277,750 927,167 3,908,620 39,086 5,558,063 (9,846,044) (3,321,728)
Issuance of shares to settle past
due accounts payable - - 209,000 2,090 94,465 - 96,555
Issuance of shares for officer - - 300,000 3,000 184,500 - 187,500
bonuses
Issuance of shares for legal fees - - 25,000 250 62,250 - 62,500
Issuance of shares on exercise of - - 60,000 600 11,400 - 12,000
options
Issuance of shares on exercise of - - 425,000 4,250 80,750 - 85,000
warrants
Preferred stock dividends ($.40 - - - - - (111,100) (111,100)
per share)
Net income - - - - - 1,698,933 1,698,933
-------------------------------------------------------------------------------------------------
Balance at December 31, 1995 277,750 $927,167 4,927,620 $49,276 $5,991,428 $(8,258,211) $ (1,290,340)
=================================================================================================
</TABLE>
See notes to financial statements.
F-6
<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994
---------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,698,933 $(1,011,386)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Deferred income tax (3,910,000) -
Depreciation and amortization 154,043 172,440
Write-off of calculators 132,025 6,174
Amortization of discount on
shareholder notes payable 13,935 17,730
Stock compensation 187,500 -
Obligation in settlement of lawsuit 515,163 -
Changes in assets and liabilities:
Accounts receivable 3,299 24,736
Inventory 32,944 138,917
Other current assets (2,717) 2,772
Deferred charges 11,775 14,787
Accounts payable 177,027 63,997
Accrued interest 444,714 -
Other accrued liabilities 249,736 485,811
---------------------------------
Net cash used in operating activities (291,623) (84,022)
INVESTING ACTIVITIES
Purchases of property and equipment (322,470) (70,005)
Patent expenditures and related costs - (12,330)
---------------------------------
Net cash used in investing activities (322,470) (82,335)
</TABLE>
See notes to financial statements.
F-7
<PAGE>
ADVANTAGE MEDIA GROUP, INC.
STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
------------------------------
<S> <C> <C>
FINANCING ACTIVITIES
Sale of common stock $ - $ 46,500
Exercise of stock options and warrants 12,000 -
Proceeds from issuance of investor notes 220,000 -
Proceeds from issuance of bank notes 519,968 145,000
Payments on patent note (117,600) (87,500)
Payments on capital lease obligations - (4,142)
------------------------------
Net cash provided by financing activities 634,368 99,858
------------------------------
Increase (decrease) in cash 20,275 (66,499)
Cash and cash equivalents, beginning of year 169 66,668
------------------------------
Cash and cash equivalents, end of year $ 20,444 $ 169
==============================
Cash paid during the year for interest $ 18,466 $ 13,256
==============================
</TABLE>
See notes to financial statements.
F-8
<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1994
NOTE 1 - DESCRIPTION OF THE BUSINESS
The Company markets and sells in-store advertising to national advertisers.
This advertising is positioned on the Company's solar powered calculators
attached to the handles of mass merchants' shopping carts. The calculators are
patented and registered under the trademark "Shoppers Calculator(R)." The
Company also sells Shoppers Calculators(R) to third parties, including
independent retailers and international licensees.
The Company entered into an agreement with Wal-Mart Stores, Inc. in July 1993
and June 1994 which provided for the installation of the Company's calculators
in certain Wal-Mart stores. The July 1993 and June 1994 contracts were never
implemented and on January 18, 1995, the Company filed a suit against Wal-Mart
for 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 the 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 will be 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
the advertising sales, 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 guaranteed revenues, it
has the option to continue the contract through October 6, 1999, by assuming
advertising sales responsibilities for the program. Upon conclusion of the
contract, the program will be subject to re-evaluation by both parties.
In compliance with the terms of the new contract, on October 17, 1995, the
Company furnished Wal-Mart with a detailed operating plan which projects
advertising revenues, capital costs and operating expenses based on the new
contract. The purpose of this operating plan was to determine the financial
impact of the new contract to the Company, its bank and creditors. The
operating plan in its final form covered years 1995, 1996, 1997 and 1998. The
key assumptions used to develop the operating plan were provided to the Company
by Wal-Mart and were as follows:
SUPERCENTER INSTALLATIONS
<TABLE>
<CAPTION>
YEAR STORES SHOPPING CARTS
---- ------ --------------
<S> <C> <C>
1995 33 39,600
1996 200 240,000
1997 100 120,000
1998 100 120,000
Total Installations 433 519,600
=== =======
</TABLE>
F-9
<PAGE>
The Company's first revenue period under the new contract began on November 6,
1995. The cash flow from the Wal-Mart contract should allow the Company to meet
its anticipated cash requirements for the foreseeable future, including
repayment of all past due obligations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management 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 revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and cash equivalents
-------------------------
Cash and cash equivalents includes cash on deposit with financial institutions
and certificates of deposit with a maturity of 90 days or less.
Property and equipment
----------------------
Property and equipment is recorded at cost. The vast majority of Shoppers
Calculator(R) hardware and components not yet installed ($516,581 at December
31, 1995) will be installed for advertising use by the Company rather than sold
and is reported in property and equipment. Shoppers Calculators(R) installed on
shopping carts in the Company's advertising programs are capitalized and
depreciated over a five-year straight-line life. Calculator replacements are
charged to accumulated depreciation. Loss is recognized upon complete de-
installation of a customer's store or similar service unit to the extent that
the estimated fair value of the calculators is less than their carrying value.
Other property and equipment is depreciated on the straight-line method over
estimated useful lives ranging from three to ten years.
Revenue recognition
-------------------
The Company recognizes revenues from advertising sales ratably over the
advertising cycle. Sales of Shoppers Calculators(R) are recognized in the
period such units are shipped to the customer.
Net income (loss) per common share
----------------------------------
Net income (loss) per common share is based on the sum of the weighted average
number of common and common equivalent shares outstanding. The number of common
and common equivalent shares utilized in the per share computations are
4,600,078 for primary and 5,108,433 for fully diluted in 1995, and 3,744,236 for
1994. For 1995, conversion of preferred stock and related dividend and interest
accruals into common stock is not considered in the computations of fully
diluted earnings per share since the effect would not provide further dilution.
For 1994, the effects of the options, warrants and preferred stock would be
antidilutive and therefore are not considered in the computations.
Patent
------
The Company's Shoppers Calculators(R) patent was acquired from a person who, at
the time, was a director of the Company, and a company in which he was 50%
owner. It is carried at acquisition cost, net of accumulated amortization which
is computed on a straight-line basis over the life (five years remaining at
December 31, 1995) of such design patent. The Company periodically assesses its
ability to realize its investment in the patent based on undiscounted cash flows
from the Company's current business plans and strategies. If it becomes
necessary to
F-10
<PAGE>
recognize an impairment loss, it would be measured as the amount by which the
net book value of the patent exceeds its estimated fair value.
NOTE 3 - BANK BORROWINGS
On September 5, 1995 the Company completed a new working capital loan with a
bank which provides for a maximum line of credit of $700,000 of which $519,968
was outstanding at December 31, 1995. The loan, which has been guaranteed by
Wal-Mart, bears interest at Chase Manhattan Bank prime plus 1% (9.5% on
December 31, 1995) and has a maturity date of March 5, 1997. Payment terms are
tied into the operating plan which is an exhibit to the Wal-Mart Contract, dated
September 1, 1995. Based on the plan, the loan is anticipated to be repaid by
January 1997. Wal-Mart's guarantee is secured by the Company's patents on the
Shoppers Calculators(R).
On March 6, 1996, the Company completed a restructuring of all past due bank
debt effective as of October 1, 1995. A $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 of $3,406,656. This new
loan bears interest at Chase Manhattan Bank prime rate plus 1% (9.5% on December
31, 1995). The loan has a maturity date of May 31, 1998 with payment terms tied
into the operating plan which is an exhibit to 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; however, interest payments
must begin no later than February 28, 1997, and principal payments must begin no
later than May 31, 1997.
The new loan is secured by essentially all corporate assets and the agreement
prohibits the payment of common stock dividends, requires consent for the
payment of preferred stock dividends prior to December 1, 1997, and limits the
amount of additional borrowings to $50,000 and capital expenditures to $15,000
exclusive of calculator purchases. The agreement also requires that net proceeds
realized from the exercise of the common stock purchase warrants discussed in
Note 5 be used to pay down the amount outstanding under the agreement. Officers,
directors and a stockholder have guaranteed $270,000 of the note.
An officer and shareholder of the bank with which the Company has the loan
agreements owns 4% of the Company's common stock and 20% of the Company's
preferred stock outstanding.
NOTE 4 - INCOME TAXES
As a result of the Wal-Mart contract, the Company has concluded that it is more
likely than not that the tax benefits of its net operating losses and temporary
differences will be realized and, accordingly, recorded the tax benefit in the
fourth quarter of 1995. The net operating loss carryforward and temporary
differences aggregate $10,290,000 at December 31, 1995, resulting in a deferred
tax asset of $3,910,000. These losses expire in 2008.
The tax effects of temporary differences and tax loss carryforwards that give
rise to the deferred tax assets and liabilities at December 31, 1995, are as
follows:
F-11
<PAGE>
<TABLE>
<S> <C>
Current deferred tax:
Net operating loss carryforward $ 408,000
Accrued expenses 259,000
--------------
667,000
Noncurrent deferred tax:
Net operating loss carryforward 3,311,000
Long-term obligation 190,000
Financial basis in excess of tax basis of fixed assets (258,000)
--------------
3,243,000
--------------
Net deferred tax asset $3,910,000
==============
</TABLE>
NOTE 5 - STOCKHOLDERS' EQUITY
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
September 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 commencing June 26, 1992 and expiring October
25, 1996. 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 through
October 25, 1996. The warrants provide for adjustment of the exercise price upon
the occurrence of certain events.
The 277,750 shares of Series A preferred stock outstanding are redeemable by the
Company at its option at $4.00 per share plus accrued and unpaid dividends and
unpaid interest thereon, and are convertible into shares of common stock at a
conversion price of $4.00 per share. The holders of the Series A preferred stock
have the right to convert such shares, unpaid dividends and interest into shares
of common stock at the rate of $4.00 per share. The holders are entitled to vote
the number of whole shares of common stock into which their shares of preferred
stock are convertible.
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) 500,000 warrants, each of which will, upon exercise,
entitle the holder to acquire one share of common stock at a price of $.20 per
share, with a term of 24 months from the date of issuance and may only be
exercised during their terms; (b) a total of 10% of the net recovery from the
Wal-Mart lawsuit described elsewhere herein; and (c) Promissory Notes totaling
an indebtedness of $200,000 and bearing interest at the rate of 10% per annum.
On November 30, 1995, investors holding warrants to purchase 425,000 shares of
common stock exercised their option by converting promissory notes in the amount
of $85,000 to acquire the shares.
In order to fund the initial filing of the Wal-Mart litigation, the Company's
two executive officers each loaned the Company $10,000 for which they each
received a $10,000 unsecured promissory note and the right to receive one
percent of any recovery, net of related expenses, received in the Wal-Mart
litigation. The present value of the
F-12
<PAGE>
amount payable to the participants in the Company's 1995 offering of promissory
notes and warrants, who have the right to receive an aggregate of 12% of any
recovery in the litigation, has been calculated by the Company to be $498,711
and has been recorded as litigation expense in the financial statements. The
amounts due are payable from the cash flow from the Wal-Mart contract and are
reported in the financial statements as long-term obligation payable.
At December 31, 1995, 1,232,750 shares of common stock are reserved for the
exercise of warrants and conversions of the Series A preferred stock.
In April 1991, the stockholders adopted the 1991 Employee Stock Plan which
provides for the award to key employees of stock options, stock appreciation
rights and shares of restricted stock. The Plan provides that upon any issuances
of additional shares of common stock by the Company, other than pursuant to the
Plan, the number of shares covered by the Plan will increase to an amount equal
to 10% of the then outstanding shares of common stock. The purchase price per
share for stock options may not be less than the fair market value of the stock
on the date of grant. At December 31, 1995, options for 355,000 shares are
outstanding under the Plan, all of which are exercisable.
At December 31, 1995, directors and consultants held options outside the
Employee Stock Plan for 120,000 shares of which options for 95,000 shares were
exercisable.
At December 31, 1995, 492,762 shares of common stock were reserved for the
exercise of stock awards of which 137,762 shares were available for future
grants.
The following summary reflects option transactions during the two years ended
December 31, 1995:
<TABLE>
<CAPTION>
Shares Per Share Total
-----------------------------------------
<S> <C> <C> <C>
Common shares under option:
December 31, 1993 427,500 $.38-$3.63 $461,563
Granted - - -
Canceled - - -
Exercised - - -
------------- ------------
December 31, 1994 427,500 $.38-$3.63 461,563
Granted 277,500 $.20-$1.00 115,500
Canceled 170,000 $.38-$3.63 328,750
Exercised 60,000 $.20 12,000
------------- ------------
December 31, 1995 475,000 $.20-$1.00 $236,313
============= ============
Options exercisable:
December 31, 1995 450,000 $231,313
============= ============
</TABLE>
NOTE 6 - EXECUTIVE RETIREMENT PLAN
Effective December 7, 1995, the Company adopted the Supplemental Executive
Retirement Plan (Plan), a nonqualified plan. Two of the Company's executive
officers are the initial participants. Generally, the Plan provides for
retirement benefits for participants who remain employed with the Company until
age 65, with a reduced benefit available for early retirement at age 62.
Benefits will be funded by life insurance policies of
F-13
<PAGE>
$1,900,000 and $1,800,000 on the lives of the participants, for which the
Company is the beneficiary. The insurance policies replace a $1,000,000 key man
insurance policy on the life of the Company's chief executive officer. No
expense was accrued under the Plan in 1995; the cost of the related life
insurance is $13,805.
NOTE 7 - COMMITMENTS
At December 31, 1995, the Company had outstanding commitments to purchase
calculator and installation components in the amount of $164,000.
Commitments at December 31, 1995 under a noncancellable operating lease for
office space and warehouse space are as follows: 1996 - $40,661 and 1997 -
$9,900. .
Total rent expense for the years ended December 31, 1995 and 1994 was $47,470
and $45,956, respectively.
NOTE 8 - OTHER FINANCIAL INFORMATION
One customer accounted for 51% and 75% of the Company's total revenues for the
years ended December 31, 1995 and 1994, respectively.
Export sales were $3,300 and $310,388 for the years ended December 31, 1995 and
1994, respectively.
The carrying amounts of the Company's borrowings under its short and long-term
variable rate bank debt obligations approximate their fair values.
NOTE 9 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected comparative fourth quarter data are as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------------
<S> <C> <C>
Revenues $ 139,186 $ 39,737
Costs and expenses 563,450 233,294
------------------------------
Operating loss (424,264) (193,557)
Interest expense 156,945 126,761
------------------------------
Income (loss) before provision for
income taxes (581,209) (320,318)
Provision (benefit) for income taxes (3,910,000) -
------------------------------
Net income (loss) 3,328,791 (320,318)
Preferred stock dividends 27,927 27,927
------------------------------
Net income (loss) applicable to
common stock $ 3,300,864 $(348,245)
==============================
Net income (loss) per common share:
Primary $ .63 $ (.09)
=============================
Fully diluted $ .60 $ (.09)
=============================
</TABLE>
F-14
<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-----------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 972,952 $ 20,444
Accounts receivable 2,742 6,926
Deferred income taxes 667,000 667,000
Other current assets 40,639 8,514
-----------------------------
Total current assets 1,683,333 702,884
Property and equipment, at cost:
Calculators 1,403,594 749,107
Office and production equipment 407,678 341,575
Furniture and fixtures 75,527 64,417
-----------------------------
1,886,799 1,155,099
Accumulated depreciation 408,907 331,385
-----------------------------
1,477,892 823,714
Deferred income taxes 3,079,101 3,243,000
Patent, net of accumulated amortization of
$490,941 and $445,533 at June 30, 1996
and December 31, 1995, respectively 417,169 462,577
Deferred charges 72,522 12,064
-----------------------------
Total assets $6,730,017 $5,244,239
=============================
</TABLE>
F-15
<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
(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 516,778 558,748
Accrued interest 488,784 252,677
Other accrued liabilities 738,992 687,782
Accrued preferred stock dividends 472,023 416,777
Unearned advertising revenue 276,750 -
--------------------------
Total current liabilities 3,370,135 2,612,760
Long-term obligations 595,021 515,163
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 preferred stock -
277,750 shares issued and outstanding at
June 30, 1996 and December 31, 1995;
liquidation preference, $1,111,000 927,167 927,167
Common stock, $.01 par value, 10,000,000 shares
authorized; 5,062,620 and 4,927,620 shares
issued and outstanding at June 30, 1996 and
December 31, 1995, respectively 50,626 49,276
Capital in excess of par value 6,426,390 5,991,428
Accumulated deficit (8,045,978) (8,258,211)
--------------------------
Net capital deficiency (641,795) (1,290,340)
--------------------------
Total liabilities and net capital deficiency $ 6,730,017 $ 5,244,239
==========================
</TABLE>
F-16
<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
--------------------------
<S> <C> <C>
Revenues:
Advertising $1,980,630 $ -
Sales of calculators 6,023 87,813
Other 236 7,536
--------------------------
1,986,889 95,349
Costs and expenses:
Cost of advertising services 616,926 81,369
Cost of sales of calculators 3,683 43,241
Selling expenses 56,155 22,763
General and administrative expenses 612,520 416,695
Litigation expense - 50,607
--------------------------
1,289,284 614,675
--------------------------
Operating income (loss) 697,605 (519,326)
Interest expense 266,227 221,090
--------------------------
Income (loss) before provision
for income taxes 431,378 (740,416)
Provision for income taxes 163,899 -
--------------------------
Net income (loss) 267,479 (740,416)
Preferred stock dividends (55,246) (55,246)
--------------------------
Net income (loss) applicable to
common stock $ 212,233 $ (795,662)
==========================
Net income (loss) per common share $ 0.04 $ (0.20)
==========================
Shares used in computing net income (loss)
per common share 5,680,109 3,958,896
==========================
</TABLE>
F-17
<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
-----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 267,479 $ (740,416)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 122,930 75,796
Amortization of discount on shareholders
notes and long-term obligation 25,558 13,935
Bonuses awarded by issuance of common stock - 187,500
Deferred retirement plan obligation 54,300 -
Changes in assets and liabilities:
Accounts receivable 4,183 (3,613)
Inventory - 13,348
Other current assets (32,125) 301
Deferred charges (60,458) 6,092
Accounts payable (41,970) 16,310
Accrued interest 236,107 207,118
Other accrued liabilities 51,210 88,261
Unearned advertising revenue 276,750 -
Deferred income taxes 163,900 -
-----------------------------
Net cash provided by (used in) operating
activities 1,067,864 (135,368)
INVESTING ACTIVITIES
Purchases of property and equipment (731,700) -
-----------------------------
Net cash used in investing activities (731,700) -
</TABLE>
F-18
<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF CASH FLOWS (continued)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
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 underwriter warrants 432,000 -
Exercise of stock options 4,312 -
-----------------------------
Net cash provided by financing activities 616,344 220,000
-----------------------------
Increase in cash and cash equivalents 952,508 84,632
Cash and cash equivalents, beginning of period 20,444 169
-----------------------------
Cash and cash equivalents, end of period $ 972,952 $ 84,801
=============================
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION
Interest paid $ 361 $ 37
Bonuses paid by issuance of stock - 187,500
=============================
</TABLE>
F-19
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements 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 2 - DESCRIPTION OF BUSINESS
The Company markets and sells in-store advertising to national advertisers. The
advertising is positioned on the Company's solar powered calculators attached to
the handles of mass merchants' shopping carts. The calculators are patented and
registered under the 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 June 30,
1996, cumulative advertising revenues have totaled $2,107,530, reducing the
guaranteed advertising revenues to be received in future periods to $21,447,270.
F-20
<PAGE>
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.
<TABLE>
<CAPTION>
Shopping Shopping
Stores to Carts to Stores Carts
Year be Added be Added Installed Installed
-----------------------------------------------------------
<S> <C> <C> <C> <C>
1995 33 39,600 41 31,925
1996 200 240,000 180 141,478/(1)/
1997 100 120,000 N/A N/A
1998 100 120,000 N/A N/A
---------- ---------
433 519,600
========== =========
</TABLE>
/(1)/ Through June 30, 1996. The Company currently plans to complete
installations in 284 Supercenters during 1996.
In July 1996, the chief executive officer of Wal-Mart expressed concerns over
certain aspects of the current Wal-Mart contract. Since that time, the Company
and Wal-Mart have maintained communications in an effort to address the concerns
while continuing the installation of the Company's Shoppers Calculator(R)
program in the Supercenter stores under the terms of such contract. The Company
and Wal-Mart are currently negotiating an amendment to the existing contract and
Wal-Mart recently issued a press release stating that it remained committed to
honoring its contractual obligations to the Company.
The cost of Shoppers Calculator(R) components and installation hardware not yet
installed was $215,468 at June 30, 1996, and is included in the balance sheet
under property and equipment.
F-21
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and if given or
made, such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell
or solicitation of an offer to buy any securities other than those to which it
relates or an offer to any person in any jurisdiction where such offer or
solicitation would be lawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstances create any implication that
there has been no change in the affairs of the Company since the date hereof.
__________________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary............................................. 1
Risk Factors........................................ 5
Use of Proceeds..................................... 9
Plan of Distribution................................ 9
Redeemable Common Stock
Purchase Warrants................................. 10
Selected Financial Data............................. 10
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................................... 12
Business............................................ 16
Management.......................................... 25
Principal Stockholders.............................. 29
Certain Transactions................................ 31
Description of Securities........................... 32
Market for Securities............................... 34
Legal Opinions...................................... 35
Experts............................................. 35
Additional Information.............................. 35
Financial Statements................................ F-1
</TABLE>
_______________________________
ADDVANTAGE MEDIA
GROUP, INC.
660,000 SHARES OF COMMON STOCK
____________________
PROSPECTUS
____________________
, 1996
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Amended Certificate of Incorporation ("Certificate of
Incorporation") and Bylaws provide that each person who was or is made a party
to, or is involved in, any action, suit or proceeding by reason of the fact that
he or she was a director or officer of the Registrant (or was serving at the
request of the Registrant as a director, officer, employee or agent for another
entity) will be indemnified and held harmless by the Registrant, to the fullest
extent not prohibited by the Oklahoma General Corporation Act.
Under Section 1031 of the Oklahoma General Corporation Act, a
corporation may indemnify a director, officer, employee or agent of the
corporation against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. In the case of an action brought by or in the right of a
corporation, the corporation may indemnify a director, officer, employee or
agent of the corporation against expenses (including attorneys' fees) actually
and reasonably incurred by him or her if he or she acted in good faith and in a
manner he or she reasonably believed to be in the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless a court finds that, in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court shall deem proper.
The Registrant's Certificate of Incorporation ("Certificate of
Incorporation") provides that to the maximum extent permitted by the Oklahoma
General Corporation Act, a director of the Registrant shall not be liable to the
Registrant or its shareholders for monetary damages for breach of fiduciary duty
as a director. The Oklahoma General Corporation Act permits Oklahoma
corporations to include in their certificates of incorporation a provision
eliminating or limiting director liability for monetary damages arising from
breaches of their fiduciary duty. The only limitations imposed under the
statute and the Registrant's Certificate of Incorporation are that the provision
may not eliminate or limit a director's liability (i) for breaches of the
director's duty of loyalty to the corporation or its shareholders, (ii) for acts
or omissions not in good faith or involving intentional misconduct or known
violations or law, (iii) for the payment of unlawful dividends or unlawful stock
purchases or redemptions, or (iv) for transactions in which the director derived
an improper personal benefit.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated costs and expenses to be
incurred by the Company, other than commissions, in connection with the
transactions described in the Registration Statement.
<TABLE>
<S> <C>
Accounting fees and expenses............... $ 10,000
Legal Fees and expenses.................... 25,000
Printing and copying....................... 8,000
Blue Sky fees and expenses................. 5,000
Miscellaneous.............................. 2,000
---------
Total................................. $ 50,000
==========
</TABLE>
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth in chronological order is information regarding securities sold
by the Company within the past three years, the consideration received by the
Company for such securities and the section of the Securities Act of 1933, as
amended (the "Securities Act"), or rule of the Securities and Exchange
Commission under which exemption from registration was claimed. None of the
sales of securities set forth below were registered under the Securities Act. No
underwriter was utilized in connection with the sale of such securities and,
except as noted below, no commissions were paid in connection with such sales.
The securities described below are restricted securities that may not be sold or
otherwise transferred absent registration under the Securities Act or the
availability of an exemption from the registration requirements of the
Securities Act, and each certificate evidencing the securities owned by each
purchaser bears a legend to that effect.
1. On February 22, 1993, the Company completed an offering to Richard
Friedman of 80,000 shares of Common Stock and 80,000 warrants, each of which
entitling the holder to purchase one share of Common Stock at a price of $2.00
per share and having an exercise term of six months, for total consideration of
$100,000. The offer and sale of the securities were made pursuant to the
requirements of Rule 505 of Regulation D.
2. On October 28, 1994, the Company completed the sale of 50,000 shares
to Curtis L. Ivey at a price of $1.00 per share. The offer and sale of the
shares of Common Stock were made pursuant to the requirements of Rule 505 of
Regulation D. In connection with the sale of the Common Stock, the Company paid
a commission of $3,500 to Culverwell & Co., Inc., as selling agent.
3. On May 24, 1995, the Company issued 200,000 shares of Common Stock to
Timothy J. Hayes in satisfaction of an outstanding account payable to Timmer
Leasing Company of $75,000. The issuance of Common Stock was made in reliance
on the exemption from registration available under Section 4(2) of the
Securities Act.
4. On October 1, 1995, the Company issued 9,000 shares of Common Stock to
Westerguard Publishing Company in satisfaction of an outstanding account payable
in the amount of $9,000. The issuance of Common Stock was made in reliance on
the exemption from registration available under Section 4(2) of the Securities
Act.
5. On October 1, 1995, the Company issued 25,000 shares of Common Stock
to its legal counsel in the Wal-Mart litigation, Everett, Shemin, Mars & Stills,
in consideration for legal services having an estimated value of $62,500. The
issuance was made in reliance on the exemption from registration available under
Section 4(2) of the Securities Act.
6. In March 1995, the Company completed an offering consisting of (a)
500,000 warrants, each of which entitles the holder thereof to purchase one
share of Common Stock of the Company at a price of $0.20 per share, exercisable
for a two-year term from date of issuance; (b) promissory notes in an aggregate
principal amount of $200,000, bearing interest at a rate of 10% per annum; and
(c) a total of 10% of the net recovery, if any, from the Company's litigation
with Wal-Mart Stores, Inc. The aggregate offering price received was $200,000.
The offer and sale of the securities were made pursuant to the requirements of
Rule 506 of Regulation D.
Persons purchasing the securities were as follows:
David A. Cole Donald R. Conway
Richard S. Friedman Larre Barrett
Timothy J. Hayes Fred Karp
Robert W. Davis Edward G. Culverwell
Todd and Sue Ellen Young Charles H. Hood
William S. Atherton Gary W. Young
Robert J. Koenig
II-2
<PAGE>
7. On March 29, 1995, the Company issued 50,000 warrants, each of which
entitles the holder thereof to purchase one share of the Company's Common Stock
at a price of $0.25 per share and is exercisable within two years from the date
of issuance, to Culverwell & Company, Inc., in consideration for services
rendered during 1995. The issuance was made in reliance on the exemption from
registration available under Section 4(2).
8. On September 30, 1995, the Company issued 50,000 warrants, each of
which entitles the holder thereof to purchase one share of the Company's Common
Stock at a price of $1.00 per share, and is exercisable within two years from
the date of issuance, to L. G. Zangani in consideration for certain public
relations services during 1994 and 1995. The issuance was made in reliance on
the exemption from registration available under Section 4(2) of the Securities
Act.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
*1.1 Selling Agreement between the Company and Culverwell & Co., Inc.
*1.2 Form of Warrant Solicitation Agent and Exercise Fee Agreement
between the Company and Culverwell & Co., Inc.
*3.1 Certificate of Incorporation and amendments thereto.
3.2 Fourth Amendment to Certificate of Incorporation (incorporated by
reference to Exhibit 3.2 to the Company's Registration Statement
on Form S-1, Registration No. 33-49892 (the "S-1 Registration
Statement")).
*3.3 Bylaws.
4.1 Certificate of Designation, Preferences, Rights and Limitations
of Series A 10% Cumulative Convertible Preferred Stock
(incorporated by reference to Exhibit 4.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991).
*4.2 Warrant Agreement.
*4.3 Form of Warrant (included as Exhibit A to Warrant Agreement) .
*4.4 First Supplement and Amendment to Warrant Agreement dated June
25, 1994.
*4.5 Second Supplement and Amendment to Warrant Agreement dated June
25, 1994.
*5.1 Opinion of Conner & Winters, A Professional Corporation, as to
the legality of the securities being registered.
*10.1 ADDvantage Media Group, Inc. 1991 Employee Stock Plan.
10.2 Loan Agreement for $1,800,000 line of credit dated June 5, 1992,
between the Company and F&M Bank and Trust Company, as amended
(incorporated by reference to Exhibit 10.5 to the S-1
Registration Statement).
10.3 Amendment dated December 16, 1992 to the Loan Agreement
(incorporated by reference to Exhibit 10.5a to the S-1
Registration Statement).
10.4 Promissory Note for $100,000 line of credit dated September 17,
1992, between the Company and F&M Bank and Trust Company and
related agreements, guaranties and promissory notes between
II-3
<PAGE>
the Company and its directors (incorporated by reference to
Exhibit 10.6 to the S-1 Registration Statement).
10.5 Promissory Note for $125,000 line of credit dated October 29,
1992, between the Company and F&M Bank and Trust Company
(incorporated by reference to Exhibit 10.8 to the S-1
Registration Statement).
*10.6 Shopper's Calculator Contract, dated as of September 1, 1995,
between the Company and Wal-Mart Stores, Inc., as amended by the
First Amendment to the Shopper's Calculator Contract, the Second
Amendment to the Shopper's Calculator Contract and the Third
Amendment to the Shopper's Calculator Contract.
10.7 Promissory Note for $700,000 from the Company to The F&M Bank &
Trust Company dated September 5, 1995 (incorporated by reference
to Exhibit 10.10 to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995).
10.8 ADDvantage Media, Inc. Supplemental Executive Retirement Plan
effective December 7, 1995, and Subsequently Amended March 14,
1996 (incorporated by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1995).
*10.9 Letter Agreement between the Company and The F&M Bank & Trust
Company dated March 6, 1996, with respect to $3,406,655.66 credit
facility.
10.10 Promissory Note for $3,406,655.66 from the Company to The F&M
Bank and Trust Company effective October 11, 1995 (incorporated
by reference to Exhibit 10.13 to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1995).
*10.11 Agreement dated June 3, 1996, between the Company and Kmart
Corporation.
11.1 Statement re: computation of per share earnings (incorporated by
reference to Exhibit 11.1 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995).
23.1 Consent of Tullius Taylor Sartain & Sartain.
*23.2 Consent of Conner & Winters, A Professional Corporation (included
in opinion filed as Exhibit 5.1).
*24.1 Power of Attorney.
_____________________
*Previously filed as an exhibit to this Registration Statement.
ITEM 28. UNDERTAKINGS.
1. The Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement to:
(i) include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
II-4
<PAGE>
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) include any additional or changed material
information on the plan of distribution.
(b) For determining liability under the Securities Act of 1933,
to treat each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(c) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
2. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
provisions discussed in Item 24 above, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Company certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and authorized this Post-
Effective Amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Tulsa, State of
Oklahoma, on September 20, 1996.
ADDVANTAGE MEDIA GROUP, INC.
By: /s/ Charles H. Hood
----------------------------------------
Charles H. Hood
President
In accordance with the requirements of the Securities Act of 1933, as
amended, this Post-Effective Amendment to the Registration Statement was signed
by the following persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Charles H. Hood President and Director September 20, 1996
- --------------------------- (Principal Executive Officer)
Charles H. Hood
/s/ Gary W. Young Executive Vice President - Finance and September 20, 1996
- --------------------------- Administration, Treasurer and Director
Gary W. Young (Principal Financial Officer and
Principal Accounting Officer)
/s/J. Larre Barrett Director September 20, 1996
- ---------------------------
J. Larre Barrett
/s/ John W. Condon Director September 20, 1996
- ---------------------
John W. Condon
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description Page
- ----------- ----------- ------------
<S> <C>
*1.1 Selling Agreement between the Company and Culverwell & Co., Inc.
*1.2 Form of Warrant Solicitation Agent and Exercise Fee Agreement
between the Company and Culverwell & Co., Inc.
*3.1 Certificate of Incorporation and amendments thereto.
3.2 Fourth Amendment to Certificate of Incorporation (incorporated by
reference to Exhibit 3.2 to the Company's Registration Statement
on Form S-1, Registration No. 33-49892 (the "S-1 Registration
Statement")).
*3.3 Bylaws.
4.1 Certificate of Designation, Preferences, Rights and Limitations
of Series A 10% Cumulative Convertible Preferred Stock
(incorporated by reference to Exhibit 4.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991).
*4.2 Warrant Agreement.
*4.3 Form of Warrant (included as Exhibit A to Warrant Agreement).
*4.4 First Supplement and Amendment to Warrant Agreement dated June
25, 1994.
*4.5 Second Supplement and Amendment to Warrant Agreement dated
June 25, 1995.
*5.1 Opinion of Conner & Winters, A Professional Corporation, as to
the legality of the securities being registered.
*10.1 ADDvantage Media Group, Inc. 1991 Employee Stock Plan.
10.2 Loan Agreement for $1,800,000 line of credit dated June 5, 1992,
between the Company and F&M Bank and Trust Company, as amended
(incorporated by reference to Exhibit 10.5 to the S-1
Registration Statement).
10.3 Amendment dated December 16, 1992 to the Loan Agreement
(incorporated by reference to Exhibit 10.5a to the S-1
Registration Statement).
10.4 Promissory Note for $100,000 line of credit dated September 17,
1992, between the Company and F&M Bank and Trust Company and
related agreements, guaranties and promissory notes between the
Company and its directors (incorporated by reference to Exhibit
10.6 to the S-1 Registration Statement).
10.5 Promissory Note for $125,000 line of credit dated October 29,
1992, between the Company and F&M Bank and Trust Company
(incorporated by reference to Exhibit 10.8 to the S-1
Registration Statement).
</TABLE>
<PAGE>
<TABLE>
<S> <C>
*10.6 Shopper's Calculator Contract, dated as of September 1, 1995,
between the Company and Wal-Mart Stores, Inc., as amended by the
First Amendment to the Shopper's Calculator Contract, the Second
Amendment to the Shopper's Calculator Contract and the Third
Amendment to the Shopper's Calculator Contract.
10.7 Promissory Note for $700,000 from the Company to The F&M Bank &
Trust Company dated September 5, 1995 (incorporated by reference
to Exhibit 10.10 to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995).
10.8 ADDvantage Media, Inc. Supplemental Executive Retirement Plan
effective December 7, 1995, and subsequently Amended March 14,
1996 (incorporated by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-KSB for the year ended December 31,
1995).
*10.9 Letter Agreement between the Company and The F&M Bank & Trust
Company dated March 6, 1996, with respect to $3,406,655.66 credit
facility.
10.10 Promissory Note for $3,406,655.66 from the Company to The F&M
Bank and Trust Company effective October 11, 1995 (incorporated
by reference to Exhibit 10.13 to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1995).
*10.11 Agreement dated June 3, 1996, between the Company and Kmart
Corporation.
11.1 Statement re: computation of per share earnings (incorporated by
reference to Exhibit 11.1 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995).
23.1 Consent of Tullius Taylor Sartain & Sartain.
*23.2 Consent of Conner & Winters, A Professional Corporation (included
in opinion filed as Exhibit 5.1).
*24.1 Power of Attorney.
</TABLE>
_____________________
*Previously filed as an exhibit to this Registration Statement.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated March 6, 1996 on the financial
statements of ADDvantage Media Group, Inc. at December 31, 1995 and 1994,
included in or made a part of this Post-Effective Amendment No. 4 to Form SB-2
Registration Statement.
TULLIUS TAYLOR SARTAIN & SARTAIN
Tulsa, Oklahoma
September 20, 1996
