UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the transition period ________________ to ______________
Commission File number 1-10799
ADDvantage Technologies Group, Inc.
(Exact name of small business issuer as specified in its charter)
OKLAHOMA 73-1351610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1605 E. Iola
Broken Arrow, Oklahoma 74012
(Address of principal executive office) (Zip Code)
(918) 251-9121
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x
No
Shares outstanding of the issuer's $.01 par value common stock as
of August 1, 2001 is 10,048,738.
Transitional Small Business Issuer Disclosure Format (Check one):
Yes No x
Part I - Financial Information Page
----
Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheet
June 30, 2001 3
Consolidated Statements of Income
Three and Nine Months Ended June 30, 2001 and 2000 5
Consolidated Statements of Cash Flows
Three and Nine Months Ended June 30, 2001 and 2000 6
Notes to Consolidated Financial Statements 8
Item 2.
Management's Discussion and Analysis of the Financial
Condition and Results of Operation 10
Part II - Other Information
Item 6. Exhibits and Reports on 8-K 13
Signatures 14
2
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEET
June 30, 2001
Assets
Current assets:
Cash $ 407,877
Accounts receivable 2,698,938
Inventories 18,223,449
Deferred income taxes 43,000
--------------
Total current assets 21,373,264
Property and equipment, at cost
Machinery and equipment 2,048,075
Leasehold improvements 177,500
Other property and equipment 26,412
--------------
2,251,987
Less accumulated depreciation and amortization (788,093)
--------------
Net property and equipment 1,463,894
Other assets:
Deferred income taxes 965,281
Investment 11,675
Goodwill, net of accumulated amortization of $202,069 1,525,760
Other assets 71,435
--------------
Total other assets 2,574,151
--------------
Total assets $ 25,411,309
==============
See notes to consolidated financial statements
3
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEET
June 30, 2001
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,052,432
Accrued expenses 205,492
Accrued income taxes 377,944
Bank revolving line of credit 3,894,094
Note payable - current portion 167,844
Dividends payable 310,000
Stockholder loans 1,250,000
--------------
Total current liabilities 8,257,806
Note Payable 378,666
Stockholders' equity:
Preferred stock, 5,000,000 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; 30,000,000
shares authorized; 10,048,738 shares issued 100,488
Common stockholders' deficit (3,271,487)
--------------
16,829,001
Less: Treasury stock, 21,100 shares at cost (54,164)
--------------
Total stockholders' equity 16,774,837
--------------
Total liabilities and stockholders' equity $ 25,411,309
==============
See notes to consolidated financial statements
4
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF INCOME
Three months ended Nine months ended
June 30 June 30
2001 2000 2001 2000
--------------------------- ------------------------------
Net sales and service income $ 7,551,120 $ 5,330,956 $ 17,122,114 $ 16,614,656
Cost of sales 3,870,713 2,468,279 8,697,281 7,844,149
--------------------------- ------------------------------
Gross profit 3,680,407 2,862,677 8,424,833 8,770,507
Operating expenses 1,895,669 1,328,774 4,376,525 3,813,779
--------------------------- ------------------------------
Income from operations 1,784,738 1,533,903 4,048,308 4,956,728
Interest expense (83,428) (101,225) (254,093) (279,938)
--------------------------- ------------------------------
Income before income taxes 1,701,310 1,432,678 3,794,215 4,676,790
Provision for income taxes 646,950 543,189 1,453,678 1,735,501
--------------------------- ------------------------------
Net income 1,054,360 889,489 2,340,537 2,941,289
Preferred Dividends 310,000 310,000 930,000 930,000
--------------------------- ------------------------------
Net income attributable to common
stockholders $ 744,360 $ 579,489 $ 1,410,537 $ 2,011,289
=========================== ==============================
Basic and Diluted Earnings per share $ 0.07 $ 0.06 $ 0.14 $ 0.21
See notes to consolidated financial statements
5
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED JUNE 30,
2001 2000
------------------------------
Cash Flows from Operating Activities
Net income $ 2,340,537 $ 2,941,289
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 204,778 143,664
Provision for deferred income taxes 134,719 134,718
Change in:
Receivables 1,415,330 404,320
Prepaid and other expense (3,047) 202,543
Inventories ( 2,821,511) ( 2,753,763)
Accounts payable and accrued liabilities 657,353 204,111
------------------------------
Net cash provided by operating activities 1,928,159 1,276,882
Cash Flows from Investing Activities
Additions to property and equipment (213,295) (164,919)
Proceeds from sale of investment in Ventures 657,572 -
Acquisition of stock in NCS (1,689,000) -
Cash acquired in NCS Acquisition 575,958 -
Cash acquired in Comtech Acquisition 22,773 -
Cash acquired in LEE CATV merger - 90,047
------------------------------
Net cash provided by investing activities (645,992) (74,872)
------------------------------
Cash Flows from Financing Activities
Net borrowings (repayments) under line of credit 333,215 (573,303)
Advances (payment) on stockholders loan (300,000) 74,993
Payments of Preferred Dividends (930,000) (620,000)
Proceeds for exercise of common stock options - 7,437
------------------------------
Net cash used in financing activities (896,785) (1,110,873)
------------------------------
Net increase in cash 385,382 91,137
Cash, beginning of period 22,495 16,843
------------------------------
Cash, end of period $ 407,877 $ 107,980
==============================
See notes to consolidated financial statements
6
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED JUNE 30,
2001 2000
------------------------------
Supplemental Cash Flow Information
Interest paid for the period $ 254,093 $ 273,745
Supplemental Disclosure of Non-cash
Investing and Financing Activities
Acquisition of Lee CATV Corporation:
Issuance of preferred stock - 1,000,000
Working capital other than cash - 241,017
Land and equipment - 116,694
Intangibles and other assets - 1,276,229
Assumption of note payable - 723,987
Issuance of note payable - 271,094
See notes to consolidated financial statements
7
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and do not include all information and footnotes required
by generally accepted accounting principles for complete financial statements.
However, the information furnished reflects all adjustments, consisting only of
normal recurring adjustments which are, in the opinion of management, necessary
in order to make the financial statements not misleading.
Note 2 - Description of Business
ADDvantage Technologies Group, Inc., through its subsidiaries TULSAT
Corporation, Lee Enterprise, NCS Industries Inc. ("NCS") and Fero-Midwest Inc.
("Comtech Services") (collectively, the "Company"), sells new, surplus, and
refurbished cable television equipment throughout North America in addition to
being a repair center for various cable companies. The Company operates in one
business segment.
Note 3 - Earnings per Share
Three months Three months Nine months Nine months
ended ended ended ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
------------------------------------------------------------
Net Income attributable to common stockholders $ 744,360 $ 579,489 $ 1,410,537 $ 2,011,289
Basic and Diluted EPS Computation:
Weighted average outstanding common shares 10,002,957 9,772,448 9,994,730 9,746,647
Earnings per Share $0.07 $0.06 $0.14 $0.21
Note 4 - Acquistions and other events
On March 2, 2001, the Company entered into a Purchase and Sale Agreement with
Richard S. Grasso (the "Shareholder") and NCS, a Pennsylvania corporation, to
purchase from the Shareholder all of the issued and outstanding common stock
of NCS. The consideration for the acquisition of $1,988,000 was negotiated
between the parties at arm's length and included: (i) $800,000 in cash, (ii) a
promissory note payable to the Shareholder in the amount of $200,000, (iii) the
assumption of Shareholder's obligation of $639,000 under a promissory note
issued to a prior owner of NCS and (iv) $49,000 remaining in a payable to the
shareholder. As contemplated by the Purchase and Sale Agreement, the
Shareholder entered into a three-year consulting agreement with NCS for $300,000
8
and the Shareholder also entered into a non-competition agreement with the
Company and NCS. The Company financed the purchase price through borrowings
under its line of credit agreement with Bank of Oklahoma. Immediately after
closing, $639,000 was paid for the assumption of the Shareholder's obligation.
As a result of this transaction, NCS became a wholly owned subsidiary of the
Company.
NCS was established in 1973 as a full service repair and sales center, selling
new and refurbished cable equipment and has been a leading distributor of
telecommunication equipment and a solutions provider to cable operators and
other related businesses since the market's infancy. The principal place of
business of NCS is located in Willow Grove, Pennsylvania.
On May 31, 2001, the Company entered into a Purchase and Sale Agreement with
Nick Ferolito and Russell Brown (the "Shareholders") and Fero-Midwest dba
Comtech Services, a Missouri corporation ("Comtech"), to purchase from the
Shareholders all of the issued and outstanding common stock of Comtech. The
consideration for the acquisition was negotiated between the parties at arm's
length for $250,000 in cash and assumption of certain liabilities as stated in
the agreement. As a result of this transaction, Comtech became a wholly owned
subsidiary of the Company.
Note 5 - Investment in Ventures Education System Corporation
On November 1, 2000, Ventures Education System Corporation exercised its option
to repurchase 733,333 shares (after giving effect to a recent four for three
stock split) of Ventures stock acquired by the company in September 1998. The
exercise price consisted of $660,000 ($640,000 cash plus deposits received of
$20,000) and common stock warrants to purchase 50,000 shares at $.90 per share.
The warrants expire on January 31, 2004 or one year after a public offering,
whichever first occurs.
Note 6 - Revolving Line of Credit
On November 4, 2000, the Bank of Oklahoma amended the Company's line of credit,
which is due June 30, 2002. The Company is authorized to borrow up to
$12,000,000 at the borrowing rate of 1 1/4% below prime (5.50% at June 30,
2001). This line of credit will provide the lesser of $6,000,000 or the sum of
80% of qualified accounts receivable and 40% of qualified inventory in a
revolving Line of Credit for working capital purposes ($4,000,000 available at
March 31, 2001), $4,000,000 for future acquisitions meeting Bank of Oklahoma
credit guidelines and $2,000,000 to be used at the Company's discretion based
on assets purchased. The line of credit is collateralized by inventory,
accounts receivable, equipment and fixtures, and general intangibles.
The balance outstanding at June 30, 2001 is $3,894,094.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company specializes in the refurbishment of previously owned cable
television ("CATV") equipment and the distribution of new and surplus equipment
to CATV operators and other broadband communication companies.
On May 31, 2001, the Company entered into a Purchase and Sale Agreement with
Nick Ferolito and Russell Brown (the "Shareholders") and Fero-Midwest dba
Comtech Services, a Missouri corporation ("Comtech"), to purchase from the
Shareholders all of the issued and outstanding common stock of Comtech. The
consideration for the acquisition was negotiated between the parties at arm's
length for $250,000 in cash and assumption of certain liabilities as stated in
the agreement. As a result of this transaction, Comtech became a wholly owned
subsidiary of the Company.
Results of Operations
Comparison of Results of Operations for the Three Months Ended June 30, 2001 and
June 30, 2000
Gross profits increased $817,730 or 28.6% in the third quarter of the fiscal
year 2001, as compared to 2000. This increase was primarily due to a high
volume of new equipment sales sold at lower margins and repair services
coupled with the acquisitions of NCS and Comtech.
Net Sales and service income. Net Sales soared $2,220,164 or 41.6%, to
$7,551,120 in the third quarter of fiscal 2001 from $5,330,956 for the same
period in fiscal 2000. The increase was primarily due to broadband companies
looking for ways to reduce overall subscriber costs by utilizing our diverse
inventory and repairing existing equipment. NCS and Comtech had combined sales
of $1,355,141 for the quarter.
Cost of Sales. Cost of goods sold increased to $3,870,713 for the third quarter
of fiscal 2001 from $2,468,279 for the same period of fiscal 2000. The increase
was primarily due to a higher costs associated with new equipment sales.
Operating Expenses. Operating expenses increased to $1,895,669 in the third
quarter of fiscal 2001 from $1,328,774 in the third quarter of 2000. The
increase in operating expenses was primarily due to the acquisitions of NCS and
Comtech.
Income from Operations. Income from operations increased 16.4% to $1,784,738
for the third quarter of 2001 from $1,533,903 for the third quarter of 2000.
This increase was primarily due to overall revenue increase offset by higher
operating expenses resulting from the recent acquisitions.
10
Comparison of Results of Operations for the Nine Months Ended June 30, 2001 and
June 30, 2000
Gross profits decreased $345,674 or 3.9% in the first nine months of the fiscal
year 2001, as compared to 2000. This decrease was primarily due to a high
volume of new equipment sales sold at lower margins and lower remanufactured
equipment sales, coupled with the acquisitions of NCS and Comtech.
Net Sales and service income. Net Sales increased $507,458 or 3.1%, to
$17,122,114 in the first nine months of fiscal year 2001 from $16,614,656 for
the same period in 2000. The increase was primarily due to higher new equipment
sales and repair services offset by lower remanufactured sales. Sales were
affected by an overall cable industry slowdown that occurred during fiscal year
2001.
Cost of Sales. Cost of goods sold increased to $8,697,281 for the nine month
period of fiscal 2001 from $7,844,149 for the same period of 2000. The increase
was primarily due to a higher costs associated with new equipment sales.
Operating Expenses. Operating expenses increased to $4,376,525 for the first
nine months of fiscal 2001 from $3,813,779 for the prior year. The increase
in operating expenses was primarily due to higher costs associated with the
recent acquisitions.
Income from Operations. Income from operations decreased 18.3% to $4,048,308
for the first nine months of 2001 from $4,956,728 for the same period last year.
This decrease was primarily due to higher percentage of new equipment sales,
which are sold at lower margins, coupled with the increase in operating costs
associated with the recent acquisitions.
Liquidity and Capital Resources
On November 4, 2000, the Bank of Oklahoma increased the Company's line of credit
under which it is authorized to borrow up to $12,000,000 and reduced the
borrowing rate to 1 1/4% below prime (5.5% at June 30, 2001). This line of
credit will provide the lesser of $6,000,000 or the sum of 80% of qualified
accounts receivable and 40% of qualified inventory in a revolving line of credit
for working capital purposes, $4,000,000 for future acquisitions meeting Bank
of Oklahoma credit guidelines and $2,000,000 to be used at the Company's
discretion based on assets purchased. The line of credit is collateralized
by inventory, accounts receivable, equipment and fixtures, and general
intangibles.
The Company finances its operations primarily through internally generated funds
and a bank line of credit totaling $6,000,000 reserved for working capital
purposes. At June 30, 2001, the revolving line of credit consisted of a
$3,894,094 balance outstanding due June 30, 2002, with interest payable monthly
at Chase Manhattan Prime less 1.25% (5.5% at June 30, 2001). The company also
owes a $67,844 balance remaining on a note resulting from the Diamond W
Investments, Inc. purchase, payable quarterly at 8% to the former owners and
$178,666 on a note resulting from the NCS purchase, payable quarterly at 7% to
the former owner.
Stockholder loans include a $1,250,000 note bearing interest the same rate as
the Company's bank line of credit, and is subordinate to the bank notes payable.
11
The Company has authorized the repurchase of up to $l,000,000 of its
outstanding common stock from time to time in the open market at prevailing
market prices or in privately negotiated transactions. The repurchased shares
will be held in treasury and used for general corporate purposes including
possible use in the company's employees stock plans or for acquisitions.
Forward Looking Statements
Certain statements included in this report which are not historical facts are
forward-looking statements. These forward-looking statements are based on
current expectations, estimates, assumptions and beliefs of management; and
words such as "expects," "anticipates," "intends," "plans," "believes,"
"projects", "estimates" and similar expressions are intended to identify such
forward looking statements. These forward-looking statements involve risks and
uncertainties, including, but not limited to, the future prospects for the
business of the Company, the Company's ability to generate or to raise
sufficient capital to allow it to make additional business acquisitions, changes
or developments in the cable television business that could adversely affect the
business or operations of the Company, general economic conditions, the
availability of new and used equipment and other inventory and the Company's
ability to fund the costs thereof, and other factors which may affect the
Company's ability to comply with future obligations. Accordingly, actual results
may differ materially from those expressed in the forward-looking statements.
12
PART II-OTHER INFORMATION
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Reports on Form 8-K
None.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Signature Title Date
--------- ----- ----
/S/ Kenneth A. Chymiak Director and President August 14, 2001
---------------------- (Principal Executive Officer)
Kenneth A. Chymiak
/S/ Adam R. Havig Controller August 14, 2001
---------------------- (Principal Accounting Officer)
Adam R. Havig
14