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 March 31, 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 May 1, 2001 is 9,990,616.
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
March 31, 2001 3
Consolidated Statements of Income
Three and Six Months Ended March 31, 2001 and 2000 5
Consolidated Statements of Cash Flows
Three and Six Months Ended March 31, 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 4. Submission of Matter to a Vote of Security Holders 13
Item 6. Exhibits and Reports on 8-K 13
Signatures 14
2
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEET
March 31, 2001
Assets
Current assets:
Cash $ 361,168
Accounts receivable 2,494,579
Inventories 16,108,930
Deferred income taxes 43,000
---------------
Total current assets 19,007,677
Property and equipment, at cost
Machinery and equipment 1,714,451
Leasehold improvements 168,724
Other property and equipment 26,412
---------------
1,909,587
Less accumulated depreciation and amortization (740,450)
---------------
Net property and equipment 1,169,137
Other assets:
Deferred income taxes 1,010,188
Investment 11,672
Goodwill, net of accumulated amortization of $185,633 1,523,287
Other assets 77,380
---------------
Total other assets 2,622,527
---------------
Total assets $ 22,799,341
===============
See notes to consolidated financial statements
3
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEET
March 31, 2001
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 845,441
Accrued expenses 118,198
Accrued income taxes 116,502
Bank revolving line of credit 3,526,002
Note payable - current portion 217,386
Dividends payable 310,000
Stockholder loans 1,250,000
---------------
Total current liabilities 6,383,529
Note Payable 433,333
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; 10,011,716 shares issued 100,117
Common stockholders' deficit (4,063,474)
---------------
16,036,643
Less: Treasury stock, 21,100 shares at cost (54,164)
---------------
Total stockholders' equity 15,982,479
---------------
Total liabilities and stockholders' equity $ 22,799,341
===============
See notes to consolidated financial statements
4
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF INCOME
Three months ended Six months ended
March 31 March 31
2001 2000 2001 2000
--------------------------- ---------------------------
Net sales and service income $ 4,754,311 $ 6,747,529 $ 9,570,993 $ 11,283,700
Cost of sales 2,379,304 3,274,865 4,826,568 5,375,870
--------------------------- ---------------------------
Gross profit 2,375,007 3,472,664 4,744,425 5,907,830
Operating expenses 1,317,320 1,357,547 2,480,856 2,485,005
--------------------------- ---------------------------
Income from operations 1,057,687 2,115,117 2,263,569 3,422,825
Interest expense (82,746) (104,529) (170,665) (178,713)
--------------------------- ---------------------------
Income before income taxes 974,941 2,010,588 2,092,904 3,244,112
Provision for income taxes 384,055 764,113 806,728 1,192,312
--------------------------- ---------------------------
Net income 590,886 1,246,475 1,286,176 2,051,800
Preferred Dividends 310,000 310,000 620,000 620,000
--------------------------- ---------------------------
Net income attributable to common
stockholders $ 280,886 $ 936,475 $ 666,176 $ 1,431,800
Earnings per Share:
Basic $ 0.03 $ 0.10 $ 0.07 $ 0.15
Diluted $ 0.03 $ 0.09 $ 0.07 $ 0.15
See notes to consolidated financial statements
5
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED MARCH 31,
2001 2000
----------------------------
Cash Flows from Operating Activities
Net income $ 1,286,176 $ 2,051,800
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 122,577 90,590
Provision for deferred income taxes 89,813 89,812
Change in:
Receivables 1,384,150 72,786
Prepaid and other expense (11,122) 211,842
Inventories (978,440) (1,933,950)
Accounts payable and accrued liabilities (500,354) 258,159
----------------------------
Net cash provided by operating activities 1,392,800 841,039
Cash Flows from Investing Activities
Additions to property and equipment (67,776) (190,818)
Proceeds from sale of investment in Ventures 657,572 -
Acquisition of stock in NCS (1,439,000) -
Cash acquired in NCS Acquisition 575,958 -
Cash acquired in LEE CATV merger - 90,047
----------------------------
Net cash provided by investing activities (273,246) (100,771)
----------------------------
Cash Flows from Financing Activities
Net borrowings (repayments) under line of credit 139,119 (504,926)
Advances (payment) on stockholders loan (300,000) 74,993
Payments of Preferred Dividends (620,000) (310,000)
Proceeds for exercise of common stock options - 7,437
----------------------------
Net cash used in financing activities (780,881) (732,496)
----------------------------
Net increase in cash 338,673 7,772
Cash, beginning of year 22,495 16,843
----------------------------
Cash, end of year $ 361,168 $ 24,615
============================
See notes to consolidated financial statements
6
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED MARCH 31,
2001 2000
----------------------------
Supplemental Cash Flow Information
Interest paid for the period $ 170,665 $ 174,024
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
Acquisition of NCS, Inc:
Working capital other than cash 957,192 -
Land and equipment 250,000 -
Intangibles and other assets 243,050 -
Assumption of note payable 289,000 -
Issuance of note payable 249,000 -
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, and NCS Industries Inc. ("NCS") (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 Six months Six months
ended ended ended ended
March 31, March 31, March 31, March 31,
2001 2000 2001 2000
------------------------- -----------------------
Net Income attributable to common stockholders $280,886 $936,475 $666,176 $1,431,800
Basic EPS Computation:
Weighted average outstanding common shares 10,011,716 9,772,448 10,011,716 9,746,647
Earnings per Share $0.03 $0.10 $0.07 $0.15
Diluted EPS Computation:
Weighted average outstanding common shares 10,011,716 9,999,206 10,011,716 9,999,206
Earnings per Share $0.03 $0.09 $0.07 $0.14
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.
Following are the unaudited pro-forma results of operations for the three and
six month periods ended March 31, 2001, assuming the acquisition occurred at
the beginning of the period.
Unaudited
------------------------------------------------------
Three months Three months Six months Six months
ended ended ended ended
March 31, March 31, March 31, March 31,
2001 2000 2001 2000
------------------------------------------------------
Net Sales and Service Income $ 5,569,311 $ 8,206,529 $ 11,424,993 $ 13,781,700
Net Income $ 581,886 $ 1,391,475 $ 1,281,176 $ 2,238,800
Net Income attributable to common stock $ 271,886 $ 1,081,475 $ 661,176 $ 1,618,800
Weighted average outstanding common shares 10,011,716 9,772,448 10,011,716 9,772,448
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, 2001. The Company is authorized to borrow up to
$12,000,000 at the borrowing rate of 1 1/4% below prime (6.75% at March 31,
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 March 31, 2001 is $3,526,002.
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 March 2, 2001, the Company entered into a Purchase and Sale Agreement with
Richard S. Grasso (the "Shareholder") and NCS Industries, Inc., a Pennsylvania
corporation ("NCS"), to purchase from the Shareholder all of the issued and
outstanding common stock of NCS. The consideration for the acquisition 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, and (iii) the assumption of Shareholder's obligation under a
promissory note issued to a prior owner of NCS. As contemplated by the Purchase
and Sale Agreement, the Shareholder entered into a three-year consulting
agreement with NCS and a non-competition agreement with the Company and NCS.
As a result of this transaction, NCS became a wholly owned subsidiary of the
Company.
Results of Operations
Comparison of Results of Operations for the Three Months Ended March 31, 2001
and March 3l, 2000
Gross profits decreased $1,097,656 or 31.6% in the second quarter of the fiscal
year 2001, as compared to 2000. This decrease was primarily due to a reduction
in refurbished equipment sales resulting from the overall cable industry
slowdown.
Net Sales and service income. Net Sales decreased $1,993,218 or 29.5%, to
$4,754,311 in the second quarter of fiscal 2001 from $6,747,529 for the same
period in fiscal 2000. The decrease was primarily due to lower refurbished
equipment sales, which decreased 39.2% for the quarter, partially offset by an
increase in new products sales, which increased 22.7%. Sales were affected by
an overall cable industry slowdown that occurred during the quarter.
Cost of Sales. Cost of goods sold decreased to $2,379,304 for the second
quarter of fiscal 2001 from $3,274,865 for the same period of fiscal 2000. The
decrease was primarily due to a reduction in overall sales.
Operating Expenses. Operating expenses decreased to $1,317,320 in the second
quarter of fiscal 2001 from $1,357,547 in the second quarter of 2000. The
decrease in operating expenses was primarily due to a reduction in legal and
accounting fees.
Income from Operations. Income from operations decreased 49.9% to $1,057,687
for the second quarter of 2001 from $2,115,117 for the second quarter of 2000.
This decrease was primarily due to a slowdown in the economy which impacted the
overall cable industry.
10
Comparison of Results of Operations for the Six Months Ended March 31, 2001 and
March 3l, 2000
Gross profits decreased $1,320,498 or 21.8% in the first six months of the
fiscal year 2001, as compared to 2000. This decrease was primarily due to a
reduction in refurbished equipment sales resulting from the overall cable
industry slowdown.
Net Sales and service income. Net Sales decreased $1,715,225 or 15.2%, to
$9,570,993 in the first six months of fiscal year 2001 from $11,286,218 for the
same period in 2000. The decrease was primarily due to lower refurbished
equipment sales, which decreased 26.1% for the six month period offset by
increases in new product sales of 33.8% and repair services of 21.6%. Sales
were affected by an overall cable industry slowdown that occurred during the
first six months of fiscal year 2001.
Cost of Sales. Cost of goods sold decreased to $4,826,568 for the six month
period of fiscal 2001 from $5,221,294 for the same period of 2000. The decrease
was primarily due to a reduction in overall sales.
Operating Expenses. Operating expenses decreased to $2,480,856 for the first
six months of fiscal 2001 from $2,588,535 for the prior year. The decrease in
operating expenses was primarily due to a reduction in legal and accounting
fees.
Income from Operations. Income from operations decreased 34.9% to $2,263,569
for the first six months of 2001 from $3,476,389 for the same period last year.
This decrease was primarily due to a slowdown in the economy which impacted the
overall cable industry.
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 (6.75% at March 31, 2000). 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 March 31, 2001, the revolving line of credit consisted of a
$3,526,002 balance outstanding due June 30, 2001, with interest payable monthly
at Chase Manhattan Prime less 1.25% (6.75% at March 31, 2001). The company also
owes a $101,719 balance remaining on a note resulting from the Diamond W
Investments, Inc. purchase, payable quarterly at 8% to the former owners and
$200,000 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 4. Submission of Matter to a Vote of Security Holders
The annual meeting of shareholders of the Company was held in Broken Arrow,
Oklahoma at the Forrest Ridge Golf Club on March 6, 2001. At the meeting, the
following directors were elected for one year terms (with the votes as
indicated):
FOR WITHHELD
Kenneth A. Chymiak 9,638,100 200
David E. Chymiak 9,638,100 200
Stephen J. Tyde 9,638,100 2,200
Freddie H. Gibson 9,638,100 200
Gary W. Young 9,638,100 2,200
Randy L. Weideman 9,635,300 2,300
The shareholders also approved the ratification of appointment of Tullius,
Taylor, Sartain & Sartain as the Company's auditors for the 2001 fiscal year by
a vote of 9,610,070 shares in favor and 2,275 against, with 25,755 shares
abstaining.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 The Sale and Purchase Agreement, dated as of March 2, 2001, by
and among ADDvantage Technologies Group, Inc., NCS Industries,
Inc. and Richard S. Grasso incorporated by reference to Exhibit
2.1 to the Current Report on Form 8-K filed with the Securities
and Exchange Commission by the Company on March 16, 2001.
(b) Reports on Form 8-K
The Company filed one Form 8-K during the three months ended
March 31, 2001. The report dated March 2, 2001 related to the
purchase of NCS Industries, Inc.
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.
ADDVANTAGE TECHNOLOGIES GROUP, INC.
Signature Title Date
--------- ----- ----
/S/ Kenneth A. Chymiak Director and President May 14, 2001
---------------------- (Principal Executive Officer)
Kenneth A. Chymiak
/S/ Adam R. Havig Controller May 14, 2001
---------------------- (Principal Accounting Officer)
Adam R. Havig
14