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 December 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period ________________ to ______________
Commission File number 1-10799
ADDvantage Technologies Group, Inc.
(Exact na,me 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 February 1,
2001 is 9,990,616.
Transitional Small Business Issuer Disclosure Format (Check one): Yes No x
Part I - Financial Information Page
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Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheet
December 31, 200 3
Consolidated Statements of Income
Three Ended December 31, 2000 5
Consolidated Statements of Cash Flows
Three Months Ended December 31, 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 Form 8-K 12
Signatures 13
2
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEET
December 31, 2000
Assets
Current assets:
Cash $ 117,798
Accounts receivable 2,793,515
Inventories 15,415,672
Deferred income taxes 43,000
--------------
Total current assets 18,369,985
Property and equipment, at cost
Machinery and equipment 1,173,682
Leasehold improvements 167,629
Other property and equipment 26,412
--------------
1,367,723
Less accumulated depreciation and amortization (710,808)
--------------
Net property and equipment 656,915
Other assets:
Deferred income taxes 1,055,094
Investment 29,243
Goodwill, net of accumulated amortization of $150,727 1,324,993
Other assets 55,658
--------------
Total other assets 2,464,988
--------------
Total assets $ 21,491,888
==============
See notes to consolidated financial statements
3
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEET
December 31, 2000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,557,079
Accrued expenses 18,663
Accrued income taxes 384,093
Bank revolving line of credit 2,140,604
Note payable - current portion 135,594
Dividends payable 310,000
Stockholder loans 1,250,000
--------------
Total current liabilities 5,796,033
Note Payable -
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 (4,350,098)
--------------
15,750,019
Less: Treasury stock, 21,100 shares at cost (54,164)
--------------
Total stockholders' equity 15,695,855
--------------
Total liabilities and stockholders' equity $ 21,491,888
==============
See notes to consolidated financial statements
4
ADDVANTAGE TECHNOLOGIES GROUP, INC
STATEMENTS OF INCOME
FOR THREE MONTHS ENDED DECEMBER 31,
2000 1999
(unaudited) (unaudited)
---------------------------
Net sales and service income $ 4,816,682 $ 4,536,171
Cost of sales 2,447,264 2,101,005
---------------------------
Gross profit 2,369,418 2,435,166
Operating expenses 1,163,536 1,127,458
---------------------------
Income from operations 1,205,882 1,307,708
Interest expense (87,918) (74,184)
---------------------------
Income before income taxes 1,117,964 1,233,524
Provision for income taxes 422,673 428,199
---------------------------
Net income 695,291 805,325
Preferred Dividends 310,000 310,000
---------------------------
Net income attributable to common
stockholders 385,291 495,325
===========================
Earnings per Share:
Basic and Diluted $ 0.04 $ 0.05
See notes to consolidated financial statements
5
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED DECEMBER 31,
2000 1999
--------------- --------------
Cash Flows from Operating Activities
Net income $ 385,291 $ 495,325
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 60,150 139,539
Provision for deferred income taxes 44,906 -
Change in:
Receivables 678,023 (242,896)
Prepaid and other expense 749 (4,657)
Inventories (835,182) (310,721)
Accounts payable and accrued liabilities 977,541 368,781
--------------- --------------
Net cash provided by operating activities 1,311,478 445,371
--------------- --------------
Cash Flows from Investing Activities
Additions to property and equipment (33,771) -
Proceeds from sale of investment in Ventures 640,000 -
Cash acquired in LEE CATV merger - 90,047
--------------- --------------
Net cash provided by investing activities 606,229 90,047
--------------- --------------
Cash Flows from Financing Activities
Net borrowings (repayments) under line of credit (1,212,404) -
Payment on stockholders loan (300,000) -
Payments of Preferred Dividends (310,000) -
--------------- --------------
Net cash used in financing activities (1,822,404) -
--------------- --------------
Net increase in cash 95,303 535,418
Cash, beginning of year 22,495 16,843
--------------- --------------
Cash, end of year $ 117,798 $ 552,261
=============== ==============
See notes to consolidated financial statements
6
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED DECEMBER 31,
2000 1999
--------------- --------------
Supplemental Cash Flow Information
Interest paid for the period $ 87,918 67,554
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
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, through its subsidiaries TULSAT Corporation and
Lee Enterprise, sells new, surplus, and refurbished cable television
equipment throughout North America in addition to being a repair center
for various cable companies. ADDvantage operates in one business segment.
Note 3 - Earnings per Share
Three Months ended
December 31
2000 1999
----------------------
Net income attributable to common stock $385,291 $495,325
Basic and Diluted EPS Computation:
Weighted average outstanding common stock 9,990,616 9,719,429
Earnings per Share $0.04 $0.05
Stock options, warrants and the conversion of Series A Preferred Stock were
not included in the computation of diluted EPS as their effect is
anti-dilutive.
Note 4 - 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 (8.25%
at December 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 available at December 31, 2000), $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,
8
equipment and fixtures, and general intangibles. The balance outstanding
at December 31, 2000 is $2,140,604.
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
ADDvantage Technologies, through its subsidiaries TULSAT Corporation and Lee
Enterprise, 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.
Results of Operations
Comparison of Results of Operations for the Three Months Ended December 3l, 2000
and December 3l, l999
Gross profits increased $56,717 or 2.3% in the first quarter of the fiscal
year 2001, as compared to 2000. This increase was primarily due to an
increase in repair services offset by a reduction in sales of products with
higher profit margins.
Net Sales. Net Sales increased $280,511 or 6.2%, to $4,816,682 in the first
quarter of fiscal 2001 from $4,536,171 for the same period in fiscal 2000.
The increase was primarily due to repair services, which rose more than 71.5%
for the quarter and new products, which increased 46.9%. Sales were affected
by severe weather and an overall cable industry slowdown that occurred during
the quarter.
Cost of Sales. Cost of goods sold increased to $2,324,799 for the first
three months of fiscal 2001 from $2,101,005 for the first three months of
fiscal 2000. The increase was primarily due to sales in new products, such
as fiber optic cable, which usually have lower margins than the refurbished
gear.
Operating Expenses. Operating expenses increased to $l,286,001 in the first
three months of 2001 from $1,127,458 in the first three months of 2000. The
increase in operating expenses was primarily due to the higher costs resulting
from the acquisition of LEE CATV.
Income from Operations. Income from operations decreased 7.8% to $1,205,882
for the first three months of 2001 from $1,307,708 for the first three months
of 2000. This decrease was primarily due to a sales product mix with lower
profit margins combined with higher operating expenses as discussed in the
previous paragraph.
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 (8.25% at December 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
10
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 December 31, 2000, the revolving line of credit
consisted of a $2,140,604 balance outstanding due June 30, 2001, with
interest payable monthly at Chase Manhattan Prime less 1.25% (8.25% at
December 31, 2000). The company also owes $135,594 balance remaining on a
note resulting from the Diamond purchase, payable quarterly at 8% to the
former owners.
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.
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.
11
PART II-OTHER INFORMATION
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits pursuant to Item 601 of Regulation S-B.
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None.
12
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 February 9, 2001
------------------ (Principal Executive Officer)
Kenneth A. Chymiak
/S/ Adam R. Havig Controller February 9, 2001
-------------- (Principal Accounting Officer)
Adam R. Havig
13
EXHIBIT INDEX
Exhibit No. Description
27.1 Financial Data Schedule
14