<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period ________________ to ______________
Commission File number 1-10799
ADDVANTAGE MEDIA GROUP, INC.
(Exact name of small business issuer as specified in its charter)
OKLAHOMA 73-1351610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5100 East Skelly Drive
Meridian Tower, Suite 1080
Tulsa, Oklahoma 74135-6552
(Address of principal executive office) (Zip Code)
(918) 665-8414
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No
--- ---
Shares outstanding of the issuer's $.01 par value common stock as of May 13,
1997 is 5,856,584.
Transitional Small Business Issuer Disclosure Format (Check one): Yes No x
--- ---
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADDVANTAGE MEDIA GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 798,464 $ 739,140
Accounts receivable 903,027 991,544
Deferred income taxes 2,812,781 3,288,000
Other current assets 21,924 21,166
---------- ----------
Total current assets 4,536,196 5,039,850
Property and equipment, at cost:
Calculators 2,256,449 2,157,010
Office and production equipment 512,731 478,274
Furniture and fixtures 85,788 80,320
---------- ----------
2,854,968 2,715,604
Accumulated depreciation 503,710 482,179
---------- ----------
2,351,258 2,233,425
Deferred income taxes -- 41,000
Patent, net of accumulated amortization of
$559,053 and $536,349 at March 31, 1997
and December 31, 1996, respectively 349,067 371,771
Deferred charges 74,157 37,489
---------- ----------
Total assets $7,310,678 $7,723,535
========== ==========
</TABLE>
-1-
<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
<S> <C> <C>
Current liabilities:
Note payable to bank $ 405,413 $ 1,156,656
Accounts payable 475,623 573,029
Accrued interest 114,186 138,505
Accrued settlement obligation 423,053 567,848
Other accrued liabilities 466,334 530,707
Accrued preferred stock dividends 432,849 432,850
Unearned advertising revenue 630,644 819,836
----------- -----------
Total current liabilities 2,948,102 4,219,431
Long-term obligations 138,468 108,600
Deferred income taxes 359,000 359,000
Shareholders' equity:
Preferred stock, $1.00 par value, 1,000,000
shares authorized; Series A preferred
stock--227,750 shares issued and
outstanding at March 31, 1997 and
December 31, 1996; liquidation preference,
$911,000 760,260 760,260
Common stock, $.01 par value, 10,000,000
shares authorized, 5,856,584 and
5,731,089 issued and outstanding at
March 31, 1997 and December 31, 1996,
respectively 58,566 57,311
Capital in excess of par value 8,781,413 8,753,869
Accumulated deficit (5,735,131) (6,534,936)
----------- -----------
Total stockholders' equity 3,865,108 3,036,504
----------- -----------
Total liabilities and stockholders' equity $ 7,310,678 $ 7,723,535
=========== ===========
</TABLE>
-2-
<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Advertising sales $2,837,892 $ 604,800
Other 2,356 2,268
---------- ----------
2,840,248 607,068
Costs and expenses:
Cost of advertising services 928,740 220,802
Selling expenses 110,491 5,957
General and administrative expenses 419,004 266,320
---------- ----------
1,458,235 493,079
---------- ----------
Operating income 1,382,013 113,989
Interest expense 43,338 131,111
---------- ----------
Income (loss) before income taxes 1,338,675 (17,122)
Provision for income taxes 516,219 --
---------- ----------
Net income (loss) 822,456 (17,122)
Preferred stock dividends (22,651) (27,623)
---------- ----------
Net income (loss) applicable to common stock $ 799,805 $ (44,745)
========== ==========
Net income (loss) per common share $0.13 $(0.01)
========== ==========
Shares used in computing net income (loss) per
common share 6,316,287 5,515,644
========== ==========
</TABLE>
-3-
<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 822,456 $ (17,122)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Deferred income tax 516,219 --
Depreciation and amortization 113,983 55,863
Accrual of long-term obligations 38,073 39,775
Changes in assets and liabilities:
Accounts receivable 88,516 (309,638)
Other current assets (758) 3,023
Deferred charges (36,668) (33,783)
Accounts payable (97,408) 31,095
Accrued interest (24,319) 116,160
Accrued settlement obligation (152,998) --
Other accrued liabilities (64,373) (20,502)
Unearned advertising revenue (189,192) 234,900
---------- ---------
Net cash provided by operating activities 1,013,531 99,771
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (209,112) (296,215)
---------- ---------
Net cash used in investing activities (209,112) (296,215)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of bank notes -- 180,032
Payment on bank note (751,243) --
Payment of preferred stock dividends (22,651) --
Exercise of options and warrants 28,799 4,312
---------- ---------
Net cash provided by (used in) financing activities (745,095) 184,344
---------- ---------
Increase (decrease) in cash 59,324 (12,100)
Cash and cash equivalents at beginning of period 739,140 20,444
---------- ---------
Cash and cash equivalents at end of period $ 798,464 $ 8,344
========== =========
Supplemental disclosures of cash information:
Cash Paid During Period For Interest $ 65,692 $ --
========== =========
</TABLE>
-4-
<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."
On September 1, 1995, the Company and Wal-Mart Stores, Inc. ("Wal-Mart") entered
into a four-year contract under which the Company will install and maintain
Shoppers Calculators(R) in all of Wal-Mart's Supercenters in the continental
United States and Wal-Mart is responsible for selling the advertising for the
calculators during the initial phase of the contract. During the term of the
contract in which Wal-Mart is responsible for selling the advertising, Wal-Mart
has agreed to guarantee advertising revenues to the Company in excess of $23.5
million, subject to the Company's obligation to install and service the Shoppers
Calculators(R) during the revenue guaranty period. After the Company has
received payment of the total guaranteed advertising revenues, the Company has
the option to continue the contract and assume the advertising sales
responsibilities for the program. If the Company elects to continue the
contract, the program will then continue on this basis for a fixed period of
time, and upon conclusion of the term of the contract, the program will be
subject to re-evaluation by both parties. Through March 31, 1997, cumulative
advertising revenues have totaled $9,977,851, reducing the guaranteed
advertising revenues to be received in future periods to $13,516,679. 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.
-5-
<PAGE>
<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 200 240,000 286 234,041
1997 100 120,000 /(1)/
1998 100 120,000 N/A N/A
--- -------
433 519,600
=== =======
</TABLE>
- - ------------------
(1) The Company currently plans to commence installations during the fall of
1997.
On November 22, 1996, the Company completed the redemption of its 600,000
outstanding Common Stock Purchase Warrants that were set to expire on December
31, 1996. A total of 582,907 Warrants, or 97%, were exercised with gross
proceeds aggregating $2,331,628. From the net proceeds, the Company paid
$2,000,000 of its outstanding bank debt in December 1996.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
The Company entered into a contract with Wal-Mart effective as of September 1,
1995, whereby the Company will install and maintain its Shoppers Calculators in
all of Wal-Mart's Supercenter stores in the continental United States. Under
the contract, Wal-Mart is obligated to pay the Company $2,700 per installed
store, per four-week advertising cycle, until a total of approximately
$23,500,000 has been received by the Company. Wal-Mart Supercenter store
installations commenced in October 1995 with 41 stores being installed by year-
end. During 1996 a total of 286 additional stores were installed bringing total
installations to 327 by the end of 1996. No additional stores are scheduled for
installation until late 1997.
Advertising revenues increased approximately $2,233,000 (369%) for the three
months ended March 31, 1997 as compared to the same period in 1996. During the
first fiscal quarter of 1997, an average of 327 stores contributed revenue for
the quarter as compared to 69 for the first quarter of 1996.
The significant increase in revenues improved operating income (income before
interest, taxes and preferred stock dividends) by $1,268,000 in the first
quarter of 1997 as compared to last year's first quarter. The Company's net
income applicable to common stock was $799,805 for 1997 first quarter, as
compared to a net loss of $44,745 for the same period last year. As a result of
implementation of the new Wal-Mart contract, 1995 earnings were increased by
$3,910,000 from the accounting recognition of the future tax benefits of the
Company's net
-6-
<PAGE>
operating losses and temporary differences aggregating $10,290,000 at December
31, 1995. The 1997 tax expense of $516,200 reflects the amortization of the
deferred tax asset recognized in 1995.
Costs of advertising services (representing primarily labor to supervise,
service and clean the installed units, to change advertising messages and
depreciation of installed units) increased approximately $707,900 (321%) in the
first quarter of 1997 as compared to the same period in 1996 as a result of
higher labor costs, printing costs and depreciation due to the increase in the
number of calculators installed and serviced during the respective periods.
Selling expense increased approximately $104,500 (1755%) in the first quarter of
1997. This was primarily due to increases during 1997 in payroll, payroll
related expenses, sales representative retainer expenses and marketing materials
costs. During the last quarter of 1996, the Company assumed primary
responsibility for selling advertising on the Shoppers Calculators installed in
Wal-Mart Supercenters.
General and administrative expenses increased $152,700 (57%) in the first
quarter of 1997 as compared to the same period in 1996. During 1997, payroll
and payroll related expenses increased $81,900 as a result of higher
compensation levels and increased staff required to administer the Wal-Mart
Supercenter contract. Officer and management bonus accruals increased $87,500
in 1997 as compared to the same period in 1996. Executive retirement plan
accruals, including insurance cost to fund future payments, decreased $18,900
during 1997. Expenses related to broker and analyst meetings and other
shareholder expenses decreased $7,300 over 1996. Increases amounting to $9,500
occurred in professional fees, occupancy costs, business taxes and other
expenses.
Interest expenses decreased approximately $87,800 (67%) during the first quarter
of 1997 as compared to the same period in 1996. Interest on bank borrowings
decreased $78,000 due primarily to significantly lower levels of bank borrowing
during 1997. Vendor interest was $2,700 lower in 1997 as compared to 1996.
Interest accrued on amounts due investors, including the accretion of discount
for the litigation settlement, decreased $7,100 during the first quarter of 1997
as compared to 1996.
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 20 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
-7-
<PAGE>
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 were paid in full at December 31, 1996.
The Company entered into separate 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. The July 1993 and June 1994 contracts were never implemented,
and on January 18, 1995, the Company filed a lawsuit 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 and
the Company dismissed the lawsuit. Under the terms of new four-year contract,
the Company is required to install the Shoppers Calculators in all of Wal-Mart's
Supercenters in the continental United States, and Wal-Mart is to sell the
advertising for the calculators during the initial phase of the contract.
During the term of the contract in which Wal-Mart sells the advertising, Wal-
Mart has agreed to guarantee advertising revenues to the Company of
approximately $23.5 million subject to the Company's obligation to install and
service the Shoppers Calculators during the revenue guaranty period. At the
conclusion of the Wal-Mart sales phase, the Company 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, 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 in the Wal-Mart litigation, has been calculated by the Company
to be $498,711, excluding accretion of discount, and has been recorded as
accrued settlement obligation in the financial statements.
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, F&M 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:
<TABLE>
<CAPTION>
SUPERCENTER INSTALLATIONS
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>
-8-
<PAGE>
The Wal-Mart contract provided the Company with additional bank financing, which
was guaranteed by Wal-Mart, in the amount of $700,000. The note evidencing
such financing, including $60,270 of accrued interest, was paid in October 1996.
On March 6, 1996, the Company completed a restructuring of all past due bank
debt effective as of October 1, 1995. The $1,800,000 revolving line of credit,
other notes totaling $1,132,622 and accrued interest through September 30, 1995
of $474,034 were combined into a new note in the amount of $3,406,656. This new
loan bears interest at the Chase Manhattan Bank prime rate (8.5% on March 31,
1997) 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. During
the fourth quarter of 1996, cash flow from operations and proceeds from the
Company's warrant redemption were utilized to reduce the principal amount of the
loan by $2,250,000. During the first and second quarters of 1997, the Company
amortized the balance of this loan by making principal payments of $751,000 and
$406,000, respectively.
The Company's first revenue period under the new contract began on November 6,
1995. Through March 31, 1997, cumulative revenues received from Wal-Mart
totaled $9,977,851, reducing the guaranteed revenues to be received in future
periods to $13,516,679. 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 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, with
net proceeds to the Company amounting to $432,000. The Warrants to purchase
60,000 shares of Common Stock, set to expire on December 31, 1996, were extended
to December 31, 1998.
During August 1996, 50,000 shares of the Company's Series A, 10% Cumulative
Convertible Preferred Stock, including accrued dividends and interest thereon,
were converted into 75,532 shares of the Company's Common Stock at the
conversion rate of $4.00 per share. As a result of this transaction,
stockholders' equity was increased $102,200.
On November 22, 1996, the Company completed the redemption of its 600,000
outstanding Common Stock Purchase Warrants that were set to expire on December
31, 1996. A total of 582,907 Warrants, or 97%, were exercised with gross
proceeds aggregating $2,331,628. This amount, net of commissions and
registration expenses of approximately $260,000, was committed to repayment of
the Company's bank debt. From the net proceeds, the Company paid $2,000,000 of
its outstanding bank debt in December 1996.
-9-
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements included in this report which are not historical facts are
forward-looking statements, including the information provided with respect to
the projected installations of the Shoppers Calculator in the Wal-Mart
Supercenters. These forward-looking statements are based on current
expectations, estimates, assumptions and beliefs of management; and words such
as "expects," "anticipates," "intends," "plans," "believes," "estimates" and
similar expressions are intended to identify such forward-looking statements.
These forward-looking statements involve risks and uncertainties, including, but
not limited to, the Company's dependence on the Wal-Mart contract, the number
and rate of new Supercenters constructed by Wal-Mart, general economic
conditions and conditions affecting the mass merchandising industry, the
availability of raw materials and manufactured components and the Company's
ability to fund the costs thereof, the Company's ability to adequately install
and service the calculator units as required by the contract, and other factors
which may affect the Company's ability to comply with its obligations under the
contract. Accordingly, actual results may differ materially from those expressed
in the forward-looking statements.
-10-
<PAGE>
PART II--OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(c) During the three months ended March 31, 1997, the Company issued a
total of 125,000 shares of its Common Stock, par value $0.01 per share, as a
result of exercises of warrants issued in 1995 in connection with a private
placement of securities to finance the costs of the Company's litigation against
Wal-Mart Stores, Inc. and to cover certain working capital requirements.
Included among the warrants exercised were those covering 50,000 shares that
were issued to Culverwell & Co., Inc. which received the warrants for its
services rendered as selling agent in the private placement. The other warrant
holders were knowledgeable, sophisticated investors who were among the limited
number of persons who invested in the securities offered in the 1995 private
placement. The exercise price was $.20 per share which was paid to the Company
in cash at the time of exercise. The issuances of the shares were not registered
under the Securities Act of 1933, as amended (the "Act"), because they did not
involve any public offerings and, thus, were exempt from the registration
requirements of the Act under Section 4(2) thereof.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description
----------- -----------
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADDVANTAGE MEDIA GROUP, INC.
SIGNATURE TITLE DATE
- - --------- ----- ----
/s/ Charles H. Hood Director and President May 10, 1997
- - --------------------- (Principal Executive Officer)
Charles H. Hood
/s/ Gary W. Young Director, Executive Vice President - May 10, 1997
- - --------------------- Finance and Administration and
Gary W. Young Treasurer (Principal Financial Officer)
-12-
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
----------- -----------
11 Statement re: Computation of Per Share
Earnings
27 Financial Data Schedule
-13-
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
Three months ended March 31, 1996
<TABLE>
<CAPTION>
Primary
-----------
<S> <C>
Net income $ 822,456
Less preferred stock dividends (22,651)
----------
Net income applicable to common stock 799,805
==========
Weighted average shares outstanding 5,779,762
Effect of options and warrants 536,525
----------
Weighted average common and common
equivalent shares 6,316,287
----------
Net income per common share $0.13
==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 798,464
<SECURITIES> 0
<RECEIVABLES> 903,027
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,536,196
<PP&E> 2,854,968
<DEPRECIATION> 503,710
<TOTAL-ASSETS> 7,310,678
<CURRENT-LIABILITIES> 2,948,102
<BONDS> 0
0
760,260
<COMMON> 58,566
<OTHER-SE> 3,046,282
<TOTAL-LIABILITY-AND-EQUITY> 7,310,678
<SALES> 2,837,892
<TOTAL-REVENUES> 2,840,248
<CGS> 0
<TOTAL-COSTS> 928,740
<OTHER-EXPENSES> 529,495
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,338
<INCOME-PRETAX> 1,338,675
<INCOME-TAX> 516,219
<INCOME-CONTINUING> 822,456
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 822,456
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
