<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A No.1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 30,
1999
ADDvantage Media Group, Inc.
(Exact name of Registrant as specified in its charter)
Oklahoma 1-10799 73-1351610
(State or other (Commission (I.R.S.
jurisdiction of File Employer
incorporation) Number) Identification
No.)
1605 E. Iola
Broken Arrow, Oklahoma
(Address of principal executive offices)
74012
(Zip code)
(918) 251-9121
(Registrant's telephone number, including area code)
808 North 16th Street
Broken Arrow, Oklahoma
(Former Address, if changed since last report)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired. On September 30,
1999, the former shareholders of DRK Enterprises, Inc. d/b/a
TULSAT Corporation, an Oklahoma corporation ("TULSAT"), assumed
control of ADDvantage Media Group, Inc., an Oklahoma corporation
("AMG" or the "Registrant"), pursuant to the Securities Exchange
Agreement entered into on September 16, 1999. The business
combination has been accounted for as a purchase of AMG by
TULSAT. The financial statements include the consolidated
balance sheet of AMG and TULSAT as of September 30, 1999, and the
statements of income and cash flows of TULSAT for the nine month
period ended September 30, 1999, and the year ended December 31,
1998.
Page
Independent Auditors' Report F-1
Consolidated Balance Sheet, September 30, 1999 F-2
Statements of Income, Nine Month Period Ended September 30,
1999 and Year Ended December 31, 1998; Nine Month
Period Ended September 30, 1998 (Unaudited) F-4
Statement of Changes in Stockholders' Equity F-5
Statement of Cash Flows, Nine Month Period Ended
September 30, 1999 and Year Ended December 31, 1998 F-6
Notes to Consolidated Financial Statements F-8
(b) Pro-Forma Financial Information. The following unaudited
pro-forma information has been included as required by the rules
of the Securities and Exchange Commission and is provided for
comparative purposes only. The unaudited pro-forma information
presented is based upon and should be read in conjunction with
the respective historical financial statements and related notes
thereto of each of the Registrant and TULSAT. The pro-forma
information presented does not purport to represent the actual
results which would have occurred if the acquisition of AMG had
-1-
<PAGE>
been consummated on the dates before the periods indicated, nor
is it indicative of the operating results in any future period.
Page
Introduction P-1
Pro-Forma Condensed Consolidated Statements of Income -
Nine Months Ended September 30, 1999 (Unaudited) P-2
Notes to Pro-Forma Condensed Consolidated Statements
of Income (Unaudited) P-3
(c) Exhibits.
23.1 Consent of Independent Auditors - Tullius Taylor Sartain
& Sartain LLP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ADDvantage Media Group, Inc.
Dated: December 14, 1999 By: /s/ Kenneth A. Cymiak
----------------------------
Kenneth A. Chymiak,
President
-2-
INDEPENDENT AUDITORS' REPORT
The Stockholders of
ADDvantage Media Group, Inc.
We have audited the accompanying consolidated balance sheet of
ADDvantage Media Group, Inc. (the "Company") as of
September 30, 1999, and the related statements of income, changes
in stockholders' equity and cash flows for the nine month period
then ended and year ended December 31, 1998. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we 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. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of the Company as of September 30, 1999, and the results of its
operations and its cash flows for the nine month period ended
September 30, 1999 and year ended December 31, 1998 in conformity
with generally accepted accounting principles.
TULLIUS TAYLOR SARTAIN & SARTAIN LLP
December 2, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
ADDVANTAGE MEDIA GROUP, INC.
CONSOLIDATED BALANCE SHEET
September 30, 1999
<S> <C>
Assets
Current assets:
Cash $ 16,843
Accounts receivable 2,883,679
Inventories 12,089,769
Prepaid expenses 124,223
-------------
Total current assets 15,114,514
Property and equipment, at cost
Machinery and equipment 891,305
Office equipment 59,448
-------------
950,753
Less accumulated depreciation (595,321)
-------------
Net property and equipment 355,432
Other assets:
Deferred income taxes 1,255,000
Investment 660,000
Goodwill 199,490
Other assets 3,597
-------------
2,118,087
-------------
Total assets $ 17,588,033
=============
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
ADDVANTAGE MEDIA GROUP, INC.
CONSOLIDATED BALANCE SHEET
September 30, 1999
<S> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,295,642
Bank notes payable 2,932,501
Stockholder loans 1,475,007
-------------
Total current liabilities 5,703,150
Stockholders' equity:
Preferred stock, 1,000,000 shares authorized,
$1.00 par value, at stated value
Series A, 5% cumulative convertible, 200,000
shares issued and outstanding with a stated
value of $40 per share 8,000,000
Series B, 7% cumulative; 300,000 shares
issued and outstanding with a stated value
of $40 per share 12,000,000
Common stock, $.01 par value, 10,000,000
shares authorized; 9,712,345 shares issued
and outstanding 97,124
Common stockholders' deficit (8,212,241)
-------------
Total stockholders' equity 11,884,883
-------------
Total liabilities and stockholders' equity $ 17,588,033
=============
</TABLE>
See notes to consolidated financial statements. F-3
<PAGE>
<TABLE>
<CAPTION>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF INCOME
Nine months
Nine months ended
ended Year ended Septmber 30,
September 30, December 31, 1998
1999 1998 (unaudited)
------------- ------------ ------------
<S> <C> <C> <C>
Net sales and service income $ 15,325,448 $ 19,704,556 $ 14,988,201
Cost of sales 8,050,308 10,525,561 7,780,585
------------ ------------ ------------
Gross profit 7,275,140 9,178,995 7,207,626
Operating expenses 2,664,872 3,200,245 2,306,676
------------ ------------ ------------
Income from operations 4,610,268 5,978,750 4,900,950
Other income (expense):
Interest expense (283,549) (328,757) (257,436)
Interest income - 94,632 94,632
Loss on sale of investments - (87,696) (86,099)
Miscellaneous 4,482 19,023 4,485
------------ ------------ ------------
Total other income (expense) (279,067) (302,798) (244,418)
------------ ------------ ------------
Net income $ 4,331,201 $ 5,675,952 $ 4,656,532
============ ============ ============
Pro-forma net income (unaudited):
Income before income taxes $ 4,331,201 $5,675,952 $4,656,532
Provision for income taxes 1,646,000 2,157,000 1,769,000
------------ ------------ ------------
Pro-forma net income $ 2,685,201 $3,518,952 $2,887,532
============ ============ ============
</TABLE>
See notes to consolidated financial statements. F-4
<PAGE>
<TABLE>
<CAPTION>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Nine months ended September 30, 1999 and
year ended December 31, 1998
ADDvantage Tulsat Series A Series B Retained Tulsat
Common Stock Common Stock Preferred Preferred Earnings Treasury
Shares Amount Shares Amount Stock Stock (Deficit) Stock Total
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 - $ - 1,000 $1,000 $ - $ - $7,188,376 $(55,002) $7,134,374
Net income - - - - - - 5,675,952 - 5,675,952
Cash distributions to owners - - - - - - (3,284,282) - (3,284,282)
--------------------------------------------------------------------------------------------------
Balance, December 31, 1998 - - 1,000 1,000 - - 9,580,046 (55,002) 9,526,044
Net income - - - - - - 4,331,201 - 4,331,201
Distribution to owners:
Cash - - - - - - (3,570,282) - (3,570,282)
Property, net of mortgage
note - - - - - - (525,682) - (525,682)
Tulsat / ADDvantage Media
share exchange:
ADDvantage Media shares
outstanding 1,712,345 17,124 - - - - - - 17,124
Issue common shares 8,000,000 80,000 (1,000)(1,000) - - 1,972,476 55,002 2,106,478
Issue preferred shares - - - - 8,000,000 12,000,000 (20,000,000) - -
---------------------------------------------------------------------------------------------------
Balance, September 30 1999 - $97,124 - $ - $8,000,000 $12,000,000 $(8,212,241) $ - $11,884,883
===================================================================================================
See notes to consolidated financial statements. F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1999 and
the year ended December 1998
Nine months
ended Year ended
September 30, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 4,331,201 $ 5,675,952
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 89,000 124,649
Loss on sale of investments - 87,843
Change in:
Receivables (674,821) 383,317
Prepaid expense (112,168) 37,202
Inventories (1,447,753) (3,057,732)
Accounts payable 74,155 219,602
Other assets 38,403 -
-------------- ---------------
Net cash provided by operating activities 2,298,017 3,470,833
-------------- ---------------
Cash Flows from Investing Activities
Additions to property and equipment (84,200) (54,960)
Proceeds from the sale of long-term investments - 71,477
Cash acquired in ADDvantage Media purchase 16,842 -
-------------- ---------------
Net cash provided by (used in) investing activities (67,358) 16,517
-------------- ---------------
Cash Flows from Financing Activities
Distributions to owners (3,570,282) (3,284,282)
Net borrowings (repayments) under line of credit 1,141,459 (45,606)
Advances from stockholders 215,007 510,000
-------------- ---------------
Net cash used in financing activities (2,213,816) (2,819,888)
-------------- ---------------
Net increase in cash 16,843 667,462
Cash, beginning of period - (667,462)
-------------- ---------------
Cash, end of period $ 16,843 $ -
============== ===============
See notes to consolidated financial statements. F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ADDVANTAGE MEDIA GROUP, INC.
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1999 and
the year ended December 1998
Nine months
ended Year ended
September 30, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Supplemental Cash Flow Information
Interest paid for the period $ 283,549 $ 328,757
Supplemental Disclosure of Non-cash
Investing and Financing Activities
Distribution of property and related
mortgage note to owner $ 1,097,514 $ -
Acquisition of ADDvantage Media Group, Inc.
Working capital other than cash (52,401) -
Equipment 59,448 -
Intangibles and other assets 2,099,712 -
See notes to consolidated financial statements. F-7
</TABLE>
<PAGE>
ADDVANTAGE MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine months ended September 30, 1999
and year ended December 31, 1998
Note 1 - Summary of Significant Accounting Policies
Basis of presentation
On September 30, 1999, the former shareholders of DRK
Enterprises, Inc. d/b/a Tulsat assumed control of ADDvantage
Media Group, Inc. ("ADDvantage Media") pursuant to the Securities
Exchange Agreement ("Agreement") entered into on September 16,
1999. Pursuant to the Agreement, the Tulsat shareholders
transferred all the issued and outstanding common stock of
Tulsat, along with $10,000,000 of Tulsat promissory notes, to
ADDvantage Media in exchange for 8,000,000 shares of ADDvantage
Media $.01 par value common stock, 200,000 shares of newly issued
Series A, 5% Cumulative Convertible Preferred Stock, par value
$1.00 per share, with a stated value of $40.00 per share
(convertible into ADDvantage Media common stock at a price of
$4.00 per share), and 300,000 shares of newly issued Series B
Cumulative Preferred Stock, par value $1.00 per share, with a
stated value of $40.00 per share.
As a result of this transaction, Tulsat became a wholly owned
subsidiary of ADDvantage Media and the former Tulsat owners
acquired approximately 82% of the issued and outstanding common
stock, and 100% of the issued and outstanding preferred stock of
ADDvantage Media. Tulsat's management assumed management and
control of ADDvantage Media.
The transaction has been accounted for as a purchase of
ADDvantage Media by Tulsat. The accompanying financial
statements include the consolidated balance sheet of ADDvantage
Media and Tulsat as of September 30, 1999. The statements of
income and cash flows are those of Tulsat.
Description of business
Tulsat sells new, surplus, and refurbished cable television
equipment throughout North America in addition to being a repair
center for various cable companies. Tulsat operates in one
business segment.
ADDvantage Media markets and sells in-store advertising to
national advertisers. The advertising is positioned on patented
solar-powered calculators attached to the handles of shopping
carts.
F-8
<PAGE>
Principles of consolidation
The consolidated financial statements include the balance sheet
of ADDvantage Media and Tulsat (collectively the "Company") as of
September 30, 1999, and the operations and cash flows of Tulsat
for the nine months ended September 30, 1999 and the year ended
December 31, 1998. The Company's 27% investment in a company is
accounted for under the equity method.
Inventory valuation
Inventory consists of new and used electronic components for the
cable television industry. Inventory is stated at the lower of
cost or market. Cost is determined using the weighted average
method.
Property and equipment
Depreciation is provided using straight line and accelerated
methods over the estimated useful lives of the related assets.
Repairs and maintenance are expensed as incurred, whereas major
improvements are capitalized.
Income taxes
Up to the purchase date, Tulsat was taxed as an S Corporation
under the Internal Revenue Code and applicable state statutes.
Under an S Corporation election, the income of Tulsat flows
through to the stockholders to be taxed at the individual level
rather than the corporate level. Accordingly, the accompanying
financial statements reflect no provision for income taxes. As a
result of the ADDvantage Media purchase, Tulsat will be taxed as
a regular corporation in the future.
Advertising costs
Advertising costs are expensed as incurred. Advertising expense
was $130,342 in the nine-month period ended September 30, 1999
and $162,398 in the year ended December 31, 1998.
Management 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of trade
F-9
<PAGE>
receivables. Concentrations of credit risk with respect to trade
receivables are limited because a large number of geographically
diverse customers make up the Company's customer base, thus
spreading the trade credit risk. The Company controls credit
risk through credit approvals, credit limits, and monitoring
procedures. The Company performs in-depth credit evaluations for
all new customers but does not require collateral to support
customer receivables.
Goodwill
Goodwill, which represents the excess of cost over fair value of
ADDvantage Media assets acquired, is amortized on a straight-line
basis over 20 years.
Impairment of long-lived assets
The Company evaluates the long-lived assets, including related
intangibles, of identifiable business activities for impairment
when events or changes in circumstances indicate, in management's
judgment, that the carrying value of such assets may not be
recoverable. The determination of whether an impairment has
occurred is based on management's estimate of undiscounted future
cash flows attributable to the assets as compared to the carrying
value of the assets. If an impairment has occurred, the amount of
the impairment recognized is determined by estimating the fair
value for the assets and recording a provision for loss if the
carrying value is greater than fair value.
For assets identified to be disposed of in the future, the
carrying value of these assets is compared to the estimated fair
value less the cost to sell to determine if an impairment is
required. Until the assets are disposed of, an estimate of the
fair value is redetermined when related events or circumstances
change.
Employee stock-based awards
Employee stock-based awards are accounted for under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Under APB No. 25,
compensation expense is based on the difference, if any, on the
date of grant between the fair value of the Company's stock and
the exercise price. The Company accounts for stock issued to
non-employees in accordance with the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation."
Earnings per share
Basic earnings per share are based on the sum of the average
number of common shares outstanding and issuable restricted and
deferred shares. Diluted earnings per share include any dilutive
effect of stock options, restricted stock and convertible
preferred stock.
F-10
<PAGE>
Fair value of financial instruments
The carrying amounts of accounts receivable and payable
approximate fair value due to their short maturities. The
carrying value of the Company's note payable approximates fair
value since it was entered into at a date close to the balance
sheet date. Terms of the shareholder loans are similar to the
bank loan.
New accounting standards
The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 is effective for fiscal years beginning after June
15, 2000. This standard requires that all derivatives be
recognized as assets or liabilities in the balance sheet and that
those instruments be measured at fair value. Currently, the
Company does not engage in hedging activities or transactions
involving derivatives.
Fiscal year
The fiscal year of ADDvantage Media and Tulsat was December 31.
Effective September 30, 1999, the fiscal year was changed to
September 30.
Note 2 - Cash Management
Cash receipts are applied from the Company's lockbox account
directly against the bank line of credit, and checks clearing the
bank are funded from the line of credit. The resulting overdraft
balance, consisting of outstanding checks, is $196,187 at
September 30, 1999 and is included in accounts payable.
Note 3 - Notes Payable
At September 30, 1999, notes payable consist of a $2,932,501
balance outstanding on a $4,500,000 line of credit due June 30,
2000, interest payable monthly at Chase Manhattan Prime less .5%
(7.75%at September 30, 1999).
Borrowings under the line of credit are limited to the lesser of
$4,500,000 or the sum of 80% of qualified accounts receivable and
25% of qualified inventory. The line of credit is collateralized
by inventory, accounts receivable, equipment and fixtures, and
general intangibles, and is guaranteed by certain stockholders up
to an aggregate $1,000,000.
Stockholder loans include a $750,000 shareholder note bearing
interest at 7.75%, and is subordinate to the bank notes payable.
Stockholder loans also include advances of $725,007 bearing
interest at the same rate as the Company's line of credit.
Note 4 - Income Taxes
As of September 30, 1999, the tax basis of Tulsat's assets and
liabilities is substantially the same as the financial basis.
ADDvantage Media has a net operating loss carryforward of
approximately $4,700,000 at September 30, 1999, expiring in
varying amounts from 2008 to 2019. Utilization of ADDvantage
Media's net operating loss carryforward to reduce future taxable
income is limited. Certain other tax benefits of ADDvantage
F-11
<PAGE>
Media may also be available in future consolidated income tax
returns.
The deferred tax asset related to ADDvantage Media's net
operating loss and other tax benefits is approximately
$2,000,000. Based on the Company's assessment of the probability
of realization, a valuation allowance of $785,000 has been
established as of September 30, 1999, resulting in a deferred tax
asset of $1,255,000. Any tax benefits that are realized for
which the valuation allowance was established will first reduce
to zero the goodwill related to the acquisition, and will then
reduce income tax expense.
Note 5 - Stockholders' Equity
The ADDvantage Media stockholders adopted the 1998 Incentive
Stock Plan, which provides for the award to officers, directors,
key employees and consultants of stock options and restricted
stock. Under the Plan, option prices will be set by the Board of
Directors and may be greater than, equal to, or less than fair
market value on the grant date.
The following table summarizes information about fixed stock
options outstanding at September 30, 1999, all of which are
exercisable:
Weighted
Average Weighted
Range of Remaining Average
Exercise Number Contractual Exercise
Prices Outstanding Life Price
- ----------------------------------------------------------------------
Employee options:
$0.80 - $0.875 13,500 7.8 years $ 0.86
- ----------------------------------------------------------------------
In 1998, ADDvantage Media granted warrants which entitle the
holder to purchase up to 62,500 shares of common stock at $2.00
per share. The warrants may be exercised at any time until
December 31, 2000.
The Series A and Series B Preferred Stock are prior to the
Company's common stock with respect to the payment of dividends
and the distribution of assets. Cash dividends shall be payable
quarterly when and as declared by the Board of Directors.
Interest accrues on unpaid dividends at the rate of 5% per annum
with respect to the Series A Preferred Stock and 7% per annum
with respect to the Series B Preferred Stock. No dividends may
be paid on any class of stock ranking junior to the Preferred
Stock unless Preferred Stock dividends have been paid.
Liquidation preference is equal to the stated value per share.
The Series A and B Preferred Stock is redeemable at any time at
the option of the Board of Directors at a redemption price equal
to the stated value per share. Holders of the Preferred Stock do
not have any voting rights unless the Company fails to pay
dividends for four consecutive dividend payment dates. Shares of
F-12
<PAGE>
Series A Preferred Stock are convertible into common stock at any
time at the option of the holder. Each share of Series A
Preferred Stock is convertible into 10 shares of common stock.
Note 6 - Operating Leases
Tulsat leases various properties primarily from a company owned
by Tulsat's former owners. Future minimum lease payments under
these leases are as follows:
2000 $ 363,800
2001 360,000
2002 360,000
2003 336,500
2004 279,000
--------------
$ 1,699,300
--------------
Total rental expense for all operating leases was $90,200 for the
nine-month period ended September 30, 1999 and $54,300 for the
year ended December 31, 1998.
In September 1999, Tulsat sold the land and building used in
Tulsat's operations to a company owned by Tulsat's owners and
leased it back over a five year term. The $188,000 gain on sale
was not reported in income, but was credited to the Company's
capital. Lease expense is $15,000 per month and is included in
the future minimum lease payment schedule above.
Note 7 - Retirement Plan
Tulsat sponsors a 401(k) plan that covers all employees who are
at least 21 years of age and have completed one year of service
as of the plan effective date. Tulsat's contributions to the
plan consist of a matching contribution as determined by the plan
document. Pension expense under the 401(k) plan was $32,802
during the nine-month period ended September 30, 1999 and $26,164
during the year ended December 31, 1998.
Note 8 - Purchase of ADDvantage Media
See Note 1 for a description of the business combination of
ADDvantage Media and Tulsat. The transaction has been accounted
for as a purchase of ADDvantage Media by Tulsat. The purchase
price of $2.1 million was determined by the market value of the
ADDvantage Media common stock on the NASDAQ Bulletin Board times
the number of shares held by ADDvantage Media shareholders. The
purchase price was allocated to identifiable assets and
liabilities based on their estimated fair values, with the
remainder allocated to goodwill which will be amortized over 20
years.
F-13
<PAGE>
The accompanying statement of income does not include any
revenues or expenses of ADDvantage Media since the transaction
closed on September 30, 1999. The unaudited pro-forma results of
operations included in the statement of income presents the
results of operations of Tulsat adjusted for a pro-forma
provision for income taxes at the combined federal and state tax
rate of 38%. Following are the unaudited pro-forma results of
operations for the nine months ended September 30, 1999 and the
year ended December 31, 1998 assuming the acquisition occurred at
the beginning of each period.
Nine month Year
1999 1998
------------ ------------
Net sales and service income $15,336,008 $ 19,718,838
Net income $ 2,358,761 $ 3,308,235
Net income attributable to common stock $ 1,428,761 $ 2,068,235
Weighted average outstanding 9,712,345 9,746,646
common shares
These unaudited pro-forma results have been prepared for
comparison purposes only and do not purport to be indicative of
the results of operations which would have actually resulted had
the combination been in effect on January 1, 1998, or of future
results of operations.
Note 9 - Investment in Ventures Education System Corporation
On September 1, 1998 ADDvantage Media acquired a 27% interest in
Ventures Education Systems Corporation ("Ventures"), a private
company engaged in the commercial development and marketing of
proprietary teaching techniques, services, products, and
materials; principally to public primary and secondary schools.
Ventures was formed in May 1997 and is headquartered in New York,
New York. Under the terms of the investment, the Company may
designate one member of the Ventures Board of Directors.
The original cost of the 550,000 common shares acquired was
$990,000. As a result of the acquisition, the investment was
adjusted to estimated fair value of $660,000, $1.20 per share.
As of June 30, 1999, Venture's fiscal year end, its assets,
liabilities, and equity are summarized as follows:
Total assets $ 324,274
Total liabilities 1,359,479
-------------
Stockholder's deficiency $ (1,035,205)
=============
F-14
<PAGE>
Note 10 - Subsequent Event
On November 22, 1999, Diamond W Investments, Inc. ("Diamond") was
merged into a wholly-owned subsidiary of the Company. As a
result, the former shareholders of Diamond received 27,211 shares
of ADDvantage Media Series C Convertible Preferred Stock, par
value $1.00 per share with a stated value of $36.75 per share
(which are convertible into shares of ADDvantage Media common
stock at a price of $3.675 per share), and a promissory note in
the amount of $271,000, for a total merger consideration of
$1,271,000.
Diamond was established in 1986 as a full service repair and
sales center, selling new and refurbished cable equipment and
providing related services.
On November 10, 1999, the ADDvantage Media Board of Directors
approved an amendment to the certificate of incorporation to
change the Company's name to "ADDvantage Technologies Group,
Inc." The amendment to the certificate of incorporation was
approved by a majority of the issued and outstanding shares of
ADDvantage Media's common stock. The written consent will become
effective on or about December 30, 1999.
On October 19, 1999, the name of Tulsat was changed from D.R.K.
Enterprises, Inc. to TULSAT Corporation.
F-15
<PAGE>
UNAUDITED PRO-FORMA CONSOLIDATED
FINANCIAL INFORMATION
ADDvantage Media Group, Inc.
and
DRK Enterprises, Inc. d/b/a Tulsat Corporation
The following unaudited consolidated pro-forma statement of income for the
nine months ended September 30, 1999 gives effect to the purchase of
ADDvantage Media by Tulsat as of September 30, 1999. A pro-forma balance
sheet is not provided since the consolidated financial statements included
elsewhere herein include the historical consolidated balance sheet of
ADDvantage Media and Tulsat
The pro-forma consolidated income statement does not purport to be
indicative of the results that would actually have been obtained if the
combination had been in effect on the dates indicated, or that may be
obtained in the future.
P-1
<PAGE>
<TABLE>
<CAPTION>
ADDVANTAGE MEDIA GROUP, INC. D/B/A TULSAT CORPORATION
SUPPLEMENTARY INFORMATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Nine months ended September 30, 1999
(Unaudited)
Historical Pro-Forma
----------------------------------------------------------------------------
ADDvantage Tulsat Adjustments Combined
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales and service income $ 10,560 $ 15,325,448 $ - $ 15,336,008
Cost of sales 844,663 8,050,308 (844,663) 1 8,050,308
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Gross profit (loss) (834,103) 7,275,140 844,663 7,285,700
Operating expenses 917,406 2,664,872 (563,406)
175,000 2 3,193,872
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Income from operations (1,751,509) 4,610,268 1,233,069 4,091,828
Other income (expense), net - (279,067) (9,000) 3 (288,067)
----------------------------------------------------------------------------
Income before provision for income taxes (1,751,509) 4,331,201 1,224,069 4 3,803,761
Provision for income taxes - - (1,445,000) (1,445,000)
----------------------------------------------------------------------------
Net income (loss) $ (1,751,509) $ 4,331,201 $ (220,931) $ 2,358,761
==========================================================
Preferred stock dividends (930,000)
---------------
Net income attributable to common stock $ 1,428,761
===============
Basic and diluted net income per share $ 0.15
===============
Weighted average shares outstanding 9,712,345
===============
See notes to consolidated pro forma income statement. P-2
</TABLE>
<PAGE>
NOTES TO PRO-FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME
(Unaudited)
Note 1 - Basis of Presentation
The pro forma condensed statement of income reflects ADDvantage Media's
acquisition of 100% of the outstanding common stock of Tulsat, and ADDvantage's
issuance of 8,000,000 shares of common stock, representing 82% of the
outstanding common stock, and preferred stock having an aggregate stated
value of $20,000,000. The transaction has been accounted for as a purchase
of ADDvantage Media by Tulsat. The pro forma combined condensed consolidated
income statement gives effect to the acquisition as if it occurred as of the
beginning of the nine month period ended September 30, 1999.
Note 2 - Pro forma Adjustments
The accompanying pro forma condensed consolidated statement of income reflects
the following adjustments:
(1) To eliminate non-recurring costs and operating expenses of ADDvantage Media.
ADDvantage Media did not have any contracts for advertising on or sale of
its solar-powered calculators. While the Company intends to continue to
market the calculator, the related expenses are expected to be materially
reduced. In addition, the ADDvantage Media operating facilities have been
closed, resulting in a substantial reduction in operating expenses.
(2) To provide for increased corporate expenses resulting from the business
combination.
(3) To reflect amortization of goodwill over 20 years.
(4) To provide income taxes on income before income taxes at the combined
federal and state tax rate of 38%.
P-3
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation of our report dated December 2, 1999 on the
financial statements of ADDvantage Media Group, Inc. as of September 30, 1999
and for the nine months ended September 30, 1999 and the year ended December
30, 1998 included in this Form 8-K Current Report of ADDvantage Media Group,
Inc. dated December 14, 1999, into ADDvantage Media Group, Inc.'s previously
Filed Registration Statement on Form S-8 (File No. 333-12641).
TULLIUS TAYLOR SARTAIN & SARTAIN LLP
December 14, 1999
