10QSB 1 r10-qsb1qtr2001.txt 1ST QUARTER 2001 10QSB 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 ---- 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. 9 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