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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM JANUARY 1, 1999 TO SEPTEMBER 30, 1999
Commission file number 1-10799
ADDVANTAGE MEDIA GROUP, INC.
(Name of small business issuer in its charter)
Oklahoma 73-1351610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1605 East Iola
Broken Arrow, Oklahoma 74012
(Address of principal executive offices) (Zip code)
Issuer's telephone number: (918) 251-9121
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, $.01 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
The issuer's revenues for its most recent fiscal year are $15,325,448.
The aggregate market value of the shares of common stock, par value $.01 per
share, held by non-affiliates of the issuer was $ 4,716,129 as of
December 27, 1999.
As of the latest practicable date, the number of the registrant's common stock,
$.01 par value per share, outstanding was 9,740,846 as of December 27, 1999.
The definitive Proxy Statement to be filed pursuant to Regulation 14A in
connection with the Regisrant's 2000 annual meeting of shareholders is
incorporated by reference in Part III, Items 9, 10, 11 and 12 of this Form
10-KSB. The Proxy Statement will be filed with the Securities and Exchange
Commission within 120 days after the close of the registrant's most recent
calendar year.
TRANSITIONAL SMALL BUSINESS DISCLOSURE
FORMAT (CHECK ONE): Yes No X
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Forward Looking-Statements
Certain matters discussed in this report constitute forward-looking
statements, within the meaning of the Private Securities Litigation Reform Act
of 1995, including statements which relate to, among other things, expectations
of the business environment in which the Company operates, projections of future
performance, perceived opportunities in the market and statements regarding the
Company's goals and objectives and other similar matters. The words "estimates,
"projects," "intends," "expects," "anticipates," "believes," "plans" and
similar expressions are intended to identify forward-looking statements. These
forward-looking statements are found at various places throughout this report
and the documents incorporated into it by reference. These and other statements
which are not historical facts are hereby identified as "forward-looking
statements" for purposes of the safe harbor provided by Section 21E of the
Securities Exchange Act of 1934, as amended, and Section 27A of the Securities
Act of 1933, as amended. These statements are subject to a number of risks,
uncertainties and developments beyond the control or foresight of the Company,
including changes in the trends of the cable television industry, technological
developments, changes in the economic environment generally, the growth or
formation of competitors, changes in governmental regulation or taxation,
changes in the Company's personnel and other such factors. The Company's
actual results, performance, or achievements may differ significantly from the
results, performance, or achievements expressed or implied in the
forward-looking statements. The Company does not undertake any obligation to
publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date of this report or to reflect the
occurrence of unanticipated events.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Developments in the Business
ADDvantage Media Group, Inc. ("AMG") is an Oklahoma corporation whose
headquarters are located at 1605 East Iola, Broken Arrow, Oklahoma 74012.
Its telephone number is (918) 251-9121. Through much of 1998, AMG was in the
business of providing advertising services, primarily on Shoppers
Calculators-R- which are solar powered calculators that attach to the handles
of shopping carts. AMG's operations primarily consisted of the implementation
of its Shoppers Calculator(r) program in Supercenter stores operated by
Wal-Mart Stores, Inc. ("Wal-Mart"). Substantially all of AMG's revenues in
1997 and 1998 were generated from a contract with Wal-Mart. In 1998, Wal-Mart
notified AMG of its intent not to renew its contract and AMG began removing
the calculators from the Wal-Mart Supercenters. Removal of the calculators
was completed in September of 1998. A lawsuit was commenced against Wal-Mart
about the same time. This suit was settled in July of 1999 for a nominal
payment to AMG.
AMG began considering alternative business plans and possible business
combinations. On June 21, 1999, AMG entered into a letter of intent with
vanAar, Inc. under which vanAar agreed to purchase one million shares of common
stock of AMG at a price of $1.00 per share. This letter of intent expired on
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July 31, 1999 since the parties failed to enter into a definitive agreement on
or before that date.
On September 30, 1999, AMG acquired all of the outstanding stock of TULSAT
Corporation ("TULSAT", formerly named "D.R.K. Enterprises, Inc."), from David
E. Chymiak, Kenneth A. Chymiak, as Trustee of the Ken Chymiak Revocable Trust
Dated March 4, 1992, and Susan C. Chymiak, as Trustee of the Susan Chymiak
Revocable Trust Dated March 4, 1992 (collectively, the "Shareholders").
In exchange for their shares of AMG stock and promissory notes issued by TULSAT
in the original principal amount of $10,000,000, the Chymiaks received 8,000,000
shares of AMG's common stock (representing approximately 82% of the outstanding
shares of common stock), 200,000 shares of its Series A 5% Cumulative
Convertible Preferred Stock (which will be convertible into 2,000,000 shares
of common stock) and 300,000 shares of AMG's Series B 7% Cumulative Preferred
Stock. As a result of this transaction, TULSAT became the wholly owned and only
operating subsidiary of AMG (collectively, "the Company"). Because the TULSAT
shareholders received 82% of the common stock and all the preferred stock,
TULSAT was considered the surviving corporation and its past financial results
will be reported as the historical results of the Company.
As a result of the transaction, all of the executive officers and
directors of the Company other than Gary W. Young, Executive Vice President and
a director, resigned. David E. Chymiak became Chairman of the Board and
Kenneth A. Chymiak became President and Chief Executive Officer of the Company.
The new board of directors included Stephen J. Tyde and Freddie H. Gibson, in
addition to Messrs. David Chymiak, Kenneth Chymiak and Young.
Current Business
The principal business of the Company is now the sale and repair of cable
television ("CATV") equipment. This includes new, surplus and refurbished
equipment. Customers of the Company include: cable operators, apartment
complexes, universities and other entities that distribute broadband signals.
The Company purchases the equipment from cable operators who have surplus due
to either an upgrade in their systems or an overstock in their warehouse. This
equipment is sold both refurbished and "as is" to CATV operators throughout
North America, South America, Mexico and Pacific Rim. The Company supplies
virtually any type of electronic equipment a cable operator would use, from the
headend (receiving and transmitting site) to the converter box at the customer's
home. The Company also is a large stocking distributor for new equipment.
AMG 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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Overview of the Industry
CATV is a service that delivers multiple channels of television to
subscribers who pay a monthly fee for the services they receive. A CATV system
consists of four principal components. The first is the "up-link" where the
programmer's signal is first scrambled and addressed, and is then transmitted to
a C-band satellite. The second, known as a cable system "headend" facility,
receives television signals from satellites and other sources. The headend
facility organizes and retransmits those signals through the third component,
the distribution network, to the subscriber. The third principal component is
the distribution network, which consists of fiberoptic and coaxial cables and
associated electronic equipment, which originate at the headend and extend
throughout the CATV system. The fourth component of the CATV system, the
subscriber equipment, is comprised of a "drop wire" which extends from the
distribution network to the subscriber's home and connects either directly to
the subscriber's television set or to a converter box. An addressable converter
box is a home terminal device, which permits the efficient delivery of premium
CATV services, including pay-per-view programming, by enabling the CATV
operator to control CATV subscriber services from a central headend computer.
CATV operators generally offer to subscribers a basic service package and
for additional charges, additional tiers of services, including premium
services. Basic service programming typically includes broadcast network local
affiliates, independent television stations and other locally originated
programs. Additional tiers of service may consist of different satellite-
delivered services and premium services, such as HBO and ShowTime that typically
are offered to subscribers as a package for a separate monthly fee. Successive
tiers of programming include additional services for additional monthly fees.
In addition, movies and special entertainment events, such as boxing matches and
Olympic Games can be offered to subscribers with addressable converters on a
selective, pay-per-view basis. CATV operators are also introducing digital
cable audio services, which consist of multiple channels of commercial-free,
compact disc quality music and programming.
Business of the Company
The basic strategy of the Company is to: (a) maintain and expand its
current customer base in North America for the sale of new and refurbished CATV
equipment while focusing on expanding the repair side of the business and (b)
acquire existing companies in the industry within specific geographic areas
utilizing their service and sales staffs to increase sales.
The Company believes that the CATV industry is expanding from a home
entertainment service to providing telecommunications services to both homes and
businesses. Management believes that the Company is well positioned to thrive
and prosper in the industry.
Construction, maintenance, expansion and upgrade of CATV systems require
significant capital expenditures by CATV operators for system components,
including coaxial and fiber optic cable, traditional radio frequency ("RF")
amplifiers and fiber optic electronics, and addressable system controllers and
converters. A major trend in the cable and satellite television industry has
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been the continuing expansion of channel capacity in response to CATV operators'
desire to provide subscribers with more programming selections, including
pay-per-view and additional premium programming services.
The Company expects that CATV operators will continue to upgrade the
technological capabilities of their systems and increase channel capacity in
order to meet subscriber demand for more programming services, such as expanded
pay-per-view, premium services and digital cable audio, which, in turn, provides
opportunities for increased revenues for the CATV operators. In addition, new
technologies can improve a CATV operator's margins and customer services by
increasing the CATV system's reliability, picture quality and the "user
friendliness" of the converter. The Company also expects CATV operators to
increase spending to meet governmental requirements for renewing franchises and
to position themselves to enter new and potential markets such as telephone and
personal communications networks.
In addition, the consolidation of CATV operators and their ongoing
transformation into multi-service companies is prompting a re-evaluation
of the used equipment values, as new services roll out using new technologies
and state-of-the-art components. With the cost and sophistication of new
equipment and technologies on the rise, and their shelf lives shrinking, the
savvy use of used equipment by cable operators and manufacturers is becoming a
vital component in their overall operational strategies. The Company believes
that it is in a position to serve this expanding market.
With respect to technology, CATV operators and suppliers, including the
Company, are demonstrating that system upgrades with currently available
equipment and system architectures can be used as a basis to provide advanced
subscriber services. Moreover, the growing use of United States broadband
system designs and equipment in international markets, where CATV penetration
is low, presents another opportunity for sales of the Company's systems and
equipment.
Products and Services
The majority of the Company's business is the sale of used CATV equipment.
The following is a list of the products sold by the Company with a brief
description of the application of each product line:
LINEGEAR covers all products, which are actually placed on the cable line.
This includes active electronics, trunk stations and line extenders, which
amplify and distribute the cable signal, and passive equipment such as taps,
splitters and directional couplers, which simply pass the signal through for
delivery to additional lines and the customer's home. The Company focuses on
sales and repair of Scientific Atlanta, Magnavox, Jerrold, General Instruments,
Texcan and Thetacom lines of taps, traps, splitters, DCs, power inserters and
pin connectors. Linegear presently account for approximately 42% of revenues.
HEADEND EQUIPMENT is used to provide signal acquisition, processing and
manipulation for further transmission. Among the products offered by the
Company in this category are Scientific Atlanta, Blonder Tongue, Magnavox,
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General Instruments and Drake lines of satellite receivers, integrated
receiver/decoders, videociphers, demodulators, modulators, amplifiers,
equalizers, processors, antennas, and antenna mounts. The Company specializes
in the refurbishing and repairing of various manufacturers' lines of headend
products as well as modifying these for use in different video formats.
Repair Services are offered for all product lines, with an emphasis in
Headend Equipment. The Company expects this area to grow significantly with
the Company's focus on this side of the business and as additional mergers or
acquisitions develop.
Sales and Marketing
The majority of the Company's sales activity is generated through personal
relationships developed by its sales personnel and executives, advertising in
trade journals and other periodicals, telemarketing and direct mail to cable
operators both in the United States. The Company has developed contacts with
the major CATV operators in the United States and is constantly in touch with
these operators regarding plans for upgrading or expansion and their needs to
either purchase or sell equipment. The Company purchases a large amount of its
inventory from cable operators who have upgraded, or are in the process of
upgrading their system. The sales and purchasing functions operate under the
same umbrella using a computerized buy/sell board to coordinate the activity
between the two. In addition, the Company has very close relationships with
major manufacturers of CATV equipment and purchases a large amount of such
equipment from these original equipment manufacturers.
The Company's purchasing department buys previously used CATV equipment
throughout North America. As a result of competition in the communications
industry, cable operators are aggressively upgrading their system with newer,
technologically advanced equipment. This provides the Company's purchasing
department opportunities to buy equipment, which were not normally available in
the past. This competitive CATV market enables the Company to acquire
additional inventory for sale to cable operators who are expanding with new
subscribers or who are upgrading their system with the newer, more expensive
technology.
The Company is not dependent on one or a few customers to support its
business. There are approximately 6,000 cable television systems within the
United States, each of which is a potential customer.
Competition
There are a number of businesses similar to the Company throughout the
United States engaged in buying and selling used CATV equipment. The majority
of the competition operate within a regional a regional area without access to
the large inventory the Company maintains due to capital requirements. The
Company is the largest business in this industry providing both sales and
service of used CATV equipment.
The CATV industry is highly competitive and is characterized by numerous
companies competing in various segments of the market. In addition to
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companies, which operate in a manner similar to the Company, it also faces
competition from vendors supplying new products and various manufacturers in
this industry. The Company has the ability to ship and supply their customer's
products from large inventory without having to wait for the manufacturers to
supply the items for their customers.
Personnel
At September 30, 1999, the Company had 85 employees. Management considers
its relationships with its employees to be excellent. The employees of the
Company are not unionized and the Company is not subject to any collective
bargaining agreements.
Recent Developments
On November 22, 1999, the Company's wholly owned subsidiary, Lee CATV
Corporation, a Nebraska corporation ("Lee"), merged with Diamond W Investments,
Inc., a Nebraska corporation ("Diamond"). Lee was the surviving corporation and
is carrying on the business and operations previously conducted by Diamond.
Diamond was established in 1986 as a full service repair and sales center,
selling new and refurbished cable equipment, designing, pre-wiring, installing
and repairing along with FCC Proof of Performance on all types of headend
equipment. Diamond built its reputation on high-quality with prompt turn around
in repairs and technical training for their customers. As a result of the
merger, the shareholders of Diamond received 27,211 shares of the Company's
Series C Convertible Preferred Stock (which will be convertible into 272,110
shares of the Company's common stock) and a promissory note in the original
principal amount of $271,094, which is payable over two years and bears interest
at the rate of 8.0% per annum.
Effective December 30, 1999, the name of the Company will change to
ADDvantage Technologies Group, Inc.
ITEM 2. DESCRIPTION OF PROPERTY
TULSAT leases a total of approximately 106,650 square feet of office spac
and warehouse facilities in seven buildings from entities, which are owned by
David E. Chymiak and Kenneth A. Chymiak. Each lease has a five-year term. At
December 30, 1999, total monthly payments of $30,000 were required. The Company
believes that its current facilities are adequate to meet its needs.
ITEM 3. LEGAL PROCEEDINGS
The company is not involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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There were no matters submitted to a vote of the shareholders of the
Company during the fiscal quarter ended September 30, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock traded on the Nasdaq Small Cap Market from April
11, 1997 to September 21, 1999 under the symbol ADDM. On September 22, 1999,
the Company's common stock was delisted from the Nasdaq Small Cap Market because
the closing price of the stock was less than $1.00 per share for a period of
greater than 30 consecutive trading days. The Company's common stock is
currently traded on the OTC Bulletin Board under the symbol ADDM.
The following table sets forth, for the periods indicated, the high and low
closing bid quotations per share for the Company's common stock as quoted on
the Nasdaq Small Cap Market and the OTC Bulletin Board, as the case may be.
Quotations represent inter-dealer prices without an adjustment for retail
mark-ups, mark-downs or commissions and may not represent actual transactions:
Year Ended December 31, 1998 High(1) Low
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First Quarter $ 9.75 $ 6.00
Second Quarter $10.75 $ 1.25
Third Quarter $ 3.13 $ 1.50
Fourth Quarter $ 3.75 $ 0.88
Nine Months Ended September 30, 1999 High Low
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First Quarter $ 1.22 $ 0.91
Second Quarter $ 1.00 $ 0.69
Third Quarter $ 4.13 $ 0.25
(1) All quotations prior to the fourth quarter of 1998 have been restated to
reflect the effect of the one for four reverse stock split which was
effective on Friday, October 9, 1998.
Substantially all of the holders of common stock maintain ownership of
their shares in "street name" accounts and are not, individually, shareholders
of record. As of December 27, 1999, there were approximately 85 holders of
record of common stock. However, the Company believes there are in excess of
815 beneficial owners of common stock.
Dividend Policy
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The Company has never declared or paid a cash dividend on its common stock.
It has been the policy of the Company's Board of Directors to use all available
funds to finance the development and growth of the Company's business. The
payment of cash dividends in the future will be dependent upon the earnings and
financial requirements of the Company and other factors deemed relevant by the
Board of Directors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
On September 30, 1999, the former shareholders of TULSAT assumed control of
AMG 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 AMG in exchange for 8,000,000 shares
of AMG $.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 AMG 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
the Company 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 AMG. TULSAT'S management assumed management and control of
the Company.
The transaction has been accounted for as a purchase of AMG by TULSAT. The
accompanying financial statements include the consolidated balance sheet of AMG
and TULSAT as of September 30, 1999. The statements of income and cash flows
are those of TULSAT.
Results of Continuing Operations
TULSAT had previously elected to be taxed as an S Corporation for
federal income tax purposes since its organization in 1985. As a consequence,
the taxable net earnings of TULSAT are 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 is the
personal obligation of each stockholder. Immediately prior to the closing of the
offering, TULSAT's status as an 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.
First Nine Months of 1999 Compared with First Nine Months of 1998
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Net Sales. Net sales increased $337,247, or 2.3%, to $15,325,448 in the first
nine months of 1999 from $14,988,201 in the first nine months of 1998. Linegear
Sales accounted for $7,030,628 (45.4% of total sales) for the first nine months
of 1999 compared to $6,354,553 (42.6% of total sales) for the first nine months
of 1998. The increase in sales primarily reflected increased demand for the
Company's Linegear Products.
Cost of Goods Sold. Cost of goods sold increased to $8,050,308 for the first
nine months of 1999 from $7,780,585 for the first nine months of 1998 and also
increased as a percentage of sales to 52.5% from 51.9%. This increase was
primarily due to changes in product mix.
Operating Expenses. Operating expenses increased to $2,664,872 in the first
nine months of 1999 from $2,306,676 in the first nine months of 1998 and also
increased as a percentage of sales to 17.4% from 15.4%. The increase in
operating expenses was primarily due to higher costs resulting from the
acquisition of AMG, an increase in additional leased properties and an increase
in employee headcount.
Income from Operations. Income from Operations decreased 5.9% to $4,610,268 for
the first nine months of 1999 from $4,900,950 for the first nine months of 1998.
Income from Operations as a percentage of sales decreased to 30.1% in the first
nine months of 1999 from 32.7% in the first nine months of 1998. This decrease
was primarily due to the higher operating expenses as described in the preceding
paragraph.
Interest and Other Expenses. Other expenses, net, increased to $279,067 in the
first nine months of 1999 from $244,418 in the first nine months of 1998. These
expenses in the first nine months of 1999 consisted of interest expense in the
amount of $283,549, offset by $4,482 of miscellaneous income. Other expenses in
the first nine months of 1998 consisted of interest expense of $257,436, loss on
sale of investments of $86,099 offset by $4,485 of miscellaneous income and
$94,632 of interest income. The increase in interest expense in the first nine
months of 1999 was the result of the Fed's increase of the Prime Interest Rate,
thus affecting the Company's note payable, which is tied to this rate (See Note
3 - Notes Payable in the notes to the accompanying financial statements).
Liquidity and Capital Resources
The Company finances its operations primarily through internally generated
funds and bank lines of credit totaling $4,500,000. At September 30, 1999,
notes payable consist of a $2,932,501 balance outstanding due June 30, 2000,
interest payable monthly at Chase Manhattan Prime less .5% (7.75% at September
30, 1999). Net Cash provided by operating activities for the nine-month period
ended September 30, 1999 was $2,298,017.
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 shareholders up to an aggregate $1,000,000.
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Shareholder loans include a $750,000 shareholder note bearing interest at
7.75%, and is subordinate to the bank notes payable. Shareholder loans also
include advances of $725,007 bearing interest at the same rate as the Company's
line of credit.
Year 2000 Compliance
The Company has assessed its computer systems to identify those areas that
could be adversely affected by Year 2000 software failures. The assessment
included the review of hardware, software, including financial business systems,
marketing and various other administrative functions,
("information technology"), and non-information technology areas such as
microprocessors and embedded chips. To the extent that these information
technologies and non-information technology systems contain source code that is
unable to appropriately interpret the upcoming year 2000, all these issues
have been addressed and any changes needed to these systems have been made where
deemed appropriate. The Company believes that the estimated total costs
excluding internal costs to complete compliance is not material. The Company
does not track internal costs incurred for the year 2000 compliance. The costs
of compliance have been funded through operating cash flows of the Company.
Although the Company expects, based on currently available information,
that any additional expenditures that may be required in connection with Year
2000 conversions will not be material, there can be no assurance in this regard.
The Company believes that certain of its customers or vendors may be impacted by
the Year 2000 problems, which could in turn affect the Company. Currently, the
Company cannot predict the effect of the Year 2000 problem on supplier or other
entities and whether or not it will have a material adverse effect on the
Company's business, financial condition, results of operations or cash flows.
The Company believes it has an effective program in place, which will
resolve the year 2000 issue in a timely manner. Year 2000 risks include failure
to obtain successful testing of hardware/software, failed attempts to obtain
vendor compliance, and failure on the part of suppliers and service providers.
The Company believes that under most reasonably likely worst- case scenarios,
the Company's operations could be disrupted or business or annual financials
could be impaired. Based on the Company's current assessment of its information
and non-information technology systems, it does not believe it necessary to
develop extensive contingency plans for those systems. There can be no
assurances, however, that any of the Company's plans will be sufficient to
handle all problems or issues that may arise.
The statements set forth herein concerning Year 2000 issues, which are not
historical facts, are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. These estimates were derived from internal
assessments and assumptions of future events. These estimates may be adversely
affected by the continued availability of personnel and system resources, and by
the failure of significant third parties to properly address Year 2000 issues.
Therefore, there can be no guarantee that any estimates, or other
forward-looking statements will be achieved, and actual results could differ
significantly from those contemplated.
ITEM 7. FINANCIAL STATEMENTS
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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 following 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.
Index to Financial Statements Page
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Independent Auditors' Report 13
Consolidated Balance Sheet, September 30, 1999 14
Statements of Income, Nine-Month Period Ended September 30, 1999
and Year Ended December 31, 1998; Nine Month Period Ended
September 30, 1998 (Unaudited) 16
Statement of Changes in Stockholders' Equity 17
Statement of Cash Flows, Nine-Month Period Ended September 30, 1999
and Year Ended December 31, 1998 18
Notes to Consolidated Financial Statements 20
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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
-13-
<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
=============
See notes to consolidated financial statements.
-14-
</TABLE>
<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
=============
See notes to consolidated financial statements.
-15-
</TABLE>
<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 $ 14,988,211
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
============ ============ ============
See notes to consolidated financial statements.
-16-
</TABLE>
<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.
-17-
</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.
-18-
</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.
-19-
</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.
-20-
<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
-21-
<PAGE>
credit risk consist principally of trade 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.
-22-
<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.
-23-
<PAGE>
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 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:
<TABLE>
<CAPTION>
Weighted
Average Weighted
Range of Remaining Average
Exercise Number Contractual Exercise
Prices Outstanding Life Price
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee options:
$0.80 - $0.875 13,500 7.8 years $0.86
</TABLE>
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.
-24-
<PAGE>
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 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
-25-
<PAGE>
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.
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 1998 and the year ended December 31, 1998 assuming the
acquisition occurred at the beginning of each period.
<TABLE>
<CAPTION>
Nine months
Nine months Year 1998
1999 1998 (unaudited)
------------- ------------- --------------
<S> <C> <C> <C>
Net sales and service income $15,336,008 $19,718,838 $15,003,775
Net income $ 2,358,761 $ 3,308,235 $ 2,732,090
Net income attributable to common stock $ 1,428,761 $ 2,068,235 $ 1,802,090
Weighted average outstanding common shares 9,712,346 9,476,646 9,476,646
Basic and Diluted Earnings per Share $ 0.15 $ 0.22 $ 0.19
</TABLE>
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.
-26-
<PAGE>
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)
==============
Note 10 - Subsequent Events
- ---------------------------
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.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-27-
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this item concerning the Company's officers,
directors and compliance with Section 16(a) of the Securities Exchange Act of
1934, as amended, is incorporated by reference to the information in the
sections entitled "Identity of Officers," "Election of Directors" and
"Compliance with Section 16(a) of the Exchange Act," respectively, of the
Company's Proxy Statement for the 2000 Annual Meeting of Shareholders
(the "Proxy Statement") to be filed with the Securities and Exchange Commission
within 120 days after the end of the Company's fiscal year ended September 30,
1999.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item concerning executive compensation is
incorporated by reference to the information set forth in the section entitled
"Compensation of Directors and Executive Officers" of the Company's Proxy
Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item regarding certain relationships and
related transactions is incorporated by reference to the information set forth
in the section entitled "Security Ownership of Certain Beneficial Owners And
Management" of the Company's Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item regarding certain relationships and
related transactions is incorporated by reference to the information set forth
in the section entitled "Certain Relationships and Related Transactions" of the
Company's Proxy Statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
-28-
<PAGE>
(a) The following documents are included as exhibits to this Form 10-KSB.
Those exhibits below incorporated by reference herein are indicated as such by
the information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
Exhibit
- -------
2.1 The Securities Exchange Agreement, dated as of September 16,
1999, by and among ADDvantage Media Group, Inc. and David E.
Chymiak, Kenneth A. Chymiak, as Trustee of the Ken Chymiak Revocable Trust
Dated March 4, 1992, and Susan C. Chymiak, as Trustee of the Susan Chymiak
Revocable Trust Dated March 4, 1992 is incorporated by reference to Exhibit
2 to the Current Report on Form 8-K filed with the Securities Exchange
Commission by the Company on September 24, 1999.
2.2 The Amendment and Clarification of the Securities Exchange
Agreement, dated as of September 16, 1999 incorporated by
reference to Exhibit 2.2 to the Current Report on Form 8-K filed
with the Securities Exchange Commission by the Company on
October 14, 1999.
2.3 The Agreement and Plan of Merger, dated as of November 22, 1999,
by and among ADDvantage Media Group, Inc., TULSAT Corporation,
Lee CATV Corporation, Diamond W Investments, Inc., Randy L.
Weideman and Deborah R. Weideman incorporated by reference to
Exhibit 2.1 to the Current Report on Form 8-K filed with the
Securities Exchange Commission by the Company on December 7, 1999.
3.1 Certificate of Incorporation of the Company and amendments
thereto incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-18, File No.
33-399902-FW (the "S-18 Registration Statement").
3.2 Fourth Amendment to the Certificate of Incorporation of the
Company incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1, File No. 33-49892
(the "S-1 Registration Statement").
3.3 Bylaws of the Company incorporated by reference to Exhibit 3.2
to the S-18 Registration Statement.
-29-
<PAGE>
4.1 Certificate of Designation, Preferences, Rights and Limitations
of ADDvantage Media Group, Inc. Series 5% Cumulative Convertible
Preferred Stock and Series B 7% Cumulative Preferred Stock as
filed with the Oklahoma Secretary of State on September 30, 1999
incorporated by reference to Exhibit 4.1 to the Current Report
on Form 8-K field with the Securities Exchange Commission by the
Company on October 14, 1999.
4.2 Certificate of Designation, Preferences, Rights and Limitations
of ADDvantage Media Group, Inc. Series C Convertible Preferred
Stock as filed with the Oklahoma Secretary of State on November 22,
1999 incorporated by reference to Exhibit 2.1 to the Current
Report on Form 8-K filed with the Securities Exchange Commission
by the Company on December 7, 1999.
10.1 Lease Agreement dated September 15, 1999 by and between Chymiak
Investments, L.L.C. and TULSAT Corporation (formerly named DRK
Enterprises, Inc.).
10.2 Schedule of documents substantially similar to Exhibit 10.1.
10.3 Promissory Note for $271,093.54 from the Company to Randy L.
Weideman and Deborah R. Weideman dated November 22, 1999.
10.4 Lease Agreement, dated November 22, 1999, by and between Randy
L. Weideman and Deborah R. Weideman and Lee CATV Corporation
incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K filed with the Securities Exchange Commission by the
Company on December 7, 1999.
10.5 Employment Agreement, dated as of November 22, 1999, by and between
Lee CATV Corporation, Randy L. Weideman and TULSAT Corporation
incorporated by reference to Exhibit 10.2 to the Current Report
on Form 8-K filed with the Securities Exchange Commission by the
Company on December 7, 1999.
10.6 Noncompete Agreement, dated as of November 22, 1999, by and
between Lee CATV Corporation and Deborah R. Weideman
incorporated by reference to Exhibit 10.3 to the Current Report
on Form 8-K filed with the Securities Exchange Commission by the
Company on December 7, 1999.
21.1 Subsidiaries.
-30-
<PAGE>
23.1 Consent of Tullius Taylor Sartain & Sartain LLP.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated September 24, 1999,
reporting a change in control of the Company and a change in its fiscal year.
-31-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ADDvantage Media Group, Inc.
Date: December 27, 1999 By: /S/ Kenneth A. Chymiak
------------------------------------
Kenneth A. Chymiak, President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: December 23, 1999 /S/ David E. Chymiak
----------------------------------------
David E. Chymiak, Chairman of the Board
Date: December 27, 1999 /S/ Kenneth A. Chymiak
----------------------------------------
Kenneth A. Chymiak, President, Chief
Executive Officer and Director
Date: December 27, 1999 /S/ Gary W. Young
----------------------------------------
Gary W. Young, Executive Vice President
- Finance and Administration (Principal
Financial Officer) and Director
Date: December 29, 1999 /S/ Adam R. Havig
----------------------------------------
Adam R. Havig, Controller
Date: December 27, 1999 /S/ Stephen J. Tyde
----------------------------------------
Stephen J. Tyde, Director
Date: December 27, 1999 /S/ Freddie H. Gibson
----------------------------------------
Freddie H. Gibson, Director
Date: December ___, 1999
----------------------------------------
Randy L. Weideman, Director
-32-
</PAGE>
<PAGE>
"This is a legally binding Contract; if not understood seek advice from
an attorney."
COMMERCIAL/INDUSTRIAL LEASE (NET)
THIS LEASE is entered into by and between Landlord and Tenant and upon approval
by both Landlord and Tenant, as evidenced by their signature hereto, a valid
and binding Lease shall exist, the terms and conditions of which are as
follows:
1. DEFINITIONS AND BASIC PROVISIONS. The following definitions and basic
provisions shall be construed as follows when used elsewhere in this
Lease:
a) Effective Date: The Effective Date shall be the latest date for
approval by all parties as indicated below.
b) Landlord: CHYMIAK INVESTMENTS, L.L.C.
c/o Ken Chymiak
Address 5411 E. 80th St., Tulsa, OK 74136
Phone No. 918-492-3023 Fax No. 918-496-4182
c) Tenant: D.R.K. ENTERPRISES, INC. d/b/a TULSAT
c/o David Chymiak
Address 1605 E. Iola, Broken Arrow, OK 74012
Phone No. 918-251-2887 Fax No. 918-251-1138
d) Third Party Guarantor: Guarantor Agreement attached hereto
as Exhibit
c/o
Address
Phone No. Fax No.
e) Leased Premises: Approximately 67,000 square feet, Suite No.___ in
the building located at 1605 E. Iola, Broken Arrow, Oklahoma in
Tulsa County, Oklahoma, such premises being shown and outlined on the
plan attached hereto as Exhibit _____. .
f) Project:
g) Lease Term: A period of 5 Years commencing on October 1, 1999
("Commencement Date") and ending on September 30, 2004 ("Expiration
Date").
h) Base Rental: A total of $ 180,000 per yr. payable in monthly
installments in advance as follows:
From To Monthly Rate
Year 1 October 1, 1999 September 30, 2000 $15,000
Year 2 October 1, 2000 September 30, 2001 $15,000
Year 3 October 1, 2001 September 30, 2002 $15,000
Year 4 October 1, 2002 September 30, 2003 $15,000
Year 5 October 1, 2003 September 30, 2004 $15,000
i) Prepaid Rental: $ 0 representing payment of rental for the
first month of the Lease Term.
j) Security Deposit: $ 0 (not applicable toward last month's
rent)
k) Use: ________________ Tenant, as evidenced by his signature below,
has determined and represents that the stated use is consistent with
all local, State and Federal regulations applicable to said use.
l) Legal Use: Tenant shall use the Leased Premises only for the
Permitted Use stated and for no other purposes. Tenant shall not use,
nor permit the use of, anything in the Leased Premises (i) which would
violate any of the agreement of the Lease, (ii) for any unlawful
purpose or in any unlawful manner, or (iii) that would substantially
increase cost of the Landlord's insurance.
m) Tenant's Public Liability Insurance Limits: $ 1,000,000 combined
single limit bodily injury and property damage as described in
paragraph 7(c).
n) Cost of Living Increases: See attached Exhibit na , if any.
o) Percentage Rental: See attached Exhibit na , if any.
p) Property Owner's Association's Dues and Assessments: See attached
Exhibit na if any.
2. GRANTING CLAUSE. Landlord hereby covenants and warrants that it has
rightful possession to, and hereby leases, lets and demises unto Tenant,
together with all improvements, appurtenances, easements, and privileges
thereunto belonging, the Leased Premises for the Permitted Use, together
with on-site parking, if any.
3. PAYMENT OF RENT/ADDITIONAL RENT. Tenant agrees to pay to Landlord
the total minimum base rental, with such monthly installments to be paid
in advance, on or before the first day of each calendar month during the term,
without demand. Tenant shall pay the first monthly installment as "prepaid-
rental" concurrently with the execution of this Lease. The rent for a portion
of the calendar month during which rent might begin to accrue or terminate
shall be prorated. Tenant's covenant to pay rent shall be independent of
every other covenant set forth in this Lease, and Tenant shall have no right
of deduction or setoff whatever. All rents herein provided for shall be paid
to Landlord at the Landlord's address or at such other place as shall be
designated by Landlord, in writing, furnished to Tenant at least ten (10) days
prior to the next ensuing rent payment due date.
Standard Commercial/Industrial Lease (net) (a705)6/98 /s/ DEC /s/ KAC
Copyright 1998 - Greater Tulsa Association of REALTORS(r)
All Rights Reserved Tenant Landlord
Page 1 of 4
<PAGE>
4. LATE PAYMENT OF RENT. Any rents received on the 11th day after the due
date, or thereafter, shall be assessed the maximum late fee amount allowable
by law.
5. GENERAL PROVISIONS.
a) Possession. Unless otherwise agreed to in writing, possession shall
be delivered on the Commencement Date of this Lease. If Landlord is
unable to deliver possession of the premises at the commencement hereof,
Landlord shall not be liable for any damage caused thereby, nor shall
this lease be void or voidable, but Tenant shall not be liable for any
rent until possession is delivered. Tenant may terminate this lease if
possession is not delivered within 10 days.
b) Assignment, Subletting, and Encumbering. This Lease shall not be
assigned, sublet, or transferred by Tenant without Landlord's prior
written consent. Tenant shall not sublet, or offer or advertise for
subletting, the Leased Premises, or any portion thereof, without the
prior written consent of Landlord. Any assignment or subletting shall
not relieve Tenant of its obligations hereunder or release Tenant from
the further performance of all covenants herein contained.
c) Estoppel Certificate. Tenant shall, at any time so requested,
execute and deliver to Landlord such Estoppel certificates as Landlord
shall reasonably require, stating length of Tenant's lease, amount of
rent, deposits, and other terms.
d) Subordination. This Lease shall be subject and subordinate, at all
times, to the lien of existing mortgages and of mortgages which hereafter
may be made on the Leased Premises. Tenant will execute and deliver such
further instruments subordinating this Lease to the lien of any such
mortgages as may be desired by Landlord.
e) Rules and Regulations. Tenant agrees to observe and comply with the
Rules and Regulations presently existing and such other and further
reasonable rules and regulations as Landlord may, from time to time,
adopt, a copy of which is attached to this Lease as Exhibit .
f) Toxic or Hazardous Materials. Tenant shall not store, use, or
dispose of any toxic or hazardous materials in, on, or about the Premises,
without the prior written consent of Landlord. Tenant, at its sole cost,
will comply with all laws relating to Tenant's storage, use, and disposal
of hazardous or toxic materials.
g) Holding Over. In the event Tenant remains in possession of the
Premises after the expiration or termination of the Lease, Tenant shall
occupy the premises as a Tenant from month-to-month at 150% of the rental
due for the last full calendar month during the term of the Lease and
subject to all other provisions and obligations of the Lease applicable
to a month-to-month tenancy.
h) Signs. Landlord retains the right to approve any and all exterior
signs. See attached Exhibit ____. "Sign Criteria", if any.
i) Destruction of Premises. In the event of a partial destruction of
the building in which the Leased Premises are contained, during the term,
Landlord shall make any repairs that can be made under existing
governmental regulations within one hundred twenty (120) days of such
destruction, but such partial destruction shall not terminate this Lease,
except that Tenant shall be entitled to a proportionate reduction of rent
while repairs are being made, based upon the extent to which the making
of such repairs shall interfere with the business of Tenant on the
Premises. If repairs cannot be made within one hundred twenty (120)
days, this Lease may be terminated, at the option of either party, by
delivering written notice.
j) Right of Entry. Landlord reserves the right, for itself, and its
employees, or contractors, and Tenant covenants to permit Landlord, or
its agents, employees, or contractors to enter any and all portions of the
Leased Premises at any time; provided, that Landlord shall give Tenant
reasonable notice prior to any entry for the purpose of showing the space
to prospective tenants.
During the progress of any repairs or other work, Landlord may keep
and store on the Leased Premises all necessary materials, tools, and
equipment, and Landlord shall, in no event, be liable for disturbance,
inconvenience, annoyance, loss of business, or other damage to Tenant, or
any assignee, or sublessee under the Lease, by making such repairs or
performing any such work on or in the Leased Premises, or due to bringing
materials, supplies, and equipment into or through the Premises during the
course of such work.
tenant shall permit Landlord at any time within sixty (60) days
prior to expiration of this lease to place upon the premises the usual
"For Lease" or "For Sale" signs, and permit persons desiring to lease or
purchase the same to inspect the premises thereafter.
k) Condemnation. If the Leased Premises is totally condemned by any
lawful authority under the power of eminent domain, or shall, during the
continuance of the Lease, be totally destroyed by the action of public
authorities, then this Lease and the term leased shall terminate, and
Tenant shall be liable for rent only up to the date of such termination.
l) Quiet Enjoyment. Landlord grants to Tenant, in exchange for
continued payment of rent and performance of each and every covenant
hereof, the right to peacefully and quietly hold, occupy, and enjoy the
Leased Premises throughout the term. Further, Tenant shall not commit
any waste upon the premises, or any nuisance or act which may disturb
the quiet enjoyment of any tenant in the building.
6. MAINTENANCE.
a) Tenant. Tenant shall maintain and make necessary replacement of
the roof, exterior walls, structure, floor slabs, parking lot, other
common facilities of the building and provide lawn and landscaping
maintenance. Tenant shall keep the Leased Premises neat and clean and in
such repair, order, and condition as received on Commencement Date (or
Occupancy Date, whichever is earliest) or may be put in during the term
hereof, reasonable use and wear excepted. Tenant shall maintain
(including necessary replacement) all fixtures and equipment relating to
plumbing, electrical, heating, ventilation, air conditioning (HVAC).
Tenant shall maintain and replace exterior doors, windows, and all plate
glass, floor covering, carpet, paint, wallpaper, and other coverings.
Tenant shall not damage or abuse the Leased Premises, nor shall Tenant
permit the damage or abuse of the Leased Premises. Tenant shall not
overload the floor and shall abide by Landlord's instructions with
respect to care and avoidance of abuse.
b) Utilities. Tenant shall be responsible for arranging, and
contracting in its own name if necessary, all utility services necessary
for the operation of the Property, including establishment of any
required deposits, and payment of any and all utility charges incurred
during the term. Such utility charges shall include water, natural gas,
telephone, cable television, sanitary sewer, electricity and storm water
management fees. Tenant shall also be responsible for the maintenance of
Standard Commercial/Industrial Lease (net) (a705)6/98 /s/ DEC /s/ KAC
Copyright 1998 - Greater Tulsa Association of REALTORS(r)
All Rights Reserved Tenant Landlord
Page 2 of 4
<PAGE>
any on-site sewage disposal system (septic tank, etc.). Further, in the
event of any interruption of utility services, the Landlord shall neither
be responsible for, nor shall any rent be abated due to, such
interruption.
7. TAXES, INDEMNITY AND INSURANCE.
a) Taxes. Tenant shall reimburse Landlord for all ad valorem taxes,
special assessments, and bond indentures, attributable to the Leased
Premises upon presentation of paid tax receipts by Landlord to Tenant.
If taxes because of increased rate or valuation and/or other public
assessments increase during the term of lease, a proportionate share
of such increase shall be paid by Tenant, or if single Tenant, Tenant
shall pay total increase. Taxes and other public assessments for the
calendar year in which the lease commences and in which the lease
expires shall be prorated to the date of such commencement and
termination.
b) Indemnity, Liability, and Loss or Damage. Tenant agrees to
defend, indemnify, and hold Landlord harmless from any loss, cost, or
expense, whatsoever, resulting from (1) personal injury, loss of life,
or loss of property relating to the use and occupancy by Tenant, or (2)
from damage to, or destruction of, the Project structure, or any part
thereof, or of any abutting real property caused by, or attributable to,
the negligent act or acts, or omission or omissions to act, of Tenant, or
caused by, or attributable to, the Tenant's failure to perform its
obligations under this Lease. Likewise, Landlord agrees to defend,
indemnify, and hold Tenant harmless from any loss, whatsoever, resulting
from personal injury, loss of life or property relating to the use of
Landlord and use and occupancy by other Tenants, or caused by, or
attributable to, the negligent act or acts, omission or omissions to act,
of Landlord, or caused by, or attributable to, Landlord's failure to
perform its obligations under this Lease.
c) Tenant's Insurance. Tenant agrees to insure the Leased Premises
for fire, casualty, and public liability. Tenant shall procure, keep in
force, and pay for such fire, casualty, and comprehensive public
liability insurance, in amounts reasonably required by Landlord, with
reputable, responsible, licensed companies, indemnifying Landlord and
Tenant against all claims and demands for injury to, or death of,
persons, or damage to property, which may be claimed to have occurred on
the Leased Premises. Certificates of the same, naming Landlord as
additional insured, shall be provided to the Landlord. Further, Tenant
shall insure all of Tenant's contents.
8. LANDLORD'S LIEN. In consideration of the mutual benefits arising under
this Lease, Tenant hereby grants to landlord a lien and security interest in
and on all property Tenant now, or hereafter, may place in or upon the
Premises, and the property shall be, and remain, subject to such lien and
security interest of Landlord for payment of all rental and other sums agreed
to be paid by Tenant. The lien and security interest shall be in addition to
and cumulative of the Landlord's liens existing or to exist under statute, in
law, or in equity, none of which are waived by Landlord. The provisions of
this paragraph relating to the lien and security interest shall constitute a
Security Agreement under the Uniform Commercial Code, so that Landlord shall
have, and may enforce, a security interest on all property of Tenant now, or
hereafter, placed in or on the Premises, including, but not limited to, all
fixtures, machinery, equipment, furnishings, and other articles of personal
property now, or hereafter, placed in or upon the Premises by Tenant. Landlord
may, at its election at any time, file a copy or memorandum of this Lease as
a financing statement. Landlord, as secured party, shall be entitled to all
rights and remedies afforded a secured party under the Uniform Commercial Code,
which rights and remedies shall be in addition to and cumulative of the
Landlord's liens and rights provided by law, or by the other terms and
provisions of this Lease.
9. ADDITIONS AND ALTERATIONS. Tenant shall not make any additions,
alterations or improvements to the Leased Premises without the prior written
consent of the Landlord. At Landlord's option, any and all additions,
alterations and improvements to the Leased Premises, including built-ins,
shall belong to the Landlord.
10. BREACH AND DEFAULT. This Lease may be deemed by landlord as being in
default if any of the following occur:
a) Tenant fails to make any payment of rent, or any other amount
due, and such failure continues for fifteen (15) days after the payment
due date;
b) Tenant fails to keep in force insurance as required by Paragraph
7(c) of the Lease and such failure continues for ten (10) days after
written notice to Tenant;
c) Tenant materially breaches any other covenant and the same shall
not have been cured within ten (10) days after notice thereof by Landlord;
d) Tenant files any voluntary petition in bankruptcy, or for
corporate reorganization, or any similar relief, or if any involuntary
petition in bankruptcy shall be filed against the Tenant;
e) A receiver is appointed for Tenant or Tenant's property by any
Court;
f) Tenant makes an assignment for benefit of creditors;
g) Tenant abandons or vacates the Leased Premises during the term
hereof;
h) Tenant fails to operate its business in material compliance with
all applicable laws;
i) Tenant transfers a portion, or all, of its assets to another
entity or individual without written notification and consent of the
Landlord.
11. LANDLORD'S REMEDIES. Upon the occurrence of any event of default by
Tenant, and the failure by Tenant to remedy such default within the time
permitted by Landlord, Tenant hereby grants the Landlord the following rights:
a) To change the locks, exclude Tenant from the Leased Premises,
re-enter Leased Premises and enforce security against Tenant's entry.
b) To relet Leased Premises and recover cost of alterations and
damages. Upon any reletting, Tenant shall be immediately liable to pay
to Landlord, without further demand or process of law, the cost and
expense of reletting, including, without limitation, any brokerage fees,
the cost of any alterations and repairs deemed necessary by Landlord to
effect reletting, and the full amount, if any, by which the rental
reserved in this Lease for the period of reletting (but not beyond the
Standard Commercial/Industrial Lease (net) (a705)6/98 /s/ DEC /s/ KAC
Copyright 1998 - Greater Tulsa Association of REALTORS(r)
All Rights Reserved Tenant Landlord
Page 3 of 4
terms of this Lease) exceeds the amount agreed to be paid as rent for the
Premises for the period of reletting. If Tenant has been credited with
any rent to be received by reletting and the rent shall not be promptly
paid to Landlord by the new tenant, Tenant shall immediately be liable to
pay the deficiency to Landlord. If the Landlord elects to terminate this
Lease, Landlord may recover from Tenant all damages Landlord may incur by
reason of Tenant's failure to pay rental, including the cost of recovering
the Premises, and including the excess of the rental reserved in this
Lease for the remainder of the stated term over the then reasonable rental
value of the Premises for the remainder of the term, all of which amount
shall be immediately due and payable by Tenant to Landlord. Landlord
shall be under no obligation to attempt to re-lease the Leased Premises
before it leases its other properties.
c) To remove, store, and dispose of Tenant's property. Any property
belonging to Tenant, or to any person holding by, through, or under
Tenant, or otherwise found upon the Premises at the time of re-entry or
termination by the Landlord, may be removed and stored in any warehouse,
at the cost of, and for the account of, Tenant, or, in Landlord's sole
discretion, deemed to be abandoned by Tenant and disposed of accordingly.
d) Additional Remedies. In the event of any breach or threatened
breach by Tenant of any covenants, agreements, terms, or conditions of
this Lease, Landlord shall be entitled to enjoin the breach or threatened
breach, and in addition to the rights and remedies provided hereunder,
shall have any other right or remedy allowed at law or equity, by
statute, or otherwise. The provisions of this Section shall be construed
consistent with the laws of the State of Oklahoma, so that remedies of
Landlord herein described shall be available to Landlord to the full
extent, but only to the extent that they are valid or enforceable under
the laws of the State of Oklahoma.
e) To Recover Attorney's Fees. If suit shall be brought for
recovery of possession of the Premises, for the recovery of rental, or
any other amount due under the provisions of this Lease, or because of the
breach of any other covenant herein contained on the part of either party
to be kept or performed, and a breach shall be established, the
non-prevailing party shall pay to the prevailing party all expenses
incurred, including a reasonable attorney's fee. The prevailing party
shall be determined by the Court which shall also approve the amount of
reimbursed expenses.
The foregoing rights and remedies given to Landlord are, and shall be,
deemed to be cumulative and the exercise of any of them shall not be deemed to
be an election excluding the exercise by the Landlord, at any time, of a
different or inconsistent remedy, and shall be deemed to be given to Landlord
in addition to any other right and further rights granted to the Landlord by
the terms hereof, or by law. The failure of Landlord at any time to exercise
any right or remedy herein granted or established by law shall not be deemed
to operate as a waiver of its right to exercise such right or remedy at any
other future time.
12. EFFECT AND SEVERABILITY. This Lease shall be executed in duplicate
originals and, when executed by both Landlord and Tenant, shall be binding upon
and inure to the benefit of Landlord and Tenant, their heirs, legal
epresentatives,successors, and assigns. This Lease sets forth the complete
understanding of Landlord and Tenant and supersedes all previous negotiations,
representations, and agreements between them and their agents. This Lease can
only be amended or modified by a written agreement signed by Landlord and
Tenant.
Should any clause or provision of this Agreement be adjudged, or otherwise
rendered, unenforceable, all provisions not so affected shall remain in full
force and effect. In the event of any transfer of title or interest of the
Leased Premises, the Landlord named herein shall be relieved of all liability
related to Landlord's obligations to be performed after such transfer.
Provided, however, that any funds in the hands of Landlord at the time of
such transfer shall be delivered to Landlord's Grantee. Landlord's obligations
hereunder shall be binding upon Landlord's successors and assigns only during
their respective periods of ownership.
13. EXHIBITS. Exhibits na through na are attached to, and by reference
made a part of, this Lease.
14 & 15 omitted.
16. SPECIAL CONDITIONS. __________________________
17. RECEIPT. By execution of this Lease, Landlord acknowledges receipt of
Prepaid Rent and Security Deposit.
18. SECURITY DEPOSIT. The Security Deposit set forth in paragraph 1(j) of
this Lease, if any, shall secure the performance of the Tenant's obligations
hereunder. Landlord may, but shall not be obligated to apply all or portions
of said deposit on account of Tenant's obligations hereunder. Any balance
remaining upon termination shall be returned to Tenant. Tenant shall not have
the right to apply the Security Deposit in payment of the last month's rent.
APPROVED AND AGREED TO BY TENANT: APPROVED AND AGREED TO BY LANDLORD:
This 15th day of September 1999, This 15th day of September 1999,
DRK ENTERPRISES, INC. d/b/a TULSAT CHYMIAK INVESTMENTS, L.L.C.
/s/ David E. Chymiak, President /s/ Kenneth A. Chymiak, Managing
Partner
ATTEST: /s/ Denise Thompson ATTEST: /s/ Denise Thompson
This day of This day of
By By
(Associate) (Associate)
Standard Commercial/Industrial Lease (net) (a705)6/98 /s/ DEC /s/ KAC
Copyright 1998 - Greater Tulsa Association of REALTORS(r)
All Rights Reserved Tenant Landlord
Page 4 of 4
</PAGE>
<PAGE>
EXHIBIT 10.2
Schedule of Documents
Substantially Similar to Exhibit 10.1
1. Lease Agreement between Chymiak Investments, Inc. and TULSAT Corporation
(formerly named DRK Enterprises, Inc.) dated September 1, 1999, covering the
building located at 708 South 11th Street, Broken Arrow, Oklahoma
2. Lease Agreement between Chymiak Investments, Inc. and TULSAT Corporation
(formerly named DRK Enterprises, Inc.) dated October 1, 1999, covering the
building located at 800 South 11th Street, Broken Arrow, Oklahoma
3. Lease Agreement between Chymiak Investments, Inc. and TULSAT Corporation
(formerly named DRK Enterprises, Inc.) dated August 1, 1999, covering the
building located at 704 South 11th Street, Broken Arrow, Oklahoma
4. Lease Agreement between Chymiak Investments, L.L.C. and TULSAT
Corporation (formerly named DRK Enterprises, Inc.) dated April 1, 1998,
covering the building located at 800 North 16th Street, Broken Arrow, Oklahoma
5. Lease Agreement between Chymiak Investments, L.L.C. and TULSAT
Corporation (formerly named DRK Enterprises, Inc.) dated April 1, 1998,
covering the building located at 808 North 16th Street, Broken Arrow, Oklahoma
6. Lease Agreement between Chymiak Investments, L.L.C. and TULSAT Corporation
(formerly named DRK Enterprises, Inc.) dated April 1, 1998, covering the
building located at 904 South 11th Street, Broken Arrow, Oklahoma
</PAGE>
<PAGE>
EXHIBIT 10.3
PROMISSORY NOTE
$271,093.54 November 22, 1999
FOR VALUE RECEIVED and intending to be legally bound, ADDvantage Media
Group, Inc., an Oklahoma corporation (hereinafter called "Maker"), promises
to pay to the order of Randy L. Weideman Deborah R. Weideman, as joint tenants
with right of survivorship (hereinafter called "Payee"), at Deshler, Nebraska,
or such other place as Payee may designate in writing, the principal sum of Two
Hundred Seventy-One Thousand Ninety-Three and 54/100 ($271,093.54) in lawful
money of the United States of America, together with interest on the
outstanding principal balance thereof at a rate per annum equal to eight percent
(8%) from date hereof until paid, subject to increase upon an event of default.
Except as provided in the Agreement and Plan of Merger dated November 22,
1999 (the "Merger Agreement") entered into by and among Maker, TULSAT
Corporation, Lee CATV Corporation, Diamond W Investments, Inc. and Payee, the
amounts due hereunder shall be paid in eight equal quarterly installments of
principal, together with interest thereon at the rate of 8% per annum from the
date hereof, on the 22nd day of January, April, July and October of each
calendar year, with the first payment being due on January 22, 2000, and with
the final installment being due and payable on the 22nd day of October, 2001
in the full amount of the then outstanding balance of principal and accrued but
unpaid interest due hereunder.
The occurrence of any of the following events shall constitute an event of
default:
(a) A default in the payment of the principal or interest on this
Note, when and as the same shall become due and payable, whether at
maturity, by acceleration or otherwise, and continuance of such default
for a period of ten days after receipt of notice from the Payee as to such
default.
(b) The entry of a decree or order by a court having jurisdiction
adjudging the Maker a bankrupt or insolvent, or approving a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Maker, under federal bankruptcy law, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law; or the commencement against Maker of a
proceeding under the federal bankruptcy law or any applicable federal or
state bankruptcy, insolvency or similar law and the continuance of any such
proceedings unstayed and in effect for a period of 90 days or more; or the
commencement by the Maker of a voluntary case under federal bankruptcy law,
as now or hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency, or other similar law, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or
relief under federal bankruptcy law or any other applicable federal or
state law, or the consent by it to the filing of such petition or to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator or
similar official of the Maker or of any substantial part of its property,
or the making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the Maker in
furtherance of any such action.
Upon the occurrence of an event of default under this Note, the entire
unpaid balance of the indebtedness evidenced by this Note shall, (a) at Payee's
option, become immediately due and payable, without presentment, demand,
protest, or notice of any kind (all of which are hereby waived by the Maker),
together with all costs and expense of collection, including reasonable
attorneys' fees, and (b) bear interest at a rate equal to the lesser of the
highest rate allowed by law or sixteen percent (16%) per annum until paid in
full. Payee shall be entitled to avail himself of all available rights and
remedies at law or in equity. The remedies of Payee shall be cumulative and
concurrent, and may be pursued singularly, successively, or together against
Maker at the sole discretion of Payee, and the failure to exercise any such
right or remedy shall in no event be construed as a waiver or release of the
same.
Amounts due and payable hereunder may be offset or deferred as provided in
Article XII of the Merger Agreement.
Maker and any guarantors hereby waive presentment for payment, demand
(except as specifically provided for hereunder), notice of dishonor, protest,
notice of protest, and all other notices in connection with delivery,
acceptance, performance or default of the payment of this Note, and hereby
consent to any and all extensions of time, renewals, waivers or modifications
that may be granted by Payee with respect to the payment or other provisions
of this Note.
Payee shall not by any act of omission or commission be deemed to waive
any of his rights or remedies hereunder, unless such waiver be in writing and
signed by Payee, and then only to the extent specifically set forth therein;
and a waiver of one event shall not be construed as a continuing waiver or
as a bar to or waiver of such right or remedy with respect to a subsequent
event.
This Note may be prepaid at any time, in whole or in part, without penalty
or premium.
The words "Payee" and "Maker" whenever occurring herein shall be deemed
and construed to include the respective heirs, personal representatives,
successors and assigns (specifically including any subsequent holder hereof) of
Payee and Maker.
IN WITNESS WHEREOF, Maker has caused this Note to be duly executed as of
the day and year first above written.
ADDVANTAGE MEDIA GROUP, INC.
By: /s/ David E. Chymiak
David E. Chymiak, President
-2-
</PAGE>
<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 10-KSB Annual Report of ADDvantage Media Group,
Inc. as of September 30, 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 29, 1999
<TABLE> <S> <C>
<S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB
YEAR ENDED DEC. 31, 1999 AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 16,843
<SECURITIES> 0
<RECEIVABLES> 2,883,679
<ALLOWANCES> 0
<INVENTORY> 12,089,769
<CURRENT-ASSETS> 124,223
<PP&E> 950,753
<DEPRECIATION> 595,321
<TOTAL-ASSETS> 17,588,033
<CURRENT-LIABILITIES> 5,703,150
<BONDS> 0
0
20,000,000
<COMMON> 97,124
<OTHER-SE> (8,212,241)
<TOTAL-LIABILITY-AND-EQUITY> 17,588,033
<SALES> 15,325,448
<TOTAL-REVENUES> 15,325,448
<CGS> 8,050,308
<TOTAL-COSTS> 8,050,308
<OTHER-EXPENSES> (4,482)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 283,549
<INCOME-PRETAX> 4,331,201
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,331,201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,331,201
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
