<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 September 30, 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 November
5, 1997 is 5,906,584.
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>
September 30, December 31,
1997 1996
------------- ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,268,046 $ 739,140
Accounts receivable 110,030 991,544
Deferred income taxes 1,935,122 3,288,000
Other current assets 46,732 21,166
---------- ----------
Total current assets 3,359,930 5,039,850
Property and equipment, at cost:
Calculators 2,815,823 2,157,010
Office and production equipment 806,913 478,274
Furniture and fixtures 90,278 80,320
---------- ----------
3,713,014 2,715,604
Accumulated depreciation 555,893 482,179
---------- ----------
3,157,121 2,233,425
Deferred income taxes -- 41,000
Patent, net of accumulated amortization of
$604,451 and $536,349 at September 30,
1997 and December 31, 1996, respectively 303,659 371,771
Deferred charges 151,784 37,489
---------- ----------
Total assets $6,972,494 $7,723,535
========== ==========
</TABLE>
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<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
<S> <C> <C>
Current liabilities:
Note payable to bank $ -- $ 1,156,656
Accounts payable 353,737 573,029
Accrued interest -- 138,505
Accrued settlement obligation 140,463 567,848
Other accrued liabilities 299,044 530,707
Accrued preferred stock dividends -- 432,850
Unearned advertising revenue 157,662 819,836
----------- -----------
Total current liabilities 950,906 4,219,431
Long-term obligations 198,204 108,600
Deferred income taxes 359,000 359,000
Stockholders' equity:
Preferred stock, $1.00 par value, 1,000,000
shares authorized; Series A preferred
stock--227,750 shares issued and
outstanding at September 30, 1997 and
December 31, 1996; liquidation preference,
$911,000 760,260 760,260
Common stock, $.01 par value, 10,000,000
shares authorized, 5,906,584 and
5,731,089 issued and outstanding at
September 30, 1997 and December 31,
1996, respectively 59,066 57,311
Capital in excess of par value 8,862,633 8,753,869
Accumulated deficit (4,217,575) (6,534,936)
----------- -----------
Total stockholders' equity 5,464,384 3,036,504
----------- -----------
Total liabilities and stockholders' equity $ 6,972,494 $ 7,723,535
=========== ===========
</TABLE>
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<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Advertising sales $2,900,958 $2,229,829
Other 15,579 8,467
---------- ----------
2,916,537 2,238,296
Costs and expenses:
Cost of advertising services 1,115,217 584,330
Selling expenses 167,572 58,370
General and administrative expenses 402,448 361,273
---------- ----------
1,685,237 1,003,973
---------- ----------
Operating income 1,231,300 1,234,323
Interest expense 8,924 132,284
---------- ----------
Income before provision for income taxes 1,222,376 1,102,039
Provision for income taxes 473,220 418,882
---------- ----------
Net income 749,156 683,157
Preferred stock dividends (22,899) (22,900)
---------- ----------
Net income applicable to common stock $ 726,257 $ 660,257
========== ==========
Net income per common share $ 0.11 $ 0.11
========== ==========
Shares used in computing net income per
common share 6,380,898 5,845,517
========== ==========
</TABLE>
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<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Advertising sales $8,608,274 $4,210,459
Other 24,401 14,726
---------- ----------
8,632,675 4,225,185
Costs and expenses:
Cost of advertising services 3,022,259 1,204,939
Selling expenses 435,324 114,525
General and administrative expenses 1,214,421 973,793
---------- ----------
4,672,004 2,293,257
---------- ----------
Operating income 3,960,671 1,931,928
Interest expense 72,738 398,511
---------- ----------
Income before provision for income taxes 3,887,933 1,533,417
Provision for income taxes 1,502,371 582,781
---------- ----------
Net income 2,385,562 950,636
Preferred stock dividends (68,201) (78,146)
---------- ----------
Net income applicable to common stock $2,317,361 $ 872,490
========== ==========
Net income per common share $ 0.37 $ 0.15
========== ==========
Shares used in computing net income per
common share 6,315,209 5,800,939
========== ==========
</TABLE>
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<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,385,562 $ 950,636
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income tax 1,393,878 582,781
Depreciation and amortization 379,607 233,830
Accrual of long-term obligations 89,604 81,450
Changes in assets and liabilities:
Accounts receivable 881,513 (5,171)
Other current assets (25,565) (19,326)
Deferred charges (82,574) (99,561)
Accounts payable (219,294) (37,514)
Accrued interest (138,505) 322,880
Accrued settlement obligation (427,383) 38,956
Other accrued liabilities (231,663) 43,710
Unearned advertising revenue (662,174) 163,736
----------- -------------
Net cash provided by operating activities 3,343,006 2,256,407
INVESTING ACTIVITIES
Purchases of property and equipment (1,235,192) (1,379,716)
----------- -------------
Net cash used in investing activities (1,235,192) (1,379,716)
FINANCING ACTIVITIES
Proceeds from issuance of bank notes -- 180,032
Payments on bank note (1,156,656) (315,000)
Payment on shareholders' and directors' notes -- (60,000)
Payment of preferred stock dividends (501,051) --
Exercise of options and warrants 78,799 436,312
----------- -------------
Net cash provided by (used in) financing activities (1,578,908) 241,344
----------- -------------
Increase in cash 528,906 1,118,035
Cash at beginning of period 739,140 20,444
----------- -------------
Cash at end of period $ 1,268,046 $ 1,138,479
=========== =============
Supplemental disclosures of cash flow information:
Interest paid $ 280,304 $ 45,145
=========== =============
Income taxes paid $ 108,576 $ --
=========== =============
Non Cash Investing & Financing Activities
Warrants issued for services $ 31,720 $ --
=========== =============
</TABLE>
<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 was responsible for selling the advertising for the
calculators during the initial phase of the contract. During the last quarter
of 1996, the Company assumed the responsibility for sales of advertising and
this arrangement was formalized in an amendment to the Wal-Mart contract dated
August 25, 1997. Wal-Mart has agreed to guarantee advertising revenues to the
Company 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. 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 September 30, 1997,
cumulative advertising revenues have totaled $15,748,233, reducing the
guaranteed advertising revenues to be received in future periods to $7,746,297.
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>
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 2/(1)/ 1,071
1998 100 120,000 N/A N/A
--- -------
433 519,600
=== =======
</TABLE>
_________________________
(1) The Company currently plans to install 9 Supercenters during 1997.
If the Wal-Mart contract is not renewed upon its termination and the Company has
not then entered into or implemented contracts with other mass merchants or
other parties or acquired or entered into or acquired new lines of business, the
Company may have to cease operations and perhaps liquidate. In any event, it is
anticipated that if the Wal-Mart contract is not renewed, it will very likely
have a material adverse effect on the Company and its operations.
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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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. The Company currently plans to install
9 additional Supercenters by the end of 1997.
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<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Advertising revenues increased approximately $671,100 (30%) for the three months
ended September 30, 1997 as compared to the same period in 1996. During the
third fiscal quarter of 1997, an average of 327 stores contributed revenue for
the quarter as compared to 251 for the third quarter of 1996.
Operating income (income before interest, taxes and preferred stock dividends)
decreased $3,000 due primarily to higher costs associated with staffing the
Company's field service organization to manage and service the installed stores.
The Company's net income applicable to common stock was $726,300 for 1997 third
quarter, as compared to $660,300 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 operating losses and temporary differences aggregating $10,290,000
at December 31, 1995. The 1997 tax expense of $473,200 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 $530,900 (91%) in the
third 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 Supercenters installed and calculators serviced during the respective
periods.
Selling expense increased approximately $109,200 (187%) in the third quarter of
1997. This was primarily due to increases during 1997 in payroll, payroll
related expenses, sales representative retainer expenses, advertising 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 $41,200 (11%) in the third quarter
of 1997 as compared to the same period in 1996. During 1997, payroll and
payroll related expenses increased $36,100 as a result of higher compensation
levels and increased staff required to administer the Wal-Mart Supercenter
contract. Officer and management bonus accruals increased $20,800 in 1997 as
compared to the same period in 1996. Executive retirement plan accruals,
including insurance cost to fund future payments, decreased $15,800 during 1997.
Expenses related to broker and analyst meetings and other shareholder expenses
increased $3,100 over 1996. Decreases amounting to $3,000 occurred in
professional fees, occupancy costs, business taxes and other expenses.
Interest expenses decreased approximately $123,400 (93%) during the third
quarter of 1997 as compared to the same period in 1996. Interest on bank
borrowings decreased $97,100 due primarily to the repayment of all bank debt
during 1997. Vendor interest was $7,600 lower and interest accrued on amounts
due investors, including the accretion of discount for the litigation
settlement, was $18,700 lower for the third quarter of 1997 as compared to 1996,
all because of the reduction of amounts due and past due.
-8-
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Advertising revenues increased approximately $4,397,800 (104%) for the nine
months ended September 30, 1997 as compared to the same period in 1996. During
the first nine months of 1997, an average of 327 stores contributed revenue for
the quarter as compared to 159 for the same period in 1996.
The significant increase in revenues improved operating income (income before
interest, taxes and preferred stock dividends) by $2,028,700 during the first
nine months of 1997 as compared to the same period in 1996. The Company's net
income applicable to common stock was $2,317,400 for the 1997 first nine months,
as compared to $872,500 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 operating losses and temporary differences aggregating $10,290,000
at December 31, 1995. The 1997 tax expense of $1,502,400 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 $1,817,300 (151%) in
the first nine months 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 Supercenters installed and calculators serviced during the
respective periods.
Selling expense increased approximately $320,800 (280%) in the first nine months
of 1997 compared to the same period in 1996. This was primarily due to
increases during 1997 in payroll, payroll related expenses, sales representative
retainer expenses, advertising 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 $240,600 (25%) in the first nine
months of 1997 as compared to the same period in 1996. During 1997, payroll and
payroll related expenses increased $120,400 as a result of higher compensation
levels and increased staff required to administer the Wal-Mart Supercenter
contract. Officer and management bonus accruals increased $149,200 in 1997 as
compared to the same period in 1996. Executive retirement plan accruals,
including insurance cost to fund future payments, decreased $50,400 during 1997.
Expenses related to broker and analyst meetings and other shareholder expenses
increased $4,900 over 1996. Increases amounting to $16,500 occurred in
professional fees, occupancy costs, business taxes and other expenses.
Interest expenses decreased approximately $325,800 (82%) during the first nine
months of 1997 as compared to the same period in 1996. Interest on bank
borrowings decreased $269,300 due primarily to the repayment of all bank debt
during 1997. Vendor interest was $17,200 lower and interest accrued on amounts
due investors, including the accretion of discount for the
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<PAGE>
litigation settlement, was $39,300 lower for the first nine months of 1997 as
compared to the same period in 1996, all because of the reduction of amounts due
and past due.
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 which
was used to pay the expenses of the lawsuit against Wal-Mart and certain
operating expenses incurred during the period that the lawsuit was pending. The
offering involved the issuance by the Company of (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) rights to receive amounts equal
to a total of 10% of the net recovery from the Wal-Mart lawsuit described
elsewhere herein; and (c) promissory notes of the Company 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 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 was to sell the
advertising for the calculators during the initial phase of the contract.
During the last quarter of 1996, the Company assumed the responsibility for
sales of advertising and this arrangement was formalized in an amendment to the
Wal-Mart contract dated August 25, 1997. 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 guarantee phase,
the Company has the option to continue the contract through October 6, 1999.
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. Including accretion
of the discount, the obligation was $567,848 at December 31, 1996. At September
30, 1997, a total
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of $140,463 of this amount remained unpaid and it is anticipated that the entire
balance of the amounts due will be paid by December 31, 1997.
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>
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. 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 September 30, 1997, cumulative revenues received from Wal-Mart
totaled $15,748,233, reducing the guaranteed revenues to be received in future
periods to $7,746,297. 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
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<PAGE>
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.
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.
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<PAGE>
ITEM 2. CHANGES IN SECURITIES
(c) (i) As of August 28, 1997, the Company issued to the Tiger Group
warrants to purchase up to 50,000 shares of the Company's common stock
at an exercise price of $3.5625 per share. The warrants have a term
of four years and vest in 12,500 share annual installments beginning
November 28, 1997; provided, however, that if the engagement of the
Tiger Group, Inc. is terminated by the Company prior to November 28,
1998, the warrants will still be exercisable for up to 25,000 shares.
The warrants were issued as part of the consideration payable to Tiger
Group, Inc. for financial public relations services. The warrants
were issued pursuant to the exemption from the registration
requirements of the Securities Act of 1933, as amended, provided by
Rule 506 of Regulation D. Tiger Group, Inc. is an accredited investor
and the issuance of the warrants was effected without any advertising
or general solicitation and otherwise in compliance with the other
conditions and requirements of Rule 506.
(ii) In September 1997, the Company issued a total of 50,000
shares of its common stock to L.G. Zangani, Inc. in connection with
the exercise of warrants issued in September 1995 and which expired on
September 30, 1997. The exercise price received by the Company was
$1.00 per share. The warrants were issued in 1995 as part of the
consideration payable in connection with the public relations services
to be performed by L.G. Zangani, Inc. The shares of common stock were
issued pursuant to the exemption from the registration requirements of
the Securities Act of 1933, as amended, provided by Rule 506 of
Regulation D. L.G. Zangani, Inc. is an accredited investor and the
issuance of the shares was effected without any advertising or general
solicitation and otherwise in compliance with the other conditions and
requirements of Rule 506.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description
----------- -----------
4 Form of Warrant Certificate dated as of August 28,
1997 issued to Tiger Group, Inc.
10 Letter Agreement dated as of August 25, 1997
between the Company and Wal-Mart Stores, Inc.
amending the Shopper's Calculator Contract dated
September 1, 1995.
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
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<PAGE>
(b) Reports on Form 8-K.
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADDVANTAGE MEDIA GROUP, INC.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Gary W. Young Director, Executive Vice President - November 5, 1997
- - ----------------- Finance and Administration and
Gary W. Young Treasurer (Authorized Officer and
Principal Financial Officer)
-15-
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
----------- -----------
4 Form of Warrant Certificate dated as of August 28, 1997
issued to tiger Group, Inc.
10 Letter Agreement dated as of August 25, 1997
between the Company and Wal-Mart Stores, Inc.
amending the Shopper's Calculator Contract dated
September 1, 1995.
11 Statement re: Computation of Per Share
Earnings
27 Financial Data Schedule
-16-
<PAGE>
EXHIBIT 4
NEITHER THE OFFER NOR THE SALE OF THE WARRANTS EVIDENCED BY THIS CERTIFICATE OR
THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANTS HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS AND SUCH SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED,
ASSIGNED, OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH
RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH
SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR
TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.
No. ______________ For the Purchase of 50,000 Shares
of Common Stock
Void After 5:00 P.M. Local Time (Tulsa, Oklahoma)
on August 27, 2001
ADDVANTAGE MEDIA GROUP, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
THIS CERTIFIES THAT, for value received, ADDvantage Media Group, Inc., an
Oklahoma corporation (hereinafter called the "Company"), upon the surrender of
this Warrant Certificate, evidencing a number of shares of Common Stock, par
value $.01 per share ("Common Stock") equal to the number of such shares set
forth above, to the Company at its principal executive office, will sell and
deliver, or cause to be sold and delivered, to Tiger Group, Inc. or its
registered assigns, 50,000 shares of Common Stock exercisable during the period
commencing November 28, 1997 and ending August 27, 2001 at $3.5625 per share
upon payment of the warrant price for the number of shares of Common Stock in
respect of which this Warrant Certificate is exercised; provided, however, that
notwithstanding anything to the contrary in the foregoing,
i) the total number of shares of Common Stock purchasable upon all
exercises of the Warrants evidenced hereby may not exceed 25% of the total
number of shares of Common Stock provided for herein prior to November 28,
1998, 50% of the total number of shares of Common Stock provided for herein
prior to November 28, 1999,
<PAGE>
and 75% of the number of shares of the Common Stock provided for herein
prior to November 28, 2000, and
ii) if the engagement of Tiger Group, Inc. as a financial public
relations consultant for the Company under that certain engagement letter
dated as of August 28, 1997 (the "Engagement") is terminated at any time
prior to November 28, 2000, the total number of shares of Common Stock
purchasable upon exercise of these Warrants at any time during the
remaining portion of the term hereof shall not exceed the number with
respect to which the Warrants are exercisable at the time of the
termination of the Engagement; provided, however, that if the Engagement is
terminated by the Company without cause at any time prior to November 28,
1998, the Warrants evidenced hereby will be exercisable for up to a total
of 50% of the number of shares of Common Stock provided for herein;
provided, further, however, that under certain conditions set forth hereinafter,
the number of shares of Common Stock purchasable upon the exercise of the
Warrants evidenced hereby may be increased or reduced, or other securities,
property and/or cash may become purchasable in lieu thereof upon the exercise of
the Warrants evidenced hereby. In such event, the term "shares of Common Stock"
shall mean, unless the context otherwise requires, the shares of Common Stock,
other securities, property and cash at the time receivable upon the exercise of
the Warrants evidenced hereby. This Warrant Certificate may be surrendered and
is exercisable only on or before 5:00 P.M. Central time on August 27, 2001. The
warrant price at which the shares of Common Stock shall be purchased (the
"Purchase Price") upon the exercise of the Warrants evidenced hereby shall be
$3.5625 per share, or, in the event of any subdivision of Warrants pursuant to
Section 4 hereof, such other purchase price as may then be in effect. The
Purchase Price is payable, upon the exercise of the Warrants evidenced hereby,
in cash, or by certified or official bank check, or postal or express money
order, payable in United States Dollars, to the order of the Company. The right
of purchase represented by this Warrant Certificate is exercisable, at the
election of the registered holder hereof, either in whole or in part, and in the
event that this Warrant Certificate is exercised in respect of less than all of
such shares of Common Stock, a new Warrant Certificate for the remaining number
of such shares of Common Stock will be issued on such surrender.
Upon any exercise of the Warrants evidenced by this Warrant Certificate the
form of election to purchase attached hereto must be duly executed and the
accompanying instructions for the registration and delivery of shares of Common
Stock must be filled in.
This Warrant Certificate and the Warrants evidenced hereby are subject to
the terms and conditions hereinafter set forth:
1. Delivery of Stock Certificates on Exercise. As soon as practicable
------------------------------------------
after the exercise of Warrants and payment of the Purchase Price, the Company,
at its expense (including the payment by it of any applicable issue tax), will
cause to be issued in the name of and delivered to the holder hereof, or,
subject to the provisions of Section 6, as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, a certificate or
certificates for the
4-2
<PAGE>
number of full shares of Common Stock to which such holder shall be entitled
upon such exercise, and cash as provided in Section 2 hereof, in respect of any
fraction of a share otherwise issuable upon such exercise.
All shares of Common Stock issued upon the exercise of this Warrant shall
be duly issued and outstanding and fully paid and nonassessable.
Irrespective of the date of issue and delivery of certificates for any
shares of Common Stock issuable upon the exercise of Warrants, each person in
whose name any such certificate is issued shall for all purposes be deemed to
have become the holder of record of the shares of Common Stock represented
thereby on the date on which this Warrant Certificate was surrendered and
payment of the Purchase Price was tendered. Each person holding any shares of
Common Stock received upon exercise of Warrants shall be entitled to receive
only dividends or distributions which are payable to holders of record on or
after the date on which each person became the holder of record of the said
shares of Common Stock.
2. Payment of Cash in Lieu of Fractional Shares. The Company shall not be
--------------------------------------------
required to issue fractional shares of Common Stock upon exercise of Warrants.
If a fractional share of Common Stock would be otherwise deliverable upon the
exercise of Warrants, the Company shall make payment therefor in cash at the
Market Price thereof on the last business day before the exercise date. The
term "Market Price" shall mean the quoted closing price of the shares of Common
Stock on the date in question on the principal securities exchange on which the
shares of Common Stock may then be listed or, if the shares of Common Stock are
not listed on a national securities exchange, the closing bid price of the
shares of Common Stock on such date in the over-the-counter securities market.
3. Adjustments in Shares of Common Stock Receivable upon Exercise of
-----------------------------------------------------------------
Warrants. If the Company shall (i) make a distribution in its shares of Common
- - --------
Stock, (ii) subdivide its outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares, (iv) issue
by reclassification of its shares of Common Stock any other shares of the
Company, (v) merge or consolidate, or (vi) sell, lease, exchange or otherwise
transfer or distribute all or a material portion of the assets of the Company in
a distribution to its shareholders, the number of shares of Common Stock
issuable upon the exercise of each Warrant evidenced by this Warrant Certificate
shall be the same number and kind of shares of Common Stock and the same amount
of securities, property, or cash as the holder hereof would have been entitled
to receive upon the happening of the above events if immediately prior to any
such event such holder had exercised such Warrant and had purchased shares of
Common Stock. For this purpose, any event described in (i) through (vi) in the
preceding sentence shall be deemed to have occurred immediately after the
opening of business on the day following the date fixed for the determination of
the shareholders entitled to participate in such event.
The Company may retain a firm of independent public accountants of
recognized standing, which may be the firm regularly retained by the Company,
selected by the Board of Directors of the Company, to make any computation
required under this Section, and a
4-3
<PAGE>
certificate signed by such firm shall be conclusive evidence of the correctness
of any computation made under this Section.
No adjustment of the shares of Common Stock issuable upon exercise of
Warrants shall be required unless such adjustment would require an increase or
decrease of at least 5% in the number of shares of Common Stock issuable upon
exercise of Warrants or a change in the kind or class of shares of Common Stock
or other securities or property so issuable upon any such exercise; provided,
that any adjustments of less than 5% shall accumulate and be taken into account
in determining whether any subsequent adjustment shall be made and the amount
thereof.
Whenever the Company shall take any action requiring an adjustment in the
shares of Common Stock receivable upon the exercise of a Warrant, the Company
shall promptly cause to be mailed to the registered holder hereof, at such
holder's address appearing on the Warrant register, a notice stating the date of
the action, the type of action and the adjustment required. Failure to give
such notice, or any defect therein, shall not affect the legality or validity of
the action taken or of any distribution in connection therewith.
4. Subdivision of Warrants. If as a result of an adjustment under Section
-----------------------
3 hereof (the "Adjustment"), the shares of Common Stock receivable upon the
exercise of a Warrant immediately after the Adjustment shall constitute a
multiple (the "Multiple", which Multiple shall be a whole number) of the shares
of Common Stock which would have been receivable upon exercise of a Warrant
immediately prior to the Adjustment, then the Company may at its discretion
subdivide the number of Warrants evidenced by this Warrant Certificate into a
number of Warrants equal to the Multiple.
Upon such subdivision of Warrants (the "Subdivision"), this Warrant
Certificate shall evidence a number of Warrants equal to the number of Warrants
evidenced by this Warrant Certificate immediately prior to the Subdivision,
multiplied by the Multiple; and each Warrant evidenced hereby shall entitle the
registered holder hereof to purchase the shares of Common Stock which would have
been receivable upon exercise of such Warrant immediately prior to the
Adjustment at a Purchase Price equal to the Purchase Price in effect immediately
prior to the Subdivision, divided by the Multiple. Promptly following the
Subdivision the Company shall cause to be mailed to the registered holder
hereof, at such holder's address appearing on the Warrant register, a notice
stating the date and nature of the Subdivision and the new Purchase Price
effective with the Subdivision. Failure to give such notice, or any defect
therein, shall not affect the legality or validity of the Subdivision. In
connection with the Subdivision, the Company may at its election make provision
for exchange of this Warrant Certificate for a new form of Warrant Certificate.
5. Registration. The Company or its agent shall maintain books for the
------------
transfer and registration of Warrants. Such registers shall show the names and
addresses of the respective holders of the Warrant Certificates and the number
of shares of Common Stock for which each such Warrant Certificate has been
issued.
4-4
<PAGE>
6. Investment Representation and Restrictions on Transfer of Securities.
--------------------------------------------------------------------
By its acceptance of this Warrant Certificate, the holder hereof represents and
warrants to the Company that the Warrants and any shares of Common Stock issued
upon exercise of the Warrants or any portion thereof, are being, or will be,
acquired for such holder's own account for investment purposes only, and not
with a view to the sale or distribution of any part thereof. This Warrant
Certificate, the Warrants evidenced hereby, and the shares of Common Stock
issuable upon the exercise of the Warrants evidenced hereby (collectively, the
"Warrant Securities") shall not be transferable except upon the conditions
specified in this Section 6. Prior to any transfer or proposed transfer of any
Warrant Securities, the holder thereof shall deliver a written notice to the
Company describing briefly the manner of such transfer and a written opinion of
counsel for such holder to the effect that such transfer may be effected without
the registration of such Warrant Securities under the Securities Act of 1933, as
amended (the "Securities Act") and any applicable state securities laws,
including the legal and factual reasons for such opinion. The Company shall
thereupon permit or cause its transfer agent (if any) to permit such transfer to
be effected unless the Company shall furnish to such holder and such holder's
counsel an opinion of the Company's outside counsel which (a) states that such
transfer may not be effected without the registration of such Warrant Securities
under the Securities Act and (b) specifies the reasons, factual, legal or both,
why such counsel's opinion differs from that of such holder's counsel.
7. Piggy-Back Registration Right. If the Company at any time proposes to
-----------------------------
register any shares of its Common Stock under the Securities Act on a form which
permits inclusion of the shares of Common Stock issued pursuant to an exercise
of the Warrants, it shall each such time given written notice to all holders of
outstanding Warrant Securities of its intention to do so. Upon the written
request (stating the intended method of disposition of such shares of Common
Stock) of any such holder given within 30 days after receipt of any such notice,
the Company shall, unless registration for immediate public sale of all of such
requested shares of Common Stock is determined by opinion of counsel
satisfactory to such holder or holders not to be required, or unless the
underwriter of such offering advises the Company that the inclusion of such
shares of Common Stock will adversely affect the market for the securities being
registered by the Company (in which latter event the Company's obligation
hereunder shall be limited to such number of shares of Common Stock as the
underwriter reasonably believes compatible with the success of such offering),
use its best efforts to cause all of such shares of Common Stock which such
holders shall have requested be registered to be registered under the Securities
Act, all to the extent requisite to permit the sale or other disposition by such
holder of such shares of Common Stock so registered in the manner intended by
such holder as set forth in such request. If and whenever the Company is
required by the provisions of this Section 7 to use its best efforts to effect
the registration under the Securities Act of any of the shares of Common Stock
issued upon an exercise of the Warrants, the Company shall, as expeditiously as
possible:
(a) prepare and file with the Commission a Registration Statement (or a
pre-effective amendment to an appropriate existing Registration Statement
of the Company) with respect to such shares of Common Stock and use its
best efforts to cause such Registration Statement to become and remain
effective under the Securities Act for the period provided in this Section
7;
4-5
<PAGE>
(b) prepare and file with the Commission such amendments and supplements
to such Registration Statement and the Prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective
and to comply with the provisions of the Securities Act with respect to the
sale or other disposition of all such shares of Common Stock covered by
such Registration Statement;
(c) furnish to each seller of such shares of Common Stock covered by
such Registration Statement, such numbers of copies of a Prospectus,
including a preliminary Prospectus, in conformity with the requirements of
the Securities Act, and such other documents, as such seller may reasonably
request in order to facilitate the public sale or other disposition of such
shares of Common Stock;
(d) use every reasonable effort to register or qualify the shares of
Common Stock covered by such Registration Statement under such other
securities or Blue Sky laws of such jurisdictions as each seller thereof
shall reasonably request, and do any and all other acts and things which
may be necessary under such securities or Blue Sky laws to enable such
seller to consummate the public sale or other disposition in such
jurisdiction of the such shares of Common Stock owned by such seller
covered by such Registration Statement, except that the Company shall not
for any such purpose be required to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified or subject
itself to taxation in any such jurisdiction;
(e) before filing the Registration Statement or any Prospectus or any
amendment or supplement to the Registration Statement or any Prospectus
with the Commission, furnish each counsel to each seller of such shares of
Common Stock covered or to be covered by such Registration Statement with
copies of all such documents proposed to be filed; provided, however, that
-------- -------
notwithstanding any other provisions of this Section 7, the Company's
obligation to register securities pursuant to this Section 7 shall be
limited such that (1) the Company shall have no obligation to include any
shares of Common Stock in a registration statement under the Securities Act
to the extent the holder of such shares of Common Stock is, in the opinion
of counsel satisfactory to such holder, then eligible to resell all of such
securities immediately under Rule 144 of the Act; (2) the Company shall
have no obligation to register on any one occasion fewer than 10,000 shares
of Common Stock (adjusted for stock dividends, stock split-ups and the
like) or such lesser number as represents all of such shares of Common
Stock outstanding entitled to registration rights under this Section 7; (3)
the Company shall be required to register such shares of Common Stock only
if and to the extent that holders seeking to register furnish the Company
with a written statement of their intention to sell and such other
information as the Company may reasonably request; and (4) the Company
shall not be obligated to keep any registration statement filed in
accordance with this Section 7 effective for more than ninety days;
(f) all expenses incurred in effecting the registrations provided for in
this Section 7, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for the Company,
expenses of any audits incident to
4-6
<PAGE>
or required by any such registration and expenses of complying with the
securities or Blue Sky laws of any jurisdiction pursuant to Section 7(d)
hereof, but excluding fees and disbursements of counsel for the sellers and
underwriting commissions and discounts attributable to such shares of
Common Stock being sold by the sellers, shall be paid by the Company;
(g) in the event of any registration of any of such shares of Common
Stock under the Securities Act pursuant to this Section 7, the Company
shall indemnify and hold harmless each seller of such shares of Common
Stock, each underwriter (as defined in the Securities Act), the directors
and officers of such underwriter, each other person who participates in the
offering of such securities and each other person, if any, who controls
(within the meaning of the Securities Act) such seller, underwriter or
participating person against any losses, claims, damages or liabilities,
joint or several, to which such seller, underwriter, director or officer,
participating person or controlling person may become subject under the
Securities Act or any other statute or at common law, in so far as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) an untrue statement or alleged untrue
statement of a material fact contained, on the effective date thereof, in
any Registration Statement (or a post-effective amendment to such
Registration Statement, as the case may be) under which such shares of
Common Stock were registered under the Securities Act, any preliminary
Prospectus or final Prospectus contained therein, or any summary Prospectus
issued in connection with such shares of Common Stock, or any amendment or
supplement thereto, or (ii) an omission or alleged omission to state in any
such document a material fact required to be stated therein or necessary to
make the statements therein not misleading, and shall reimburse each such
seller, underwriter, participating person or controlling person for any
legal or other expenses reasonably incurred by such seller, underwriter,
director or officer, participating person or such controlling person in
connection with investigating or defending any such loss, damage, liability
or any action with respect thereto; provided, however, that the Company
-------- -------
shall not be liable to any seller, underwriter, director or officer,
participating person, or controlling person in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such Registration Statement (or such Registration
Statement as post-effectively amended, as the case may be), preliminary
Prospectus, final Prospectus, summary Prospectus, or amendment or
supplement thereto in reliance upon and in conformity with information
furnished to the Company by any such seller, underwriter, director or
officer, participating person, or controlling person specifically for use
therein. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of such seller, underwriter,
director or officer, participating person or controlling person, and shall
survive transfer of the such shares of Common Stock by such seller;
(h) each holder of such shares of Common Stock, shall, by acceptance
thereof, severally and not jointly, indemnify and hold harmless each other
holder of any such shares of Common Stock, the Company, its directors and
officers, each underwriter (as defined in the Securities Act), the
directors and officers of such underwriter, and each
4-7
<PAGE>
other person, if any, who controls the Company or any underwriter, against
any losses, claims, damages, or liabilities, joint or several, to which any
such other holder, the Company, any such director or officer, any such
underwriter, or any such controlling person may become subject under the
Securities Act or any other statute or at common law, in so far as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) an untrue statement or alleged untrue
statement of material fact contained, on the effective date thereof, in any
Registration Statement (or a post-effective amendment to such Registration
Statement, as the case may be) under which such shares of Common Stock were
registered under the Securities Act at the request of such holder, any
preliminary Prospectus or final Prospectus contained therein, or any
summary Prospectus issued in connection with such Warrant Securities, or
any amendment or supplement thereto, or (ii) an omission or alleged
omission to state in any such document a material fact required to be
stated therein or necessary to make the statements therein not misleading,
in the case of (i) or (ii) to the extent, but only to the extent, that such
untrue statement or omission or alleged untrue statement or alleged
omission was made in such Registration Statement, preliminary Prospectus,
final Prospectus, summary Prospectus, or amendment or supplement thereto in
reliance upon and in conformity with information furnished to the Company
by such holder specifically for use therein, and shall reimburse the
Company, each such other holder, underwriter, director or officer, or
controlling person for any legal or any other expenses reasonably incurred
in connection with investigating or defending any such loss, claim, damage,
liability or any action with respect thereto;
(i) indemnification similar to that specified in subsections (g) and (h)
of this Section 7 shall be given by the Company and each holder of any of
such shares of Common Stock (with such modifications as shall be
appropriate) covered by any registration or other qualification of
securities under any federal or state securities law or regulation other
than the Securities Act with respect to any such registration or other
qualification effected pursuant to this Section 7;
(j) within 30 days after receipt by an indemnified party under
subsections (g), (h) or (i) of this Section 7 of a complaint, claim or
other notice of any loss, claim, damage, liability or action giving rise to
a claim for indemnification under any such subsections, such indemnified
party shall if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may
have to any indemnified party otherwise than under such subsection. In
case any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnified party),
and, after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other
4-8
<PAGE>
counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than
reasonable costs of investigation.
8. Transfer and Exchanges of Warrant Certificates. Upon compliance with
----------------------------------------------
the provisions of Section 6, the Company shall transfer, from time to time, any
outstanding Warrant Certificates upon the books to be maintained by the Company
for that purpose, upon surrender thereof for transfer properly endorsed or
accompanied by appropriate instructions for transfer. Upon any such transfer, a
new Warrant Certificate shall be issued to the transferee and the surrendered
Warrant Certificate shall be cancelled. Warrant Certificates may be exchanged at
the option of the holder thereof, when surrendered at the principal office of
the Company for another Warrant Certificate, or other Warrant Certificates of
different denominations, of like tenor and representing in the aggregate the
right to purchase a like number of shares of Common Stock.
9. Mutilated or Missing Warrants. In case this Warrant Certificate shall
-----------------------------
be mutilated, lost, stolen or destroyed, the Company may, in its discretion,
issue and deliver in exchange and substitution for and upon cancellation hereof,
or in lieu of and substitution herefor, a new Warrant Certificate of like tenor
and representing an equivalent right or interest; but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction hereof
and indemnity, if requested, also satisfactory to it. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
10. Reservation of Shares, etc. The Company shall at all times keep
---------------------------
reserved, out of its authorized and unissued shares of Common Stock or shares of
Common Stock held in its treasury, a number of such shares sufficient to provide
for the exercise of the outstanding Warrants, and any Transfer Agent for the
shares of Common Stock is hereby irrevocably authorized and directed to reserve
such number of such shares as shall be requisite for such purpose. The Company
shall supply such Transfer Agent with duly executed certificates evidencing
shares of Common Stock for such purpose and will itself provide or otherwise
make available any cash which may be payable as provided in Section 2 hereof.
11. Warrant Holder Not Deemed A Stockholder. Nothing contained in this
---------------------------------------
Agreement or in any of the Warrants shall be construed as conferring upon the
holder hereof the right to vote or to consent or to receive notice as
stockholders in respect of the meetings of stockholders for any purpose, or any
other rights whatsoever, as a stockholder of the Company.
12. Agreement of Holders Hereof. The holder of this Warrant Certificate
---------------------------
by accepting the same consents and agrees with the Company that:
(a) This Warrant Certificate is transferable only on the registry
books of the Company by the registered holder hereof in person or by such
holder's attorney duly authorized in writing, and only if surrendered at
the principal executive office of the Company, duly endorsed, or
accompanied by a proper instrument of transfer satisfactory to the Company
in its sole discretion; and
4-9
<PAGE>
(b) The Company may deem and treat the person in whose name this
Warrant Certificate is registered as the absolute owner for all purposes
whatever and the Company shall not be affected by any notice to the
contrary.
13. Survival of Indemnities and Agreements. All indemnities and
--------------------------------------
agreements set forth in Section 7 hereof shall survive the exercise of the
Warrants evidenced hereby, the issuance of shares of Common Stock upon such
exercise and the transfer of any Warrant Securities.
14. Successors and Assigns. This Warrant Certificate and the indemnities
----------------------
and agreements made herein shall inure to the benefit of and be binding upon the
Company, the holder hereof and their respective successors, assigns, heirs,
executors and administrators.
15. Applicable Law. This Warrant Certificate shall be deemed to be a
--------------
contract made under the laws of the State of Oklahoma and for all purposes shall
be construed in accordance with the laws of said State.
ADDVANTAGE MEDIA GROUP, INC.
Dated: August 28, 1997 By: /s/ Charles H. Hood
-----------------------------
Charles H. Hood, President
(Corporate Seal)
ATTEST.
/s/ Sue Estep
- - ---------------------------------
Assistant Secretary
4-10
<PAGE>
ELECTION TO PURCHASE
--------------------
To ADDvantage Media Group, Inc.:
The undersigned hereby irrevocably elects to exercise the Warrants
evidenced by the attached Warrant Certificate, and to purchase thereunder
________________________________ shares of Common Stock provided for therein,
and requests that certificates for such shares of Common Stock shall be issued
in the name of __________________________, Social Security or Taxpayer
Identification Number ______________________________________ at
________________________________ and, if said number of shares of Common Stock
shall not be all the shares of Common Stock purchasable thereunder, that a new
Warrant Certificate for the balance remaining of the shares of Common Stock
purchasable under the attached Warrant Certificate be registered in the name of,
and delivered to, the undersigned at the address stated below.
Dated:_________________, 19_____________
Name of warrant holder:
________________________________________
(please print)
Address:________________________________
________________________________
Signature:______________________________
________________________________
Note: The above signature must correspond with the name as written upon the
first page of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatever.
Signature Guaranteed.:
4-11
<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED _______________________________ hereby sells, assigns
and transfers unto:
Name:________________
Address:_____________
Social Security or Taxpayer Identification No.:____________________
the attached Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
________________________ attorney, to transfer said Warrant Certificate on the
books of ADDvantage Media Group, Inc. will full power of substitution in the
premises.
Dated: __________________, ____
_______________________________________________________
Note: The above signature must correspond with the
name as written upon the first page of this
Warrant Certificate in every particular, without
alternation or enlargement or any change
whatever. Signature Guaranteed:
4-12
<PAGE>
EXHIBIT 10
August 25, 1997
Via Facsimile Only - (918) 665-2476
- - -----------------------------------
Mr. Gary Young
ADDvantage Media Group
5100 E. Skelly Drive, Suite 1080
Tulsa, Oklahoma 74135
Dear Gary:
Our mutual goal is to allow the Calculator Program to be evaluated on a
strictly business basis, without the specter of litigation or unasserted claims.
With this in mind, if ADDvantage approves the following (and faxes back a signed
copy), it is my intention to present it to a business person on Monday for their
review and approval. Both parties intend this letter agreement to be a binding
contract:
(1) The Shopper's Calculator Contract, dated September 1, 1995, as subsequently
amended, did not make any provision for the mechanics and time of how and
when AMG would remit Wal-Mart's portion of the collected advertising
revenues to Wal-Mart. The initial collected advertising revenues were held
by AMG on an interim basis and have been delivered to Wal-Mart by a letter
dated August 11, 1997, to ms. Peggy Knight. Any additional collected
advertising revenues to which Wal-Mart is entitled shall be paid to Wal-
Mart in the same manner within the first fifteen days of the calendar month
following receipt of such revenues. In the event Wal-Mart receives any
direct payments of advertising revenues from vendors, as originally
contemplated, Wal-Mart shall promptly remit such funds to AMG in accordance
with the specific terms of the Shopper's Calculator Contract.
(2) AMG and Wal-Mart both acknowledge that the parties have deviated in some
respects from the term of the Shopper's Calculator Contract and further
acknowledge that such deviations shall not form the basis for a claim by
either party that the other party has breached the contract. Such
deviations include, without limitation, the assumption of sales
responsibilities by AMG. All expenses associated with such sales
responsibilities past and future shall be borne by AMG, and AMG shall not
seek reimbursement for such expenses from Wal-Mart. AMG and Wal-Mart
acknowledge that both parties have fully performed their express and
implied obligations under the Shopper's Calculator Contract, as amended, as
of the date of this letter agreement. AMG and Wal-Mart further acknowledge
that they have no present intention to commence litigation against each
other or each other's corporate representative, nor is either party aware
of any basis to commence any litigation.
<PAGE>
(3) Through the balance of the "operations phase" of the Agreement, AMG will
continue to assume primary responsibility for the sales efforts associated
with the Shopper's Calculator program, with the assistance and cooperation
of Wal-Mart, consistent with the course of performance between the parties
to date. During the subsequent AMG phase, the sales effort is AMG's sole
responsibility, with assistance of Wal-Mart as provided by Paragraph 10 of
the Shopper's Calculator Contract of September 1, 1995.
(4) AMG shall be entitled to reimbursement from gross advertising revenues
received from Wal-Mart vendors for any direct costs associated with the
manufacturing of packaged goods advertisements ("Kodak" and similar
concepts) to the extent that such advertisements are part of the pre-
approved Shopper's Calculator program in the Wal-Mart supercenters. These
direct costs are limited to the following actual out of pocket expenses:
(1) the overlay; (2) manufacturing labor costs; (3) shipping; and (4)
shrinkage associated with the "packaged" product. This does not cover any
cost associated with the standard calculator. Documentation of any direct
costs will be routinely provided to Wal-Mart.
Very truly yours,
/s/ Jon B. Comstock
Jon B. Comstock
JBC:cre
AGREED:
ADDvantage Media Group, Inc.
By: /s/ Gary W. Young
--------------------------
Gary Young
Executive Vice President
WAL-MART STORES, INC.
By: /s/ Peggy Knight
--------------------------
Peggy Knight
Director - Specialty Marketing
10-2
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended September 30,
----------------------------------
1997 1996
Primary Primary
---------------- ----------------
<S> <C> <C>
Net income $ 749,156 $ 683,157
Less preferred stock dividends (22,899) (22,900)
---------- ----------
Net income applicable to common stock $ 726,257 $ 660,257
========== ==========
Weighted average shares outstanding 5,864,736 5,094,652
Effect of options and warrants 516,162 750,865
---------- ----------
Weighted average common and common
equivalent shares 6,380,898 5,845,517
---------- ----------
Net income per common share $ 0.11 $ 0.11
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------------
1997 1996
Primary Primary
----------------- --------------
<S> <C> <C>
Net income $2,385,562 $ 950,636
Less preferred stock dividends (68,201) (78,146)
---------- ----------
Net income applicable to common stock $2,317,361 $ 872,490
========== ==========
Weighted average shares outstanding 5,834,005 4,996,021
Effect of options and warrants 481,204 804,918
---------- ----------
Weighted average common and common
equivalent shares 6,315,209 5,800,939
---------- ----------
Net income per common share $ 0.37 $ 0.15
========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 1,268,046 0
<SECURITIES> 0 0
<RECEIVABLES> 110,030 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,359,930 0
<PP&E> 3,713,014 0
<DEPRECIATION> 555,893 0
<TOTAL-ASSETS> 6,972,494 0
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
760,260 0
<COMMON> 59,066 0
<OTHER-SE> 5,464,384 0
<TOTAL-LIABILITY-AND-EQUITY> 6,972,494 0
<SALES> 2,900,958 8,608,274
<TOTAL-REVENUES> 2,916,537 8,632,675
<CGS> 0 0
<TOTAL-COSTS> 1,115,217 3,022,259
<OTHER-EXPENSES> 570,020 1,649,745
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,924 72,738
<INCOME-PRETAX> 1,222,376 3,887,933
<INCOME-TAX> 473,220 1,502,371
<INCOME-CONTINUING> 749,156 2,385,562
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 726,257 2,317,361
<EPS-PRIMARY> 0.11 0.37
<EPS-DILUTED> 0.11 0.37
</TABLE>
