SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported) July 31, 2003
A.M.S. MARKETING, INC.
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(Exact name of registrant as specified in Charter)
Delaware 000-25413 65-0854589
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(State of other Jurisdiction of (Commission file no.) (IRS employer
incorporation) identification no.)
6689 N.W, 16th Terrace, Ft. Lauderdale, FL 33309
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (954) 978-9090
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7040 W. Palmetto Park Rd, Bldg 4, #572, Boca Raton, FL 33433
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(Former Name or Former Address, if Changed Since Last Report)
Forward Looking Statements
This Form 8-K and other reports we file from time to time with the
Securities and Exchange Commission (collectively the "Filings") contain or may
contain forward looking statements and information that are based upon beliefs
of, and information currently available to, our management as well as estimates
and assumptions made by our management. When used in the filings the words
"anticipate", "believe", "estimate", "expect", "future", "intend", "plan" or the
negative of these terms and similar expressions as they relate to us or our
management identify forward looking statements. Such statements reflect our
current view with respect to future events and are subject to risks,
uncertainties, assumptions and other factors (including the risks contained in
the section of this report entitled "Risk Factors") relating to our industry and
our operations and results of operations. Should one or more of these risks or
uncertainties materialize, or should the underlying assumptions prove incorrect,
actual results may differ significantly from those anticipated, believed,
estimated, expected, intended or planned.
Although we believe that the expectations reflected in the forward
looking statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
results. The following discussion should be read in conjunction with our
financial statements and the related notes that appear elsewhere in this report.
Item 1. Changes in Control of Registrant.
On July 31, 2003 (the "Exchange Date"), we entered into an Agreement
and Plan of Exchange (the "Exchange Agreement") with Advanced Imaging Systems,
LLC, a Delaware limited liability company ("AIS"), and Laura Palisa Mujica, Lara
Nicole Sarafianos, Sarah Cinnante and Michael D'Angelo, the members of AIS (the
"Members"). Pursuant to the Exchange Agreement, we issued to the Members an
aggregate of 1,200,000 shares of our common stock, par value $.001 per share
(the "Common Stock"), in exchange (the "Exchange") for all of the limited
liability company interests of AIS issued and outstanding on such date.
Immediately prior to the Exchange, each of the Members purchased
900,000 shares of our Common Stock (3,600,000 shares in the aggregate) from
Alfred M. Schiffrin, our sole director and former President, for $.05 per share,
payable partly in cash with the balance payable by a recourse promissory note
secured by the purchased shares. The shares issued to the Members in the
Exchange, together with the shares purchased by the Members from Mr. Schiffrin
represented approximately 82% of the total then issued and outstanding shares of
our Common Stock.
The details of the transaction, including all information required by
Item 1. of this Current Report on Form 8-K (this "Report"), are set forth in
Item 2. "Acquisition or Disposition of Assets" below, the contents of which are
incorporated by reference herein.
Item 2. Acquisition or Disposition of Assets.
Overview of the Transaction
The information below is a summary description of the Exchange
Agreement and is qualified in its entirety by reference to the Exchange
Agreement and related documents that we have filed as exhibits to this Report.
Pursuant to the Exchange Agreement, on the Exchange Date we issued to
each Member an aggregate of 300,000 shares of Common Stock. In exchange, each
Member conveyed to us all of his or her limited liability company interests in
AIS. The exchange ratio of shares of the Common Stock for the limited liability
company interests of AIS was determined arbitrarily by the parties to the
Exchange Agreement, and the parties did not assign any value to the shares of
Common Stock or the limited liability company interests of AIS.
In connection with the Exchange Agreement, the following transactions
took place on or before the Closing Date:
- Mr. Schiffrin, our former President and sole director, entered
into an agreement with each of the Members pursuant to which
Mr. Schiffrin sold to each Member an aggregate of 900,000
shares of our Common Stock owned by him for $.05 per share.
- AIS entered into employment agreements with each of C. Leo
Smith, Steven Cinnante, George Sarafianos, Susan Archer and
Michael D'Angelo.
- Anthony Collura, one of our shareholders prior to the
Exchange, entered into an agreement with Susan Archer, our new
Treasurer and Secretary, pursuant to which he sold an
aggregate of 100,000 of his shares of our Common Stock to her
for $.05 per share.
- We agreed to honor the provisions of the Series A Exchangeable
Notes issued by AIS as disclosed in Schedule 3.7 of the
Exchange Agreement with respect to the exercise of the
Exchange Right (as defined in such notes) and to have
authorized and in reserve, and to keep available, solely for
delivery upon the exchange of such notes, shares of our Common
Stock issuable from time to time upon the exchange of such
notes.
- Mr. Schiffrin, our sole director, resigned as President, and
appointed Mr. Smith, the Chief Executive Officer of AIS, as
our President, Chief Executive Officer and Chief Financial
Officer and Ms. Archer as our Treasurer and Secretary.
- Subject to and effective upon compliance with Rule 14f-1 under
the Securities Exchange Act of 1934, Mr. Schiffrin appointed
Mr. Smith, James J. Gaffney and Alex Sarafianos as members of
our new board of directors and tendered his resignation as a
director.
Description of Our Pre-existing Business
We were formed in Delaware in July 1998. Since 1998, we have engaged in
the business of marketing pre-owned, brand name photocopy machines for an
unrelated third party. In addition to our pre-existing business, we now own all
of the issued and outstanding limited liability company interests of AIS. The
acquisition of all the issued and outstanding limited liability company
interests of AIS was completed on July 31, 2003 by an exchange reorganization
whereby we acquired all of the limited liability company interests of AIS in
exchange for issuing 1,200,000 shares of Common Stock. Between the newly issued
shares and the 3,600,000 shares of Common Stock purchased by the Members from
Mr. Schiffrin, the Members controlled approximately 82% of our issued and
outstanding shares of capital stock immediately after the Exchange. Accordingly,
the acquisition has been treated as a reverse acquisition. As a result of the
Exchange, we now carry on business through our wholly-owned subsidiary AIS,
which maintains its business office at 6689 N.W. 16th Terrace, Ft. Lauderdale,
FL 33309. We also plan to continue our pre-existing business. Mr. Smith, our new
President, has orally agreed with Mr. Schiffrin that Mr. Schiffrin will continue
to run the pre-existing business and in exchange receive 25% of the profits of
that business. The designees of our new board of directors have approved this
arrangement. It is our intention to continue to consider strategic alternatives
for the pre-existing business.
Description of AIS's Business
AIS was formed as a Delaware limited liability company in June 2002.
AIS designs, manufactures and markets plastic and paper card products including
credit cards, pre-paid telephone cards, value storage cards, access entry cards,
identity cards and business cards.
Products
We are a turnkey provider of plastic cards, paper cards and printing
services to domestic and international customers.
Plastic Cards
Plastic cards we produce include:
o access cards o debit cards o library cards
o ATM cards o discount cards o loyalty cards
o bank cards o door entry cards o luggage tags
o blank cards o gift cards o membership cards
o business cards o health care cards o punch cards
o check cashing cards o identification cards o security cards
o courtesy telephone cards o information cards o V.I.P. cards
o credit cards o laminated cards
Paper Cards
Paper cards we produce include:
o telephone calling cards o paper tear cards o paper punch out cards
o promotional pre-paid cards o point of sale cards o flat pack cards
o vending CR80 cards
Printing Services
We provide turnkey production of our customers' orders for card products
from concept to completion.
Our graphics design team assists the customer in creating a unique and
innovative product. We use state of the art graphics design software to rapidly
turn around customer orders. Product proofing and approval can be done by the
customer on our secure website.
Once the design is completed, an order is put through pre-press
preparation. We then carefully trap, impose, output to high-resolution film, and
then strip the order in preparation for plate making. We print the orders either
by silkscreen, lithography, or digital printing. Upon completion of the printing
process, we can finish the processes in a variety of ways including: personal
identification numbers, labeling, embossing, holograms, bar coding, scratch off,
data encoding, magnetic stripping, lamination, and sequential and/or straight
numbering.
Finally, we package and ship the order according to the customer's
instructions. We offer numerous packaging and shipping options: shrink wrap
packaging, cello wrap packaging, tipping, stuffing, mailing, and drop shipping.
We maintain online accounts with many of the world's leading couriers, including
Federal Express, UPS, and Airborne Express. Additionally, we have close working
relationships with freight forwarders worldwide.
Customers and Markets
Since AIS's inception (June 2002), we have focused almost exclusively
on card products for the telecommunications industry. As a result, approximately
90% of the Company's revenues have come from the telecommunications industry.
Approximately 90% of these telecommunications revenues have been from 12 major
customers. Some of our principal customers include: 9278 Communications, Centrix
Communications, Phone Card Warehouse, U.S. Cellular, and Verizon Wireless.
In the near future, we plan to expand and diversify the markets we
target. We intend to expand our marketing to each of our four major business
lines:
o Telecommunications o Loyalty and Retail
o Financial o Identity and Security
Competition
The card product market is highly competitive. We face existing
competition in the telecommunications market, each other market we currently
service and each of the markets in which we plan to expand. Moreover, our
customers and companies with whom we currently have strategic relationships may
become competitors in the future.
Telecommunications
Public telephony is a mature market, and is highly competitive.
According to Eurosmart, approximately 950 million phonecards were sold worldwide
in 2002. The main competitors in this market are Gemplus International SA,
Schlumberger, Giesecke & Devrient and Oberthur Card Systems. Additionally, we
face competition from numerous smaller companies. The ability to deliver large
volumes of phonecards at competitive prices, as well as the capability of
meeting changing customer demands, such as increased requirements, in the short
term are key competitive factors in this market. We believe that our turnkey
production capabilities have enabled us to meet our customers' requirements in
the past, which has allowed us to develop strong customer relationships.
Financial
The financial market is currently fragmented and subject to intense
competition. The main competitors in this market include Gemplus International
SA, Giesecke & Devrient, Oberthur Card Systems and Schlumberger. A significant
barrier to competing in the financial market is qualifying as a secured card
manufacturer. We are currently seeking such qualification, but there can be no
assurance that we will become qualified.
Loyalty and Retail
The market for loyalty and retail programs, including bonus points and
reward programs, is currently fragmented and subject to intense competition.
Identity and Security
The market for identification and security products is currently in its
development stage. There are a number of companies, including large systems
integrators, that compete in this market.
Suppliers
We rely on a number of different suppliers of materials and components
to manufacture our products. The basic components of our products are plastic
cards, paper cards and other materials used in the manufacturing process, such
as lamination film and inks.
We believe that our current suppliers will be able to meet our
requirements in terms of cost and volume. We have diverse supply arrangements
for our materials, including plastic resin, paper board, overlay film, and
magnetic tape. We have at least two supply sources for each of our materials.
Marketing
We use a direct sales force to market and sell our products and
services. Strategic relationships are an important part of our overall marketing
strategy, in addition to sales through our other channels. Through our strategic
partners we facilitate new product development, collaborative marketing
initiatives and joint sales efforts with a select group of value added
resellers, systems integrators, consultants and developers.
Market Potential
Plastic and paper cards are used in increasingly diverse applications,
as consumers demand progressively more convenience in their daily lives. The use
of plastic and paper cards is increasing most rapidly in the telecommunications,
financial, loyalty and retail, and identity and security markets. The most
common uses of plastic cards are ATM cards, credit cards, telephone cards, debit
cards, membership cards, and value stored cards. The most common uses of paper
cards are pre-paid telephone cards, scratch off and promotional giveaways.
Pre-paid telephone cards, both plastic and paper, are experiencing a
dramatic increase in use. According to "Pre-paid Calling Cards: Market Dynamics
and Forecast 2003-2008," a report that was recently published by the
telecommunications industry research firm, ATLANTIC-ACM, "the industry will
continue to experience solid growth over the next five years, as the $3.7
Billion market expands by another 73%."
"Smart" cards, cards containing microprocessors (chip cards), are
widely used to reduce fraud and increase security particularly in the financial
and identification industries. The worldwide market for "smart" cards grew from
$1.2 Billion in 1996 to $7.6 Billion in 2000, and will reach $16.0 Billion by
2005, according to Killen & Associates.
In the loyalty and retail sector of the economy, a recent survey by
Standard Register anticipates that at current growth rates, the use of pre-paid
and loyalty cards will approach 50% in the next three years.
Frost & Sullivan, a plastic card industry research firm, projects that
the total of annually shipped plastic identification cards will reach 114.7
Million by 2006, up from 14.4 Million in 1999.
A survey by The Research Center of the University of Michigan's
Institute for Social Research found that the percentage of adults indicated
below carry plastic or paper card products for the use indicated:
Credit Cards - 88%
ATM Cards - 60%
Membership Cards - 58%
Pre-paid Cards - 35%
Loyalty Cards - 29%
Pre-Paid Telephone Cards - 28%
Gift Cards - 11%
Smart Cards - 4%
We believe that the movement towards a "cashless society" will continue
to accelerate and that the use of plastic and paper cards will increasingly
replace cash in everyday life.
Growth Opportunities
We intend to focus our efforts on the following three areas of business
in order to drive our growth:
o Internal Growth. We believe that we can generate additional revenues
and earnings growth over the next five years, primarily by (i)
implementing an advertising and marketing program that targets the
pre-paid telephone card industry, (ii) qualifying to produce plastic
cards for Visa and MasterCard, and (iii) aggressively seeking business
in the gift card and value stored card sectors of the industry;
o Joint Ventures. We have identified a significant number of potential
joint ventures, primarily in the pre-paid telephone card industry,
throughout Central and South America, and in Europe. Preliminary
analysis of such potential joint ventures indicates the strong
possibility of building our foreign revenues and earnings to levels
comparable to AIS's domestic revenue; and
o Acquisitions. We intend to develop and execute an acquisition strategy
in the future to consolidate a portion of our highly fragmented
industry, which is largely comprised of a significant number of
companies that are not sufficiently capitalized, that are operated by
management who lack the requisite managerial skills, and that generate
annual revenues of $10.0 Million or less.
Plant and Facilities
The Company currently operates from a 7,000 square foot facility that
it leases in Fort Lauderdale, Florida. Our annual rent is $45,185. Our current
lease expires June 2005. We want to move into a larger facility of approximately
14,000 square feet, and are currently evaluating a number of other facilities
that are available to us.
The need for a larger facility is necessitated by a number of factors,
most notably (i) our anticipated purchase of additional equipment in the
immediate future that will increase the "footprint" of the production and
finishing areas, and (ii) our need for additional warehouse space for the
storage of materials and packaging supplies on site.
Employees
We currently have 27 full time employees. None of our employees are
covered by a collective bargaining agreement. We consider our relationship with
our employees to be good.
Information Concerning Executive Officers And Directors
Executive Officers
Our new executive officers are identified in the table below. Each of
our executive officers serves at the pleasure of our board of directors.
Year Became an
Name Age Executive Officer Positions
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C. Leo Smith 35 July 31, 2003 President, Chief Executive
and Chief Financial Officer,
Susan Archer 37 July 31, 2003 Treasurer and Secretary
(a) There are no material proceedings known to us to which any of
our directors, officers or affiliates, or any owner of record or beneficially of
more than 5% of any class of our voting securities, or any affiliate of such
persons is a party adverse to us or has a material interest adverse to our
interests.
(b) The following brief biographies contain information about our
directors and an executive officer. The information includes each person's
principal occupations and business experience for at least the past five years.
This information has been furnished to us by the individuals named. There are no
family relationships known to us between the directors and executive officers.
We do not know of any legal proceedings known to us that are material to the
evaluation of the ability or integrity of any of the directors or executive
officers.
Directors
C. Leo Smith ("Smith"), 35, Chairman of the Board of Directors,
President, Chief Executive and Chief Financial Officer, has served as the
Manager of AIS since its inception. From November 1991 until April 2002, he was
the Chief Executive Officer of Smith International Enterprises, Inc (d/b/a
Ameriplast Manufacturing), a privately owned manufacturer of pre-paid telephone
calling cards. In April 2002, the company was sold to Signature Graphics Inc., a
private company. Smith earned a B.AS degree from Florida State University.
James J. Gaffney ("Gaffney"), 51, Director, has served since January
2003 to the present as the Chief Executive Officer of Red-Horse Securities, LLC,
a privately owned securities broker dealer primarily engaged in the underwriting
and trading of tax free municipal bonds and a member of the NASD, the MSRB and
the SIPC. From January 2001 to December 2002, he was the Director of Marketing
of PCX Trade Corp., a privately owned proprietary software provider to NYSE and
NASD member firms. From May 1995 until December 2000, Gaffney was First Vice
President of Sales and Marketing of Robb, Peck, McCooey, a privately owned NYSE
member firm that functions as a specialist on the floor of the NYSE and clears
trades for other NYSE and NASD member firms and other professional proprietary
traders. He earned a B.S. degree from Fordham University.
Alex Sarafianos ("Sarafianos"), 40, Director, has served since April
2000 to the present as Senior Vice president and National Sales Director of
AmSouth Funds of AmSouth Bank. From October 1994 to March 2000, he was Vice
President and Senior Funds Wholesaler of BISYS Fund Services. Mr. Sarafianos
earned a Bachelor of Business Administration degree from Mercer University.
No employee of the Company receives any additional compensation for his
or her services as a Director. Non-management directors receive no salary for
their services as such, but may participate in the Company's stock option plans.
The board of directors has authorized payment of reasonable travel or other
out-of-pocket expenses incurred by non-management directors in attending
meetings of the board of directors and committees thereof.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information available to us, as of July
31, 2003 with respect to the beneficial ownership of the outstanding shares of
Common Stock by (i) any holder of more than five percent (5%) of the outstanding
shares; (ii) our officers and directors; and (iii) our officers and directors as
a group:
Name and Address of Beneficial Owner(1) Shares of Common Stock Owned Percentage (%) of Common Stock(2)
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Sarah Cinnante(3) 1,200,000 20.49%
Michael D'Angelo(3) 1,200,000 20.49%
Laura Palisa Mujica(4) 1,200,000 20.49%
Lara Nicole Sarafianos(5) 1,200,000 20.49%
Alicia M. LaSala(6) 400,000(7) 6.83%(7)
Alfred M. Schiffrin(8) 400,000 6.83%
Alex Sarafianos(9) 0(10) 0%(10)
James Gaffney(11) 0 0%
C. Leo Smith(3) 1,200,000(12) 20.49%(12)
Susan Archer(3) 100,000 1.71%
All officers and directors as a group 1,300,000(12) 22.20%(12)
(four persons)
(1) Beneficial ownership as reported in the table above has been determined
in accordance with Instruction (1) to Item 403 (b) of Regulation S-B of the
Exchange Act.
(2) Percentages are approximate.
(3) The business address of the stockholder, director or officer, as the
case may be, noted above is 6689 N.W. 16th Terrace, Ft. Lauderdale, FL 33309.
(4) The address of the stockholder noted above is 824 S.E. 8th Street, Ft.
Lauderdale, FL 33316.
(5) The address of the stockholder noted above is 4440 N.E. 22nd Avenue,
Lighthouse Point, FL 33064.
(6) The address of the stockholder noted above is 6674 Serena Lane, Boca
Raton, FL 33433.
(7) Includes 20,000 shares of Common Stock owned of record by a trust for
the benefit of Mrs. LaSala's minor child of which her husband is the sole
trustee. Mrs. LaSala disclaims beneficial ownership of such shares.
(8) The business address of the stockholder noted above is 7040 W. Palmetto
Park Road, Building 4, # 572, Boca Raton, FL 33433. Prior to the Exchange, Mr.
Schiffrin was the sole director and officer of the Company.
(9) The address of the director noted above is 16008 Willmington Place,
Tampa FL 33647.
(10) Excludes all shares owned by Lara Nicole Sarafianos. Mr. Sarafianos is
the brother-in-law of Mrs. Sarafianos and disclaims beneficial ownership of all
shares owned by her.
(11) The business address of the shareholder named above is 30 Montgomery
Street, Jersey City, NJ 07302.
(12) Includes 1,2000,000 shares owned by the mother of Mr. Smith, Laura
Palisa Mujica. Mr. Smith disclaims beneficial ownership of such shares.
Risk Factors
AIS is a New Venture with a Limited Operating History
AIS was organized in June 2002. Due to AIS's limited operating history,
our ability to operate successfully is materially uncertain and our operations
and prospects are subject to all risks inherent in a developing business
enterprise. AIS's limited operating history also makes it difficult to evaluate
our long term commercial viability, and market acceptance of our potential
products. Our potential for success must be evaluated in light of the problems,
expenses and difficulties frequently encountered by new businesses in general
and the plastic and paper card product businesses specifically.
We Will Require Additional Financing; if the Necessary Financing Cannot Be
Obtained Our Business Will Suffer.
We plan to expand our operations which will require substantial
up-front expenditures. Accordingly, additional financing will be required to
implement our business plan. We have no commitments from third parties for any
future funding, and there can be no assurance that financing will be available
on acceptable terms, if at all. If we are not able to obtain necessary
financing, we may be required to curtail our activities or cease operations.
We Rely on a Relatively Limited Number of Customers for a Large Portion of
Our Revenues and Business.
We have received a significant portion of our revenues since the
inception of AIS from a relatively limited number of customers. The loss of one
or more of these major customers, or a decrease in orders by one or more
customers, could adversely affect our revenue, business and reputation. In
addition, our customers have in the past sought price concessions from us and
may continue to do so in the future, particularly as a result of an increasing
competitive market, which could reduce our profitability and gross margins. Our
sales to our twelve largest customers accounted for approximately 81% of total
revenues since AIS's inception.
We Do Not Have Long-term Contracts with Our Customers and Our Customers May
Cease Purchasing Our Products at Any Time.
Generally we do not have long-term contracts with our customers. As a
result, the agreements with our customers do not provide any assurance of future
sales. Accordingly:
o our customers may cease purchasing products at any time without
penalty;
o our customers are free to purchase products from our competitors;
o we are exposed to competitive price pressure on each order; and
o our customers are not required to make minimum purchases.
Sales typically are made pursuant to individual purchase orders and
product delivery often occurs with extremely short lead times. If we are unable
to fulfill these orders in a timely manner, we could lose sales and customers.
The Loss of Our Key Management Personnel or Our Failure to Attract and
Retain Additional Personnel Could Adversely Affect Our Business.
Currently we employ 27 people. If we fail to retain the necessary
personnel, our business and ability to obtain new customers, develop new
products and provide acceptable levels of customer service could suffer. The
success of our business is heavily dependent on the leadership of Mr. Smith.
We May Be Unable To Adequately Protect Our Proprietary Rights Significantly
Impairing Our Competitive Position.
Our success depends to a significant extent on our ability to protect
our proprietary rights from copying, infringement or use by unauthorized
parties. To protect our proprietary rights, we will rely primarily on a
combination of copyright, trade secret and trademark laws, confidentiality
agreements with employees and third parties, and protective contractual
provisions such as those contained in agreements with consultants, vendors and
customers, although we have not signed these types of agreements in every case.
Despite these efforts to protect our proprietary rights, unauthorized parties
may copy aspects of the Company's products and obtain and use information that
the Company regards as proprietary. Other parties may breach confidentiality
agreements and other protective contracts we have entered into. We may not
become aware of, or have adequate remedies in the event of, these types of
breaches or unauthorized activities.
The Market for Our Products and Services May Not Grow as Quickly as
Anticipated, which would Cause Revenues to Fall Below Expectations.
The market for our products and services is evolving. In the past we
earned a substantial portion of our revenue from the telecommunications
industry. While we plan to diversify, we expect to earn a substantial portion of
our revenue in the foreseeable future from the telecommunications industry.
Future financial performance will depend on continued growth in
telecommunication customer demand for card products. If this market fails to
grow, or grows more slowly than expected, the Company's sales may be adversely
affected.
Our Markets Are Highly Competitive and Competition Including the Increased
Use of Chip Card Technology Could Harm Our Ability to Sell Products and Services
and Could Reduce our Margins and Market Share.
The market for card products and services is rapidly changing and
intensely competitive. We expect competition to increase as the industry grows.
Recently, intense competition among suppliers has led to increased
pricing pressures on our products. We may not be able to compete successfully
against current or future competitors. The competitive pressures facing us may
harm our business, operating results and financial condition.
Competitors in our market include, among others, card product and
service providers such as Gemplus International SA, Schlumberger, Giesecke &
Devrient, Oberthur Card Systems and Orga Kartensysteme. Additionally there are
numerous smaller companies with which we must compete. New entrants are joining
the industry with low-cost operating models, especially in China, with
aggressive pricing policies that could threaten our pricing model in the future.
We also expect the increasing prevalence of chip card technology to
increase the competitive pressures in our industry. As the market for chip card
products and services in the telecommunications, financial services and internet
security industries grows, and as these markets converge, we may experience
competition from companies that are currently not active in our market,
including:
o operating system developers, such as Microsoft and IBM;
o electronic security product and service providers, such as Baltimore
Technologies, Entrust, RSA and Verisign;
o wireless device manufacturers, such as Nokia, Motorola, Samsung and
Sony-Ericsson;
o systems integrators, such as IBM, Siemens and EDS;
o microcontroller chip manufacturers, such as STMicroelectronics,
Infineon, Philips, Atmel, Samsung and Sony; and
o wireless infrastructure software providers, such as Sonera SmarTrust.
Many of our competitors and potential competitors have larger technical
staffs, larger customer bases, more established distribution channels, greater
brand recognition and greater financial, marketing and other resources than we
do. Our competitors may be able to develop products and services that are
superior to our products and services, that achieve greater customer acceptance
or that have significantly improved functionality as compared to our existing
and future card products and services. In addition, our competitors may be able
to negotiate strategic relationships on more favorable terms than we are able to
negotiate. Many of our competitors may also have well-established relationships
with our existing and prospective customers. Increased competition may result in
reduced margins, loss of sales or decreased market shares, which in turn could
harm our business, operating results and financial condition.
The Internet and Other Communications Networks May Not Expand as a Commerce
and Business Medium.
Our growth will suffer if the use of the internet for commercial
transactions does not grow.
The acceptance and use of the internet and communications networks for
internet commerce, banking and commerce could be limited by a number of factors,
including:
o inadequate development of network infrastructure;
o inconsistent quality of service;
o excessive cost of high-speed service;
o concerns about transaction security and fraud or theft of stored data
and information communicated on the internet and wireless
communications networks;
o increased government regulation and taxation of transactions conducted
over the internet and wireless communications networks; and
o delays in development or adoption of new standards or protocols to
handle increased levels of activity.
In addition, companies and government agencies that have already
invested substantial resources in other methods of conducting business may be
reluctant to adopt new internet-based or telecommunication-based methods.
Future Regulations Could be Enacted that Either Directly Restrict Our
Business or Indirectly Affect Our Business by Limiting the Growth of Internet
and Mobile Commerce.
Our products and services are sold in numerous markets around the
world, each of which imposes regulations affecting our operations, including
product controls, trade restrictions, tariffs and charges, and labor and other
social controls. Regulation of the internet in general, and of e-commerce and
mobile commerce in particular is largely unsettled.
As internet and mobile commerce evolves, we expect that various
governmental entities will enact or revise laws, rules and regulations covering
issues such as user privacy, consumer fraud, pricing, content and quality of
products and services. If enacted or revised, such laws, rules or regulations
could increase the costs or administrative burdens of doing business using the
internet and communications networks and cause companies to seek alternative
means of transacting business. The enactment of laws increasing the cost or
burdens of using the internet or wireless communications would limit the market
for our products and services.
Because Several Existing Stockholders Own a Large Percentage of Our Voting
Stock, Other Stockholders' Effective Voting Power may be Limited.
As of August 1, 2003, four stockholders (the former holders of all of
limited liability company interests in AIS) beneficially own or control
approximately 82% of our shares. If some or all of such persons act together,
they can have the ability to control matters submitted to our shareholders for
approval, including the election and removal of directors and the approval of
any merger, consolidation or sale of all or substantially all of our assets.
This potential concentration of control can affect the value of our securities.
We Have Not Paid Any Dividends On Our Common Stock
We have not paid any cash dividends on our Common Stock in the past and
do not intend to pay any dividends on our Common Stock in the foreseeable
future. Our board of directors is empowered to declare dividends, if any, to
holders of the Common Stock, based on our earnings, capital requirements,
financial condition, and other relevant factors. We anticipate that we will
reinvest the profits from our operations, if any, into our business. There is no
assurance that we will ever pay dividends to holders of our common stock.
Item 7. Financial Statements.
(a) Financial Statements of Advanced Imaging Systems, LLC.
Independent Auditor's Report
Audited Balance Sheet as of December 31, 2002
Audited Statement of Income from Inception (June 7,
2002) through December 31, 2002
Audited Statement of Changes in Members' Capital from
Inception (June 7, 2002) through December 31, 2002
Audited Statement of Cash Flows from Inception (June
7, 2002) through December 31, 2002
Notes to Audited Financial Statements
Unaudited Balance Sheet as of June 30, 2003
Unaudited Statement of Income for the three months
and the six months ended June 30, 2003
(b) Pro Forma Financial Information.
Pro Forma Consolidated Balance Sheet (Unadited) as of
December 31, 2002
Pro Forma Consolidated Statement of Income (Unadited)
from Inception (June 7, 2002) through December 31,
2002
Pro Forma Consolidated Balance Sheet (Unaudited) as
of June 30, 2003
Pro Forma Consolidated Statement of Income
(Unaudited) for the six months ended June 30, 2003
(c) Exhibits.
Listed below are all exhibits to this Current Report on Form 8-K.
Exhibit
Number Description
- ------ -----------
2.1 Agreement and Plan of Exchange, dated as of July 28, 2003 and
effected July 31, 2003, by and among A.M.S. Marketing, Inc.,
Advanced Imaging Systems, LLC and all of the holders of
limited liability company interests in Advanced Imaging
Systems, LLC (omitting all schedules and exhibits).* **
10.1 Lease Agreement (as amended) between 6681, LTD. and Advanced
Imaging Systems, LLC dated June 1, 2002 relating to Advanced
Imaging Systems, LLC's facilities.
- ---------------
* The Registrant will furnish all omitted and schedules and exhibits to
the Agreement and Plan of Exchange, dated as of July 31, 2003, by and
among A.M.S. Marketing, Inc., Advanced Imaging Systems, LLC and all of
the holders of limited liability company interests in Advanced Imaging
Systems, LLC, upon request of the Securities and Exchange Commission.
** Incorporated by reference to the statement of beneficial ownership of
our Common Stock on Schedule 13D filed on behalf of a group of
stockholders including Sarah Cinnante, Michael D'Angelo, Laura Palisa
Mujica and Lara Nicole Sarafianos (SEC File No. 005-79157) filed on
August 11, 2003.
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 hereunto duly authorized.
A.M.S. MARKETING, INC.
/s/ C. LEO SMITH
-----------------------------------------
C. Leo Smith
Chief Executive Officer
Dated: August 15, 2003
ADVANCED IMAGING SYSTEMS, LLC
FINANCIAL STATEMENTS
DECEMBER 31, 2002
ADVANCED IMAGING SYSTEMS, LLC
FINANCIAL STATEMENTS
TABLE OF CONTENTS
Independent Auditor's Report 1
Balance Sheet 2
Statement of Income 3
Statement of Changes in Members' Capital 4
Statement of Cash Flows 5
Notes to Financial Statements 6-10
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Members
Advanced Imaging Systems, LLC
Ft. Lauderdale, Florida
I have audited the accompanying balance sheet of Advanced Imaging Systems, LLC
as of December 31, 2002, and the related statements of income, changes in
members' capital, and cash flows from inception (June 7, 2002) through December
31, 2002. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that I plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that my audit provided a reasonable basis for
my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Advanced Imaging Systems, LLC as of
December 31, 2002, and the results of operations and its cash flows from
inception (June 7, 2002) through December 31, 2002 in conformity with auditing
standards generally accepted in the United States of America.
Thomas W. Klash
Certified Public Accountant
Hollywood, Florida
June 12, 2003 and July 31, 2003 as to Note I
- 1 -
ADVANCED IMAGING SYSTEMS, LLC
BALANCE SHEET
DECEMBER 31, 2002
ASSETS
CURRENT ASSETS:
Cash $ 3,862
Accounts Receivable - Trade 218,170
Loans Receivable - Officers 2,769
Inventory 164,707
--------
TOTAL CURRENT ASSETS 389,508
PROPERTY AND EQUIPMENT 194,422
OTHER ASSETS:
Security Deposits 3,700
--------
TOTAL ASSETS $587,630
========
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
Notes Payable - Current Portion $ 71,854
Accounts Payable - Trade 282,146
Accrued Expenses 23,420
Customer Deposits 11,105
--------
TOTAL CURRENT LIABILITIES 388,525
NOTES PAYABLE - Non-Current 113,999
--------
TOTAL LIABILITIES 502,524
MEMBERS' CAPITAL 85,106
--------
TOTAL LIABILITIES AND CAPITAL $587,630
========
See accompanying notes to financial statements.
- 2 -
ADVANCED IMAGING SYSTEMS, LLC
STATEMENT OF INCOME
FROM INCEPTION (JUNE 7, 2002) THROUGH DECEMBER 31, 2002
SALES $987,190
COST OF GOODS SOLD 657,311
--------
GROSS PROFIT 329,879
GENERAL AND ADMINISTRATIVE EXPENSES 329,545
--------
NET INCOME $ 334
========
See accompanying notes to financial statements.
- 3 -
ADVANCED IMAGING SYSTEMS, LLC
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
FROM INCEPTION (JUNE 7, 2002) THROUGH DECEMBER 31, 2002
BALANCE - June 7, 2002 $ --
MEMBERS' CAPITAL CONTRIBUTIONS 84,772
NET INCOME 334
--------
BALANCE - December 31, 2002 $ 85,106
========
See accompanying notes to financial statements.
- 4 -
ADVANCED IMAGING SYSTEMS, LLC
STATEMENT OF CASH FLOWS
FROM INCEPTION (JUNE 7, 2002) THROUGH DECEMBER 31, 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 334
Adjustments to Reconcile Net Income to Net
Cash (Used) by Operating Activities:
Depreciation and Amortization 20,312
Change in Operating Assets and Liabilities:
Accounts Receivable (218,170)
Loans to Officers (2,769)
Inventory (164,707)
Security Deposits (3,700)
Accounts Payable - Trade 282,146
Accrued Expenses 23,420
Customer Deposits 11,105
---------
NET CASH (USED) BY OPERATING ACTIVITIES (52,029)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for Property and Equipment (214,734)
---------
NET CASH (USED) BY INVESTING ACTIVITIES (214,734)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Members' Capital Contributions 84,772
Proceeds from Borrowings 197,000
Repayment of Borrowings (11,147)
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 270,625
---------
NET INCREASE IN CASH 3,862
CASH - Beginning of Period --
---------
CASH - End of Period $ 3,862
=========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid $ 3,264
=========
See accompanying notes to financial statements.
- 5 -
ADVANCED IMAGING SYSTEMS, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES -
Nature of Operations:
Advanced Imaging Systems, LLC was formed in the state of Delaware
on June 7, 2002. The Company is engaged in the sale and
manufacture (to specific orders) of telephone credit cards, check
cashing cards, and security cards of all types. The Company
markets its products domestically and abroad.
Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Financial Instruments:
The carrying values of cash, accounts receivable, accounts
payable, and notes payable approximate fair value at December 31,
2002.
Accounts Receivable:
All accounts receivable were considered to be collectible.
Accordingly, no allowance for bad debts is presented.
Inventory:
Inventory is stated at the lower of the first-in, first-out cost
or market with respect to direct material costs. Capitalized
overhead costs are determined on the basis of average costs.
Property and Equipment:
Property and equipment are recorded at cost less depreciation and
amortization. The carrying value of property and equipment is
assessed annually and/or when factors indicating impairment is
present. The Company determines fair value by obtaining market
quotes for replacement property. If impairment is present, the
assets are reported at the lower of carrying value or fair value.
Depreciation and amortization is primarily accounted for on the
straight-line method based on estimated useful lives. The
amortization of leasehold improvements is based on the shorter of
the lease term or the life of the improvement. Betterments and
renewals, which extend the life of the asset, are capitalized
whereas maintenance and repairs are expensed as incurred.
- 6 -
ADVANCED IMAGING SYSTEMS, LLC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (continued) -
Sales Revenues:
Revenue is recognized in the financial statements when materials
are shipped from stock. Reported sales are arrived at by deducting
discounts and return allowances.
Advertising:
Advertising costs are expensed as incurred.
Income Taxes:
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". This
statement requires an asset and liability approach to account for
income taxes. Deferred taxes are provided for temporary
differences that will result in taxable or deductible amounts in
future years based on the reporting of certain costs in different
periods for financial statement and income tax purposes.
The Company files its Federal income tax return as a C type
corporation.
NOTE B - INVENTORY -
Inventory consists of the following at December 31, 2002:
Raw Materials $ 31,416
Work in Process 64,162
Finished Goods 69,129
--------
$164,707
========
NOTE C - PROPERTY AND EQUIPMENT -
Property and equipment consists of the following at December 31,
2002:
Furniture and Fixtures $ 10,090
Machinery and Equipment 154,768
Leasehold Improvements 49,876
--------
214,734
Accumulated Depreciation and Amortization (20,312)
--------
$194,422
========
- 7 -
ADVANCED IMAGING SYSTEMS, LLC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - NOTES PAYABLE -
Notes payable consist of the following at December 31, 2002:
12% Note Payable - Officer:
Due in monthly installments of $3,500,
including interest through August, 2004. $ 66,667
12% Note Payable - Officer:
Due in monthly installments of $2,335,
including interest through November, 2004. 45,311
6% Note Payable - Employee:
Due in monthly installments of $1,500,
including interest through August, 2007. 73,875
--------
185,853
Deduct Current Portion (71,854)
--------
$113,999
========
The notes reflected above are collateralized by substantially all
production machinery and equipment.
The maturities of notes payable for each of the succeeding five years
subsequent to December 31, 2002, are as follows:
YEARS ENDING DECEMBER 31, AMOUNT
------------------------- ------
2003 $ 71,854
2004 68,879
2005 15,720
2006 16,690
2007 12,710
- 8 -
ADVANCED IMAGING SYSTEMS, LLC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE E - INCOME TAXES -
At December 31, 2002, the Company had no taxable income or
substantial taxable timing differences.
NOTE F - RELATED PARTY TRANSACTIONS -
Promotional Fees:
During the period ended December 31, 2002, the Company paid
promotional fees to a company owned by the chief executive officer
of $12,450.
Loans Receivable:
These loans are interest-free loans and are expected to be settled
during 2003.
NOTE G - COMMITMENTS -
The Company leases its general office and production facilities.
Rental expense amounted to $17,923 in 2002. At December 31, 2002, the
Company is committed to total minimal rental payments as follows:
2003 $45,185
2004 $45,185
2005 $18,825
NOTE H - CONCENTRATIONS -
Suppliers:
The Company's future operating results may be affected by a number
of factors. The Company is dependent upon a number of major
suppliers. If a supplier had operational problems or ceased making
material available to the Company, operations could be adversely
affected.
Customers:
During 2002, approximately 60% of the Company's total sales
revenues resulted from six customers. One customer accounted for
approximately 30% of sales and 60% of the year end accounts
receivable balance.
- 9 -
ADVANCED IMAGING SYSTEMS, LLC
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE I - SUBSEQUENT EVENTS -
On April 3, 2003, the Company signed an agreement to commence
negotiations to merge with AMS Marketing, Inc., ("AMS"), a publicly
owned Delaware corporation. As presently contemplated, the members of
Advanced Imaging Systems, LLC, ("AIS") will receive an aggregate of
1,200,000 shares of "AMS" common stock in exchange for their
ownership interests in "AIS". The agreement has been extended to July
31, 2003. It is also contemplated that certain shareholders of "AMS"
will sell to the members of "AIS" an aggregate of 3,600,000 shares of
"AMS" common stock in exchange for cash consideration and notes.
- 10 -
ADVANCED IMAGING SYSTEMS, LLC
As Of
June 30, 2003
SOUTHEAST ACCOUNTING and TAX SERVICES, INC.
713 EAST ATLANTIC BLVD.
POMPANO BEACH, FL 33060
To The Board of Directors and Members
ADVANCED IMAGING SYSTEMS, LLC
Fort Lauderdale, FL
I have compiled the accompanying balance sheet of ADVANCED IMAGING SYSTEMS, LLC
as of June 30, 2003 and the related statement of income and retained earnings
for the quarter then ended, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accounts.
A compilation is limited to presenting in the form of financial statements
information that is the representation of the Company's management, I have not
audited or reviewed the accompanying financial statements and, accordingly, do
not express an opinion or any other form of assurance on them. However, I did
become aware of a departure from generally accepted accounting principles that
is described in the following paragraph.
A statement of cash flows for the quarter ended June 30, 2003 has not been
presented. Generally accepted accounting principles require that such a
statement be presented when financial statements purport to present financial
position and results of operations.
/s/ CHRISTINE PENDLETON
- ---------------------------
Christine Pendleton, C.P.A.
August 7, 2003
ADVANCED IMAGING SYSTEMS, L.L.C
(UNAUDITED)
BALANCE SHEET
As of June 30, 2003
ASSETS
CURRENT ASSETS
CASH IN BANK AIS $ (26,847.13)
A-SAVINGS (8.00)
CASH RESERVE ACCOUNT 5,627.91
CASH IN BANK - PAYROLL (4,881.05)
PETTYCASH/BANK TRANSFERS 1,200.00
ACCOUNTS RECEIVABLE 318,193.05
INVENTORY: RAW MATERIALS 48,489.37
INVENTORY: WORK IN PROGRESS 171,364.69
INVENTORY: FINISHED GOODS 130,935.60
-------------
Total Current Assets 644,094.44
-------------
PROPERTY AND EQUIPMENT
FURNITURE AND FIXTURES 13,591.01
MACHINERY AND EQUIPMENT 154,768.64
SHOW BOOTH 4,950.50
ACCUMULATED DEPRECIATION (24,910.05)
LEASEHOLD IMPROVEMENTS 55,376.00
ACCUMULATED AMORTIZATION (16,624.33)
-------------
Net Property and Equipment 187,151.77
-------------
OTHER ASSETS
SECURITY DEPOSITS 3,700.00
-------------
Total Other Assets 3,700.00
-------------
TOTAL ASSETS $ 834,946.21
-------------
See Accountants' Compilation Report
1
ADVANCED IMAGING SYSTEMS, LLC
(UNAUDITED)
BALANCE SHEET
As of June 30, 2003
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 358,186.58
FM FINANCE LLC ($3500) 35,933.69
MICHAEL D'ANGELO ($1500) 13,946.90
FM FINANCE LLC ($2335) 21,973.72
PAYROLL TAX PAYABLE 15,000.00
SALES TAX PAYABLE 1,268.84
ACCRUED VACATION PAY 1,894.00
ACCRUED PAYROLL 5,088.00
-------------
Total Current Liabilities 453,291.73
-------------
LONG-TERM LIABILITIES
CREDIT LINE-GEORGE SARAFIANOS 6,250.00
LOAN-LHS 43,766.39
ALFRED SCHIFFIN 50,000.00
MEMBER LOAN MNS 45,890.10
FM Finance LLC ($3500) 13,302.86
Michael D'Angelo ($1500) 53,058.99
CUSTOMER DEPOSITS 45,712.36
FM Finance LLC ($2335) 11,573.03
-------------
Total Long-Term Liabilities 269,353.73
-------------
Total Liabilities 722,645.46
-------------
MEMBERS' CAPITAL
CAPITAL CONTRIBUTION (LHS) 34,386.05
CAPITAL CONTRIBUTION (MNS) 42,386.03
RETAINED EARNINGS 333.72
Current Net Income 35,194.95
-------------
Total Members' Capital 112,300.75
-------------
TOTAL LIABILITIES AND
MEMBERS' CAPITAL $ 834,946.21
-------------
See Accountants' Compilation Report
2
ADVANCED IMAGING SYSTEMS, LLC
(UNAUDITED)
STATEMENT OF INCOME
For the
3 Months and the 6 Months Ended June 30, 2003
3 Month Ended 6 Months Ended
June 30, 2003 % June 30, 2003 %
------------- -------- ------------- --------
Sales
PRINTING $ 762,765.51 94.46 $1,587,691.76 94.72
DESIGN 10,127.50 1.22 20,734.50 1.24
PRODUCTION 29,765.55 3.59 57,994.99 3.46
OTHER INCOME 28.26 0.00 570.14 0.03
SHIPPING REVENUE 6,002.07 0.72 9,203.29 0.55
------------- -------- ------------- --------
Total Sales 828,686.89 100.00 1,676,194.68 100.00
------------- -------- ------------- --------
Cost of Goods Sold
PURCHASES 218,225.19 26.33 516,427.88 30.81
PAPER 79,661.27 9.61 142,164.45 8.48
DIRECT LABOR 104,532.08 12.61 190,254.04 11.35
CONTRACT LABOR - PRINTING 68,114.28 8.22 110,855.39 6.61
FREIGHT IN 64,539.58 7.79 122,489.53 7.31
------------- -------- ------------- --------
Total Cost of Goods Sold 535,072.40 64.57 1,082,201.29 64.56
------------- -------- ------------- --------
Gross Profit 239,614.49 35.43 593,993.39 35.44
------------- -------- ------------- --------
Operating Expenses
PAYROLL - ADMINISTRATION 74,510.00 8.99 146,510.00 8.74
PAYROLL - SALES 932.90 0.11 1,691.37 0.10
COMMISSIONS 2,623.21 0.32 4,661.85 0.28
CONSULTING 16,358.00 1.97 16,356.00 0.98
ACCOUNTING 14,595.00 1.76 23,779.30 1.42
ADVERTISING 1,000.00 0.12 1,000.00 0.06
AMORTIZATION 4,158.33 0.50 8,312.66 0.50
AUTO/TRUCK EXPENSE 13,889.55 1.68 25,474.31 1.52
BANK CHARGES 7,773.67 0.94 12,977.15 0.77
BONUS 12,662.00 1.53 12,662.00 0.76
DEPRECIATION 6,454.52 0.78 12,909.04 0.77
DUES AND SUBSCRIPTIONS 1,432.08 0.17 1,903.29 0.11
FACTORING 250.00 0.03 250.00 0.01
INSURANCE 11,188.09 1.35 21,648.13 1.29
INTEREST 3,941.50 0.48 8,068.89 0.48
LEGAL FEES 5,166.57 0.62 7,182.03 0.43
LICENSES AND PERMITS 1,206.00 0.15 1,456.00 0.09
OFFICE EXPENSE 6,471.83 0.78 10,937.25 0.65
PAYROLL TAXES 15,768.09 1.90 32,434.18 1.93
PRINTING & REPRODUCTION 1,680.00 0.20 1,660.00 0.10
POSTAGE 2,645.79 0.32 4,822.73 0.29
REFERENCE MATERIALS 0.00 0.00 3,457.07 0.21
PROFESSIONAL DEVELOPMENT 7,885.00 0.95 38,205.00 2.26
See Accountants Compilaton Report
3
ADVANCED IMAGING SYSTEMS, LLC
(UNAUDITED)
STATEMENT OF INCOME
For the
3 Months and the 6 Months Ended June 30, 2003
3 Month Ended 6 Months Ended
June 30, 2003 % June 30, 2003 %
------------- -------- ------------- --------
RENT 11,696.26 1.41 23,507.72 1.40
RETIREMENT ACCOUNT (0.09) 0.00 316.52 0.02
REPAIRS AND MAINTENANCE 25,066.96 3.02 34,192.57 2.04
SUPPLIES 29,342.00 3.54 57,473.41 3.43
TAXES 0.00 0.00 184.37 0.01
TELEPHONE 9,098.09 1.10 16,040.20 0.96
TRAVEL 6,831.93 0.82 16,358.39 0.98
ENTERTAINMENT 7,063.81 0.85 14,661.64 0.87
EXHIBITS & SHOWS 13,737.70 1.66 24,830.59 1.48
UTILITIES 5,850.70 0.71 9,531.65 0.57
WASTE REMOVAL 0.00 0.00 2,025.00 0.12
------------- -------- ------------- --------
Total Operating Expenses 321,255.49 38.77 597,480.31 35.65
------------- -------- ------------- --------
Operating Income (Loss) (27,641.00) (3.34) (3,486.92) (0.21)
------------- -------- ------------- --------
Other Expenses
CAPITALIZED OVERHEAD (24,754.84) (2.99) (38,681.87) (2.31)
------------- -------- ------------- --------
Total Other Expenses (24,754.84) (2.99) (38,681.87) (2.31)
------------- -------- ------------- --------
Net Income(Loss) $ (2,886.16) (0.35) 35,194.95 2.10
============= ======== ============= ========
See Accountants Compilation Report
4
INTERNATIONAL IMAGING SYSTEMS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION -
On July 28, 2003, AMS Marketing, Inc. ("AMS) acquired 100% ownership
of Advanced Imaging Systems, LLC ("AIS") in exchange for 1,200,000
shares of its previously unissued common stock. Prior to the
execution of the purchase transaction, the members (owners) of "AIS"
purchased directly from existing "AMS" shareholders 3,600,000 shares
of "AMS" common stock. The combined result of the foregoing
transactions is that the previous owners of "AIS" now own 81.96% of
the outstanding common stock of "AMS".
The combined entity will be known as International Imaging Systems,
Inc., subject to shareholder approval.
The business combination will be accounted for as a purchase, with
the assets and liabilities assumed recorded at fair values, and the
results of operations of the acquired company being included in
operations from the date of acquisition.
For accounting purposes, "AIS" is considered to be the acquirer and
"AMS", the acquired entity. The business combination is considered to
be a "reverse merger" since the former owners of "AIS" now control
more than 50% of "AMS" as a result of the merger. The effect of this
transaction is to reflect fair values of assets and liabilities of
the combined entities with a recapitalization of "AMS" shareholders'
equity.
In connection with the acquisition, "AIS" entered into three year
employment agreements with five key employees.
The pro forma consolidated financial statements illustrate the effect
of the acquisition ("Pro Forma") on the Company's financial position
and results of operations. The balance sheets and statements of
operations for "AMS" and "AIS" are based on historical audited
financial statements as of December 31, 2002 and the period then
ended. Such statements are labeled as "unaudited" because pro forma
adjustments are based on estimates which could differ from actual
results. The balance sheets and statements of operations for the six
months ended June 30, 2003 are based on historical unaudited
financial statements as of that date.
INTERNATIONAL IMAGING SYSTEMS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION - (CONTINUED) -
The pro forma financial statements assume the business combination
took place on the first day of the period reported in the
accompanying statements of operations and as of the end of the period
for purposes of reflecting the pro forma balance sheets.
The pro forma consolidated financial statements may not be indicative
of the actual results of the acquisition.
The accompanying pro forma consolidated financial statements should
be read in connection with the historical financial statements of AMS
Marketing, Inc. and Advanced Imaging Systems, LLC.
NOTE B - PRO FORMA ADJUSTMENTS -
The pro forma adjustments to the consolidated balance sheet are as
follows:
1) To reflect the issuance of 1,200,000 shares of AMS Marketing, Inc.
("AMS") common stock to the members of Advanced Imaging Systems,
LLC ("AIS") in exchange for 100% ownership of "AIS".
AND
To reflect the purchase of an additional 3,600,000 shares of AMS
Marketing, Inc. common stock by the members of "AIS" directly from
"AMS" shareholders. As a result of the common stock transactions,
the former members of "AIS" became the owners of 81.96% of the
outstanding common stock of "AMS".
The transaction is characterized as a "reverse merger", since the
former members of "AIS" control more than 50% of "AMS" outstanding
common stock immediately after the merger. The accounting
treatment for a "reverse merger" is to present the historical
information of the acquired ("AIS") entity with a recapitalization
of the "Registrant's" shareholders' equity.
2
INTERNATIONAL IMAGING SYSTEMS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE B - PRO FORMA ADJUSTMENTS - (CONTINUED) -
2) Calendar year 2002 "AMS" transactions occurring prior to the
inception of "AIS" (June 17, 2002) have been removed from the pro
forma financial statements.
3) Employment agreements were entered into with five individuals
considered to be key employees of "AIS". The agreements expire in
three years, and provide for annual remuneration amounting to
approximately $372,000 per annum with 5% cost of living allowances
in the last two years of the contract term. Additionally, the
agreements provide for expense account allowances amounting to
$30,000 annually. Pro forma adjustments reflect incremental
expenses over historically reported expenses incurred during the
period from inception (June 17, 2002) through December 31, 2002,
and for the six months ended June 30, 2003, respectively.
4) To reflect the income tax effects, at the Company's effective tax
rate, of the pro forma adjustments to income before taxes.
5) Reflects the weighted average number of common shares outstanding
for the period, after giving effect to the merger.
3
INTERNATIONAL IMAGING SYSTEMS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
DECEMBER 31, 2002
Historical
------------------------- Proforma Propforma
AMS Advanced Adjustments International
Marketing Imaging ------------------------ Imaging
Inc. Systems, LLC DR CR Systems, Inc.
--------- ------------ ---------- ----------- -------------
ASSETS
------
CURRENT ASSETS:
Cash $ 3,568 $ 3,862 $ $ $ 7,430
Accounts Receivable - Trade -- 218,170 218,170
Loans Receivable - Officers -- 2,769 2,769
Inventory -- 164,707 164,707
--------- ------------ -------------
TOTAL CURRENT ASSETS 3,568 389,508 393,076
PROPERTY AND EQUIPMENT - Net -- 194,422 194,422
OTHER ASSETS -- 3,700 3,700
--------- ------------ -------------
TOTAL ASSETS $ 3,568 $ 587,630 $ 591,198
========= ============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes Payable - Current Portion $ -- $ 71,854 $ $ $ 71,854
Accounts Payable - Trade -- 282,146 282,146
Accrued Expenses -- 23,420 (3) 66,733 90,153
Customer Deposits -- 11,105 11,105
--------- ------------ -------------
TOTAL CURRENT LIABILITIES -- 388,525 455,258
NOTES PAYABLE - Non-Current -- 113,999 113,999
--------- ------------ -------------
TOTAL LIABILITIES -- 502,524 569,257
SHAREHOLDERS' EQUITY:
Common Stock 4,656 (1) 1,200 5,856
Additional Paid-In Capital 91,894 (1) 11,002 102,896
Retained Earnings (92,982) * 64,005 (1) 70,176 (86,811)
Members' Capital -- 85,106 (1) 85,106 --
--------- ------------ -------------
TOTAL SHAREHOLDERS' EQUITY 3,568 85,106 21,941
--------- ------------ -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 3,568 $ 587,630 $ 591,198
========= ============ =============
* Net effect of pro forma adjustments.
See notes to pro forma consolidated financial statements.
4
INTERNATIONAL IMAGING SYSTEMS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FROM INCEPTION (JUNE 17, 2002) THROUGH DECEMBER 31, 2002
Historical
------------------------- Proforma Propforma
AMS Advanced Adjustments International
Marketing Imaging ------------------------ Imaging
Inc. Systems, LLC DR CR Systems, Inc.
--------- ------------ ---------- ----------- -------------
SALES $ 9,000 $ 987,190 (2)$ 2,000 $ $ 994,190
COST OF GOODS SOLD -- 657,311 657,311
--------- ------------ -------------
GROSS PROFIT 9,000 329,879 336,879
GENERAL AND ADMINISTRATIVE EXPENSES 32,140 329,545 (3) 66,733 (2) 4,728 423,690
--------- ------------ -------------
NET INCOME (LOSS) $ (23,140) $ 334 $ (86,811)
========= ============ =============
BASIC (LOSS) PER SHARE $ (.005) $ -- $ (.015)
========= ============ =============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING DURING
THE PERIOD 4,618,535 (5) 5,856,200
========= =============
See notes to pro forma consolidated financial statements.
5
INTERNATIONAL IMAGING SYSTEMS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, 2003
Historical
------------------------- Proforma Propforma
AMS Advanced Adjustments International
Marketing Imaging ------------------------ Imaging
Inc. Systems, LLC DR CR Systems, Inc.
--------- ------------ ---------- ----------- -------------
ASSETS
------
CURRENT ASSETS:
Cash $ 382 $ -- $ $ $ 382
Accounts Receivable - Trade -- 318,193 318,193
Inventory -- 350,789 350,789
--------- ------------ -------------
TOTAL CURRENT ASSETS 382 668,982 669,364
PROPERTY AND EQUIPMENT - Net -- 187,152 187,152
OTHER ASSETS -- 3,700 3,700
--------- ------------ -------------
TOTAL ASSETS $ 382 $ 859,834 $ 860,216
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes Payable - Current Portion $ -- $ 71,855 $ $ $ 71,855
Accounts Payable - Trade -- 383,075 383,075
Accrued Expenses -- 23,270 (3) 57,200 80,470
Customer Deposits -- 45,712 45,712
Income Taxes -- 7,650 (4) 7,650 --
--------- ------------ -------------
TOTAL CURRENT LIABILITIES -- 531,562 581,112
NOTES PAYABLE - Non-Current -- 223,621 223,621
--------- ------------ -------------
TOTAL LIABILITIES -- 755,183 804,733
--------- ------------ -------------
SHAREHOLDERS' EQUITY:
Common Stock 4,656 -- (1) 1,200 5,856
Additional Paid-In Capital 91,894 -- (1) 17,077 74,817
Retained Earnings (96,168) -- * 49,550 (1) 120,528 (25,190)
Members' Capital -- 104,651 (1)104,651 --
--------- ------------ -------------
TOTAL SHAREHOLDERS' EQUITY 382 104,651 55,483
--------- ------------ -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 382 $ 859,834 $ 860,216
========= ============ =============
* Net effect of pro forma adjustments.
See notes to pro forma consolidated financial statements.
6
INTERNATIONAL IMAGING SYSTEMS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2003
Historical
------------------------- Proforma Propforma
AMS Advanced Adjustments International
Marketing Imaging ------------------------ Imaging
Inc. Systems, LLC DR CR Systems, Inc.
--------- ------------ ---------- ----------- -------------
SALES $ 4,500 $ 1,676,195 $ $ $ 1,680,695
COST OF GOODS SOLD -- 1,082,201 1,082,201
--------- ------------ -------------
GROSS PROFIT 4,500 593,994 598,494
GENERAL AND ADMINISTRATIVE EXPENSES 7,686 558,798 (3) 57,200 623,684
--------- ------------ -------------
INCOME (LOSS) BEFORE TAXES (3,186) 35,196 (25,190)
INCOME TAXES -- 7,650 (4) 7,650 --
--------- ------------ -------------
NET INCOME (LOSS) $ (3,186) $ 27,546 $ (25,190)
BASIC (LOSS) PER SHARE $ (.001) $ -- $ (.004)
========= ============ =============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING DURING
THE PERIOD 4,656,200 (5) 5,856,200
========= =============
See notes to pro forma consolidated financial statements.
7