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, 2002
[ ] 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
March 31, 2002 were 10,011,716.
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, 2002 3
Consolidated Statements of Income
Three and Six Months Ended March 31, 2002 and 2001 5
Consolidated Statements of Cash Flows
Three and Six Months Ended March 31, 2002 and 2001 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, 2002
Assets
Current assets:
Cash $ 106,764
Accounts receivable 2,770,150
Inventories 17,472,621
Deferred income taxes 36,000
Refundable income taxes 172,070
----------------
Total current assets 20,557,605
Property and equipment, at cost
Machinery and equipment 1,981,302
Land and Buildings 837,095
Leasehold improvements 189,265
----------------
3,007,662
Less accumulated depreciation and amortization (934,440)
----------------
Net property and equipment 2,073,222
Other assets:
Deferred income taxes 900,188
Investment 11,675
Goodwill, net of accumulated amortization of $343,116 1,405,053
Other assets 40,216
----------------
Total other assets 2,357,131
----------------
Total assets $ 24,987,958
================
See notes to consolidated financial statements
3
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEET
March 31, 2002
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 582,266
Accrued expenses 251,760
Bank revolving line of credit 4,103,661
Notes payable - current portion 189,377
Dividends payable 310,000
Stockholder loans 1,210,000
----------------
Total current liabilities 6,647,064
Notes Payable 583,460
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 (2,288,519)
----------------
17,811,598
Less: Treasury stock, 20,000 shares at cost (54,164)
----------------
Total stockholders' equity 17,757,434
----------------
Total liabilities and stockholders' equity $ 24,987,958
================
See notes to consolidated financial statements
4
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF INCOME
Three months ended Six months ended
March 31 March 31
2002 2001 2002 2001
----------------------------- ----------------------------
Net sales and service income $ 5,843,964 $ 4,754,311 $ 11,428,693 $ 9,570,993
Cost of sales 2,862,187 2,379,304 5,781,358 4,826,568
----------------------------- ----------------------------
Gross profit 2,981,777 2,375,007 5,647,335 4,744,425
Operating expenses 1,746,111 1,317,320 3,336,041 2,480,856
----------------------------- ----------------------------
Income from operations 1,235,667 1,057,687 2,311,294 2,263,569
Interest expense 48,522 82,746 115,370 170,665
----------------------------- ----------------------------
Income before income taxes 1,187,144 974,941 2,195,924 2,092,904
Provision for income taxes 407,000 384,055 754,000 806,728
----------------------------- ----------------------------
Net income 780,144 590,886 1,441,924 1,286,176
Preferred Dividends 310,000 310,000 620,000 620,000
----------------------------- ----------------------------
Net income attributable to common
stockholders $ 470,144 $ 280,886 $ 821,924 $ 666,176
============================= ============================
Earnings per Share:
Basic and Diluted $ 0.05 $ 0.03 $ 0.08 $ 0.07
See notes to consolidated financial statements
5
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED MARCH 31,
2002 2001
----------------------------
Cash Flows from Operating Activities
Net income $ 1,441,924 $ 1,286,176
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 148,918 122,577
Provision for deferred income taxes 89,813 89,813
Change in:
Receivables 225,336 1,384,150
Prepaids and other expense ( 117,467) (11,122)
Inventories 256,500 (978,440)
Accounts payable and accrued liabilities (1,002,382) (500,354)
----------------------------
Net cash provided by operating activities 1,042,641 1,392,800
----------------------------
Cash Flows from Investing Activities
Additions to property and equipment (379,960) (67,776)
Proceeds from sale of investment in Ventures - 657,572
Acquisition of stock in NCS - (1,439,000)
Cash acquired in NCS Acquisition - 575,958
----------------------------
Net cash provided by investing activities (379,960) (273,246)
----------------------------
Cash Flows from Financing Activities
Net borrowings (repayments) under line of credit (147,473) 139,119
Proceeds from Notes Payable 20,997 -
Advances (payment) on stockholders loan (40,000) (300,000)
Payments of Preferred Dividends (620,000) (620,000)
----------------------------
Net cash used in financing activities (786,475) (780,881)
----------------------------
Net (decrease) increase in cash (123,794) 338,673
Cash, beginning of year 230,558 22,495
----------------------------
Cash, end of year $ 106,764 $ 361,168
============================
See notes to consolidated financial statements
6
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED MARCH 31,
2002 2001
----------------------------
Supplemental Cash Flow Information
Cash paid during the period for:
Interest $ 115,370 $ 170,665
Income Taxes 1,204,898 675,123
Supplemental Disclosure of Non-cash
Investing and Financing Activities
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, ADDvantage Technologies Group of Nebraska, (dba "Lee Enterprise"),
NCS Industries Inc. ("NCS"), ADDvantage Technologies Group of Missouri, (dba
"Comtech Services"), ADDvantage Technologies Group of Texas, (dba "Tulsat -
Texas") (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,
2002 2001 2002 2001
---------------------------- --------------------------
Net Income attributable to common stockholders $470,144 $280,886 $821,924 $666,176
Basic and Diluted EPS Computation:
Weighted average outstanding common shares 9,991,716 10,011,716 9,991,716 10,011,716
Earnings per Share $0.05 $0.03 $0.08 $0.07
8
Note 4 - Line of Credit, Stockholder Loans, and Notes Payable
At March 31, 2002, a $4.1 million balance is outstanding under a $6.0 million
line of credit due June 30, 2002, with interest payable monthly at Chase
Manhattan Prime less 1 1/4% (3.5% at March 31, 2002). Borrowings under the
line of credit are limited to the lesser of $6.0 million or the sum of 80% of
qualified accounts receivable and 40% of qualified inventory for working capital
purposes, $4.0 million for future acquisitions meeting Bank of Oklahoma credit
guidelines and $2.0 million 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.
Stockholder loans of $1.2 million bear interest at rates that correspond with
the line of credit (3.5% at March 31, 2002) and are subordinate to the bank
notes payable.
Notes payable consist of the following items - notes arising from the NCS
purchase include a $300,000 obligation due $25,000 per quarter (of which a
$200,000 balance remains payable at March 31, 2002) and a $200,000 obligation
payable quarterly at 7% (of which a balance of $124,000 remains at March 31,
2002). Both notes are payable quarterly, with 8 quarters remaining. Notes
payable to Chymiak Investments, LLC for buildings purchased at Comtech and
ADDvantage Technologies Group of Texas, include two notes issued in June 2001
for $314,399 and $150,000, respectively (of which balances of $306,614 and
$142,223 remain at March 31, 2002, respectively) bearing interest at 7.5% due
monthly with a 10 year term.
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. Although we have
seen a slowdown in the cable industry due to a tightening of credit to cable
companies over the past few quarters, we have turned the corner this quarter by
improving our gross profit margins for the six month period and sales are
steadily increasing each month at our subsidiaries NCS and Comtech. We believe
that as the cable companies look at expanding their services in key markets,
there will be an emphasis on minimizing their costs, thus creating a higher
demand for the Company's repair services and re-manufactured equipment.
Results of Operations
Comparison of Results of Operations for the Three Months Ended March 31, 2002
and March 31, 2001
Net Sales and Service Income. Net Sales climbed $1.09 million or 22.9%, to
$5.84 million in the second quarter of fiscal 2002 from $4.75 million for the
same period in fiscal 2001. Despite the slowdown in capital spending by cable
operators due to the economic environment in the United States, new equipment
sales increased to $2.70 million from $1.70 million last year primarily due to
our acquisitions of NCS and Comtech (acquired in the second and third quarters
of 2001, respectively) and as a result of our distributorship with Scientific-
Atlanta (initiated in the fourth quarter of 2001). In addition, repairs have
increased to $971,000 in this quarter from $697,202 for the same period last
year. Revenue from re-manufactured equipment was flat from $2.28 million for
the second quarter last year to $2.24 million in this period. NCS and Comtech
had sales of $997,000 and $239,000, respectively.
Cost of Goods Sold. Cost of goods sold increased to $2.86 million for the
second quarter of fiscal 2002 from $2.38 million for the same period of fiscal
2001. The increase was primarily due to the increase in sales for the period.
Gross Profit. Gross Profit increased $606,000 or 25.5% to $2.98 million for the
second quarter of fiscal 2002 from $2.38 million for the same period in fiscal
2001. The gross margin percentage was 51.0% for the current quarter, compared
to 50.0% for the same quarter last year.
Operating Expenses. Operating expenses increased to $1.75 million in the second
quarter of fiscal 2002 from $1.31 million in 2001, an increase of 32.6%. The
increase in operating expenses was primarily due to the acquisitions of NCS and
Comtech.
Income from Operations. Income from operations increased $178,000, or 16.7% to
$1.2 million for the second quarter of fiscal 2002 from $1.0 million for the
same period last year. 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 Six Months Ended March 31, 2002 and
March 3l, 2001
Net Sales and Service Income. Net Sales increased $1.86 million or 19.4%, to
$11.43 million in the first six months of fiscal year 2002 from $9.57 million
for the same period in 2001. The increase was primarily due to higher new
equipment sales, which increased to $4.98 million from $3.88 million last year
primarily due to our acquisitions of NCS and Comtech (acquired in the second and
third quarters of 2001, respectively) and as a result of our distributorship
with Scientific-Atlanta (initiated in the fourth quarter of 2001). In addition,
repairs have increased to $1.80 million in this period from $1.32 million last
year. Revenue from re-manufactured equipment increased to $4.63 million in the
first six months of fiscal year 2002 from $4.18 million for the same period last
year primarily due to the synergies created from our latest acquisitions. NCS
and Comtech had sales of $1.82 million and $653,000, respectively.
Cost of Sales. Cost of goods sold increased to $5.78 million for the six month
period of fiscal 2002 from $4.83 million for the same period of fiscal 2001.
The increase was primarily due to the increase in sales.
Gross Profit. Gross Profit increased $903,000 or 19.0% to $5.65 million for the
six month period of fiscal 2002 from $4.74 million for the same period last
year. The gross margin percentage was 49.4% for the current six month period,
compared to 49.6% for the same period in fiscal 2001.
Operating Expenses. Operating expenses increased to $3.34 million in the
second quarter of fiscal 2002 from $2.48 million in 2001, an increase of 34.5%.
The increase in operating expenses was primarily due to the acquisitions of NCS
and Comtech.
Income from Operations. Income from operations increased $46,000 or 2.0%, to
$2.30 million for the first six months of 2002 from $2.26 million for the same
period last year. This increase was primarily due to overall revenue increase
offset by higher operating expenses resulting from the recent acquisitions.
Liquidity and Capital Resources
The company has a line of credit with the Bank of Oklahoma under which it is
authorized to borrow up to $12.0 million at a borrowing rate of 1.25% below
Chase Manhattan Prime (3.5% at March 31, 2002). This line of credit will
provide the lesser of $6.0 million or the sum of 80% of qualified accounts
receivable and 40% of qualified inventory in a revolving line of credit for
working capital purposes, $4.0 million for future acquisitions meeting Bank of
Oklahoma credit guidelines and $2.0 million 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
and had an outstanding balance at March 31, 2002 of $4.1 million, due June 30,
2002.
11
The Company finances its operations primarily through internally generated funds
and a bank line of credit. The company also owes from the NCS purchase, a
$300,000 obligation due $25,000 per quarter (of which a $200,000 balance remains
payable) and a $200,000 obligation payable quarterly at 7% (of which a balance
of $124,000 remains). Both notes are payable quarterly, with 8 quarters
remaining. Notes payable to Chymiak Investments, LLC for buildings purchased at
Comtech and ADDvantage Technologies Group of Texas, include two notes issued in
June 2001 for $314,399 and $150,000, respectively (of which balances of $306,614
and $142,223 remains, respectively) bearing interest at 7.5% due monthly with a
10 year term.
Stockholder loans include a $1,210,000 note, due on demand, bearing interest at
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.0 million 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. The
Company did not repurchase any shares during the first six months of the fiscal
year.
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 Corporate Offices of ADDvantage Technologies Group, Inc. on
March 5, 2002. At the meeting, the following directors were elected for one
year terms (with the votes as indicated):
FOR WITHHELD
--- --------
Kenneth A. Chymiak 9,574,188 575
David E. Chymiak 9,574,188 575
Stephen J. Tyde 9,574,738 325
Freddie H. Gibson 9,574,738 325
Gary W. Young 9,574,738 325
Randy L. Weideman 9,574,738 325
The shareholders also approved the ratification of appointment of Tullius,
Taylor, Sartain & Sartain as the Company's auditors for the 2002 fiscal year by
a vote of 9,574,488 shares in favor and 275 against.
Item 6. Exhibits and Reports on Form 8-K.
(a) Reports on Form 8-K
The Company filed one Form 8-K during the three months ended March 31,
2002. The report dated March 6, 2002 related to the Press Release
Announcing Voting Results and Management Comments at Annual Meeting.
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
--------- ----- ----
------------------- Director and President May 13, 2002
Kenneth A. Chymiak (Principal Executive Officer)
------------------- Controller May 13, 2002
Adam R. Havig (Principal Accounting Officer)
14