UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period ________________ to ______________
Commission File number 1-10799
ADDvantage Technologies Group, Inc.
(Exact name of small business issuer as specified in its charter)
OKLAHOMA 73-1351610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1605 E. Iola
Broken Arrow, Oklahoma 74012
(Address of principal executive office) (Zip Code)
(918) 251-9121
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No
Shares outstanding of the issuer's $.01 par value common stock as of August 1,
2000 is 9,978,156.
Transitional Small Business Issuer Disclosure Format (Check one): Yes No x
Part I - Financial Information Page
----
Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheet
June 30, 2000 3
Consolidated Statements of Income
Three and Nine Months Ended June 30, 2000 and 1999 5
Consolidated Statements of Cash Flows
Three and Nine Months Ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 8
Item 2.
Management's Discussion and Analysis of the Financial
Condition and Results of Operation 10
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
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<PAGE>
<TABLE>
<CAPTION>
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEET
June 30, 2000
<S> <C>
Assets
Current assets:
Cash $ 53,817
Accounts receivable 2,685,265
Inventories 15,094,443
Prepaid expenses 3,062
-------------
Total current assets 17,836,587
Property and equipment, at cost
Machinery and equipment 1,098,582
Leasehold improvements 167,629
Other property and equipment 26,412
-------------
1,292,623
Less accumulated depreciation (665,320)
-------------
Net property and equipment 627,303
Other assets:
Deferred income taxes 1,120,282
Investment 679,243
Goodwill 1,398,650
Other assets 18,540
-------------
3,216,715
Total assets $ 21,680,605
=============
</TABLE>
See notes to consolidated financial statements
-3-
<PAGE>
<TABLE>
<CAPTION>
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEET
June 30, 2000
<S> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,584,662
Accrued income taxes 227,216
Bank Revolving Line of Credit 2,879,841
Note Payable - Current portion 135,500
Dividends payable 310,000
Stockholder loans 1,550,000
-------------
Total current liabilities 6,687,219
Note Payable 67,844
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; 30,000,000 shares issued
and outstanding 99,930
Common stockholders' deficit (5,120,224)
-------------
14,979,706
Less: Treasury stock, at cost (54,164)
-------------
Total stockholders' equity 14,925,542
Total liabilities and stockholders' equity $ 21,680,605
=============
</TABLE>
See notes to consolidated financial statements
-4-
<PAGE>
<TABLE>
<CAPTION>
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF INCOME
Three months ended Nine months ended
June 30 June 30
2000 1999 2000 1999
------------------------- -------------------------
<S> <C> <C> <C> <C>
Net sales and service income $ 5,330,956 $ 4,440,937 $ 16,614,656 $ 14,584,245
Cost of sales 2,468,279 2,141,739 7,844,149 7,528,726
------------------------- -------------------------
Gross profit 2,862,677 2,299,198 8,770,507 7,055,519
Operating expenses 1,328,774 907,007 3,813,779 2,705,469
------------------------- -------------------------
Income from operations 1,533,903 1,392,191 4,956,728 4,350,050
Interest expense (101,225) (90,776) (279,938) (249,091)
------------------------- -------------------------
Income before income taxes 1,432,678 1,301,415 4,676,790 4,100,959
Provision for income taxes 543,189 - 1,735,500 -
------------------------- -------------------------
Net income 889,489 1,301,415 2,941,290 4,100,959
Preferred Dividends 310,000 - 930,000 -
Net income attributable to common ------------------------- -------------------------
stockholders $ 579,489 $ 1,301,415 $ 2,011,290 $ 4,100,959
========================= =========================
Pro-forma net income (unaudited):
Income before income taxes $ 1,301,415 $ 4,100,959
Provision for income taxes 494,538 1,558,365
-------------- ---------------
Pro-forma net income 806,878 2,542,595
Provision for preferred dividends 310,000 930,000
Pro-forma net income attributable to -------------- ---------------
common stockholders $ 496,878 $ 1,612,595
============== ===============
Basic and Diluted Earnings per share $ 0.06 $ 0.05 $ 0.20 $ 0.17
=============================================================
</TABLE>
See notes to consolidated financial statements
-5-
<TABLE>
<CAPTION>
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF CASH FLOWS
Nine months ended
June 30,
2000 1999
-----------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $2,941,290 $4,100,959
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 143,664 99,149
Provision for deferred income taxes 134,718 -
Change in:
Receivables 404,320 392,689
Prepaid and other expense 202,543 (43,485)
Inventories (2,753,763) (2,384,332)
Accounts payable and accrued liabilities 204,111 1,002,261
-----------------------
Net cash provided by operating activities 1,276,883 3,167,242
-----------------------
Cash Flows from Investing Activities
Additions to property and equipment (164,919) (57,995)
Cash acquired in LEE CATV merger 90,047 -
-----------------------
Net cash used in investing activities (74,872) (57,995)
-----------------------
Cash Flows from Financing Activities
Distributions to owners - (3,090,141)
Net borrowings (repayments) under line of credit (573,303) (19,106)
Advances from stockholders 74,993 -
Purchases of Treasury Stock (54,164)
Payments of Preferred Dividends (620,000) -
Proceeds for exercise of common stock options 7,437 -
-----------------------
Net cash used in financing activities (1,165,037) (3,109,247)
-----------------------
Net increase in cash 36,974 -
Cash, beginning of period 16,843 -
-----------------------
Cash, end of period $ 53,817 $ -
=======================
</TABLE>
See notes to consolidated financial statements
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<PAGE>
<TABLE>
<CAPTION>
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF CASH FLOWS
Nine months ended
June 30,
2000 1999
---------------------
<S> <C> <C>
Supplemental Cash Flow Information
Interest paid for the period $ 273,745 $ 249,091
Supplemental Disclosure of Non-cash
Investing and Financing Activities
Acquisition of Lee CATV Corporation:
Conversion of preferred stock 1,000,000 -
Working capital other than cash 241,017 -
Land and equipment 116,694 -
Intangibles and other assets 1,276,229 -
Assumption of note payable 723,987 -
Issuance of note payable 271,094 -
</TABLE>
See notes to consolidated financial statements
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NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.
However, the information furnished reflects all adjustments, consisting only of
normal recurring adjustments which are, in the opinion of management, necessary
in order to make the financial statements not misleading.
On September 30, 1999, the former shareholders of TULSAT Corporation (formerly
named DRK Enterprises, Inc.) assumed control of ADDvantage Technologies Group,
Inc. ("ADDvantage Technologies", formerly named ADDvantage Media Group, Inc)
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 Technologies in exchange
for 8,000,000 shares of ADDvantage Technologies $.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 Technologies common stock at a price of $4.00 per
share), and 300,000 shares of newly issued Series B 7% 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 Technologies 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 Technologies. TULSAT's management
assumed management and control of ADDvantage Technologies.
The transaction has been accounted for as a purchase of ADDvantage Technologies
by TULSAT. The accompanying financial statements include the consolidated
balance sheet of ADDvantage Technologies and TULSAT as of June 30, 2000. The
statements of income and cash flows are those of the combined company for the
period ended June 30, 2000 and those of TULSAT for the period ended June 30,
1999.
Note 2 - 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 Technologies continues to market and sell the Shoppers Calculators-R
to various companies and entrepreneurs who use them to sell advertising within
local stores. The advertising is positioned on patented solar-powered
calculators attached to the handles of shopping carts.
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<TABLE>
<CAPTION>
Note 3 - Earnings per Share
Pro-forma Pro-forma
Three months Three months Nine months Nine months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Net income attributable to common
stockholders $579,489 $496,878 $2,011,290 $1,612,595
Basic and Diluted EPS Computation:
Weighted average outstanding common shares 9,772,448 9,476,999 9,746,647 9,476,999
Earnings per Share $0.06 $0.05 $0.21 $0.17
</TABLE>
Stock options and warrants were not included in the computation of diluted EPS
as their effect is anti-dilutive.
Note 4 - Revolving Line of Credit
In January 2000, ADDvantage increased its Line of Credit to $l0,000,000. This
will provide up to $6,000,000 in a revolving Line of Credit for working capital
purposes and up to $4,000,000 for future acquisitions. This should provide
ADDvantage with the financial resources to help fund future business
acquisitions or to establish new locations in strategic markets.
The terms of the Line of Credit were renegotiated on June 30, 2000, which
increased the borrowing base to 30% of qualified inventory and extended the due
date to June 30, 2001.
-9-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
On September 30, l999, the former shareholders of TULSAT Corporation assumed
control of ADDvantage Technologies Group, Inc. ("ATG", formerly named ADDvantage
Media Group, Inc.) pursuant to the Securities Exchange Agreement ("Agreement")
entered into on September l6, l999. Pursuant to the Agreement, the TULSAT
shareholders transferred all the issued and outstanding common stock of TULSAT,
along with $l0,000,000 of TULSAT promissory notes, to ATG in exchange for
8,000,000 shares of ATG $.0l par value common stock, 200,000 shares of newly
issued Series A 5% Cumulative Convertible Preferred Stock, par value $l.00 per
share, with a stated value of $40.00 per share (convertible into ATG common
stock at a price of $4.00 per share), and 300,000 shares of newly issued Series
B 7% Cumulative Preferred Stock, par value $l.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 ATG
and the former TULSAT owners acquired approximately 82% of the issued and
outstanding common stock, and l00% of the issued and outstanding preferred stock
of ATG. TULSAT'S management assumed control of ATG.
On November 22, l999, Lee CATV Corporation, formerly named Diamond W
Investments, Inc. ("Diamond"), was merged into a wholly-owned subsidiary of ATG.
As a result, the former shareholders of Diamond received 27,2ll shares of ATG
Series C Convertible Preferred Stock, par value of $l.00 per share, with a
stated value of $36.75 per share (which were 272,110 shares of ADDvantage Media
common stock), and a promissory note in the amount of $27l,094, for a total
merger consideration of $l,27l,094.
On November l0, l999, the ATG 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 name change became effective on December 30, l999.
Results of Operations
TULSAT had previously elected to be taxed as an S Corporation for federal income
tax purposes since its organization in l985. As a consequence, the taxable net
earnings of TULSAT were taxed as income to TULSAT's stockholders in proportion
to their individual stockholdings, and the payment of federal income taxes on
such proportionate share of TULSAT's taxable earnings was the personal
obligation of each stockholder. Immediately prior to the closing of the
acquistion by the Company, TULSAT's status as a S Corporation automatically
terminated and since then TULSAT has been treated as a C Corporation for income
tax purposes as a wholly owned subsidiary of the Company. The Company
anticipates being taxed at a combined effective rate of 38% based upon current
federal and state income tax regulations.
In order to present the results of operations for the three and nine months
ended June 30, 1999 on a basis comparable to that for the three and nine months
-10-
ended June 30, 2000, a pro-forma provision for income taxes and preferred stock
dividends has been presented for the 1999 period.
Comparison of Results of Operations for the Three Months Ended June 30, 2000 and
June 30, l999
Gross profits rose $563,479 or 24.5% in the third quarter of the fiscal year
2000, as compared to l999 and increased as a percentage of sales to 53.7% in
2000 from 51.8% in 1999. The increase in profits resulted from a higher demand
for refurbished inventory and increased repair revenues from TULSAT, as well as
the $370,688 in gross profits realized by Lee CATV, which was acquired by the
Company in November 1999. The increase as a percentage of sales was primarily
due to a greater proportion of sales during the period being comprised of higher
margin products in the refurbished group.
Net Sales. Net Sales rose $890,019 or 20.0%, to $5,330,956 in the third quarter
of 2000 from $4,440,937 in l999. The increase was attributable to upgrades of
newly acquired systems that resulted from the consolidation of the cable
television industry during 1999. The sales increase resulted from increases in
sales of refurbished equipment of $543,579 or 13.7% to $4,178,855 and an
increase in repair service revenues of $310,818 or 111.7% to $589,141. Lee CATV
had sales of $616,016, which included $296,940 of repair services for the
quarter.
Cost of Goods Sold. Cost of goods sold increased to $2,468,279 during the third
quarter of 2000 from $2,141,739 for l999 primarily due to increased volume, and
decreased as a percentage of sales to 46.3% for the quarter from 48.2% for the
prior year. The percentage of sales decrease was primarily due to a greater
proportion of sales during the period being comprised of higher margin products.
Operating Expenses. Operating expenses increased to $1,429,999 in the third
quarter of 2000 from $907,008 for l999 and increased as a percentage of sales
to 26.8% for the quarter from 20.4% for the prior year. The $421,766 increase
in operating expenses was primarily due to the higher costs resulting from the
acquisition of Lee CATV, and an increase in professional services was the result
of being a public company.
Income from Operations. Income from operations increased 10.2% to $1,533,903
for the third quarter of 2000 from $1,392,191 for 1999. Income from operations
as a percentage of sales decreased to 28.8% for the quarter from 31.3% for the
prior year because of the higher costs resulting from the acquisition of Lee
CATV and an increase in professional services as a result of being a public
company.
Comparison of Results of Operations for the Nine Months Ended June 30, 2000 and
June 30, l999
Gross profits climbed $1,714,948 or 24.3% for the first nine months of fiscal
year 2000, as compared to l999 and increased as a percentage of sales to 52.3%
in 2000 from 48.4% in 1999. The increase in profits resulted from an increase
for refurbished inventory and increased repair revenues from TULSAT, as well
as the $793,170 in gross profits realized by Lee CATV, which was acquired in
November 1999. The increase as a percentage of sales was primarily
-11-
due to a greater proportion of sales during the period being comprised of higher
margin products in the refurbished group.
Net Sales. Net Sales increased $2,030,411 or 13.9%, to $16,614,656 in the first
nine months of 2000 from $14,584,245 in l999. The increase was attributable in
part to purchases being postponed to the beginning of January, 2000 as a
majority of the large Multiple System Operators (MSO) began to upgrade newly
acquired systems resulting from the consolidation of the cable television
industry during 1999 and sales contributed by Lee CATV since the merger. The
sales increase also resulted from increases in sales of refurbished equipment of
$1,380,490 or 11.7% and an increase in repair service revenues of $803,212 or
92.3%. Lee CATV had sales of $1,562,548 since the merger during the first
quarter of fiscal 2000, which included $652,974 in repair services.
Cost of Goods Sold. Cost of goods sold increased to $315,423 during the first
nine months of fiscal 2000 from $7,528,726 for fiscal l999 and decreased as a
percentage of sales to 47.2% for the current period from 51.6% for the prior
year. The decrease was primarily due to increases in sales of higher margin
products.
Operating Expenses. Operating expenses increased to $3,813,779 in the first
nine months of 2000 from $2,705,469 for l999 and increased as a percentage of
sales to 23.0% for the current period from 18.6% for the prior year. The
increase in operating expenses was primarily due to the higher costs resulting
from the acquisition of ATG and Lee CATV, an increase in employee headcount, and
an increase in expenditures for professional services. The increase in employee
headcount and expenditures for professional services was the result of being a
public company.
Income from Operations. Income from operations rose 13.9 % to $4,956,728 for
the first nine months of 2000 from $4,350,050 for the comparative period in
1999. Income from operations as a percentage of sales remained flat for the
period primarily due to sales of higher margin products offset by the higher
costs resulting from the acquisition of Lee CATV and an increase in professional
services as a result of being a public company.
Liquidity and Capital Resources
The Company finances its operations primarily through internally generated funds
and bank lines of credit totaling $6,000,000. At June 30, 2000, the Revolving
Line of Credit consisted of a $2,879,841 balance outstanding due June 30, 2000,
with interest payable monthly at Chase Manhattan Prime less .5% (8.5% at
June 30, 2000) ,and $203,344 balance remaining on a note resulting from the
Diamond purchase, payable quarterly at 8% to the former owners. Net Cash
provided by operating activities for the nine month period ended June 30, 2000
was $1,276,883 compared to $3,167,242 for fiscal 1999. The cash provided by
operating activities was affected by inventory received from 120 day backorders
of new broadband equipment, such as Scientific Atlanta, GI-Motorola and
Phillips, to support the upgrades occurring in the industry.
ADDvantage has a line of credit under which it is authorized to borrow up to
$10,000,000. This line of credit will provide the lesser of $6,000,000 or the
sum of 80% of qualified accounts receivable and 30% of qualified inventory in a
-12-
revolving Line of Credit for working capital purposes and up to $4,000,000 for
future aquisitions meeting Bank of Oklahoma credit guidelines. The line of
credit is collateralized by inventory, accounts receivable, equipment and
fixtures, and general intangibles, and is guaranteed by certain shareholders up
to an aggregate $1,000,000. This line of credit, which currently has a due date
of June 30, 2001, should provide ADDvantage with the financial resources to help
fund future business acquisitions or to establish new locations in strategic
markets.
Stockholder loans include a $1,550,000 note bearing interest the same rate as
the Company's bank line of credit, and is subordinate to the bank notes payable.
The Company has authorized the repurchase of up to $l,000,000 of its outstanding
common stock from time to time in the open market at prevailing market prices or
in privately negotiated transactions. The repurchased shares will be held in
treasury and used for general corporate purposes including possible use in the
company's employees stock plans or for acquisitions.
Forward Looking Statements
Certain statements included in this report which are not historical facts are
forward-looking statements. These forward-looking statements are based on
current expectations, estimates, assumptions and beliefs of management; and
words such as "expects," "anticipates," "intends," "plans," "believes,"
"projects", "estimates" and similar expressions are intended to identify such
forward looking statements. These forward-looking statements involve risks and
uncertainties, including, but not limited to, the future prospects for the
business of the Company, the Company's ability to generate or to raise
sufficient capital to allow it to make additional business acquisitions, changes
or developments in the cable television business that could adversely affect the
business or operations of the Company, general economic conditions, the
availability of new and used equipment and other inventory and the Company's
ability to fund the costs thereof, and other factors which may affect the
Company's ability to comply with future obligations. Accordingly, actual results
may differ materially from those expressed in the forward-looking statements.
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PART II - OTHER INFORMATION
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits pursuant to Item 601 of Regulation S-B.
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None.
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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 TECHNOLOGIES GROUP, INC.
Signature Title Date
--------- ----- ----
/S/Kenneth A. Chymiak Director and President August 14, 2000
------------------- (Principal Executive Officer)
Kenneth A. Chymiak
/S/Adam R. Havig Controller August 14, 2000
------------------- (Principal Accounting Officer)
Adam R. Havig
-15-
EXHIBIT INDEX
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Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule
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