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 June 30, 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 June 30,
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
June 30, 2002 3
Consolidated Statements of Income
Three and Nine Months Ended June 30, 2002 and 2001 5
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 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 6. Exhibits and Reports on 8-K 13
Signatures 14
2
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEET
June 30, 2002
Assets
Current assets:
Cash $ 494,532
Accounts receivable 2,918,364
Inventories 19,137,837
Deferred income taxes 36,000
----------------
Total current assets 22,586,733
Property and equipment, at cost
Machinery and equipment 1,791,044
Land and buildings 840,138
Leasehold improvements 490,727
3,121,909
Less accumulated depreciation and amortization (969,045)
----------------
Net property and equipment 2,152,864
Other assets:
Deferred income taxes 855,282
Investment 11,675
Goodwill, net of accumulated amortization of $380,852 1,359,817
Other assets 28,700
----------------
Total other assets 2,255,474
----------------
Total assets $ 26,995,071
================
See notes to consolidated financial statements
3
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEET
June 30, 2002
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 977,998
Accrued expenses 391,704
Accrued income taxes 344,993
Bank revolving line of credit 4,771,567
Notes payable - current portion 188,006
Dividends payable 310,000
Stockholder loans 1,150,000
----------------
Total current liabilities 8,134,268
Notes payable 558,740
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 (1,743,890)
18,356,227
Less: Treasury stock, 20,000 shares at cost (54,164)
----------------
Total stockholders' equity 18,302,063
----------------
Total liabilities and stockholders' equity $ 26,995,071
================
See notes to consolidated financial statements
4
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF INCOME
Three months ended Nine months ended
June 30 June 30
2002 2001 2002 2001
---------------------------- -----------------------------
Net sales and service income $ 6,827,213 $ 7,551,120 $ 18,255,906 $ 17,122,114
Cost of sales 3,351,194 3,870,713 9,132,552 8,697,281
---------------------------- -----------------------------
Gross profit 3,476,019 3,680,407 9,123,354 8,424,833
Operating expenses 2,011,821 1,895,669 5,347,862 4,376,525
---------------------------- -----------------------------
Income from operations 1,464,198 1,784,738 3,775,492 4,048,308
Interest expense 63,624 83,428 178,995 254,093
---------------------------- -----------------------------
Income before income taxes 1,400,573 1,701,310 3,596,497 3,794,215
Provision for income taxes 545,944 646,950 1,299,944 1,453,678
---------------------------- -----------------------------
Net income 854,629 1,054,360 2,296,553 2,340,537
Preferred dividends 310,000 310,000 930,000 930,000
---------------------------- -----------------------------
Net income attributable to common
stockholders $ 544,629 $ 744,360 $ 1,366,553 $ 1,410,537
Earnings per share:
Basic and diluted $ 0.05 $ 0.07 $ 0.14 $ 0.14
See notes to consolidated financial statements
5
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED JUNE 30,
2002 2001
-------------------------------
Cash Flows from Operating Activities
Net income $ 2,296,553 $ 2,340,537
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization 229,626 204,778
Provision for deferred income taxes 134,719 134,719
Change in:
Receivables 77,122 1,415,330
Other assets 66,118 (3,047)
Inventories (1,408,716) (2,821,511)
Accounts payable and accrued liabilities (121,713) 657,353
-------------------------------
Net cash provided by operating activities 1,273,709 1,928,159
Cash Flows from Investing Activities
Additions to property and equipment (495,075) (213,295)
Proceeds from sale of investment in Ventures - 657,572
Acquisition of stock in NCS - (1,689,000)
Cash acquired in NCS acquisition - 575,958
Cash acquired in Comtech acquisition - 22,773
-------------------------------
Net cash used in investing activities (495,075) (645,992)
Cash Flows from Financing Activities
Net borrowings under line of credit 520,434 333,215
Repayment of notes payable (5,094) -
Payment on stockholders loan (100,000) (300,000)
Payments of preferred dividends (930,000) (930,000)
Net cash used in financing activities (514,660) (896,785)
-------------------------------
Net increase in cash 263,974 385,382
-------------------------------
Cash, beginning of year 230,558 22,495
-------------------------------
Cash, end of year $ 494,532 $ 407,877
===============================
See notes to consolidated financial statements
6
ADDVANTAGE TECHNOLOGIES GROUP, INC.
STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED JUNE 30,
2002 2001
-------------------------------
Supplemental Cash Flow Information
Cash paid during the period for:
Interest $ 178,995 $ 254,093
Income taxes 1,630,998 1,265,920
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"), and Tulsat - Atlanta LLC (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 Nine months Nine months
ended ended ended ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
------------- ------------- ------------ ------------
Net Income attributable to common stockholders $ 544,629 $ 744,360 $ 1,366,553 $ 1,410,537
Basic and Diluted EPS Computation:
Weighted average outstanding common shares 9,991,716 10,002,957 9,991,716 9,994,730
Earnings per Share $0.05 $0.07 $0.14 $0.14
8
Note 4 - Line of Credit, Stockholder Loans, and Notes Payable
At June 30, 2002, a $4.8 million balance is outstanding under a $7.0 million
line of credit due June 30, 2003, with interest payable monthly at Chase
Manhattan Prime less 1 1/4% (3.5% at June 30, 2002). 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 40% of qualified inventory for working
capital purposes and $2.0 million for future acquisitions meeting Bank of
Oklahoma credit guidelines. 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 June 30, 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
$175,000 balance remains payable at June 30, 2002) and a $200,000 obligation
payable quarterly at 7% (of which a balance of $117,000 remains at June 30,
2002). Both notes are payable quarterly, with 7 quarters remaining. Notes
payable to Chymiak Investments, LLC for loans used to purchase buildings
at Comtech and ADDvantage Technologies Group of Texas, include two notes issued
in June 2001 for $328,000 and $150,000, respectively (of which balances of
$328,000 and $140,000 remains, 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. As a result of
bankruptcies and credit tightening in the broadband and cable industry this
quarter, we have seen an impact of overall sales and profits for the third
quarter of 2002. However, gross profit margins for the nine-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 and companies look to recover from recent stock market impacts, 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 June 30, 2002
and June 30, 2001
Net Sales and Service Income. Net Sales decreased $724,000 or 9.6%, to $6.83
million in the third quarter of fiscal 2002 from $7.55 million for the same
period in fiscal 2001. Of the decrease, $671,000 was due to one of our major
customers filing for Chapter 11 bankruptcy protection. Net sales also decreased
as a result of the reduction in capital spending due to recent credit tightening
occurring in the cable television industry. New equipment sales were $2.77
million, for the current period compared with $3.05 million in fiscal 2001.
Sales from remanufactured equipment were $3.16 million for the current period,
compared with $3.36 million in the same period last year. Repairs were $894,000
for the current quarter, compared with $1.05 million last year.
Cost of Goods Sold. Cost of goods sold decreased to $3.35 million for the third
quarter of fiscal 2002 from $3.87 million for the same period of fiscal 2001.
The decrease was primarily due to the decrease in sales for the period.
Gross Profit. Gross Profit decreased $204,000 or 5.6% to $3.48 million for the
third quarter of fiscal 2002 from $3.68 million for the same period in fiscal
2001. The gross margin percentage was 51.0% for the current quarter, compared
to 48.7% for the same quarter last year.
Operating Expenses. Operating expenses increased to $2.01 million in the third
quarter of fiscal 2002 from $1.90 million in 2001, an increase of 6.1%. The
increase in operating expenses was primarily due to higher operating expenses
resulting from the acquisition of Comtech, coupled with reserving $62,000 for
bad debts associated with one of our customers filing bankruptcy.
Income from Operations. Income from operations decreased $321,000, or 18.0% to
$1.46 million for the third quarter of fiscal 2002 from $1.78 million for the
10
same period last year. This decrease was primarily due to higher expenses
associated with operating expenses resulting from the recent acquisitions.
Comparison of Results of Operations for the Nine Months Ended June 30, 2002 and
June 30, 2001
Net Sales and Service Income. Net Sales increased $1.1 million or 6.6%, to
$18.3 million in the first nine months of fiscal year 2002 from $17.1 million
for the same period in 2001. The increase was primarily due to higher new
equipment sales, which increased to $7.75 million from $6.93 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 $2.70 million in this period from $2.37
million last year. Revenue from re-manufactured equipment increased to $7.79
million in the first nine months of fiscal year 2002 from $7.54 million for the
same period last year primarily due to the synergies created from our latest
acquisitions. NCS and Comtech had sales of $2.58 million and $1.45 million,
respectively.
Cost of Sales. Cost of goods sold increased to $9.13 million for the nine month
period of fiscal 2002 from $8.70 million for the same period of fiscal 2001.
The increase was primarily due to the increase in sales.
Gross Profit. Gross Profit increased $699,000 or 8.3% to $9.12 million for the
nine month period of fiscal 2002 from $8.42 million for the same period last
year. The gross margin percentage was 50.0% for the current nine month period,
compared to 49.2% for the same period in fiscal 2001.
Operating Expenses. Operating expenses increased to $5.35 million in the nine
month period of fiscal 2002 from $4.38 million in 2001, an increase of 22.1%.
The increase in operating expenses was primarily due to the acquisitions of NCS
and Comtech.
Income from Operations. Income from operations decreased $273,000 or 6.7%, to
$3.78 million for the first nine months of 2002 from $4.05 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 $9.0 million at a borrowing rate of 1.25% below Chase
Manhattan Prime (3.5% at June 30, 2002). This line of credit will provide the
lesser of $7.0 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 and $2.0 million for future acquisitions meeting Bank of Oklahoma
credit guidelines. The line of credit is collateralized by inventory, accounts
receivable, equipment and fixtures, and general intangibles and had an
outstanding balance at June 30, 2002 of $4.8 million, due June 30, 2003.
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 $175,000 balance remains
payable) and a $200,000 obligation payable quarterly at 7%(of which a balance of
$117,000 remains). Both notes are payable quarterly, with 7 quarters remaining.
Notes payable to Chymiak Investments, LLC for loans used to purchase buildings
at Comtech and ADDvantage Technologies Group of Texas, include two notes issued
in June 2001 for $328,000 and $150,000, respectively (of which balances of
$328,000 and $140,000 remains, respectively) bearing interest at 7.5% due
monthly with a 10 year term.
Stockholder loans include a $1.2 million 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 nine 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 6. Exhibits and Reports on Form 8-K.
(a) Exhibit No. Description
99.1 Certification of the Chief Executive Officer and Chief
Financial Officer Pursuant to U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K for the quarter ended June 30, 2002:
None
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
--------- ----- ----
/S/ Kenneth A. Chymiak
------------------------ Director and President August 13, 2002
Kenneth A. Chymiak (Principal Executive Officer)
/S/ Adam R. Havig
----------------------- Controller August 13, 2002
Adam R. Havig (Principal Accounting Officer)