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, 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
December 31, 2001 were 10,048,738.
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, 2001 3
Consolidated Statements of Income
Three Months Ended December 31, 2001 and 2000 5
Consolidated Statements of Cash Flows
Three Months Ended December 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 6. Exhibits and Reports on 8-K 12
Signatures 13
2
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEET
December 31, 2001
Assets
Current assets:
Cash $ 235,495
Accounts receivable 2,287,191
Inventories 17,583,826
Deferred income taxes 36,000
------------------
Total current assets 20,142,512
Property and equipment, at cost
Machinery and equipment 1,967,902
Land and Buildings 642,288
Leasehold improvements 177,500
2,787,690
Less accumulated depreciation and amortization (911,530)
------------------
Net property and equipment 1,876,160
Other assets:
Deferred income taxes 945,094
Investment 11,675
Goodwill, net of accumulated amortization of $285,314 1,450,288
Other assets 108,440
------------------
Total other assets 2,515,497
------------------
Total assets $ 24,534,169
==================
See notes to consolidated financial statements
3
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEET
December 31, 2001
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 625,716
Accrued expenses 148,453
Accrued income taxes 236,863
Bank revolving line of credit 3,892,622
Notes payable - current portion 188,006
Dividends payable 310,000
Stockholder loans 1,250,000
-----------------
Total current liabilities 6,651,660
Notes Payable 594,998
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 (2,758,452)
17,341,675
Less: Treasury stock, 20,000 shares at cost (54,164)
-----------------
Total stockholders' equity 17,287,511
-----------------
Total liabilities and stockholders' equity $ 24,534,169
==================
See notes to consolidated financial statements
4
ADDVANTAGE TECHNOLOGIES GROUP, INC
STATEMENTS OF INCOME
FOR THREE MONTHS ENDED DECEMBER 31,
2001 2000
------------------------------
Net sales and service income $ 5,584,729 $ 4,816,682
Cost of sales 2,919,171 2,447,264
------------------------------
Gross profit 2,665,558 2,369,418
Operating expenses 1,589,930 1,163,536
------------------------------
Income from operations 1,075,628 1,205,882
Interest expense 66,848 87,918
------------------------------
Income before income taxes 1,008,780 1,117,964
Provision for income taxes 347,000 422,673
------------------------------
Net income 661,780 695,291
Preferred Dividends 310,000 310,000
------------------------------
Net income attributable to common
stockholders $ 351,780 $ 385,291
==============================
Earnings per Share:
Basic and Diluted $ .04 $ .04
See notes to consolidated financial statements
5
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED DECEMBER 31,
2001 2000
-----------------------------
Cash Flows from Operating Activities
Net income $ 661,780 $ 695,291
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 85,088 60,150
Provision for deferred income taxes 44,906 44,906
Change in:
Receivables 708,295 678,023
Prepaid and other expense (13,622) 749
Inventories 145,295 (835,182)
Accounts payable and accrued liabilities (825,375) 667,541
-----------------------------
Net cash provided by operating activities 806,367 1,311,478
-----------------------------
Cash Flows from Investing Activities
Additions to property and equipment (164,083) (33,771)
Proceeds from sale of investment in Ventures - 640,000
-----------------------------
Net cash provided by investing activities (164,083) 606,229
-----------------------------
Cash Flows from Financing Activities
Net repayments under line of credit (358,511) (1,178,529)
Proceeds from Notes Payable 111,986 -
Repayments from Notes Payable (80,822) (33,875)
Payment on stockholders loan - (300,000)
Payments of Preferred Dividends (310,000) (310,000)
-----------------------------
Net cash used in financing activities (637,347) (1,822,404)
-----------------------------
Net increase in cash 4,937 95,303
Cash, beginning of period 230,558 22,495
-----------------------------
Cash, end of period $ 235,495 $ 117,798
=============================
See notes to consolidated financial statements
6
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED DECEMBER 31,
2001 2000
-----------------------------
Supplemental Cash Flow Information
Interest paid for the period $ 66,848 $ 87,918
Income taxes paid for the period 671,471 156,500
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 ended
December 31
2001 2000
------------------------
Net income attributable to common stockholders $351,780 $385,291
Basic and Diluted EPS Computation:
Weighted average outstanding common shares 9,991,776 9,990,616
Earnings per Share $0.04 $0.04
8
Note 4 - Line of Credit, Stockholder Loans, and Notes Payable
At December 31, 2001, a $3,892,622 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 December 31, 2001). 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 25% of qualified inventory. The line of
credit is collateralized by inventory, accounts receivable, equipment and
fixtures, and general intangibles, and is guaranteed by certain stockholders
up to an aggregate $1.0 million. The line of credit is subject to customary
covenants, including a minimum net income and net worth requirement.
Stockholder loans of $1,250,000 million bear interest at rates that correspond
with the line of credit (3.5% at December 31, 2001) and are subordinate to the
bank notes payable.
Notes payable consist of the following items: a $225,000 obligation due $25,000
per quarter over 9 quarters, a $143,292 note bearing interest at 7.0% due
quarterly with a 3 year term, and notes payable to Chymiak Investments in the
amounts of $269,847 and $144,865, bearing interest at 7.5% due monthly with a 10
year term.
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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. With the slowdown
in the economy and in particular a tightening of credit to companies in the
cable industry, prices for re-manufactured equipment have declined as a result
of the lower demand, which has affected the Company's gross profits. However,
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 December 31,
2001 and December 31, 2000
Net Sales and service income. Net Sales climbed $768,000 or 15.9%, to $5.6
million in the first quarter of fiscal 2002 from $4.8 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 228.6% to $2.3 million from $695,000 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). Revenue from
re-manufactured equipment dropped 29.7% from $3.4 million last year to $2.4
million, primarily due to the capital expenditure reductions in the cable
industry. NCS and Comtech had sales of $774,000 and $420,000, respectively.
Cost of Goods Sold. Cost of goods sold increased to $2.9 million for the first
quarter of fiscal 2002 from $2.4 million for the same period of fiscal 2001.
The increase was primarily due to the lower margins associated with new
equipment sales.
Operating Expenses. Operating expenses increased to $1.6 million in the first
quarter of fiscal 2002 from $1.2 million in the first quarter of 2001, an
increase of 33.3%. The increase in operating expenses was primarily due to the
acquisitions of NCS and Comtech.
Income from Operations. Income from operations decreased 130,000, or 10.8%
to $1.1 million for the first quarter of fiscal 2002 from $1.2 million for the
same period last year. This decrease 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 December 31, 2001). 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
10
inventory, accounts receivable, equipment and fixtures, and general intangibles
and had an outstanding balance at December 31, 2001 of $3.9 million, due
June 30, 2002.
The Company finances its operations primarily through internally generated funds
and a bank line of credit. The company also owes a $225,000 obligation due
$25,000 per quarter over 9 quarters and a $143,292 on a note resulting from the
NCS purchase, payable quarterly at 7% due quarterly with a 3 year term, and
notes payable to Chymiak Investments in the amounts of $269,847 and $144,857,
bearing interest at 7.5% due monthly with a 10 year term.
Stockholder loans include a $1,250,000 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 quarter 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.
11
PART II - OTHER INFORMATION
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) 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 12, 2002
-------------------------
Kenneth A. Chymiak (Principal Executive Officer)
/S/ Adam R. Havig Controller
------------------ February 12, 2002
Adam R. Havig (Principal Accounting Officer)
13