-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OHd+Llhq6XnMkUVZsX/CFqc8SzqljduFAVib0At4/HY0SxhyWoujxCOGx+ekX257 9AA3kUoZbJ3LLMY9RXyOCQ== 0001096802-05-000004.txt : 20050211 0001096802-05-000004.hdr.sgml : 20050211 20050211172100 ACCESSION NUMBER: 0001096802-05-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050211 DATE AS OF CHANGE: 20050211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADDVANTAGE TECHNOLOGIES GROUP INC CENTRAL INDEX KEY: 0000874292 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PROFESSIONAL & COMMERCIAL EQUIPMENT & SUPPLIES [5040] IRS NUMBER: 731351610 STATE OF INCORPORATION: OK FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10799 FILM NUMBER: 05600231 BUSINESS ADDRESS: STREET 1: 1605 EAST JOLA CITY: BROKEN ARROW STATE: OK ZIP: 74012 BUSINESS PHONE: 9182519121 MAIL ADDRESS: STREET 1: 1605 E IOLA CITY: BROKEN ARROW STATE: OK ZIP: 74012 FORMER COMPANY: FORMER CONFORMED NAME: ADDVANTAGE MEDIA GROUP INC /OK DATE OF NAME CHANGE: 19930328 10-Q 1 r10q1q2005.txt FORM 10-Q UNITED STATES SECURITIES AND EXHCANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURTIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2004, OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ----------- ----------- Commission File number 1-10799 ADDvantage Technologies Group, Inc. (Exact name of registrant 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) Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 ----- ----- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X ----- ----- Shares outstanding of the issuer's $.01 par value common stock as of January 31, 2005 were 10,061,789. Part I - Financial Information Page Financial Information: Item 1. Financial Statements Consolidated Condensed Balance Sheets December 31, 2004 (Unaudited) and September 30, 2004 3 Consolidated Condensed Statements of Income and Comprehensive Income (Unaudited) Three Months Ended December 31, 2004 and 2003 5 Consolidated Condensed Statements of Cash Flows (Unaudited) Three Months Ended December 31, 2004 and 2003 6 Notes to Unaudited Consolidated Condensed Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 Item 4. Controls and Procedures 13 Part II - Other Information Item 6. Exhibits 14 Signatures 15 2
ADDVANTAGE TECHNOLOGIES GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS December 31, September 30, 2004 2004 (Unaudited) (Audited) ------------ ------------- Assets Current assets: Cash $ 1,413,398 $ 1,316,239 Accounts receivable, net of allowance of $68,063 5,074,367 4,787,749 Inventories, net of allowance for excess and obsolete inventory of $1,093,000 21,805,125 20,978,714 Deferred income taxes 673,000 651,000 ----------- ----------- Total current assets 28,965,890 27,733,702 Property and equipment, at cost: Machinery and equipment 2,141,629 2,138,798 Land and buildings 1,302,527 1,302,527 Leasehold improvements 521,972 521,972 ----------- ----------- 3,966,128 3,963,297 Less accumulated depreciation and amortization (1,612,380) (1,561,698) ----------- ----------- Net property and equipment 2,353,748 2,401,599 Other assets: Deferred income taxes 1,013,725 1,042,000 Goodwill 1,150,060 1,150,060 Other assets 76,468 31,222 ----------- ----------- Total other assets 2,240,253 2,223,282 ----------- ----------- Total assets $33,559,891 $32,358,583 =========== =========== See notes to unaudited consolidated condensed financial statements. 3
ADDVANTAGE TECHNOLOGIES GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS December 31, September 30, 2004 2004 (Unaudited) (Audited) ------------ ------------- Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 2,939,843 $ 1,758,695 Accrued expenses 696,708 1,011,911 Accrued income taxes 262,990 120,748 Bank revolving line of credit 2,409,214 3,225,183 Notes payable - current portion 1,237,519 1,237,047 Dividends payable 210,000 210,000 ----------- ----------- Total current liabilities 7,756,274 7,563,584 Notes payable 6,837,751 7,147,334 Stockholders' equity: Preferred stock, 5,000,000 shares authorized, $1.00 par value, at stated value: Series B, 7% cumulative; 300,000 shares issued and outstanding with a stated value of $40 per share 12,000,000 12,000,000 Common stock, $.01 par value; 30,000,000 shares authorized; 10,082,889 and 10,081,789 shares issued and outstanding, respectively 100,829 100,818 Paid-in capital (7,282,300) (7,285,564) Retained earnings 14,191,262 12,886,575 Accumulated other comprehensive income: Unrealized gain on interest rate swap 10,239 - ------------ ----------- 19,020,030 17,701,829 Less: Treasury stock, 21,100 shares at cost (54,164) (54,164) ------------ ----------- Total stockholders' equity 18,965,866 17,647,665 ------------ ----------- Total liabilities and stockholders' equity $33,559,891 $32,358,583 =========== =========== See notes to unaudited consolidated condensed financial statements. 4
ADDVANTAGE TECHNOLOGIES GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) Three Months Ended December 31, 2004 2003 ---- ---- Net sales income $11,117,284 $10,164,379 Net service income 1,143,841 1,128,121 ----------- ----------- Total income 12,261,125 11,292,500 Costs of sales 7,373,377 6,719,414 Cost of service 831,334 702,358 ----------- ----------- Gross profit 4,056,414 3,870,728 Operating, selling, general and admin expenses 1,510,542 1,571,816 Depreciation and amortization 57,031 64,989 ----------- ----------- Income from operations 2,488,841 2,233,923 Interest expense 146,154 55,753 ----------- ----------- Income before income taxes 2,342,687 2,178,170 Provision for income taxes 828,000 785,000 ----------- ----------- Net income 1,514,687 1,393,170 ----------- ----------- Other comprehensive income: Unrealized gain on interest rate swap (net of $6,275 in taxes) 10,239 - ----------- ----------- Comprehensive income $ 1,524,926 $ 1,393,170 =========== =========== Net income $ 1,514,687 $ 1,393,170 Preferred dividends 210,000 310,000 ----------- ----------- Net income attributable to common stockholders $ 1,304,687 $ 1,083,170 =========== =========== Earnings per share: Basic $ 0.13 $ 0.11 Diluted $ 0.13 $ 0.10 Shares used in per share calculation Basic 10,061,756 10,011,314 Diluted 10,117,873 12,080,044 See notes to unaudited consolidated condensed financial statements. 5
ADDVANTAGE TECHNOLOGIES GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended December 31, 2004 2003 ---- ---- Cash Flows from Operating Activities Net income $ 1,514,687 $ 1,393,170 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 57,031 64,989 Deferred income tax benefit - (50,000) Change in: Receivables (286,618) (1,529,452) Inventories (826,411) 943,676 Other assets (28,732) 16,772 Accounts payable 1,181,148 (597,393) Accrued liabilities (172,961) 487,383 ----------- ----------- Net cash provided by operating activities 1,438,144 729,145 ----------- ----------- Cash Flows from Investing Activities Additions to property and equipment (9,180) (13,681) ----------- ----------- Net cash used in investing activities (9,180) (13,681) ----------- ----------- Cash Flows from Financing Activities Net change under line of credit (815,969) (110,507) Payments on stockholder loans - (84,351) Payments on notes payable (309,111) (50,280) Proceeds from stock options exercised 3,275 8,585 Payments of preferred dividends (210,000) (310,000) ----------- ---------- Net cash used in financing activities (1,331,805) (546,553) ----------- ---------- Net increase in cash 97,159 168,911 Cash, beginning of period 1,316,239 496,283 ----------- ----------- Cash, end of period $1,413,398 $ 665,194 =========== =========== Supplemental Cash Flow Information Cash paid for interest $ 146,154 $ 55,509 Cash paid for income taxes $ 529,947 $ 16,000 See notes to unaudited consolidated condensed financial statements. 6
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Note 1 - Basis of Presentation The accompanying unaudited consolidated 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 items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The consolidated financial statements as of September 30, 2004 have been audited by independent certified public accountants. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2004. 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"), and Tulsat - Atlanta, LLC ("Tulsat - Atlanta") (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 Basic and diluted net earnings per share were computed in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Basic net earnings per share is computed by dividing net earnings available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period and excludes the dilutive effect of stock options. Diluted net earnings per share gives effect to all dilutive potential common shares outstanding during a period. In computing diluted net earnings per share, the average stock price for the period is used in determining the number of shares assumed to be reacquired under the treasury stock method from the exercise of stock options. 7
Three months ended December 31, 2004 2003 ---- ---- Basic EPS Computation: Net income attributable to common stockholders $ 1,304,687 $ 1,083,170 Weighted average outstanding common shares 10,061,756 10,011,314 Earnings per Share - Basic $ 0.13 $ 0.11 =========== =========== Diluted EPS Computation: Net income attributable to common stockholders $ 1,304,687 $ 1,083,170 Add: Dividends on Series A convertible preferred stock - 100,000 ----------- ----------- Net income attributable to common stockholders - Diluted 1,304,687 1,183,170 Weighted average outstanding common shares 10,061,756 10,011,314 Potentially dilutive securities Assumed conversion of 200,000 shares of Series A convertible preferred stock - 2,000,000 Effect of dilutive stock options 56,117 68,730 ---------- ---------- Weighted average shares outstanding - assuming dilution 10,117,873 12,080,044 Earnings per Share - Diluted $ 0.13 $ 0.10 =========== ===========
Note 4 - Line of Credit, Stockholder Loans, and Notes Payable At December 31, 2004, a $2,409,214 balance is outstanding under a $7.0 million line of credit due September 30, 2005, with interest payable monthly based on the prevailing 30-day LIBOR rate plus 2.0% (4.4% at December 31, 2004). Borrowings under the line of credit are limited to the lesser of $7.0 million or the sum of 80% of qualified accounts receivable and 50% of qualified inventory for working capital purposes. Among other financial covenants, the line of credit agreement provides that the Company's net worth must be greater than $15.0 million plus 50% of annual net income (with no deduction for net losses), determined quarterly. The line of credit is collateralized by inventory, accounts receivable, equipment and fixtures, and general intangibles. 8 Cash receipts are applied from the Company's lockbox account directly against the bank line of credit, and checks clearing the bank are funded from the line of credit. The resulting overdraft balance, consisting of outstanding checks, was $645,149 at December 31, 2004, and is included in the bank revolving line of credit. An $8 million amortizing term note with Bank of Oklahoma was obtained to finance the redemption of the outstanding shares of the Series A Convertible Preferred Stock at September 30, 2004. The outstanding balance on this note was $7.7 million at December 31, 2004. The note is due on September 30, 2009, with monthly principal payments of $100,000 plus accrued interest, and the note bears interest at the prevailing 30-day LIBOR rate plus 2.50%. An interest rate swap was entered into simultaneously with the note on September 30, 2004, which fixed the interest rate at 6.13%. Upon entering into this interest rate swap, the Company designated this derivative as a cash flow hedge by documenting our risk management objective and strategy for undertaking the hedge along with methods for assessing the swap's effectiveness. At December 31, 2004, the fair market value of the interest rate swap approximated its carrying value of $16,514. Notes payable secured by real estate of $375,270 are due in monthly payments through 2013 with interest at 5.5% through 2008, converting thereafter to prime minus .25%. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview We are a Value Added Reseller ("VAR") for selected Scientific-Atlanta and Motorola broadband new products. We also specialize in the sale of refurbished, previously-owned cable television ("CATV") equipment to CATV operators and other broadband communication companies. Within the last three years, we have become distributors for several different manufacturers of equipment and other related products. It is through our development of these relationships that that we have focused our initiative to market our products and services to the larger cable multiple system operators ("MSOs"). As a result, our overall sales increased for the first three months of fiscal 2005. We continue to believe that as cable companies look at expanding their services in key markets and to remain competitive during this period of economic recovery, there will be an emphasis on minimizing their costs, thus creating a higher demand for our repair services and surplus-new equipment. Results of Operations Comparison of Results of Operations for the Three Months Ended December 31, 2004 and December 31, 2003 Net Sales. Net sales increased $969,000, or 8.6%, to $12.3 million in the first quarter of fiscal 2005, from $11.3 million for the same period in fiscal 2004, primarily due to the positive results of our marketing initiatives and distributor relationships discussed in the previous paragraph. New equipment sales were up 17.6% to $8.9 million for the current period, compared with $7.6 million for the same period of fiscal 2004. Sales of remanufactured equipment decreased by 14.8% to $2.2 million for the current period, compared with $2.6 million in the same period last year. Repair service revenues were up 1.4% to $1.14 million for the current quarter, compared with $1.13 million for the same period last year. Costs of Sales. Costs of sales includes (i) the costs of new and refurbished equipment, on a weighted average cost basis, sold during the period, (ii) the equipment costs used in repairs, (iii) the related transportation costs, and (iv) the labor and overhead directly related to these sales. Costs of sales increased to $7.4 million for the first quarter of fiscal 2005 from $6.7 million for the same period of fiscal 2004. The increase was primarily due to the increase in sales for the period. Costs of sales for new and refurbished equipment increased slightly to 66.3% of net sales income for 2005 from 66.1% of net sales income for 2004. Costs of sales for repair services increased to 72.7% of net service income for 2005 from 62.3% of net service income for 2004. This increase was due primarily to more high-end hybrid and fiber optic equipment being repaired, which involves a higher relative cost of material. Gross Profit. Gross profit climbed $186,000 or 4.8% to $4.1 million for the first quarter of fiscal 2005 from $3.9 million for the same period in fiscal 2004. The gross margin percentage was 33.1% for the current quarter, compared to 34.3% for the same quarter last year. The percentage decrease was primarily due to an increase in sales of new and surplus equipment, which are accompanied by margins lower than that of re-manufactured equipment, and the increase in costs of sales for repair services discussed above. 10 Operating, Selling, General and Administrative Expenses. Operating, selling, general and administrative expenses include all personnel costs, including fringe benefits, insurance and taxes, occupancy, transportation (other than freight-in), communication and professional services, among other less significant accounts. Operating, selling, general and administrative expenses decreased by $61,000 in the first quarter of fiscal 2005, to $1.51 million from $1.57 million for the same period in 2004, a decrease of 3.9%. The decrease in operating, selling, general and administrative expenses was primarily due to decreases in maintenance and utilities expenditures during the three months ended December 31, 2004. Income from Operations. Income from operations rose $255,000, or 11.4%, to $2.49 million for the first quarter of fiscal 2005 from $2.23 million for the same period last year. This increase was primarily due to increases in sales to the larger MSOs, partially offset by the increase in costs of sales in 2005. Interest Expense. Interest expense for the three months ended December 31, 2004 was $146,154 compared to $55,753 for the same period last year. The increase was primarily attributable to the increase in notes payable at September 30, 2004. The weighted average interest rate paid on our outstanding borrowings increased to 5.3% for 2005 from 2.75% for 2004. Income Taxes. The provision for income taxes for fiscal 2005 increased to $828,000 from $785,000 in fiscal 2004. This increase was primarily due to higher pre-tax earnings in fiscal 2005. Critical Accounting Policies Note 1 to the Consolidated Financial Statements in Form 10-K for fiscal year 2004 includes a summary of the significant accounting policies or methods used in the preparation of our Consolidated Financial Statements. Some of those significant accounting policies or methods require us to make estimates and assumptions that affect the amounts reported by us. We believe the following items require the most significant judgments and often involve complex estimates. General ------- The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates and judgments on historical experience, current market conditions, and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant estimates and assumptions relate to the carrying value of our inventory and, to a lesser extent, the adequacy of our allowance for doubtful accounts. Inventory Valuation ------------------- Inventory consists of new and used electronic components for the cable television industry. Inventory is stated at the lower of cost or market. Market is defined principally as net realizable value. Cost is determined using the weighted average method. 11 We market our products primarily to MSOs and other users of cable television equipment who are seeking products of which manufacturers have discontinued production, or are seeking shipment on a same-day basis. Our position in the industry requires us to carry large inventory quantities relative to quarterly sales, but also allows us to realize high overall gross profit margins on our sales. Carrying these large inventories represents our largest risk. For individual inventory items, we may carry inventory quantities that are excessive relative to market potential, or we may not be able to recover our acquisition costs for sales we are able to make in a reasonable period. Over the past two years, our investment in inventory has shifted to become predominantly new products purchased from manufacturers and "surplus-new" products, which are unused products purchased from other distributors or MSOs. In order to address the risks associated with our investment in inventory, we regularly review inventory quantities on hand and reduce the carrying value by recording a provision for excess and obsolete inventory based primarily on inventory aging and forecasts of product demand and pricing. The broadband industry is characterized by changing customer demands and changes in technology that could result in significant increases or decreases of inventory pricing or increases in excess or obsolete quantities on hand. Our estimates of future product demand may prove to be inaccurate; in which case the provision required for excess and obsolete inventory may have been understated or overstated. Although every effort is made to ensure the accuracy of internal forecasting, any significant changes in demand or prices could have a significant impact on the carrying value of our inventory and reported operating results. Demand for some of the items in our inventory has been impacted by recent economic conditions present in the cable industry. As of September 30, 2004, we have reduced inventories by recording an allowance for excess and obsolete inventories totaling $1,093,000. No addition to this allowance was recorded during the three months ended December 31, 2004. An allowance of $201,000 was recorded during the three months ended December 31, 2003. Accounts Receivable Valuation ----------------------------- Management judgments and estimates are made in connection with establishing the allowance for doubtful accounts. Specifically, we analyze the aging of accounts receivable balances, historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in our customer payment terms. Significant changes in customer concentration or payment terms, deterioration of customer creditworthiness, or weakening in economic trends could have a significant impact on the collectibility of receivables and our operating results. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. At December 31, 2004, accounts receivable, net of allowance for doubtful accounts of $68,000, amounted to $5.1 million. Liquidity and Capital Resources We have a line of credit with the Bank of Oklahoma under which we are authorized to borrow up to $7.0 million at a borrowing rate based on the prevailing 30-day LIBOR rate plus 2.0% (4.4% at December 31, 2004.) This line of credit will provide the lesser of $7.0 million or the sum of 80% of qualified accounts receivable and 50% of qualified inventory in a revolving line of credit for working capital purposes. The line of credit is collateralized by inventory, accounts receivable, equipment and fixtures, and general intangibles and had an outstanding balance at December 31, 2004, of $2.4 million, due September 30, 2005. We intend to renew the agreement at the maturity date under similar terms. 12 An $8 million amortizing term note with Bank of Oklahoma was obtained to finance the redemption of the outstanding shares of our Series A Convertible Preferred Stock at September 30, 2004. The outstanding balance on this note was $7.7 million at December 31, 2004. The note is due on September 30, 2009, with monthly principal payments of $100,000 plus accrued interest, and the note bears interest at the prevailing 30-day LIBOR rate plus 2.50%. An interest rate swap was entered into simultaneously with the note on September 30, 2004, which fixed the interest rate at 6.13%. Notes payable secured by real estate of $375,270 are due in monthly payments through 2013 with interest at 5.5% through 2008, converting thereafter to prime minus .25%. We finance our operations primarily through internally generated funds and the bank line of credit. Monthly payments of principal for notes payable and loans used to purchase buildings total $1.2 million in the next 12 months. We expect to fund these payments through cash flows from operations. 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 our business, our 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 our business or operations, the continued availability to us of our key management personnel, general economic conditions, the availability of new and used equipment and other inventory and our ability to fund the costs thereof, and other factors which may affect our ability to comply with future obligations. Accordingly, actual results may differ materially from those expressed in the forward-looking statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's exposure to market rate risk for changes in interest rates relates primarily to its revolving line of credit. The interest rates under the line of credit fluctuate with the LIBOR rate. At December 31, 2004, the outstanding balances subject to variable interest rate fluctuations totaled $2.4 million. Future changes in interest rates could cause our borrowing costs to increase or decrease. The Company maintains no cash equivalents. However, the Company entered into an interest rate swap on September 30, 2004, in an amount equivalent to the $8 million notes payable in order to minimize interest rate risk. Although the note bears interest at the prevailing 30-day LIBOR rate plus 2.50%, the swap effectively fixed the interest rate at 6.13%. The fair value of this derivative, $16,514 at December 31, 2004, will increase or decrease opposite any future changes in interest rates. All sales and purchases are denominated in U.S. dollars. Item 4. Controls and Procedures Based on his evaluation, our Chief Executive Officer and Chief Financial Officer has concluded that, subject to the following sentence, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report on Form 10-Q are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. We plan to implement increased education of relevant personnel of the timing requirements for the reports required under the Exchange Act and to adopt procedures which should result in better coordination between our personnel responsible for reporting and our securities counsel. 13 During the period covered by this report on Form 10-Q, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. PART II - OTHER INFORMATION OTHER INFORMATION Item 6. Exhibits Exhibit No. Description 31.1 Certification of Chief Executive Officer and Chief Financial Officer under Section 302 of the Sarbanes Oxley Act of 2002. 32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 14 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. (Registrant) By: /s/ Kenneth A. Chymiak -------------------------- Date: February 11, 2005 Kenneth A. Chymiak, President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) By: /s/ Dee Cooper -------------------------- Date: February 11, 2005 Dee Cooper, Controller (Chief Accounting Officer) 15 Exhibit Index The following documents are included as exhibits to this Form 10-Q: Exhibit No. Description 31.1 Certification of Chief Executive Officer and Chief Financial Officer under Section 302 of the Sarbanes Oxley Act of 2002. 32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. 16 EX-31 2 r10q1q2005ex311.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Kenneth A. Chymiak, certify that: 1. I have reviewed this quarterly report on Form 10-Q of ADDvantage Technologies Group, Inc, (the "Company"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15-(e)) for the Company and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. Date: February 10, 2005 By: /s/ Kenneth A. Chymiak ----------------------------- Kenneth A. Chymiak Chief Executive Officer and Chief Financial Officer EX-32 3 r10q1q2005ex321.txt EXHIBIT 32.1 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURUSANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of ADDvantage Technologies Group, Inc. (the "Company") for the fiscal quarter ended December 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report") I, Kenneth A. Chymiak, the Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained on the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By /s/ Kenneth A. Chymiak ------------------------------- Name: Kenneth A. Chymiak Title: Chief Executive Officer and Chief Financial Officer Date: February 10, 2005 -----END PRIVACY-ENHANCED MESSAGE-----