<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, 1998
[ ] 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,
1998 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>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $3,688,666 $2,003,165
Accounts receivable 301,194 1,548,961
Deferred income taxes 990,213 1,432,000
Other current assets 22,820 36,086
---------- ----------
Total current assets 5,002,893 5,020,212
Property and equipment, at cost:
Calculators 2,682,252 2,585,693
Office and production equipment 918,442 891,743
Transportation equipment 347,545 --
Furniture and fixtures 99,778 97,897
---------- ----------
4,048,017 3,575,315
Accumulated depreciation 1,057,402 981,186
---------- ----------
2,990,615 2,594,129
Deferred tax asset 41,000 41,000
Patent, net of accumulated amortization of
$649,854 and $627,150 at March 31, 1998
and December 31, 1997, respectively 258,256 280,960
Other assets 233,121 186,184
---------- ----------
Total assets $8,525,885 $8,122,485
========== ==========
</TABLE>
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<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
Current liabilities:
Notes payable $ 333,724 $ --
Accounts payable 541,475 834,115
Income taxes payable -- 22,326
Other accrued liabilities 185,523 449,944
Unearned advertising revenue 615,600 810,001
----------- -----------
Total current liabilities 1,676,322 2,116,386
Long-term obligations 260,928 228,072
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, 1998 and
December 31, 1997; liquidation preference,
$911,000 760,260 760,260
Common stock, $.01 par value, 10,000,000
shares authorized, 5,906,584 issued and
outstanding at March 31, 1998 and
December 31, 1997. 59,066 59,066
Capital in excess of par value 8,862,633 8,862,634
Accumulated deficit (3,093,324) (3,903,933)
----------- -----------
Total stockholders' equity 6,588,635 5,778,027
----------- -----------
Total liabilities and stockholders' equity $ 8,525,885 $ 8,122,485
=========== ===========
</TABLE>
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<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Advertising $2,916,001 $2,837,892
Other 32,615 2,356
---------- ----------
2,948,616 2,840,248
Costs and expenses:
Cost of advertising services 1,044,684 928,740
Selling expenses 137,696 110,491
General and administrative expenses 404,388 419,004
---------- ----------
1,586,768 1,458,235
---------- ----------
Operating income 1,361,848 1,382,013
Interest expense 3,820 43,338
---------- ----------
Income before income taxes 1,358,028 1,338,675
Provision for income taxes 524,768 516,219
---------- ----------
Net income 833,260 822,456
Preferred stock dividends (22,651) (22,651)
---------- ----------
Net income applicable to common stock $ 810,609 $ 799,805
========== ==========
Net income per share $ 0.14 $ 0.14
========== ==========
Shares used in computing net income per share 5,906,584 5,779,762
========== ==========
</TABLE>
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<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1998 1997
---------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 833,260 $ 822,456
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income tax 441,787 516,219
Depreciation and amortization 241,354 113,983
Accrual of long-term obligations 32,856 38,073
Changes in assets and liabilities:
Accounts receivable 1,247,767 88,516
Other current assets 13,266 (758)
Deferred charges (46,937) (36,668)
Notes payable 333,724 --
Accounts payable (292,640) (97,408)
Income taxes payable (22,326) --
Accrued interest -- (24,319)
Accrued settlement obligation -- (152,998)
Other accrued liabilities (264,421) (64,373)
Unearned advertising revenue (194,402) (189,192)
---------- ----------
Net cash provided by operating activities 2,323,288 1,013,531
INVESTING ACTIVITIES
Purchases of property and equipment (615,136) (209,112)
---------- ----------
Net cash used in investing activities (615,136) (209,112)
FINANCING ACTIVITIES
Payments on bank note -- (751,243)
Payment of preferred stock dividends (22,651) (22,651)
Exercise of options and warrants -- 28,799
---------- ----------
Net cash used in financing activities (22,651) (745,095)
---------- ----------
Increase in cash 1,685,501 59,324
Cash at beginning of period 2,003,165 739,140
---------- ----------
Cash at end of period $3,688,666 $ 798,464
========== ==========
Supplemental disclosures of cash information:
Interest Paid $ 3,820 $ 65,692
========== ==========
Purchase of equipment for notes payable $ 347,545 $ --
========== ==========
</TABLE>
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<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
ADDvantage Media Group, Inc. (the "Company") markets and sells in-store
advertising to national advertisers. This advertising is positioned on solar
powered calculators attached to the handles of shopping carts. The patented
calculators are marketed under the registered trademark "Shoppers
Calculator(R)."
On September 1, 1995, the Company and Wal-Mart Stores, Inc. ("Wal-Mart") entered
into a four-year contract in settlement of a lawsuit related to prior contracts
under which the Company will install and maintain Shoppers Calculator(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. Under the contract, the Company has the right to retain
90% of the advertising revenue. 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 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 to October 6, 1999. However, Wal-Mart has
notified the Company that it will not agree to a new contract or an extension of
the current contract past its present term. The Company has not decided whether
it will continue the contract beyond the revenue guaranty period. Through March
31, 1998, cumulative advertising revenues have totaled $21.6 million, reducing
the guaranteed advertising revenues to be received in future periods to $1.9
million. Based on the current number of Supercenters installed with the
Shoppers Calculator(R) program, the Company anticipates that the Wal-Mart
revenue guaranty will be paid in full by June 14, 1998.
As of March 31, 1998, calculators were installed in 336 Supercenters. The
Company does not plan to install the calculators in additional Supercenters due
to Wal-Mart's decision to terminate the program.
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<PAGE>
The Company also has a contract with Kmart Stores, which has not yet been
implemented, and may contract with other mass merchants in the future.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 compared to Three Months Ended March 31, 1997
- - -------------------------------------------------------------------------------
The Company entered into a contract with Wal-Mart effective as of September 1,
1995, whereby the Company has agreed to install and maintain its Shoppers
Calculators in all of Wal-Mart's Supercenter stores in the continental United
States. Under the contract, Wal-Mart guarantees that the Company's share of
advertising revenues will be $2,700 per installed store, per four-week
advertising cycle, until a total of approximately $23,500,000 has been received
by the Company. At March 31, 1998, a total of 336 Wal-Mart Supercenters were
installed, with 41 being installed during 1995, 286 in 1996, 9 in 1997 and none
in 1998.
Advertising revenues increased approximately $78,100 (3%) for the three months
ended March 31, 1998, as compared to the three months ended March 31, 1997.
During the first fiscal quarter of 1998, an average 336 installed stores
contributed revenue for the year as compared to 327 stores in the first quarter
of 1997.
Operating income (income before interest, taxes and preferred stock dividends)
decreased $20,200 during the three months ended March 31, 1998 as compared to
the three months ended March 31, 1997. The Company's net income applicable to
common stock was $810,600 for 1998 first quarter, as compared to $799,800 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 first
quarter 1998 tax expense of $524,800 and the first quarter 1997 tax expense of
$516,200 both reflect 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 and change advertising messages and the
depreciation of installed units) increased approximately $115,900 (12%) in the
first quarter of 1998 as compared to the same period in 1997 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. The first quarter of 1998 increase included an additional depreciation
charge of $99,000 resulting from a change in the Company's accounting estimate
related to the remaining useful lives of the Shopper Calculators installed in
the Wal-Mart Supercenters. This change in estimate of the remaining useful life
was made in anticipation of the replacement of the currently installed
calculators with the Company's latest model Shoppers Calculator(R) unit. The
Company had expected to commence
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<PAGE>
installation of the new units by the end of 1998 if it had been successful in
negotiating a new contract with Wal-Mart.
Selling expense increased approximately $27,200 (25%) in the first quarter of
1998 compared to the same period in 1997. This was primarily due to increases
during 1998 in payroll, payroll related expenses and sales representative
retainer expenses.
General and administrative expenses decreased $14,600 (3%) during the first
quarter of 1998 as compared to the first quarter of 1997. During 1998, payroll
and payroll related expenses decreased $41,300. Officer and management bonus
accruals decreased $5,000 in 1998 as compared to 1997. Executive retirement
plan accruals, including insurance cost to fund future payments, increased
$6,100 during 1998. Expenses related to broker and analyst meetings and other
shareholder expenses increased $12,400 over 1997. Increases amounting to
$13,200 occurred in professional fees, occupancy costs and other expenses.
Interest expenses decreased approximately $39,500 (91%) during the first quarter
of 1998 as compared to the same period in 1997. Interest on bank borrowings
decreased $18,000 due primarily to the repayment of all bank debt during 1997.
Vendor interest was $2,900 lower and interest accrued on amounts due investors,
including the accretion of discount for the litigation settlement, was $18,600
lower for 1998 as compared to 1997, all because of the reduction of amounts due
and past due.
FINANCIAL CONDITION AND LIQUIDITY
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 suit against Wal-Mart for the
alleged breach of the terms of those contract.
On September 1, 1995, the Company and Wal-Mart entered into a new contract and
the Company dismissed the lawsuit. Under the terms of the new contract, the
Company agreed 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 responsibility for sales of
advertising for the calculators, and this arrangement was formalized in an
amendment to the Wal-Mart contract in August 1997. Under the contract, Wal-Mart
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. Based on the number of
Supercenters installed, the Company anticipates that the guaranteed revenues
will be paid in full by June 14, 1998, at which time, the Company has the option
to continue the contract through October 6, 1999.
-7-
<PAGE>
During August of 1997, the Company submitted a proposal to Wal-Mart for a new
Shoppers Calculator contract to be implemented after the Company receives
payment of the $23.5 guaranteed revenues provided for under the current
contract. During May of 1998, the Company received notification from Wal-Mart
that it would not enter into a new agreement or agree to an extension of the
current contract. The Company has not yet decided whether it will extend the
contract through the revenue guaranty period.
The Company's first revenue period under the existing Wal-Mart contract began on
November 6, 1995. Through March 31, 1998, cumulative revenues received from
Wal-Mart totaled $21.6 million, reducing the guaranteed revenues to be received
in future periods to $1.9 million.
The Company's financial results for the balance of 1998 are largely dependent
upon the Company's success in obtaining commitments for advertising during the
period subsequent to the time the Wal-Mart guaranteed revenues have been fully
received (expected to be approximately June 14, 1998). The Company assumed
responsibility for obtaining advertising revenues on the installed calculator
network in the fourth quarter of 1996. Through March 31, 1998, inception-to-
date advertising sales by the Company, including system-wide sales and test
program sales, have totaled $1,543,600, including $147,800 during the first
quarter of 1998 (compared with $27,000 for the first quarter of 1997 and
$1,200,900 for all of 1997). These advertising sales, less recoverable
production costs of approximately $592,000 incurred by the Company for its
"packaged good" units, are payable to Wal-Mart under the contract, of which
$852,500 had been paid through March 31, 1998. These receipts have been
recorded in the Company's financial statements as an account payable since they
offset amounts due from Wal-Mart under the contract. Based on the commitments it
has received so far and the results of its sales activities during the first
quarter of 1998, the Company anticipates that its revenues during the second
half of the year may be substantially less than its revenues for the first half
of the year. The low amount of advertising commitments for the period
subsequent to the revenue guaranty period under the Wal-Mart contract may cause
the Company to elect not to continue the contract to October of 1999. It is not
certain at this point that the advertising revenues the Company would generate
during that period would be sufficient to cover the costs and expenses of
continuing the program. Further, the Company's decision regarding the contract
and other business opportunities will cause it to reevaluate the likelihood of
realizing the tax benefit of its net operating loss carry forward carried in the
balance sheet at approximately $990,000.
The Company and Sports Display, Inc. extended their previously announced letter
of intent to acquire Sports Display, Inc. (which originally provided that it
would terminate if a definitive agreement had not be signed by March 31, 1998)
to May 31, 1998. The Company has been pursuing efforts to obtain a commitment
for acceptable financing of this transaction. On January 28, 1998, the Company
entered into a letter of intent to acquire Sports Display, Inc. and its
affiliated company Sports Display of Canada, Inc. at a purchase price of $16.75
million, payable in cash of $8.5 million, seller financed notes of $5.25 million
and convertible preferred stock to be valued at $3.0 million. The Company would
also be obligated to pay an additional $1.5 million at closing for certain non-
compete and employment contracts. Consummation of the
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<PAGE>
acquisition of Sports Display is conditioned upon a number of factors,
including, among others, the negotiation, execution and delivery of a definitive
agreement with respect to such transactions and the Company's obtaining
financing of the cash portion of the purchase price on terms it deems
acceptable. It is not clear at this point how the termination of the Wal-Mart
contract might affect the Company's ability to consummate this transaction as it
is currently structured. Accordingly, there can be no assurance at this time
that the acquisition will be consummated.
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 anticipated dates of payment of the revenues guaranteed by Wal-Mart. 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 Company's
ability to sell advertising for its Shoppers Calculator(R) program for periods
subsequent to its receipt of the full amount of revenues guaranteed 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, 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.
-9-
<PAGE>
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description
----------- -----------
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADDVANTAGE MEDIA GROUP, INC.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - --------- ----- ----
<S> <C> <C>
/s/ CHARLES H. HOOD Director and President May 14, 1998
- - --------------------------- (Principal Executive Officer)
Charles H. Hood
/s/ GARY W. YOUNG Director, Executive Vice President - May 14, 1998
- - --------------------------- Finance and Administration and
Gary W. Young Treasurer (Principal Financial Officer)
</TABLE>
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<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
----------- -----------
11 Statement re: Computation of Per Share
Earnings
27 Financial Data Schedule
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<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
The Company adopted SFAS No. 128, "Earnings Per Share," during 1997. SFAS No.
128 requires presentation of basic and diluted earnings per share. Basic
earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
reporting period. Diluted earnings per share reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. All prior period weighted average and
per share information has been restated in accordance with SFAS No. 128.
Outstanding stock options and warrants issued by the Company represent the only
dilutive effect on weighted average shares. A reconciliation between basic and
diluted weighted average shares outstanding and the related earnings per share
calculation is presented below:
Basic and diluted EPS for the three months ended March 31, 1998 and 1997, were
computed as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Basic EPS Computation:
Net income $ 833,260 $ 822,456
Less preferred stock dividends 22,651 22,651
---------- ----------
Net income available to common stockholders $ 810,609 $ 799,805
========== ==========
Weighted average shares outstanding 5,906,584 5,779,762
---------- ----------
Basic EPS $ 0.14 $ 0.14
========== ==========
Diluted EPS Computation:
Net income available to common stockholders $ 810,609 $ 799,805
========== ==========
Weighted average shares outstanding $5,906,584 $5,799,762
Incremental shares for assumed exercise
of securities
Warrants -- 116,578
Options 392,093 493,287
---------- ----------
6,298,677 6,389,627
========== ==========
Diluted EPS $ 0.13 $ 0.12
========== ==========
</TABLE>
The 227,750 shares of convertible preferred stock were not included in the
computation of diluted EPS as their effect is anti-dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,688,666
<SECURITIES> 0
<RECEIVABLES> 301,194
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,002,893
<PP&E> 4,048,017
<DEPRECIATION> 1,057,402
<TOTAL-ASSETS> 8,525,885
<CURRENT-LIABILITIES> 1,676,322
<BONDS> 0
0
760,260
<COMMON> 59,066
<OTHER-SE> 6,588,635
<TOTAL-LIABILITY-AND-EQUITY> 8,525,885
<SALES> 2,916,001
<TOTAL-REVENUES> 2,948,616
<CGS> 0
<TOTAL-COSTS> 1,044,684
<OTHER-EXPENSES> 542,084
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,820
<INCOME-PRETAX> 1,358,028
<INCOME-TAX> 524,768
<INCOME-CONTINUING> 833,260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 810,609
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.13
</TABLE>
