U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X)QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2003
or
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 001-13343
ADVANTAGE MARKETING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1323256
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2601 NW Expressway, Suite 1210W
Oklahoma City, Oklahoma 73112
(Address of principal executive offices) (Zip Code)
(405) 842-0131
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 ( )
Indicate by check mark whether the registrant is an accelerated filer as defined
in Rule 12b-2 of the Exchange Act.
Yes ( ) No (X)
On October 31, 2003, we had outstanding 4,507,691 shares of our common stock,
$.0001 par value.
ADVANTAGE MARKETING SYSTEMS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
Table of Contents
Part I - Financial Information......................................................... 3
Item 1. Financial Statements.......................................................... 3
Condensed Consolidated Balance Sheets......................................... 3
Condensed Consolidated Statements of Operations............................... 4
Condensed Consolidated Statements of Cash Flows............................... 5
Notes to Condensed Consolidated Financial Statements.......................... 6
Report of Independent Certified Public Accountants............................ 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................... 17
Item 4. Controls and Procedures....................................................... 17
Part II - Other Information............................................................. 19
Item 1. Legal Proceedings............................................................. 19
Item 2. Changes in Securities and Use of Proceeds..................................... 19
Item 3. Defaults Upon Senior Securities............................................... 19
Item 4. Submission of Matters to a Vote of Security Holders........................... 19
Item 5. Other Information............................................................. 19
Item 6. Exhibits and Reports on Form 8-K.............................................. 19
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements under the caption "Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations" constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Certain, but not necessarily all, of such forward-looking statements
can be identified by the use of forward-looking terminology such as
"anticipates", "believes", "expects", "may", "will", or "should" or other
variations thereon, or by discussions of strategies that involve risks and
uncertainties. Our actual results or industry results may be materially
different from any future results expressed or implied by such forward-looking
statements. Factors that could cause actual results to differ materially include
general economic and business conditions; our ability to implement our business
and acquisition strategies; changes in the network marketing industry and
changes in consumer preferences; competition; availability of key personnel;
increasing operating costs; unsuccessful advertising and promotional efforts;
changes in brand awareness; acceptance of new product offerings; changes in, or
the failure to comply with, government regulations (especially food and drug
laws and regulations); product liability matters; our ability to obtain
financing for future acquisitions and other factors.
2
PART I -FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVANTAGE MARKETING SYSTEMS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003 AND DECEMBER 31, 2002
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ 150,413 $ 1,207,299
Marketable securities, available for sale, at fair value............................ 1,764,452 1,621,143
Receivables......................................................................... 189,239 123,838
Receivable from affiliates.......................................................... 13,168 63,561
Prepaid income taxes................................................................ 464,975 464,975
Inventory........................................................................... 1,076,052 798,153
Deferred income taxes............................................................... 55,932 120,343
Other assets........................................................................ 189,022 31,215
------------ ------------
Total current assets................................................... 3,903,253 4,430,527
RECEIVABLES.......................................................................... 232,813 338,839
PROPERTY AND EQUIPMENT, Net.......................................................... 3,875,133 3,905,432
COVENANTS NOT TO COMPETE and other intangibles, Net.................................. 577,458 635,821
DEFERRED INCOME TAXES................................................................ 1,682,666 1,276,859
OTHER ASSETS......................................................................... 62,597 98,791
------------ ------------
TOTAL............................................................................... $ 10,333,920 $ 10,686,269
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................... $ 289,248 $ 219,533
Accrued commissions and bonuses..................................................... 423,264 171,310
Accrued other expenses.............................................................. 250,958 151,289
Accrued sales tax liability......................................................... 136,498 136,618
Notes payable....................................................................... 483,239 455,296
Capital lease obligations........................................................... 93,157 109,898
------------ ------------
Total current liabilities.................................................. 1,676,364 1,243,944
LONG-TERM LIABILITIES:
Notes payable....................................................................... 1,628,298 1,989,332
Capital lease obligations........................................................... 170,302 122,564
------------ ------------
Total liabilities........................................................... 3,474,964 3,355,840
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
STOCKHOLDERS' EQUITY
Common stock - $.0001 par value; authorized 495,000,000 shares; issued
4,936,674 and 4,896,674 shares, outstanding 4,464,314 and 4,424,314 shares,
respectively................................................................... 494 490
Paid-in capital..................................................................... 11,849,737 11,793,240
Notes receivable for exercise of options............................................ (31,000) (31,000)
Accumulated deficit................................................................. (2,753,270) (2,118,857)
Accumulated other comprehensive gain (loss), net of tax............................. 37,471 (68,968)
------------ ------------
Total capital and accumulated deficit...................................... 9,103,432 9,574,905
Less cost of treasury stock (472,795 shares, common)................................ (2,244,476) (2,244,476)
------------ ------------
Total stockholders' equity................................................. 6,858,956 7,330,429
------------ ------------
TOTAL................................................................................ $ 10,333,920 $ 10,686,269
============ ============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
ADVANTAGE MARKETING SYSTEMS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net sales ............................................. $ 4,883,055 $ 5,525,701 $ 14,183,992 $ 17,672,924
Cost of sales ......................................... 3,248,866 3,850,247 9,605,356 11,915,537
------------ ------------ ------------ ------------
Gross profit...................................... 1,634,189 1,675,454 4,578,636 5,757,387
Marketing, distribution and administrative expenses:
Marketing............................................ 418,812 612,114 1,214,174 1,579,183
Distribution and administrative...................... 1,507,742 1,376,142 4,287,805 4,164,873
------------ ------------ ------------ ------------
Total marketing, distribution and administrative
expenses......................................... 1,926,554 1,988,256 5,501,979 5,744,056
------------ ------------ ------------ ------------
Income (loss) from operations..................... (292,365) (312,802) (923,343) 13,331
Other income (expense):
Interest and dividends, net............................ (21,637) (4,355) (68,947) (44,466)
Other, net............................................. 3,461 (2,700) (47,928) (11,812)
------------ ------------ ------------ ------------
Total other expense............................... (18,176) (7,055) (116,875) (56,278)
------------ ------------ ------------ ------------
Loss before taxes...................................... (310,541) (319,857) (1,040,218) (42,947)
Income tax benefit..................................... (121,232) (124,744) (405,806) (16,749)
------------ ------------ ------------ ------------
Net loss............................................... $ (189,309) $ (195,113) $ (634,412) $ (26,198)
============ ============ ============ ============
Net loss per common share - basic...................... $ (.04) $ (.04) $ (.14) $ (.01)
============ ============ ============ ============
Net loss per common share - assuming dilution.......... $ (.04) $ (.04) $ (.14) $ (.01)
============ ============ ============ ============
Weighted average common shares outstanding - basic..... 4,463,092 4,423,879 4,445,541 4,417,037
============ ============ ============ ============
Weighted average common shares outstanding -
assuming dilution.................................. 4,463,092 4,423,879 4,445,541 4,417,037
============ ============ ============ ============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
ADVANTAGE MARKETING SYSTEMS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
SEPTEMBER 30, SEPTEMBER 30,
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................... $ (634,412) $ (26,198)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization....................................... 743,514 704,409
Realized loss on sale of marketable securities...................... 50,289 6,862
Deferred taxes...................................................... (405,806) --
Stock issued for services........................................... 56,500 --
Loss on sale of property and equipment.............................. 12,047 17,448
Changes in assets and liabilities which provided (used) cash:
Receivables....................................................... 40,625 111,432
Prepaid taxes..................................................... -- 1,964
Inventory......................................................... (277,900) 304,024
Other assets...................................................... (148,378) (156,670)
Accounts payable and accrued expenses............................. 421,217 44,273
-------------- --------------
Net cash provided by (used in) operating activities.......... (142,304) 1,007,544
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........................................ (509,393) (533,648)
Sales of property and equipment............................................ 24,412 284,438
Purchases of marketable securities, available for sale..................... (1,206,729) (1,271,579)
Sales of marketable securities, available for sale......................... 1,183,980 1,233,419
Payments on advances to affiliates......................................... 50,394 --
Advance on notes receivable................................................ -- (190,000)
Repayment of receivable from affiliates.................................... -- 340,000
-------------- --------------
Net cash used in investing activities......................... (457,336) (137,370)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock..................................... -- 29,061
Principal payment on notes payable......................................... (364,219) (337,991)
Principal payment on capital lease obligations............................. (93,027) (80,819)
-------------- --------------
Net cash used in financing activities........................ (457,246) (389,749)
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................... (1,056,886) 480,425
CASH AND CASH EQUIVALENTS, BEGINNING......................................... 1,207,299 982,188
-------------- --------------
CASH AND CASH EQUIVALENTS, ENDING............................................ $ 150,413 $ 1,462,613
============== ==============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
ADVANTAGE MARKETING SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements and
related notes have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been omitted pursuant to
such rules and regulations. The accompanying condensed consolidated
financial statements and related notes should be read in conjunction
with the audited consolidated financial statements of the Company, and
notes thereto, for the year ended December 31, 2002.
The information furnished reflects, in the opinion of
management, all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the results of the interim periods
presented. Operating results of the interim period are not necessarily
indicative of the amounts that will be reported for the year ending
December 31, 2003.
2. SIGNIFICANT ACCOUNTING POLICIES
In December 2002, the FASB issued SFAS No. 148, "Accounting
for Stock-Based Compensation-Transition and Disclosure", which amended
SFAS No. 123, "Accounting for Stock-Based Compensation". The new
standard provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based
employee compensation. In compliance with SFAS No. 148, the Company
elected to continue to follow the intrinsic value method in accounting
for its stock-based employee compensation arrangement as defined by APB
No. 25. Accordingly, no compensation cost has been recognized for stock
options granted in the accompanying consolidated financial statements.
The following pro forma data is calculated net of tax as if
compensation cost for the Company's stock-based compensation awards was
determined based upon the fair value at the grant date consistent with
the methodology prescribed under SFAS No. 123.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ---------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net loss as reported...................... $ (189,309) $ (195,113) $ (634,412) $ (26,918)
Adjustment, net of tax.................. (44,241) (9,791) (113,400) (120,941)
---------- ------------- ------------- -------------
Proforma net loss......................... $ (233,550) $ (204,904) $ (747,812) $ (147,859)
========== ============= ============= =============
Net loss per common share as reported..... $ (.04) $ (.04) $ (.14) $ (.01)
Adjustment, net of tax.................. (.01) -- (.03) (.02)
---------- ------------- ------------- -------------
Proforma net loss per common share........ $ (.05) $ (.04) $ (.17) $ (.03)
========== ============= ============= =============
Proforma net loss per common share -
assuming dilution....................... $ (.05) $ (.04) $ (.17) $ (.03)
========== ============= ============= =============
Weighted average common shares
outstanding............................. 4,463,092 4,423,879 4,445,541 4,417,037
========== ============= ============= =============
Weighted average common shares
outstanding - assuming dilution........ 4,463,092 4,423,879 4,445,541 4,417,037
========== ============= ============= =============
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 2003 and 2002,
respectively: risk-free interest rates of 2.82 and 2.74 percent; no
dividend yield or assumed forfeitures; an expected life of five years;
and volatility of 77.4 and 64.0 percent. The pro forma amounts above
are not likely to be representative of future years because there is no
assurance that additional awards
6
ADVANTAGE MARKETING SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
will be made each year. In January 2003, the Company adopted a new
stock incentive plan, under which shares were issued in the first,
second and third quarters of 2003. This plan was approved at the 2003
annual meeting of shareholders.
In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities", or FIN 46. Subject to
certain criteria defined in the Interpretation, FIN 46 will require
consolidation by business enterprises of variable interest entities if
the enterprise has a variable interest that will absorb the majority of
the entity's expected losses, receive the majority of its expected
returns, or both. The provisions of FIN 46 are effective immediately
for interests acquired in variable interest entities after January 31,
2003, and at the beginning of the first interim or annual period
beginning after June 15, 2003, for interests acquired in variable
interest entities before February 1, 2003. The Company adopted FIN 46
in the third quarter of 2003. Certain disclosures concerning variable
interest entities are required in financial statements initially issued
after January 31, 2003. There was no material impact on the Company's
financial statements as a result of adoption of FIN 46. As of September
30, 2003, the Company had no variable interest entities.
3. MARKETABLE SECURITIES
Securities are classified as available for sale with the
related unrealized gains and losses excluded from earnings and reported
net of income tax as a separate component of stockholders' equity until
realized. Realized gains and losses on sales of securities are based on
the specific identification method. Declines in the fair value of
investment securities below their carrying value that are other than
temporary are recognized in earnings.
Net unrealized gains, net of tax, of approximately $18,000 and
$106,000 were included in accumulated other comprehensive gain/loss for
the three and nine months ended September 30, 2003 and net unrealized
losses, net of tax of approximately $55,000 and $71,000 were included
in other comprehensive gain/loss for the three and nine months ended
September 30, 2002. Total comprehensive loss for the three and nine
months ended September 30, 2003 was approximately $171,000 and
$528,000, and total comprehensive loss for the three and nine months
ended September 30, 2002 was approximately $250,000 and $97,000.
4. NOTES PAYABLE
Notes payable consists of the following:
SEPTEMBER 30, DECEMBER 31,
2003 2002
---- ----
Notes payable to RMS Limited Partnership, 7.5%
effective rate, payable in 60 monthly installments ..... $ 1,067,255 $ 1,372,610
Note payable to bank, with interest at prime less .25%
(3.75% at September 30, 2003 and 4.5% at December 31,
2002), payable in monthly installments of principal and
interest, due on September 30, 2006, collateralized by
warehouse, equipment and marketable securities............ 1,014,537 1,066,316
Other..................................................... 29,745 5,702
----------------- ----------------
Total..................................................... 2,111,537 2,444,628
Less: current maturities................................. 483,239 455,296
----------------- ----------------
Long-term notes payable................................... $ 1,628,298 $ 1,989,332
================= ================
7
ADVANTAGE MARKETING SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
5. LOSS PER SHARE
Loss per common share - basic is computed based upon net loss
divided by the weighted average number of common shares outstanding
during each period. Loss per common share - assuming dilution is
computed based upon net loss divided by the weighted average number of
common shares outstanding during each period adjusted for the effect of
dilutive potential common shares calculated using the treasury stock
method.
The following is a reconciliation of the common shares used in
the calculations of loss per common share - basic and loss per common
share - assuming dilution:
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
Weighted average common shares outstanding:
For the three months ended September 30, 2003:
Loss per common share:
Loss available to common stockholders ..... $(189,309) 4,463,092 $ (.04)
=======
Loss per common share - assuming dilution:
Options ................................... -- --
--------- ---------
Loss available to common stockholders plus
assumed conversions .................... $(189,309) 4,463,092 $ (.04)
========= ========= =======
For the three months ended September 30, 2002:
Loss per common share:
Loss available to common stockholders ..... $(195,113) 4,423,879 $ (.04)
=======
Loss per common share - assuming dilution:
Options ................................... -- --
--------- ---------
Loss available to common stockholders plus
assumed conversions .................... $(195,113) 4,423,879 $ (.04)
========= ========= =======
For the nine months ended September 30, 2003:
Loss per common share:
Loss available to common stockholders ..... $(634,412) 4,445,541 $ (.14)
=======
Loss per common share - assuming dilution:
Options ................................... -- --
--------- ---------
Loss available to common stockholders plus
assumed conversions .................... $(634,412) 4,445,541 $ (.14)
========= ========= =======
For the nine months ended September 30, 2002:
Loss per common share:
Loss available to common stockholders ..... $ (26,198) 4,417,037 $ (.01)
=======
Loss per common share - assuming dilution:
Options ................................... -- --
--------- ---------
Loss available to common stockholders plus
assumed conversions .................... $ (26,198) 4,417,037 $ (.01)
========= ========= =======
8
ADVANTAGE MARKETING SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
Options to purchase 2,782,192 shares of common stock at
exercise prices ranging from $1.30 to $6.13 per share were outstanding
for the three and nine months ended September 30, 2003, respectively,
but were not included in the computation of loss per common share -
assuming dilution for the three or six months ended because all options
were antidilutive.
For the three months and nine months ended September 30, 2002,
all options were antidilutive and therefore not included in the
computation of loss per common share or loss per common share -
assuming dilution.
Warrants to purchase 1,874,768 shares of common stock at
exercise prices ranging from $3.40 to $5.40 per share were outstanding
at September 30, 2003 and 2002 but were not included in the computation
of earnings per common share - assuming dilution for the three or nine
months ended because the warrants' exercise price was greater than the
average market price of the common shares.
As part of the LifeScience Technologies Acquisition, the
sellers receive monthly cash payments in an amount equal to the greater
of $41,667 or 5% of LifeScience Technologies product sales. The sellers
may elect to take each monthly payment in shares of common stock rather
than cash at $3.00 per share exercise price, but cannot acquire more
than 860,000 shares pursuant to elections. To date, the sellers have
not elected to take stock rather than cash. None of the shares of
common stock subject to this election right were included in the
computation of earnings per common share - assuming dilution for the
three or nine months ended September 30, 2003 or 2002 because the
exercise price was greater than the average market price of the common
shares.
6. DEFERRED TAXES
On a regular basis, management evaluates all available
evidence, both positive and negative, regarding the ultimate
realization of the tax benefits of its deferred tax assets. Management
has concluded that it is more likely than not that a tax benefit will
be realized from its deferred tax assets. The Company has net operating
loss carryforwards of approximately $807,000 available to reduce future
taxable income, which will begin to expire in 2009. Net operating loss
carryforwards of $196,000 are limited in usage.
7. COMMITMENTS AND CONTINGENCIES
RECENT REGULATORY DEVELOPMENTS - A significant portion of the
Company's net sales continues to be dependent upon the Company's AM-300
product. The Company's net sales of AM-300 represented 38.8% and 44.0%
of net sales for the nine months ended September 30, 2003 and 2002,
respectively. One of the ingredients in the Company's AM-300 products
is ephedra, an herb which contains naturally-occurring ephedrine. The
Company's manufacturer uses a powdered extract of that herb when
manufacturing AM-300. The Company markets AM-300 principally as an aid
in weight management. The extract is an 8% extract which means that
every 100 milligrams of the powdered extract contains approximately
eight milligrams of naturally occurring ephedrine alkaloids. Ephedrine
containing products have been the subject of adverse publicity in the
United States and other countries relating to alleged harmful effects.
The FDA published a proposed rule in the Federal Register on
June 4, 1997, which proposed significant limitations on the sale of
ephedrine-containing dietary supplements. The proposed rule would have
significantly limited the Company's ability to sell products containing
ephedra if it had been made effective. On April 3, 2000, the FDA
withdrew most of the provisions of its proposed rule. This action was
prompted largely by a report issued by the United States General
Accounting Office ("GAO") in which the GAO criticized the scientific
basis for the proposed rule and the FDA's evaluation of approximately
900 reports of adverse events supposedly related to the consumption of
dietary supplements containing ephedrine alkaloids. The FDA has made
available for public inspection most of these adverse event reports.
9
ADVANTAGE MARKETING SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
On March 7, 2003, the FDA published a notice in the Federal
Register, which indicates that it will be taking final action on the
1997 proposed rule in the near future. The FDA re-opened the public
comment period, until April 7, 2003, to allow for additional public
input on the two proposed limitations on the sale of
ephedrine-containing dietary supplements that remained after the FDA's
action of April 3, 2000. One proposed limitation is a warning that
would be required to appear on the label of all ephedrine-containing
supplements. The other proposed limitation is that ephedrine-containing
supplements may not contain other substances that are known to have
stimulant effects (e.g., caffeine). The proposed warning addresses
potential health risks allegedly associated with ephedrine-containing
dietary supplements. It is similar, but not identical, to mandatory
warnings that have been required by Texas law since 1999 and California
law since January 1, 2003. AM-300 and the Company's other
ephedrine-containing supplements comply with these state law
requirements. However, some of the Company's ephedrine-containing
products, like AM-300, contain caffeine or other stimulants. Therefore,
if the proposed rule is made final in its current form, it will
prohibit the sale of some of the Company's products.
On March 13, 2003, the FDA published a proposed rule in the
Federal Register which proposes comprehensive requirements for the
manufacturing, packing and holding dietary supplements, also known as
good manufacturing practices ("GMP" or "GMPs"). The FDA accepted public
comments on the proposed GMPs until June 11, 2003; final GMPs will be
promulgated after the FDA has reviewed the public comments. Once final
GMP regulations become effective, the Company's manufacturer will be
required to adhere to them. The FDA will most likely institute an
effective date for the GMPs which will allow the Company's manufacturer
a reasonable amount of time to conduct this review and, if necessary,
revise its manufacturing operations to comply with the final GMP
regulations.
The Company's certificate of incorporation and bylaws provide
that the Company will indemnify its directors and officers to the
fullest extent permitted by the Oklahoma General Corporation Act. Under
such provisions, any director or officer, who in his capacity as such,
is made or threatened to be made, a party to any suit or proceeding,
may be indemnified if the Company's board of directors determines such
director or officer acted in good faith and in a manner he reasonably
believed to be in or not opposed to its best interests.
The Company's certificate of incorporation and bylaws and the
Oklahoma General Corporation Act further provide that such
indemnification is not exclusive of any other rights to which such
individuals may be entitled under its certificate, its bylaws, an
agreement, vote of shareholders or disinterested directors or
otherwise. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to the Company's directors and
officers pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy and
is, therefore, unenforceable.
PRODUCT LIABILITY - The Company, like other marketers of
products that are intended to be ingested, faces the inherent risk of
exposure to product liability claims in the event that the use of its
products results in injury. The Company maintains a claims made policy,
with limited (exluding ephedra) product liability insurance coverage.
The limits of this coverage are $1,000,000 per occurrence and
$2,000,000 aggregate. Products containing ephedra, which represented
approximately 39.6% of the Company's net revenue for the first nine
months of 2003, are not covered by the Company's product liability
insurance. The Company generally does not obtain contractual
indemnification from parties manufacturing its products. However, all
of the Company's product manufacturers carry product liability
insurance which covers the Company's products. A product liability
claim could result in material losses.
10
ADVANTAGE MARKETING SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
LEGAL PROCEEDINGS - The Company is currently involved in two
products liability suits related to the ingestion of its ephedra-based
products. Answers have been filed to both these petitions denying any
wrongdoing. The Company intends to vigorously defend the claims. The
amounts of damages sought are unknown, but include compensatory and
punitive damages.
******
11
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Advantage Marketing Systems, Inc.
We have reviewed the accompanying condensed consolidated balance sheet
of Advantage Marketing Systems, Inc. and Subsidiaries as of September 30, 2003,
and the related condensed consolidated statements of operations for the three-
and nine-month periods ended September 30, 2003 and 2002, and the statements of
cash flows for the nine months ended September 30, 2003 and 2002. These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by
the American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the condensed consolidated financial statements, as of
September 30, 2003 and for the periods ended September 30, 2003 and 2002, for
them to be in conformity with accounting principles generally accepted in the
United States of America.
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the consolidated balance
sheet of Advantage Marketing Systems, Inc. and Subsidiaries as of December 31,
2002 and the consolidated statements of operations, stockholders' equity and
cash flows for the year then ended (not presented herein) and, in our report
dated February 22, 2003, we expressed an unqualified opinion on those
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 2002 is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
GRANT THORNTON LLP
Oklahoma City, Oklahoma
October 21, 2003
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
We market a product line consisting of approximately one hundred
products in three categories; weight management, dietary supplement and personal
care products. These products are marketed through a network marketing
organization in which independent associates purchase products for resale to
retail customers as well as for their own personal use.
We prepare our consolidated financial statements in conformity with
accounting principles generally accepted in the United States, which require us
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the year. Actual results could differ from those estimates. We consider the
following policies to be most critical in understanding the judgments that are
involved in preparing our financial statements and the uncertainties that could
impact our results of operations, financial condition and cash flows.
Throughout this report, "net sales" represents the gross sales amounts
reflected on our invoices to our associates less associate discounts, sales
returns, and freight income. All of our products include a customer satisfaction
guarantee. Our products may be returned within 30 days of purchase for a full
refund or credit toward the purchase of another product. We also have a buy-back
program whereby we repurchase products sold to an independent associate (subject
to a restocking fee), provided the associate terminates his/her associateship
agreement with us and returns the product within 12 months of original purchase
in marketable condition. We receive our net sales price in cash or through
credit card payments upon receipt of orders from associates.
Our "gross profit" consists of net sales less:
- Commissions and bonuses, consisting of commission payments to
associates based on their current associate level within their
organization, and other one-time incentive cash bonuses to
qualifying associates;
- Cost of products, consisting of the prices we pay to our
manufacturers for products and royalty overrides earned by
qualifying associates on sales within their associate
organizations; and
- Cost of shipping, consisting of costs related to shipments,
duties and tariffs, freight expenses relating to shipment of
products to associates, and similar expenses.
We recognize revenue upon shipment of products, training aids and
promotional materials to the independent associates. All of our customers pay
for sales in advance of shipment. As such, we have no trade receivables. Loans
to associates are repayable in five years or less; are secured by commissions
controlled by us; and are no longer allowed. Interest rates on loans are
typically two percent or more above the Prime rate and are fixed. All loans and
receivables are secured by guaranteed payment sources that are within our
control. As such, we believe there is no need for an allowance for doubtful
accounts.
We write down our inventory to provide for estimated obsolete or
unsalable inventory based on assumptions about future demand for our products
and market conditions. If future demand and market conditions are less favorable
than management's assumptions, additional inventory write-downs could be
required. Likewise, favorable future demand and market conditions could
positively impact future operating results if written-off inventory is sold.
We account for contingencies in accordance with SFAS No. 5, "Accounting
for Contingencies". SFAS 5 requires that we record an estimated loss from a loss
contingency when information available prior to issuance of our financial
statements indicates that it is probable that an asset has been impaired or a
liability has been incurred at the date of the financial statements and the
amount of the loss can be reasonably estimated. Accounting for contingencies
such as legal and income tax matters requires us to use our judgment. Many legal
and tax contingencies can take years to resolve. Generally, as the time period
increases over which the uncertainties are resolved, the likelihood of changes
to the estimate of the ultimate outcome increases. However, an adverse outcome
in these matters could have a material impact on our results of operations,
financial condition and cash flows. No amounts were accrued for such
uncertainties as of September 30, 2003.
13
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of our net sales, selected
results of operations for the three and nine months ended September 30, 2003 and
2002. The selected results of operations are derived from our unaudited
condensed consolidated financial statements. The results of operations for the
periods presented are not necessarily indicative of our future operations.
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
------------------------------------------- --------------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------------- --------------------------------------------
2003 2002 2003 2002
-------------------- -------------------- -------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- ------- ---------- ------- ---------- ------- ------------ -------
Net sales.................... 4,883,055 100.0% $5,525,701 100.0% 14,183,992 100.0% $ 17,672,924 100.0%
----------- ----- ---------- ----- ---------- ----- ------------ -----
Cost of sales:
Commissions and
bonuses................. 1,983,557 40.6 2,296,013 41.6 6,044,551 42.6 7,273,909 41.1
Cost of products........... 869,366 17.8 1,103,507 20.0 2,389,665 16.8 3,315,367 18.8
Cost of shipping........... 395,943 8.1 450,727 8.1 1,171,140 8.3 1,326,261 7.5
----------- ----- ---------- ----- ---------- ----- ------------ -----
Total cost of sales...... 3,248,866 66.5 3,850,247 69.7 9,605,356 67.7 11,915,537 67.4
----------- ----- ---------- ----- ---------- ----- ------------ -----
Gross profit............... 1,634,189 33.5 1,675,454 30.3 4,578,636 32.3 5,757,387 32.6
Marketing, distribution
and administrative
expenses:
Marketing.................. 418,812 8.6 612,114 11.1 1,214,174 8.6 1,579,183 8.9
Distribution and
administrative........... 1,507,742 30.9 1,376,142 24.9 4,287,805 30.2 4,164,873 23.6
----------- ----- ---------- ----- ---------- ----- ------------ -----
Total marketing,
distribution and
administrative
expenses................... 1,926,554 39.5 1,988,256 36.0 5,501,979 38.8 5,744,056 32.5
----------- ----- ---------- ----- ---------- ----- ------------ -----
Loss from operations....... (292,365) (6.0) (312,802) (5.7) (923,343) (6.5) 13,331 0.1
Other income (expense):
Interest, net................ (21,637) (0.4) (4,355) (0.1) (68,947) (0.5) (44,466) (0.2)
Other, net................... 3,461 (0.0) (2,700) (0.0) (47,928) (0.3) (11,812) (0.1)
----------- ----- ---------- ----- ---------- ----- ------------ -----
Total other expense.......... (18,176) (0.4) (7,055) (0.1) (116,875) (0.8) (56,278) (0.3)
----------- ----- ---------- ----- ---------- ----- ------------ -----
Loss before taxes............ (310,541) (6.4) (319,857) (5.8) (1,040,218) (7.3) (42,947) (0.2)
Tax benefit.................. (121,232) (2.5) (124,744) (2.3) (405,806) (2.8) (16,749) (0.1)
----------- ----- ---------- ----- ---------- ----- ------------ -----
Net loss..................... $ (189,309) (3.9)% $ (195,113) (3.5)% (634,412) (4.5)% $ (26,198) (0.1)%
=========== ===== ========== ===== ========== ===== ============ =====
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Our net sales during the three months ended September 30, 2003 decreased by
$641,646, or 11.6%, to $4,883,055 from $5,525,701 during the three months ended
September 30, 2002. The sales decrease is due to the decrease in recruiting of
new independent associates experienced by us in 2002. We have implemented a new
marketing strategy to reverse the downward recruiting trend and to increase
sales, and have begun to see positive effects. We expect to see the true effects
in the fourth quarter and into the first quarter of 2004.
Our cost of sales during the three months ended September 30, 2003
decreased by $601,381, or 15.6%, to $3,248,866 from $3,850,247 during the same
period in 2002. Total cost of sales, as a percentage of net sales, decreased to
66.5% during the three months ended September 30, 2003 from 69.7% during the
same period in 2002. The decrease in cost of sales was attributable to:
- A decrease of $312,456 in associate commissions and bonuses due to
the decreased level of sales;
- A decrease of $234,141 in the cost of products sold due to the
decreased level of sales; and
- A decrease of $54,784 in shipping costs primarily due to decreased
sales.
The factors discussed above resulted in a decrease in gross profit of
$41,265, or 2.5%, to $1,634,189 for the three months ended September 30, 2003
from $1,675,454 for the same period in 2002.
14
Marketing, distribution and administrative expenses decreased $61,702, or
3.1%, to $1,926,554 during the three months ended September 30, 2003, from
$1,988,256 during the same period in 2002. The marketing, distribution and
administrative expenses as a percentage of net sales increased to 39.5% during
the three months ended September 30, 2003 from 36.0% during the same period in
2002. The decrease in expense was primarily attributable to:
- A decrease in insurance costs of approximately $20,000 related to
better rates for liability insurance;
- A decrease in travel costs of approximately $20,000 related to
lower airfare and hotel expense due to the purchase of a motor
home for use by our herbalist; and
- A decrease in rental expense of approximately $22,000 due to the
lease expiration on our old warehouse building.
Management expects marketing, distribution and administrative expenses to
continue at or near the current dollar level.
Our net other income (reduced by other expense) increased by $11,121 to net
other expense of $18,176 at September 30, 2003, from a net other expense of
$7,055 during the same period in 2002.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Our net sales during the nine months ended September 30, 2003 decreased by
$3,488,932, or 19.7%, to $14,183,992 from $17,672,924 during the nine months
ended September 30, 2002. The sales decrease is due to the decrease in
recruiting of new independent associates experienced by us in 2002. We have
implemented a new marketing strategy to reverse the downward recruiting trend
and to increase sales, and have begun to see positive effects. We expect to see
the true effects in the fourth quarter and into the first quarter of 2004.
Our cost of sales during the nine months ended September 30, 2003 decreased
by $2,310,181, or 19.4%, to $9,605,356 from $11,915,537 during the same period
in 2002. Total cost of sales, as a percentage of net sales increased to 67.7%
during the nine months ended September 30, 2003, from 67.4% during the same
period in 2002. The decrease in cost of sales was attributed to:
- A decrease of $1,229,358 in distributor commissions and bonuses
due to the decreased level of sales;
- A decrease of $925,702 in the cost of products sold due to the
decreased level of sales; and
- A decrease of $155,121 in shipping expenses primarily due to
decreased sales.
The factors discussed above resulted in a decrease in gross profit of
$1,178,751, or 20.5%, to $4,578,636 for the nine months ended September 30, 2003
from $5,757,387 for the same period in 2002.
Marketing, distribution and administrative expenses decreased $242,077, or
4.2%, to $5,501,979 during the nine months ended September 30, 2003, from
$5,744,056 during the same period in 2002. The marketing, distribution and
administrative expenses as a percentage of net sales increased to 38.8% during
the nine months ended September 30, 2003 from 32.5% during the same period in
2002. The decrease in expense was primarily attributable to:
- A decrease in insurance costs of approximately $78,000 related to
better rates for liability insurance;
- A decrease in travel costs of approximately $50,000 related to
lower airfare and hotel expense due to the purchase of a motor
home for use by our herbalist;
- A decrease in rental expense of approximately $22,000 due to the
lease expiration on our old warehouse building; and
- A decrease of approximately $74,000 in other variable costs such
as postage, telephone, bank service charges and supplies.
15
Management expects marketing, distribution and administrative expenses to
continue at or near the current dollar level.
Our net other income (reduced by other expense) increased by $60,597 to net
other expense of $116,875 at September 30, 2003, from a net other expense of
$56,278 during the same period in 2002, primarily due to an increased loss on
sale of marketable securities of approximately $44,000, along with a decrease in
investment income of approximately $18,000.
RECENTLY ISSUED ACCOUNTING STANDARDS
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities", or FIN 46. Subject to certain criteria defined in
the Interpretation, FIN 46 will require consolidation by business enterprises of
variable interest entities if the enterprise has a variable interest that will
absorb the majority of the entity's expected losses, receive the majority of its
expected returns, or both. The provisions of FIN 46 are effective immediately
for interests acquired in variable interest entities after January 31, 2003, and
at the beginning of the first interim or annual period beginning after June 15,
2003, for interests acquired in variable interest entities before February 1,
2003. We adopted FIN 46 in the third quarter of 2003. Certain disclosures
concerning variable interest entities are required in financial statements
initially issued after January 31, 2003. There was no material impact on our
financial statements as a result of adoption of FIN 46. As of September 30,
2003, we had no variable interest entities.
SEASONALITY
No pattern of seasonal fluctuations exists due to the patterns that we are
currently experiencing. However, there is no assurance that we will not become
subject to seasonal fluctuations in operations.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of liquidity has been cash provided by sales of our
marketable securities and our operating activities. At September 30, 2003, we
had working capital of $2,226,889, compared to $3,186,584 at December 31, 2002.
We believe our cash and cash equivalents, current marketable securities, cash
flows from operations and expected cash flows from financing activities will be
sufficient to fund our working capital and capital expenditure needs over the
next twelve months. During the nine months ended September 30, 2003, net cash
used in operating activities was $142,304, net cash used in investing activities
was $457,336 and net cash used in financing activities was $457,246. This
represented a net decrease in cash during this period of $1,056,886. Our working
capital needs over the next 12 months consist primarily of marketing,
distribution and administrative expenses, and will be provided by our operating
activities. We expect our cash to increase in the fourth quarter, as a result of
reduced operating expenses and anticipated revenues.
In 2001, we completed construction of a 23,346 square foot distribution and
call center facility in Oklahoma City. This project was funded, in part, with
bank loans of $980,000 for the land and building and $166,216 for the warehouse
equipment. Both loans are with Bank One Oklahoma, N.A. and accrue interest at an
annual rate of .25% under the prime rate.
The loans contain covenants restricting us from various activities without
written consent of Bank One, the most significant of which restrict us from:
- Transferring, selling or otherwise disposing of any assets;
- Making any loans to any persons or entity in excess of $500,000 in
the aggregate;
- Engaging in any merger or acquisition in which we are not the
surviving corporation;
- Changing executive management personnel; and
- Purchasing or acquiring any interest in any other entity.
The loan is collateralized by a first lien on all our marketable
securities.
16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our balance sheet includes marketable securities, which we believe are a
conservative blend of income and growth investments resulting in moderate market
risk. We invest in equity marketable securities to generate capital growth, and
fixed-income marketable securities to provide current income. Because of the
nature of these investments, total return and risk will be affected by both
current interest rates and equity market movements. Our fixed income investments
of approximately $802,000 are subject to interest risk only. We have
approximately $963,000 of equity investments that are exposed to market risk.
INTEREST RATE RISK. We currently maintain an investment portfolio of
high-quality fixed-income marketable securities. All securities are available
for sale and recorded in the balance sheet at fair value with fluctuations in
fair value reported as a component of accumulated other comprehensive income in
stockholders equity. We do not hedge our investment portfolio or our outstanding
credit facility or other long-term indebtedness. Fixed-income investments with a
maturity date of three months or less at the date of purchase are deemed to be
cash equivalents. Any remaining fixed-income securities are considered
short-term and mainly consist of investments in U.S. Treasury notes and bonds.
The following table lists our cash equivalents and our short-term
fixed-income marketable securities at September 30, 2003 and December 31, 2002:
SEPTEMBER 30, 2003 DECEMBER 31, 2002
----------------------------------- -------------------------------------------
AVERAGE FAIR AVERAGE FAIR
INTEREST RATE COST VALUE INTEREST RATE (1) COST VALUE
------------- --------- --------- ------------------- --------- ---------
Cash equivalents... -- $ 21,527 $ 21,527 -- $ 18,208 $ 18,208
Short-term
Investments...... -- 774,998 780,186 6.0% 787,180 801,339
--------- --------- --------- ---------
$ 796,525 $ 801,713 $ 805,388 $ 819,547
========= ========= ========= =========
(1) Average interest rate is calculated by taking the individual security
interest rates multiplied by each investments' weighted average share
of the total fixed-income marketable securities.
At September 30, 2003 all of our fixed income securities were in mutual
funds, creating no average interest rates for fixed income securities, due to
the redemption of 10,000 shares of our 5.75% Bell Atlantic securities during the
second quarter of 2003.
The fair value of the cash equivalents and fixed-income marketable
securities decreased $17,834 during the nine months ended September 30, 2003 to
$801,713 from $819,547 at December 31, 2002. This decrease was primarily due to
a net redemption of fixed-income securities resulting in a reduction of $21,000,
offset by an increase in cash equivalents of approximately $3,000.
EQUITY MARKET RISKS. We currently maintain an investment portfolio of
equity securities. All securities are available for sale and recorded in the
balance sheet at fair value with fluctuations in fair value reported as a
component of accumulated other comprehensive income in stockholders equity. We
do not engage in hedging our equity portfolio or otherwise purchase derivative
securities. Because of the quality of our portfolio and liquid nature of our
equity investments, we do not consider the market risk related to these
investments to be material. At September 30, 2003, our equity investments had a
value of $962,739 compared to $801,595 at December 31, 2002, primarily due to
the purchase of mutual fund equity investments in 2003.
We attempt to manage our interest and market risk by evaluating and
purchasing what we believe to be the best investment securities and rates of
return available.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, an evaluation was
carried out under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934) as required by Rule 13a-15(b). Based upon that evaluation, the Chief
17
Executive Officer and Chief Financial Officer concluded that the design and
operation of these disclosure controls and procedures were effective.
18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On October 14, 2003, we approved the extension of the exercise period
of our 1997-A Warrants and our Redeemable Common Stock Purchase
Warrants from November 12, 2003 to November 12, 2004. The extension of
the exercise period is effective on November 12, 2003.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our annual meeting held July 26, 2003, Steven M. Dickey and Reggie
B. Cook were re-elected directors for a three-year term, shareholders
approved the Advantage Marketing Systems 2003 Stock Incentive Plan and
Grant Thornton LLP was ratified as our independent auditor for the 2003
fiscal year. A total of 4,808,702 shares were cast in favor of Messrs.
Dickey and Cook's re-election and no shares were cast against.
Abstentions were 132,122. A total of 1,209,438 shares were cast in
favor of approval of the Stock Incentive Plan, and 161,514 shares were
cast against. Abstentions were 22,206. A total of 2,434,122 shares were
cast in favor of Grant Thornton's ratification and 3,251 shares were
cast against. Abstentions were 33,039. Messrs. John Hail, David
D'Arcangelo, Steven Hague, Harland Stonecipher and M. Thomas Buxton III
continued as directors following our annual meeting.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 The Registrant's Certificate of Incorporation, incorporated by
reference to the Registration Statement on Form SB-2 (Registration No.
333-47801) filed with the commission on March 11, 1998.
3.2 The Registrant's Bylaws, incorporated by reference to the Registration
Statement on Form SB-2 (Registration No. 333-47801) filed with the
commission on March 11, 1998.
15 Letter of independent accountants as to unaudited interim financial
information, filed herewith.
31.1 Rule 13a-14(a) Certification by our Chairman and Chief Executive
Officer, filed herewith.
31.2 Rule 13a-14(a) Certification by our Chief Financial Officer, filed
herewith.
32.1 Section 1350 Certification of our Chief Executive Officer, filed
herewith.
32.2 Section 1350 Certification of our Chief Financial Officer, filed
herewith.
(b) Form 8-K
We filed the following Form 8-Ks during the third quarter of 2003:
- August 1, 2003 - Item 7 and Item 12 filing disclosing the press
release announcing financial results for the three and six months
ended June 30, 2003.
19
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.
REGISTRANT:
ADVANTAGE MARKETING SYSTEMS, INC.
Dated: November 4, 2003
By: /S/ REGGIE B. COOK
----------------------------
Reggie B. Cook, Vice President and
Chief Financial Officer
(Duly Authorized Officer of
Registrant and Principal Financial Officer)
20
Index of Exhibits
3.1 The Registrant's Certificate of Incorporation, incorporated by
reference to the Registration Statement on Form SB-2 (Registration No.
333-47801) filed with the commission on March 11, 1998.
3.2 The Registrant's Bylaws, incorporated by reference to the Registration
Statement on Form SB-2 (Registration No. 333-47801) filed with the
commission on March 11, 1998.
15 Letter of independent accountants as to unaudited interim financial
information, filed herewith.
31.1 Rule 13a-14(a) Certification by our Chairman and Chief Executive
Officer, filed herewith.
31.2 Rule 13a-14(a) Certification by our Chief Financial Officer, filed
herewith.
32.1 Section 1350 Certification of our Chief Executive Officer, filed
herewith.
32.2 Section 1350 Certification of our Chief Financial Officer, filed
herewith.
21