As filed with the Securities and Exchange Commission on March 30, 2005.
Registration No. 333-120035
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------------
POST-EFFECTIVE AMENDMENT No. 1
----------------------
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 Identification No.)
incorporation or organization)
Primary Standard Industrial Classification Code Number - 5040
1605 E Iola
Broken Arrow, OK 74012
(918) 251-2887
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
----------------------
KENNETH A. CHYMIAK
President and Chief Executive Officer
ADDvantage Technologies Group, Inc.
1605 E Iola
Broken Arrow, OK 74012
(918) 251-2887
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
COPY TO:
Lynnwood R. Moore, Jr.
Conner & Winters, LLP
3700 First Place Tower
15 East 5th Street
Tulsa, Oklahoma 74103-4344
(918) 586-5711
-----------------------
Approximate date of commencement of proposed sale of the securities to the
public: From time to time or at one time after the effective date of the
Registration Statement as determined by market conditions.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The registrant hereby amends this Post-Effective Amendment to the Registration
Statement on the date or dates as may be necessary to delay its effective date
until the registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on the date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a), may determine.
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Subject to Completion, Dated March 30, 2005
3,500,000 Shares
ADDvantage Technologies Group, Inc.
Common Stock
------------
Up to 3,500,000 shares of our common stock (including up to 3,000,000 shares
that may be issued upon exercise of outstanding stock options) may be offered
for sale from time to time by certain selling shareholders named on page 7 of
this prospectus. We will not receive any of the proceeds from the sale of
these shares. There are three stock options granted by David E. Chymiak, our
Chairman of the Board, and Kenneth E. Chymiak, our President and Chief
Executive Officer, to Barron Partners, L.P., each covering 1,000,000 shares of
our common stock. The exercise prices of these options are $4.25 per share,
$5.25 per share and $6.25 per share, respectively. Their respective expiration
dates of these options are ------, 2006, ------, 2006 and ------, 2006. Sales
of shares by the selling shareholders may be effected from time to time in one
or more transactions, including block trades, in the over-the-counter market,
in negotiated transactions or in a combination of any of these methods of sale.
The selling price of the shares may be at the market price prevailing at
the time of sale, at a price related to such prevailing market price or at a
negotiated price. The selling shareholders may be deemed "underwriters" within
the meaning of the Securities Act of 1933, as amended. See "Plan of
Distribution" on page 8 of this prospectus.
The selling shareholders have sold 500,000 shares that were originally
offered pursuant to this prospectus. Additionally, the selling shareholders
exercised the first option to purchase 500,000 shares at a price of $4.25 per
share and have sold 287,000 of those shares.
Our common stock is listed on the American Stock Exchange under the symbol
AEY. On March 29, 2005, the closing price of our common stock was $4.05 per
share.
Investing in the common stock involves certain risks. See "Risk Factors"
beginning on page 4 in this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The date of this amended Prospectus is -----------, 2005.
TABLE OF CONTENTS
Page
----
Where You Can Find More Information 3
Summary 3
Risk Factors 4
Forward-Looking Statements 6
Use of Proceeds 7
Selling Shareholders 7
Plan of Distribution 8
Description of Securities to be Registered 9
Description of Business 9
Description of Property 12
Legal Proceedings 13
Market Price of and Dividends on the Registrant's Common Equity and Related
Stockholder Matters 13
Selected Financial Data 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations 15
Quantitative and Qualitative Disclosures About Market Risk 19
Directors and Executive Officers 19
Executive Compensation 20
Security Ownership of Certain Beneficial Owners and Management 22
Certain Relationships and Related Transactions 23
Legal Opinion 24
Experts 24
Index to Financial Statements F-1
Index to Unaudited Consolidated Condensed Financial Statements F-18
2
WHERE YOU CAN FIND MORE INFORMATION
You should rely only on the information provided in this prospectus.
We have not authorized anyone else to provide you with different information.
This prospectus is not an offer to sell these shares of common stock and it is
not soliciting an offer to buy these shares of common stock in any state where
the offer or sale is not permitted. You should not assume that the information
in this prospectus is accurate as of any date other than the date on the cover
page of this prospectus.
We file annual reports, quarterly reports, special reports, and other
information with the Securities and Exchange Commission ("SEC"). You may read
and copy reports, statements or other information at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for information on the operation of the Public Reference Rooms.
Our SEC filings are also available to the public from commercial document
retrieval services and at the website maintained by the SEC at
"http://www.sec.gov". Information about us can also be found at our website at
"www.addvantagetech.com".
This prospectus, which constitutes a part of a post-effective amendment on
Form S-1 to our registration statement on Form S-3 filed by us with the SEC
under the Securities Act of 1933, as amended, or the Securities Act, omits
certain of the information set forth in the registration statement.
Accordingly, you should refer to the registration statement and its exhibits
for further information with respect to us and our common stock. Copies of the
registration statement and its exhibits are on file at the offices of the SEC.
This prospectus contains statements concerning documents filed as exhibits.
For the complete text of any of these documents, we refer you to the copy of
the document filed as an exhibit to the registration statement.
SUMMARY
The following summary highlights selected information from this prospectus.
Because this is a summary, it does not contain all information about us that
may be important to you. You should read this entire prospectus. Unless the
context otherwise requires, references in this prospectus to "ADDvantage,"
"we," "us," and "our" refers to ADDvantage Technologies Group, Inc. and its
subsidiaries collectively.
ADDvantage Technologies Group, Inc.
Based in Broken Arrow, Oklahoma, we are a supplier of a comprehensive line
of electronics and hardware for the cable television ("CATV") industry.
Through our six wholly-owned operating subsidiaries, we distribute and service
products used to acquire, distribute and protect the broad range of
communications signals carried on fiber optic, coaxial cable and wireless
distribution systems.
Through our TULSAT subsidiary, we are an exclusive Scientific-Atlanta
Master Distributor for certain legacy products and a distributor for most of
Scientific-Atlanta's other products, including a nonexclusive distributor for
select transmission and subscriber products sold in Argentina, Bahamas, Belize,
Bolivia, Brazil, Caribbean Islands (excluding Cuba), Chile, Costa Rica,
Colombia, Dominican Republic, Ecuador, El Salvador, French Guyana, Guatemala,
Guyana, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Puerto Rico,
Suriname, Uruguay and Venezuela. Our NCS subsidiary is one of two preferred
distributors for Motorola's broadband products. Other subsidiaries distribute
products for leading cable equipment original equipment manufacturers such as
Standard, Corning-Gilbert, RL Drake Company, Blonder-Tongue Laboratories,
Quintech Electronics, Videotek and others. Each of our subsidiaries also
operates service repair centers specializing in Motorola, Magnavox, Scientific-
Atlanta and Alpha Power Supplies repairs. We are known for carrying
hard-to-find items and for our ability to respond quickly to customer needs.
We sell new, used and refurbished products to customers that provide an
array of communications services including television, high-speed data and
telephony to single family homes, apartments and institutions such as
hospitals, prisons, universities and schools. Some of our customers include
large multiple system operations ("MSOs") such as Cablevision, Comcast, Cox and
Time Warner; mid-market MSOs such as Cable One and Sequel III; competitive
service providers such as Knology and Seren; and private cable companies such
as those run by hotels, hospitals, schools and mobile parks.
3
Effective September 30, 2004, we redeemed all of the outstanding shares of
our Series A 5% Cumulative Convertible Preferred Stock. These shares were
redeemed at their stated value of $40.00 per share, or an aggregate payment of
$8,000,000 for all of the 200,000 shares redeemed. These shares were
beneficially owned 50% by David Chymiak and 50% by Kenneth A. Chymiak and his
wife.
Our mailing address is 1605 East Iola, Broken Arrow, OK 74012, and our
telephone number is (918) 251-2887. Our website is www.addvantagetech.com.
Except for this prospectus, other information on our website is not and should
not be considered a part of this prospectus.
The Offering
Common Stock offered by selling shareholders 500,000 shares
Shares underlying stock options held by selling shareholders 3,000,000 shares
Common Stock to be outstanding after the offering, based on
shares outstanding on March 11, 2005 10,067,172 shares
American Stock Exchange symbol AEY
No shares are being offered or sold by us either directly or through
options or warrants. The options have been granted to Barron Partners, L.P. by
David Chymiak and Kenneth Chymiak. Thus, neither the sale of any of the
offered shares nor exercise of the options will result in an increase in the
numbers of outstanding shares of our common stock. The total of 10,067,172
shares of common stock to be outstanding after this offering is based on the
number of shares outstanding on March 11, 2005.
This is a continuous offering and is not underwritten. We cannot predict
when or if the selling shareholders will sell their shares or exercise options
entitling them to purchase and possibly sell shares underlying the options.
This offering assumes that the selling shareholders will exercise all options
they hold for purchase of our common stock, for cash and at the current
exercise price.
RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information set forth in this prospectus, before deciding to purchase
any shares of our common stock. Each of these risk factors could adversely
affect our business, operating results and financial condition, as well as
adversely affect the value of an investment in our common stock. Additional
risks not presently known, or which we currently consider immaterial also may
adversely affect us.
We are highly dependent upon our principal executive officers who also control
us.
At March 14, 2005, David Chymiak, Chairman of the Board, and Kenneth
Chymiak, President and Chief Executive Officer, owned approximately 69.5% of
our outstanding common stock and 100% of our outstanding preferred stock. Our
performance is highly dependent upon the skill, experience and availability of
these two persons. Should either of them become unavailable to us, our
performance and results of operations would probably be adversely affected to a
material extent. In addition, they will continue to own a controlling interest
in us, thus restricting our ability to take any action without their approval
or acquiescence. Likewise, as shareholders, they may elect to take certain
actions which may be contrary to the interests of the other shareholders.
Our business is dependent on our customers' capital budgets.
Our performance is impacted by our customers' capital spending for
constructing, rebuilding, maintaining or upgrading broadband communications
systems. Capital spending in the telecommunications industry is cyclical. A
variety of factors will affect the amount of capital spending, and therefore,
our sales and profits, including:
*consolidations and recapitalizations in the cable television industry;
*general economic conditions;
*availability and cost of capital;
*other demands and opportunities for capital;
*regulations;
*demands for network services;
*competition and technology; and
*real or perceived trends or uncertainties in these factors.
4
Developments in the industry and in the capital markets in recent years
have reduced access to funding for certain customers, causing delays in the
timing and scale of deployments of our equipment, as well as the postponement
or cancellation of certain projects by our customers.
On the other hand, a significant increase in the capital budgets of our
customers could impact us in a negative fashion. Much of our inventory
consists of refurbished and surplus-new equipment and materials that we have
acquired from other cable operators. If our customers seek higher end, more
expensive equipment, the demand for our products may suffer.
The markets in which we operate are very competitive, and competitive pressures
may adversely affect our results of operations.
The markets for broadband communication equipment are extremely competitive and
dynamic, requiring the companies that compete in these markets to react quickly
and capitalize on changes. This will require us to make quick decisions and
deploy substantial resources in an effort to keep up with the ever-changing
demands of the industry. We compete with national and international
manufacturers, distributors, resellers and wholesalers including many companies
larger than we are.
The rapid technological changes occurring in the broadband markets may
lead to the entry of new competitors, including those with substantially
greater resources than we have. Because the markets in which we compete are
characterized by rapid growth and, in some cases, low barriers to entry,
smaller niche market companies and start-up ventures also may become principal
competitors in the future. Actions by existing competitors and the entry of new
competitors may have an adverse effect on our sales and profitability. The
broadband communications industry is further characterized by rapid
technological change. In the future, technological advances could lead to the
obsolescence of a substantial portion of our current inventory, which could
have a material adverse effect on our business.
Consolidations in the telecommunications industry could result in delays or
reductions in purchases of products, which would have a material adverse effect
on our business.
The telecommunications industry has experienced the consolidation of many
industry participants, and this trend is expected to continue. We and one or
more of our competitors may each supply products to businesses that have merged
or will merge in the future. Consolidations could result in delays in
purchasing decisions by the merged businesses, and we could play either a
greater or lesser role in supplying the communications products to the merged
entity. These purchasing decisions of the merged companies could have a
material adverse effect on our business. Mergers among the supplier base also
have increased, and this trend may continue. The larger combined companies with
pooled capital resources may be able to provide solution alternatives with
which we would be at a disadvantage to compete. The larger breadth of product
offerings by these consolidated suppliers could result in customers electing to
trim their supplier base for the advantages of one-stop shopping solutions for
all of their product needs. Consolidation of the supplier base could have a
material adverse effect on our business.
Our success depends in large part on our ability to attract and retain
qualified personnel in all facets of our operations.
Competition for qualified personnel is intense, and we may not be
successful in attracting and retaining key executives, marketing, engineering
and sales personnel, which could impact our ability to maintain and grow our
operations. Our future success will depend, to a significant extent, on the
ability of our management to operate effectively. The loss of services of any
key personnel, the inability to attract and retain qualified personnel in the
future or delays in hiring required personnel, particularly engineers and other
technical professionals, could negatively affect our business.
We are substantially dependent on certain manufacturers, and an inability to
obtain adequate and timely delivery of products could adversely affect our
business.
We are a value added reseller and master distributor for Scientific-
Atlanta and a value added reseller of Motorola broadband and transmission
products. Should these relationships terminate or deteriorate, or should
either manufacturer be unable or unwilling to deliver the products needed by us
for our customers, our performance could be adversely impacted. An inability
to obtain adequate deliveries or any other circumstance that would require us
to seek alternative sources of supply could affect our ability to ship products
on a timely basis. Any inability to reliably ship our products on time could
damage relationships with current and prospective customers and harm our
business.
5
We have a large investment in our inventory which could become obsolete or
outdated.
Much of our inventory is acquired from other cable operators and is in the
nature of used, refurbished, remanufactured or surplus new equipment.
Determining the amounts and types of inventory requires us to speculate to some
degree as to what the future demands of our customers will be. Technological
changes, consolidation in the industry or competition from other types of
broadcast media could substantially reduce the demands for our inventory, which
could have a material adverse effect upon our business and financial results.
Our outstanding common stock is very thinly traded.
While we have approximately 10.1 million shares of common stock
outstanding, 69.5% of these shares are beneficially owned at March 14, 2005 by
David Chymiak and Kenneth Chymiak and 2.1% are beneficially held by Barron
Partners, L.P. As a consequence, only about 28% of our shares of common stock
are held by nonaffiliated, public investors and available for public trading.
The average daily trading volume of our common stock is low. Thus, investors
in our common stock may encounter difficulty in liquidating their investment in
a timely and efficient manner.
We have not paid any dividends on our outstanding common stock and have no
plans to pay dividends in the future.
We have not paid any dividends on our common stock. We currently plan to
retain our earnings and have no plans to pay dividends on our common stock in
the future. We may also enter into credit agreements or other borrowing
arrangements which may restrict our ability to declare dividends on our
common stock.
Our principal executive officers and shareholders have a number of conflicts of
interest with us.
Certain of our key properties are leased from entities owned by our
principal executive officers. Also, these executives have made loans to us in
various amounts in the past and were paid interest on these loans. These
transactions are described in the proxy statement that is incorporated by
reference into this report. These arrangements create certain conflicts of
interest between these executives and us that may not always be resolved in a
manner most beneficial to us.
Our international operations may be adversely affected by a number of factors.
Although the majority of our business efforts are focused in the United
States, we have international operations in the Philippines, Taiwan, Korea,
Japan, Australia, Brazil, Ecuador, Dominican Republic, Honduras and a few other
Latin American countries. We currently have no binding agreements or
commitments to make any material international investment. Our foreign
operations may be adversely affected by a number of factors, including:
*local political and economic developments could restrict or increase the
cost of our foreign operations;
*exchange controls and currency fluctuations;
*tax increases and retroactive tax claims could increase costs of our
foreign operations;
*expropriation of our property could result in loss of revenue, property and
equipment;
*import and export regulations and other foreign laws or policies could
result in loss of revenues; and
*laws and policies of the United States affecting foreign trade, taxation and
investment could restrict our ability to fund foreign operations or make
foreign operations more costly.
FORWARD LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements, other than statements of historical facts, included in this
prospectus which address activities, events or developments which we expect or
anticipate will or may occur in the future are forward-looking statements. The
words "believes," "intends," "expects," "anticipates," "projects,"
"estimates," "predicts" and similar expressions are also intended to identify
forward-looking statements. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we can give no
assurance that such expectations reflected in such forward-looking statements
will prove to have been correct. These statements are subject to a number of
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risks, uncertainties and developments beyond our control or foresight,
including changes in the trends of the cable television industry, technological
developments, changes in the economic environment generally, the growth or
formation of competitors, changes in governmental regulation or taxation,
changes in our personnel and other such factors. Our actual results,
performance, or achievements may differ significantly from the results,
performance, or achievements expressed or implied in the forward-looking
statements. We do not undertake any obligation to publicly release any
revisions to these forward-looking statements to reflect events or
circumstances after the date of this prospectus or to reflect the occurrence of
unanticipated events. Readers should carefully review the risk factors
described under "Risk Factors" above.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares of common
stock offered by this prospectus.
SELLING SHAREHOLDERS
Background
On September 24, 2004, David E. Chymiak, our Chairman of the Board and
owner at that time of approximately 41.5% of our outstanding common stock and
50% of our outstanding preferred stock, and Kenneth A. Chymiak, our President
and Chief Executive Officer and owner at that time, together with his wife, of
approximately 37.6% of our outstanding common stock and 50% of our outstanding
preferred stock, entered into a stock purchase agreement with Barron Partners,
L.P., a Delaware limited partnership whose main offices are in New York,
New York, pursuant to which Barron Partners agreed to purchase from the
Chymiaks 500,000 shares of our common stock at a price of $3.25 per share.
In the same agreement, Barron Partners was also granted the options described
below. As of the date of this amended prospectus, Barron Partners purchased an
additional 500,000 shares through partial exercises of Option No. 1. As of
March 14, 2005, David E. Chymiak owned 36.7% of our outstanding common stock
and 50% of our outstanding preferred stock, and Kenneth A. Chymiak together
with his wife owned 32.8% of our common stock and 50% of our outstanding
preferred stock. As of March 14, 2005, the 213,000 shares owned by Barron
Partners represented approximately 2.1% of our outstanding common stock.
Bathgate Capital Partners, LLC received a fee of $97,500 in connection with the
sale of the 500,000 shares, a combined fee of $115,000 in connection with the
sale of 500,000 shares upon partial exercises of Option 1 by Barron Partners,
and will receive additional fees if and to the extent that additional options
are exercised.
Under the stock purchase agreement, Barron Partners was also granted three
options to buy up to an additional 3,000,000 shares of common stock from the
Chymiaks. The terms of these options are summarized as follows:
Option No. of Shares Exercise Price Expiration Date*
------ ------------- -------------- ----------------
No. 1 1,000,000 $4.25
No. 2 1,000,000 $5.25
No. 3 1,000,000 $6.25
* The expiration date will be extended during any period that Barron Partners
is not able to sell shares under the registration statement of which this
prospectus is a part.
Each option can be exercised at any time in whole or in part, except that
each exercise must be for a minimum of 150,000 shares. The stock purchase
agreement provides that the options are not exercisable to the extent that
shares received upon exercise, when added to the shares that Barron Partners
then beneficially own, would represent more than 4.99% of our outstanding
shares. This restriction can be eliminated by Barron Partners upon 61 days'
prior written notice. The 3,500,000 shares covered by the stock purchase
agreement represent approximately 34.8% of our outstanding shares of common
stock.
All of the shares which Barron Partners have purchased and which it has
the right to acquire under the terms of the stock purchase agreement, including
the shares which they are entitled to receive upon exercise of the options, may
be offered for sale from time to time by the selling shareholders pursuant to
this prospectus. The term "selling shareholders" as used in this prospectus,
includes Barron Partners, L.P. and their transferees, pledges, donees and other
successors acquiring an interest in the shares after the date of this
prospectus.
7
The selling shareholders are not obligated to sell their shares. If they
do sell their shares, they may be sold pursuant to this prospectus or in
another permitted manner. Thus, no assurances can be given as to the number of
shares that may be sold by the selling shareholders or that will be held by
them upon completion of the sales. Information concerning the selling
shareholders may change from time to time and the changed information will be
presented in a supplement to this prospectus if and when necessary and
required. We do not know whether or when the options will be exercised or how
long the selling shareholders may hold their shares before selling them. We
currently have no agreements, arrangements or understandings with any of the
selling shareholders regarding sales of their shares.
Barron Partners, L.P. has not had a material relationship with us or any
of our subsidiaries within the past three years. They also have sole voting
and investment power with respect to the shares that they acquire pursuant to
the stock purchase agreement.
PLAN OF DISTRIBUTION
We are registering the offer and sale of the shares covered by this
prospectus on behalf of the selling shareholders. As used in this prospectus,
the term "selling shareholders" includes donees, pledges, transferees or other
successors-in-interest selling shares received from a selling stockholder after
the date of this prospectus. The selling shareholders will act independently
of us in making decisions with respect to the timing, manner and size of each
sale.
The selling shareholders may sell their shares from time to time in one or
more types of transactions (which may include block transactions) on the
American Stock Exchange, in the over-the-counter market, in negotiated
transactions, through put or call options transactions relating to the shares,
through short sales of shares, or a combination of these methods of sale, at
market prices prevailing at the time of sale, at negotiated prices, or at
varying prices determined at the time of sale. These transactions may or may
not involve brokers or dealers. The selling shareholders have advised us that
they have not entered into any agreements, understandings or arrangements with
any underwriters or broker-dealers regarding the sale of their shares, nor is
there an underwriter or coordinating broker acting in connection with the
proposed sale of shares by the selling shareholders.
The selling shareholders may sell their shares directly to purchasers or
to or through broker-dealers, which may act as agents or principals. These
broker-dealers may receive compensation in the form of discounts, concessions,
or commissions from the selling shareholders and/or the purchasers of shares
for whom these broker-dealers may act as agents or to whom they sell as
principal, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions).
The selling shareholders also may resell any of their shares that qualify
for sale under Rule 144 in open market transactions pursuant to Rule 144 under
the Securities Act, rather than pursuant to this prospectus.
The selling shareholders and any broker-dealers that act in connection
with the sale of their shares might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any commissions received by
these broker-dealers and any profit on the resale of the shares sold by them
while acting as principals might be deemed to be underwriting discounts or
commissions under the Securities Act. We have agreed to indemnify the selling
shareholders against certain liabilities, including liabilities arising under
the Securities Act. The selling shareholders may agree to indemnify any agent,
dealer or broker-dealer that participates in transactions involving sales of
their shares against certain liabilities, including liabilities arising under
the Securities Act.
Because the selling shareholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the selling shareholders
will be subject to the prospectus delivery requirements of the Securities Act.
We have informed the selling shareholders that the anti-manipulative provisions
of Regulation M promulgated under the Exchange Act may apply to their sales in
the market.
Upon notification to us by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing:
* the name of the selling stockholder and of the participating
broker-dealer(s);
* the number of shares involved;
8
* the price at which the shares were sold;
* the commissions paid or discounts or concessions allowed to the
broker-dealer(s), where applicable;
* that the broker-dealer(s) did not conduct any investigation to verify
the information set out in this prospectus; and
* any other facts material to the transaction.
We will pay all the costs, expenses and fees related to the registration
of the shares offered by this prospectus. The selling shareholders will be
responsible for the payment of any brokerage commissions, underwriting fees or
discounts or fees or expenses of counsel or advisors attributable to the sale
of the shares.
DESCRIPTION OF SECURITIES TO BE REGISTERED
Our authorized capital stock consists of 35,000,000 shares, including (a)
30,000,000 shares of common stock, par value $0.01 per share, of which
10,067,172 shares were issued and outstanding as of March 11, 2005, and (b)
5,000,000 shares of preferred stock, par value $1.00 per share, of which
300,000 have been designated as Series B 7% Cumulative Preferred Stock (the
"Preferred Stock"), and of which 300,000 were issued and outstanding as of
January 31, 2005. Our outstanding Series A 5% Cumulative Convertible Preferred
Stock was redeemed on September 30, 2004.
Prior to November 24, 2003, our common stock was traded on the OTC
Bulletin Board under the symbol ADDM. On November 24, 2003, our common stock
began trading on the American Stock Exchange under the symbol AEY.
The holders of shares of our common stock are entitled to one vote for
each share of record held on each matter submitted to shareholders. Shares of
our common stock do not have cumulative voting rights for the election of
directors. The holders of shares of our common stock are entitled to receive
such dividends as the Board of Directors may from time to time declare out of
our funds that are legally available for the payment of dividends, subject to
any prior rights of holders of the Preferred Stock. The holders of shares of
our common stock do not have any preemptive rights to subscribe for or purchase
any stock, obligations or other securities of ours and have no rights to
convert their shares of our common stock into any other securities. Upon any
liquidation, dissolution or winding up of the Company, holders of shares of our
common stock are entitled to receive pro rata all of our assets available for
distribution to shareholders, subject to any prior rights of holders of the
Preferred Stock and any other outstanding preferred stock.
DESCRIPTION OF BUSINESS
General Development of Business
ADDvantage Technologies Group, Inc. is an Oklahoma corporation that was
organized on September 20, 1989. Prior to December 30, 1999, we were known as
ADDvantage Media Group, Inc. ("AMG"). From 1989 through much of 1998, AMG was
in the business of providing advertising services, primarily on Shoppers
Calculators(r) which are solar powered calculators that attach to the handles of
shopping carts. AMG's operations primarily consisted of the implementation of
its Shoppers Calculators(r) program in Supercenter stores operated by Wal-Mart
Stores, Inc. ("Wal-Mart"). Substantially all of AMG's revenues in 1997 and
1998 were generated from a contract with Wal-Mart. In 1998, Wal-Mart notified
AMG of its intent not to renew its contract and AMG began removing the
calculators from the Wal-Mart Supercenters. Removal of the calculators was
completed in September of 1998. A lawsuit was commenced against Wal-Mart about
the same time. This suit was settled in July of 1999 for a nominal payment to
AMG.
AMG began considering alternative business plans and possible business
combinations. On September 30, 1999, the former shareholders of TULSAT
Corporation (formerly named DRK Enterprises, Inc.) assumed control of AMG
pursuant to the Securities Exchange Agreement ("Agreement") entered into on
September 16, 1999. Pursuant to the Agreement, the TULSAT shareholders
transferred all the issued and outstanding common stock of TULSAT, along with
$10,000,000 of TULSAT promissory notes, to ADDvantage Media in exchange for
8,000,000 shares of ADDvantage Media $.01 par value common stock, 200,000
shares of newly issued Series A 5% Cumulative Convertible Preferred Stock, par
value $1.00 per share, with a stated value of $40.00 per share (convertible
into ADDvantage Media common stock at a price of $4.00 per share), and 300,000
shares of newly issued Series B 7% Cumulative Preferred Stock, par value $1.00
per share, with a stated value of $40.00 per share.
9
As a result of this transaction, TULSAT became a wholly owned subsidiary
of AMG and the former TULSAT owners acquired approximately 82% of the then
issued and outstanding common stock, and 100% of the issued and outstanding
preferred stock of AMG. Because the TULSAT shareholders received 82% of the
common stock and all the preferred stock, TULSAT was considered the surviving
corporation and its past financial results were reported as the historical
results of AMG. TULSAT's management assumed management and control of AMG.
The transaction was accounted for as a purchase of AMG by TULSAT. On December
30, 1999, AMG changed its name to ADDvantage Technologies Group, Inc.
Current Business
We are a supplier of a comprehensive line of electronics and hardware for
the cable television ("CATV") industry (both franchise and non-franchise, or
private cable). Our products are used to acquire, distribute and protect the
broad range of communications signals carried on fiber optic, coaxial cable and
wireless distribution systems. These products are sold to customers providing
an array of communications services including television, high-speed data
(internet) and telephony, to single family dwellings, apartments and
institutions such as hospitals, prisons, universities, schools, cruise boats
and others.
TULSAT, one of our subsidiaries, is an exclusive Scientific-Atlanta Master
Distributor for certain legacy products and distributes most of Scientific-
Atlanta's other products. TULSAT has been designated an authorized third party
Scientific-Atlanta repair center for selected products. Another subsidiary,
NCS Industries, is a leading distributor of Motorola broadband products. Other
subsidiaries distribute Standard, Corning-Gilbert, Blonder-Tongue, RL Drake,
Quintech and Videotek products. We continue to upgrade our products to stay in
the forefront of the communications broadband technology revolution.
We continue to expand our core product lines (head end and distribution),
to maintain the ability to provide electronics equipment needed to build
smaller cable systems and much of the equipment needed in larger systems for
the most efficient operation and highest profitability in high density areas.
We also continue to purchase surplus equipment from cable operators and
others that become available as a result of upgrades in their systems or
overstocks in their warehouses. We maintain one of the industries' largest
inventories of new and refurbished equipment, allowing us to provide products
within a short period of time. Each of our six locations operates service
centers specializing in Motorola, Magnavox, Scientific-Atlanta and Alpha Power
Supplies repairs.
Overview of the Industry
We participate in markets for equipment sold primarily to cable operators
and other related parties. As internet usage by households continues to
increase, more customers are electing to switch from dial-up access services to
high-speed services, particularly those offered by cable operators in the
United States. Within the last few years, certain cable operators have begun
to offer a "triple-play" bundle of services that includes voice, video and
high-speed data over a single network with the objective of capturing higher
average revenues per subscriber. We believe cable operators are well
positioned to deliver next-generation voice, video and data services because
cable operators have invested significantly over the past few years to upgrade
their cable plants to digital networks. These upgrades allow them to leverage
their incumbent video and high speed data positions further. Many cable
operators have well-equipped networks to offer video and two-way high-speed
data services to over 90% of their subscribers and through their existing
Hybrid Fiber Co-axial (HFC) infrastructure, are capable of delivering
symmetrical high-bandwidth video, voice and data to their subscribers.
For the past couple of years, we believe that we have been able to provide
the products and services sought after by cable operators as they establish and
expand their services and territories. Our relationships with our principal
vendors, Scientific-Atlanta and Motorola, provide solutions with products that
are required to implement and support existing cable operators. These
relationships and our inventory are key factors in our significant revenue and
profits.
We are focused on the opportunities provided by technological changes in
fiber-to-the premises, the expansion of bandwidth, and our recent appointment
as a Scientific-Atlanta International Distributor for Latin America. We will
continue to stock legacy CATV equipment as well as digital and optical
broadband telecommunications equipment from major suppliers so we can provide
our customers one-stop shopping and access to "hard-to-find" products by
reducing customer downtime by our having the product in stock. Our customers
consult with us for solutions for various products and configurations. We have
the technical know-how from our experienced sales support staff. Through our
10
six "world-class" service centers that provide warranty and out-of-warranty
repairs, we continue to reach new customers.
Business of the Company
We continue to add products and services to maintain and expand our
current customer base in North America, Latin America, Europe and the Far East.
Recently, Scientific-Atlanta has appointed one of our subsidiaries, Tulsat
Corporation, to become one of their non-exclusive distributors in Latin
America. Since the appointment, management has made several trips to the area,
visiting with relationships that had previously been developed by our new sales
associate for this area. In addition, Tulsat has contracted for 12 months of
advertising in the leading magazine for the cable equipment market in this area
and Spain.
Economics seem to be improving for the international cable operators in
Latin America. The continuing advances in technology, products and services
will continue to create a better financial model for potential customers. We
require prepayment of purchases or letters of credit from U.S. banks prior to
shipment of products to most international customers. Recently, we have found
several other methods of guaranteeing payment through insurance companies or
government agencies. The successful implementation of alternative methods of
payments should put our companies in a better position to capture market share.
Geographic Areas
Revenues by geographic areas are as follows:
Year ended September 30,
---------------------------------------------
2004 2003 2002
---------------------------------------------
Geographic Area
United States $46,163,254 $32,026,494 $24,710,724
Latin America, Mexico,
and Other 908,075 1,301,251 698,207
---------------------------------------------
$47,071,329 $33,327,745 $25,408,931
=============================================
Revenues attributed to geographic areas are based on the location of the
customer. All of our long-lived assets are located in the United States.
Products and Services
In fiscal year 2004, our sales of new products represented 70% of our
revenue and re-manufactured product sales represented 20% of our revenues.
Repair services contributed the remaining 10% of our revenues.
In fiscal year 2003, our sales of new products represented 59% of our
revenue and re-manufactured product sales represented 27% of our revenues.
Repair services contributed the remaining 14% of our revenues.
In fiscal year 2002, our sales of new and surplus products represented 46%
of our revenue and re-manufactured product sales represented 38% of the
revenues. Repair services contributed the remaining 16% of our revenues.
Headend products are used by a system operator for signal acquisition,
processing and manipulation for further transmission. Among the products we
offer in this category are satellite receivers (digital and analog), integrated
receiver/decoders, demodulators, modulators, antennas and antenna mounts,
amplifiers, equalizers and processors. The headend of a television signal
distribution system is the "brain" of the system, the central locations where
the multi-channel signal is initially received, converted and allocated to
specific channels for distribution. In some cases, where the signal is
transmitted in encrypted form or digitized and compressed, the receiver will
also be required to decode the signal.
11
Fiber products are used to transmit the output of cable system headend to
multiple locations using fiber optic cable. Among the products offered are
optical transmitters, receivers, couplers, splitters and compatible
accessories. These products convert RF frequencies to light frequencies and
launch them on optical fiber. At each receiver site, an optical receiver is
used to convert the signals back to RF VHF frequencies for distribution to
subscribers.
Distribution products are used to permit signals to travel from the
headend to their ultimate destination in a home, apartment, hotel room, office
or other terminal location along a distribution network of fiber optic or
coaxial cable. Among the products we offer in this category are optical
transmitters, optical receivers, line extenders, broadband amplifiers,
directional taps and splitters.
Other hardware such as test equipment, connector and cable products are
also inventoried and sold to our customers.
Sales and Marketing
We market and sell our products to franchise and private cable operators,
system contractors and others directly. Our sales and marketing are
predominantly performed by our internal sales force. We also have sales
representatives in particular geographic areas. The majority of our sales
activity is generated through personal relationships developed by our sales
personnel and executives, referrals from manufacturers we represent,
advertising in trade journals, telemarketing and direct mail to our customer
base in the United States. We have developed contacts with the major CATV
operators in the United States and we are constantly in touch with these
operators regarding their plans for upgrading or expansion and their needs to
either purchase or sell equipment. In 2004, we purchased approximately 39% of
our inventory from Scientific-Atlanta and approximately 14% of our inventory
from Motorola. The concentration of suppliers of our inventory subjects us to
risk. We also purchase a large amount of our inventory from cable operators
who have upgraded or are in the process of upgrading, their systems.
Competition
The CATV industry is highly competitive with numerous companies competing
in various segments of the market. There are a number of customers throughout
the United States engaged in buying and selling re-manufactured CATV equipment.
Most of our competitors are not able to maintain the large inventory we
maintain due to capital requirements. In terms of sales and inventory, we are
the largest in this industry, providing both sales and service of new and re-
manufactured CATV equipment.
We also face competition from manufacturers and other vendors supplying
new products. Due to our large inventory, we generally have the ability to
ship and supply products to our customers from our large inventory without
having to wait for the manufacturers to supply the items.
Significant Customers
We are not dependent on one or a few customers to support our business.
The customer base consists of over 1,200 active accounts. Sales to Power and
Telephone Supply Company accounted for approximately 11.9% of our revenues in
fiscal 2004. Approximately 23% of our revenues for fiscal year 2004 and
approximately 33% for 2003 were derived from sales of products and services to
our five largest customers. There are approximately 6,000 cable television
systems within the United States, each of which is a potential customer.
Personnel
At February 28, 2005, we had 137 employees. Management considers its
relationships with its employees to be excellent. Our employees are not
unionized and we are not subject to any collective bargaining agreements.
Segments
We operate in one business segment.
DESCRIPTION OF PROPERTY
Each subsidiary owns or leases property for office space and warehouse
facilities. Tulsat Corporation ("TULSAT") leases a total of approximately
133,050 square feet of facilities in seven buildings from entities which are
12
controlled by David E. Chymiak, Chairman of the Board and Kenneth A. Chymiak,
President and Chief Executive Officer. Each lease has a renewable five-year
term, expiring at different times through 2008. At September 30, 2004, total
monthly rental payments of $38,800 were required. ADDvantage Technologies
Group of Nebraska, Inc. (dba "Lee Enterprise") owns property of approximately
8,000 square feet, with an investment of $267,000. NCS Industries, Inc.
("NCS") owns property of approximately 12,000 square feet, with an investment
of $567,000, financed by loans of $419,000, due in monthly payments through
2013 at an interest rate of 5.5% through 2008, converting thereafter to prime
minus 1/4%. NCS also rents property of approximately 2,000 square feet, with
monthly rental payments of $1,200 through November 2005. ADDvantage
Technologies Group of Missouri, Inc. (dba "ComTech Services") owns property of
approximately 11,000 square feet, with an investment of $343,000. ADDvantage
Technologies Group of Texas, Inc. ("TULSAT-Texas") owns property of
approximately 13,000 square feet, with an investment of $150,000. TULSAT
-Atlanta, LLC ("Tulsat-Atlanta") rents property of approximately 4,300 square
feet. The term is month-to-month, with monthly rental payments of
approximately $2,400. We believe that our current facilities are adequate to
meet our needs.
LEGAL PROCEEDINGS
From time to time in the ordinary course of business, we have become a
defendant in various types of legal proceedings. We do not believe that these
proceedings, individually or in the aggregate, will have a material adverse
effect on our financial position, results of operations or cash flows.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to November 24, 2003, our common stock was traded on the OTC
Bulletin Board under the symbol ADDM. On November 24, 2003, our common stock
began trading on the American Stock Exchange under the symbol AEY.
The following table sets forth, for the quarterly periods indicated of
fiscal 2003 and the first quarter (through November 23, 2003) of fiscal 2004,
the high and low bid quotations per share for our common stock as quoted on the
OTC bulletin board. These quotations represent inter-dealer prices without an
adjustment for retail mark-ups, mark-downs or commissions and may not represent
actual transactions. From November 24, 2003 through March 14, 2005, the table
sets forth the high and low sales prices on the American Stock Exchange for the
quarterly periods indicated.
Year Ended September 30, 2003 High Low
----------------------------- ---- ---
First Quarter $0.90 $0.52
Second Quarter $2.10 $0.60
Third Quarter $2.50 $1.40
Fourth Quarter $4.50 $1.60
Year Ended September 30, 2004 High Low
----------------------------- ---- ---
First Quarter $6.05 $3.00
Second Quarter $5.90 $4.00
Third Quarter $6.90 $4.66
Fourth Quarter $5.30 $3.35
Year Ended September 30, 2005
-----------------------------
First Quarter $6.08 $3.88
Second Quarter (through March 14, 2005) $5.94 $4.05
Substantially all of the holders of our common stock maintain ownership of
their shares in "street name" accounts and are not, individually, shareholders
of record. As of March 10, 2005, there were approximately 80 holders of record
of our common stock. However, we believe there are in excess of 500 beneficial
owners of our common stock.
13
Dividend Policy
We have never declared or paid a cash dividend on our common stock. It
has been the policy of our Board of Directors to use all available funds to
finance the development and growth of our business. The payment of cash
dividends in the future will be dependent upon our earnings and financial
requirements and other factors deemed relevant by our Board of Directors.
Under the terms of our outstanding preferred stock, no dividends may be paid on
our common stock unless all cumulative cash dividends due on the preferred
stock have been paid or provided for.
Under the terms of our credit agreement, if we are in default under that
agreement, we must have the prior written consent of our lender in order to
declare or pay any dividends on, or make any other distribution with respect to
any shares of our capital stock, or make any advances or loans to stockholders.
Equity Compensation Plan Information
The following table summarizes information as of September 30, 2004
regarding our common stock reserved for issuance under our equity compensation
plan.
Number of Securities
Weighted- Remaining Available for
Number of Securities to Average Future Issuance Under
be Issued Upon Exercise Price the Plans (Excluding
Exercise of Outstanding of Outstanding Securities Reflected in
Options Options Column (a))
Plan Category (a) (b) (c)
Equity Compensation Plans
131,125 $2.83 811,041
Approved by Security
Holders
Equity Compensation Plans
- - -
Not Approved by Security
Holders
TOTAL 131,125 $2.83 811,041
SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year ended September 30,
------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Net Sales and service income $47,071 $33,327 $25,409 $22,885 $22,003
Income from operations 9,484 6,197 3,550 4,855 6,134
Net income 5,814 4,493 2,201 2,851 3,708
Earnings per share
Basic $ .46 $ .33 $ .10 $ .16 $ .25
Diluted $ .41 $ .30 $ .10 $ .16 $ .24
Total assets $32,359 $31,748 $26,531 $25,335 $21,951
Long-term obligations inclusive
of current maturities $11,610 $ 6,912 $ 6,276 $ 6,253 $ 5,039
14
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.
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.
15
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.
Year Ended September 30, 2004, Compared to Year Ended September 30, 2003 (all
references to years are to fiscal years)
Net Sales. Net sales climbed $13.7 million or 41.2% to $47.1 million for 2004
from $33.3 million for 2003. Sales of new and refurbished equipment increased
47.3% from $28.8 million in 2003 to $42.4 million for 2004, primarily due to
the positive results of our marketing initiatives and the strengthening of our
distributor relationships. Sales of new Scientific-Atlanta and Motorola
equipment increased substantially as we strengthened our strategic alliances
with these manufacturers. Repair service revenues increased by 2.7% from $4.5
million last year to $4.6 million this year. The increase in repair services
was due to the continued focus of being a leading repair service provider for
both warranty and non-warranty repairs.
Costs of Sales. Costs of sales includes the costs of new and refurbished
equipment, on a weighted average cost basis, sold during the period, the
equipment costs used in repairs, and the related transportation costs. Costs of
sales this year were 61.2% of net sales compared to 57.2% last year. Costs of
sales for new and refurbished equipment increased to 65.2% of net sales for
2004 from 63.3% of net sales for 2003. This was primarily due to the higher
proportion in 2004 of sales of new equipment, which has margins lower than that
of refurbished equipment. Costs of sales for repair services increased to 24.6%
of net sales for 2004 from 19.9% of net sales for 2003. This increase was due
primarily to the high-end hybrid and fiber optic equipment being repaired,
which involves a higher relative cost of material.
Gross Profit. Gross profit climbed $4.0 million, or 28.1%, to $18.3 million
for fiscal 2004 from $14.3 million for fiscal 2003. The gross margin percentage
was 38.8% for the current year, compared to 42.8% for last year. The percentage
decrease was primarily due to an increase in sales of new and surplus
equipment, which is accompanied by margins lower than that of re-manufactured
equipment or repairs.
Operating, Selling, General and Administrative Expenses. Operating, selling,
general and administrative expenses include all personnel costs, including
fringe benefits, insurance and taxes, occupancy, transportation, communication
and professional services, among other less significant accounts. Operating,
selling, general and administrative expenses increased by $693,000 for fiscal
2004 to $8.5 million from $7.8 million in 2003, an increase of 8.9%. The
increase in operating, selling, general and administrative expenses was
primarily due to increases in salaries and wages and the incurrence of fees for
the Company's commencement of trading on the American Stock Exchange.
Income from Operations. Income from operations increased $3.3 million, or
53.1%, to $9.5 million for 2004 from $6.2 million for 2003. This increase was
primarily due to increases in sales of new equipment to the larger MSOs,
partially offset by the lower margins received and the increase in our
operating, selling, general and administrative expenses.
Interest Expense. Interest expense for fiscal 2004 was $158,000 compared to
$217,000 in fiscal 2003. The decrease was primarily attributable to a lower
average interest rate on our line of credit and the lower average balances
outstanding on this line during 2004. The weighted average interest rate paid
on the line of credit decreased to 2.85% for 2004 from 2.98% for 2003.
16
Income Taxes. The provision for income taxes for fiscal 2004 increased to $3.5
million from $1.5 million in fiscal 2003. The increase was primarily due to
higher pre-tax earnings in fiscal 2004 and a reduction in fiscal 2003 of the
Company's allowance against deferred tax assets due to favorable tax
developments during that period. For a more complete discussion of income
taxes, please see "Note 4 - Income Taxes" in the notes to the consolidated
financial statements.
Year Ended September 30, 2003, Compared to Year Ended September 30, 2002 (all
references to years are to fiscal years)
Net Sales. Net sales climbed $7.9 million or 31.2% to $33.3 million for 2003
from $25.4 million for 2002. Sales of new and refurbished equipment increased
33.9% from $21.5 million for 2002 to $28.8 million for 2003 as we strengthened
our role as a Master Distributor for several of Scientific-Atlanta's legacy
products and increased sales of Motorola products. Our focus on increasing
repair revenue resulted in a 15.8% increase in those revenues, from $3.9
million for 2002 to $4.5 million for 2003. The increase in repair services was
due to the continued focus of being a leading repair service provider and the
expansion of our repairs sales to our Atlanta operations which began in June of
2002.
Costs of Sales. Costs of sales includes the costs of new and refurbished
equipment, on a weighted average cost basis, sold during the period, the
equipment costs used in repairs, and the related transportation costs. Costs of
sales for 2003 were 57.2% of net sales compared to 56.6% for 2002. Costs of
sales for new and refurbished equipment decreased slightly to 63.3% of net
sales for 2003 from 63.8% of net sales for 2002. This was primarily due to the
write-down of inventory in 2002 of $1.4 million, partially offset by the
allowance for obsolete inventory recorded in 2003 of $447,000. Costs of sales
for repair services increased to 19.9% of net sales for 2003 from 16.9% of net
sales for 2002. This increase was due primarily to the increase in our repairs
on more high-end hybrid and fiber optic equipment, which involve a higher
relative cost of material.
Operating, Selling, General and Administrative Expenses. Operating, selling,
general and administrative expenses includes 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
increased $629,000 or 8.8% in 2003 over the previous year. Most of this
increase was directly attributable to the commencement of operations of Tulsat-
Atlanta in June 2002, coupled with an expanding sales force and other added
expenses incurred to meet the marketing initiatives described previously.
Income from Operations. Income from operations increased 74.6% to $6.2 million
for 2003 from $3.5 million for 2002. This increase was primarily due to the
increase in net sales and the inventory write-down in 2002, partially offset by
the charge in 2003 to reduce inventory for obsolete equipment and the increase
in our operating, selling, general and administrative expenses.
Interest Expense. Interest expense for fiscal 2003 was $217,000 compared to
$245,000 in fiscal 2002. The decrease was primarily attributable to a lower
average interest rate on our line of credit, partially offset by higher average
balances outstanding on this line during 2003. The weighted average interest
rate paid on the line of credit decreased to 2.98% for 2003 from 3.67% for
2002.
Income Taxes. The provision for income taxes for fiscal 2003 increased to $1.5
million from $1.1 million in fiscal 2002. The increase was primarily due to
higher pre-tax earnings, partially offset by a favorable impact from changes in
the deferred tax valuation allowance. For a more complete discussion of income
taxes, please see "Note 4 - Income Taxes" in the notes to the consolidated
financial statements.
Critical Accounting Policies
Note 1 to the Consolidated Financial Statements in this prospectus
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.
17
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.
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.
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%.
18
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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market rate risk for changes in interest rates relates
primarily to our 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.
We maintain no cash equivalents. However, we 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.
DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and business experience of our directors are set forth
below. Ages are as of March 23, 2005. The term of each director is one year
and expires at each annual shareholders' meeting. Our only executive officers
are David E. Chymiak and Kenneth A. Chymiak, whose positions are set forth
below.
David E. Chymiak Director since 1999
David E. Chymiak, 60, has been the Chairman of our board since 1999. He
is also the President and a director of our wholly owned subsidiary, TULSAT
Corporation, which he and Kenneth A. Chymiak acquired in 1985. David E.
Chymiak is the brother of Kenneth A. Chymiak, our President and Chief Executive
Officer.
Kenneth A. Chymiak Director since 1999
Kenneth A. Chymiak, 58, has been our President and Chief Executive Officer
since 1999. He has also been the Executive Vice President and a director of
our wholly owned subsidiary, TULSAT Corporation, which he acquired with David
E. Chymiak in 1985, since 1985. Kenneth A. Chymiak is the brother of David E.
Chymiak, our Chairman of the Board since 1999.
Freddie H. Gibson Director since 1999
Freddie H. Gibson, 57, has been with the Heat Transfer Equipment Company
in Tulsa, Oklahoma since 1988. First as CEO, he has served since 1994 as the
President with responsibilities for the financial and accounting controls,
financial reporting, management of staff coordination and short and long-term
planning. Previously, Mr. Gibson had been President of Interactive Computer
Systems from 1980-1988. Also, he was the Controller and Systems Manager for
two other companies and began his career with Arthur Andersen & Co. in their
administrative services division. Mr. Gibson holds a Bachelor of Science
degree in Business Administration from Oklahoma State University, graduating
with honors.
Stephen J. Tyde Director since 1999
Stephen J. Tyde, 58, is the founder of The Pump & Motor Works, Inc., a
re-manufacturer of industrial pumps, motors, transformers and switchgear (to
20,000 hp). After 20 years in the turbo machinery business, Mr. Tyde started
The Pump & Motor Works in 1989 and developed it to a multi-million dollar
operation before his divestiture in 2001. During that time, Mr. Tyde oversaw
all aspects of the company and retained personal responsibility for financial
planning, reporting and controls. He continues to serve on a part time basis
as Vice President. Mr. Tyde is currently the sole owner and COO of P&MW
Holding, Inc., an industrial real estate company. Steven J. Tyde received an
undergraduate degree in Business Administration from The Ohio State University,
19
a Masters Degree in Business Administration from George Washington University,
and has studied engineering at the University of Pittsburgh.
Henry F. McCabe Director since 2004
Henry F. McCabe, 82, is Chairman of the Board of McCabe Minerals Inc. in
Tulsa, Oklahoma, where he has been employed since 1976. McCabe Minerals
operates manufacturing and processing plants in the states of Nebraska, Kansas
and Oklahoma, which provide granules for asphalt shingle manufacturers. Mr.
McCabe was Co-Founder of the company in 1976 and engages in numerous other
business enterprises.
Audit Committee
Our Board of Directors has designated an Audit Committee, composed of
three members: Stephen J. Tyde, Freddie H. Gibson and Henry F. McCabe.
Audit Committee Financial Expert
The Securities and Exchange Commission has adopted rules pursuant to the
provisions of the Sarbanes-Oxley Act requiring audit committees to include an
"audit committee financial expert," defined as a person who has the following
attributes:
1) an understanding of generally accepted accounting principles and financial
statements;
2) the ability to assess the general application of such principles in
connection with the accounting for estimates, accruals and reserves;
3) experience preparing, auditing, analyzing or evaluating financial statements
that present a breadth and level of complexity of accounting issues that are
generally comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the registrant's financial
statements, or experience actively supervising one or more persons engaged
in such activities;
4) an understanding of internal control over financial reporting; and
5) an understanding of audit committee functions.
An individual will have to possess all of the attributes listed above to
qualify as an audit committee financial expert. The Audit Committee member
currently serving in this capacity is Stephen J. Tyde, an independent director.
EXECUTIVE COMPENSATION
Summary Compensation Table
Executive Officers
The following table sets forth the compensation for our two executive officers
for the periods indicated:
Annual Compensation Long-Term Compensation
------------------- ----------------------
Number
Other of Shares
Annual Under-
Compen lying
Name and Salary Bonus sation Options
Principal Position Year ($)(1) ($) ($)(2) Granted
------------------ ---- ------ ----- ------ -------
David E. Chymiak 2004 225,000 -0- 10,837 1,000
Chairman 2003 225,000 -0- 10,240 1,000
2002 225,000 -0- 10,000 1,000
20
Kenneth A. Chymiak 2004 225,000 -0- 10,837 1,000
President and 2003 225,000 -0- 10,240 1,000
Chief Executive Officer 2002 225,000 -0- 10,000 1,000
--------------------
(1) These amounts represent the salaries paid to these officers by TULSAT
Corporation, our wholly owned subsidiary.
(2) Other annual compensation represents, in 2004, 2003, and 2002 our
contributions on behalf of each of the individuals to our 401(k) Plan.
Option Grants During Fiscal 2004
The following table sets forth information regarding options granted
during fiscal 2004 to named executive officers.
Potential Realizable Value at
Shares % of Total Assumed Annual Rate of
Under- Options Granted Stock Price Appreciation for
lying Options to Employees Exercise Expiration Option Term (2)
Name Granted (1) Fiscal Year Price($/Sh) Date 5% 10%
---- ----------- ----------- ----------- ---- -- ---
Kenneth A. Chymiak 1,000 25.0% $ 4.40 3/1/14 $2,767 $7,012
David E. Chymiak 1,000 25.0% $ 4.40 3/1/14 $2,767 $7,012
(1) These options are fully vested and exercisable at date of grant.
(2) The dollar amounts under these columns represent the potential realizable
value of each grant of option assuming that the market price of our Common
Stock appreciates in value from the date of grant at the 5% and 10% annualized
rates prescribed by the Securities and Exchange Commission for purposes of this
table and are not intended to forecast possible future appreciation, if any, of
the price of our Common Stock.
Option Exercises and Year-End Option Value Table
There were no stock options exercised by the named executive officers
during fiscal 2004. The following table sets forth information regarding the
value of unexercised stock options held by each of the named executive officers
as of the year ended September 30, 2004.
Number of Number of Shares of Common Value of Unexercised In-
shares Stock Underlying Unexercised the-Money Options at
Acquired on Value Options at September 30,2004 September 30, 2004
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
-------- -------- ----------- ------------- ----------- -------------
Name
----
Kenneth A. Chymiak - - 5,000 - $8,315 -
David E. Chymiak - - 5,000 - $8,315 -
Compensation of Directors
We pay our three non-employee directors $500 per quarter and $500 for each
board meeting and $250 for each committee meeting or telephonic board or
committee meeting the director attends. The chairman of the audit committee
receives an additional $250 per quarter. In addition, directors are eligible
to receive awards of options to purchase 1,000 shares of our common stock each
year after the annual shareholders meeting. We reimburse all directors for
out-of-pocket expenses incurred by them in connection with their service on our
board and any board committee. During the fiscal year ended September 30,
2004, Henry McCabe, Fred Gibson and Steve Tyde received director's fees of
$2,000, $2,750 and $3,000, respectively. All of the directors with the
exception of Henry McCabe received an award of stock options to purchase 1,000
shares of common stock at an exercise price of $4.40 per share. Directors who
were our employees received no additional cash compensation for their services
on our board of directors.
21
Compensation Committee Interlocks and Insider Participation
During 2004, the Compensation Committee was composed of Stephen J. Tyde,
Freddie H. Gibson and Henry F. McCabe, all of whom are non-employee directors.
During 2004, none of our executive officers served on the board of directors
or on the compensation committee of any other entity who had an executive
officer that served either on our Board of Directors or on its Compensation
Committee.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the number of shares of common stock or preferred
stock beneficially owned (as of March 14, 2005) by:
* each person known by us who beneficially owns more than 5% of any class of
our voting stock;
* each director and nominee for director;
* each executive officer named in the Summary Compensation Table on page 20,
and
* our directors and executive officers as a group.
Except as otherwise indicated, the beneficial owners listed in the table have
sole voting and investment powers of their shares.
Beneficial Ownership
Number of
Number of Shares of
Shares of Series B
Common Preferred
Stock Percent Stock Percent
Name and Addres of Beneficially of Beneficially of
Beneficial Owner Owned (1) Class(1) Owned Class
---------------- --------- -------- ----- -----
David E. Chymiak 3,689,900(2) 36.7% 150,000 50.0%
1605 E. Iola
Broken Arrow, OK 74012
Kenneth A. Chymiak (4) 3,306,000(2) 32.8% 150,000 50.0%
1605 E. Iola
Broken Arrow, OK 74012
Stephen J. Tyde 27,000(2) * -0- -0-
Freddie H. Gibson 10,000(2) * -0- -0-
Henry F. McCabe 7,000(3) * -0- -0-
All Executive Officers and
Directors as a group 7,039,900(5) 69.5% 300,000 100%
(5 persons)
------------------------
* Less than one percent.
22
(1) Shares which an individual has the right to acquire within 60 days
pursuant to the exercise of options are deemed to be outstanding for the
purpose of computing the percentage ownership of such individual, but are not
deemed to be outstanding for the purpose of computing the percentage ownership
of any other person shown in the table or the percentage ownership of all
officers and directors as a group.
(2) Includes 10,000 shares subject to stock options which are fully
exercisable.
(3) Includes 5,000 shares subject to stock options which are fully
exercisable.
(4) All of the shares beneficially owned by Mr. Chymiak are held of record
45.6% by him as trustee of the Ken Chymiak Revocable Trust and 54.4% by his
wife as trustee of the Susan Chymiak Revocable Trust. Mr. Chymiak disclaims
beneficial ownership of the shares held by his wife.
(5) Includes 45,000 shares subject to stock options which are fully
exercisable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In fiscal 1999, Chymiak Investments, L.L.C., which is owned by David E.
Chymiak and Kenneth A. Chymiak, purchased from TULSAT Corporation on September
30, 1999, the real estate and improvements comprising the headquarters and a
substantial portion of the other office and warehouse space of TULSAT
Corporation for a price of $1,286,000. The price represents the appraised
value of the property less the sales commission and other sales expenses that
would have been incurred by TULSAT Corporation if it had sold the property to
a third party in an arm's-length transaction. TULSAT Corporation entered into
a five-year lease commencing October 1, 1999 with Chymiak Investments, L.L.C.
covering the property. This lease was renewed on October 1, 2004 and will
expire on September 30, 2008.
In fiscal 2001, one of our subsidiaries, ADDvantage Technologies Group of
Texas, borrowed $150,000 on June 26, 2001 from Chymiak Investments, L.L.C for
the purchase of a building consisting of office and warehouse space at the
location in Texas. The note was payable at 7.5% over 10 years. Total interest
paid in fiscal 2004, 2003 and 2002 was $4,898, $9,869 and $10,694,
respectively. The note was repaid in April 2004.
In fiscal 2002, ADDvantage Technologies Group of Missouri completed
additions at its location in Missouri and financed $342,000 from Chymiak
Investments, L.L.C for a building consisting of office and warehouse space.
The note was payable at 7.5% over 10 years. Total interest paid in fiscal
2004, 2003 and 2002 was $11,694, $23,371 and $21,657, respectively. The note
was repaid in April 2004.
Chymiak Investments Inc., which is owned by Kenneth A. Chymiak and his
wife, Susan C. Chymiak, owns three other properties leased to TULSAT
Corporation for five-year terms (all ending in 2008).
We had outstanding, unsecured shareholder loans of $800,000 at September
30, 2003. Of this amount, $650,000 was payable to revocable trusts for the
benefit of Kenneth A. Chymiak and his wife and $150,000 was payable to David E.
Chymiak. The interest rate on the notes was 1.25% below the Chase Manhattan
Bank Prime, which was the same rate as our bank line of credit. The total
interest paid on the notes in fiscal 2004, 2003 and 2002 was $19,134, $30,323
and $47,352, respectively. These notes were repaid in August and September
2004.
We lease various properties primarily from two companies owned by David E.
Chymiak and Kenneth A. Chymiak as discussed above. Future minimum lease
payments under these leases are as follows:
2005 $ 480,240
2006 380,040
2007 360,000
2008 324,000
$ 1,544,280
Related party rental expense for the years ended September 30, 2004, 2003 and
2002 was $466,000, $461,000 and $438,000, respectively.
23
LEGAL OPINION
The validity of the shares of our common stock being offered hereby is
being passed upon for us by Conner & Winters, LLP.
EXPERTS
Our audited financial statements included in this prospectus have been
audited by Tullius Taylor Sartain & Sartain LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
24
INDEX TO FINANCIAL STATEMENTS
Index to Financial Statements Page
----------------------------- ----
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets, September 30, 2004 and 2003 F-3
Consolidated Statements of Income, Years Ended
September 30, 2004, 2003 and 2002 F-5
Consolidated Statements of Changes in Stockholders' Equity,
Years ended September 30, 2004, 2003 and 2002 F-6
Consolidated Statements of Cash Flows, Years Ended September 30,
2004, 2003 and 2002 F-7
Notes to Consolidated Financial Statements F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Stockholders of
ADDvantage Technologies Group, Inc.
We have audited the accompanying consolidated balance sheets of ADDvantage
Technologies Group, Inc. and subsidiaries (the "Company") as of September 30,
2004 and 2003, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 2004. These financial statements are the responsibility of
our management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
ADDvantage Technologies Group, Inc. and subsidiaries as of September 30, 2004
and 2003, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended September 30, 2004, in
conformity with accounting principles generally accepted in the United States
of America.
Our audits were conducted in accordance with the standards of the Public
Company Accounting Oversight Board (United States) and were made for the
purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The consolidated supplemental schedule II is presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not a part of the basic consolidated financial statements. This schedule
has been subjected to the auditing procedures applied in our audits of the
basic consolidated financial statements and, in our opinion, are fairly stated
in all material respects in relation to the basic consolidated financial
statements taken as a whole.
As discussed in Note 1 to the consolidated financial statements, in 2003, we
changed our method of accounting for goodwill as a result of adopting the
provisions of Statement of Financial Accounting Standards No. 142 "Goodwill and
Other Intangible Assets."
/s/ TULLIUS TAYLOR SARTAIN & SARTAIN LLP
Tulsa, Oklahoma
December 3, 2004
F-2
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
September 30,
Assets 2004 2003
------ ---- ----
Current assets:
Cash $ 1,316,239 $ 496,283
Accounts receivable, net of allowance of $68,063 and $78,359 4,787,749 3,783,680
Inventories, net of allowance for excess and obsolete inventory
$1,093,000 and $447,100, respectively 20,978,714 22,131,096
Deferred income taxes 651,000 367,000
------------- -----------
Total current assets 27,733,702 26,778,059
Property and equipment, at cost:
Machinery and equipment 2,138,798 2,061,598
Land and buildings 1,302,527 1,326,939
Leasehold improvements 521,972 527,972
------------- -----------
3,963,297 3,910,509
Less accumulated depreciation and amortization (1,561,698) (1,284,347)
------------- -----------
Net property and equipment 2,401,599 2,626,162
Other assets:
Deferred income taxes 1,042,000 1,154,000
Goodwill 1,150,060 1,150,060
Other assets 31,222 39,628
------------- -----------
Total other assets 2,223,282 2,343,688
------------- -----------
Total assets $ 32,358,583 31,747,909
============= ==========
See notes to audited consolidated financial statements.
F-3
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEETS
September 30,
Liabilities and Stockholders' Equity 2004 2003
---- ----
Current liabilities:
Accounts payable $ 1,758,695 $ 2,631,221
Accrued expenses 1,011,911 829,459
Accrued income taxes 120,748 95,114
Bank revolving line of credit 3,225,183 5,185,902
Notes payable - current portion 1,237,047 118,393
Dividends payable 210,000 310,000
Stockholder notes - 838,473
------------ -----------
Total current liabilities 7,563,584 10,008,562
Notes payable 7,147,334 384,411
Stockholder notes - 385,171
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 at September 30, 2003 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 12,000,000
Common stock, $.01 par value; 30,000,000 shares authorized;
10,081,789 and 10,030,414 shares issued and outstanding,
respectively 100,818 100,304
Paid-in capital (7,285,564) (7,389,197)
Retained earnings 12,886,575 8,312,822
------------ -----------
17,701,829 21,023,929
Less: Treasury stock, 21,100 shares at cost (54,164) (54,164)
------------ -----------
Total stockholders' equity 17,647,665 20,969,765
------------ -----------
Total liabilities and stockholders' equity $ 32,358,583 $31,747,909
============ ===========
See notes to audited consolidated financial statements.
F-4
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year ended September 30,
2004 2003 2002
----------- ----------- -----------
Net sales income $42,430,052 $28,809,947 $21,508,380
Net service income 4,641,277 4,517,798 3,900,551
----------- ----------- -----------
47,071,329 33,327,745 25,408,931
Costs of sales 28,815,132 19,072,042 14,370,776
----------- ----------- -----------
Gross profit 18,256,197 14,255,703 11,038,155
Operating, selling, general and
administrative expenses 8,494,486 7,801,231 7,172,510
Depreciation and amortization 277,352 257,821 315,691
----------- ----------- -----------
Income from operations 9,484,359 6,196,651 3,549,954
Interest expense 157,606 217,063 244,746
----------- ----------- -----------
Income before income taxes 9,326,753 5,979,588 3,305,208
Provision for income taxes 3,513,000 1,487,000 1,104,000
----------- ----------- -----------
Net income 5,813,753 4,492,588 2,201,208
Preferred stock dividends 1,240,000 1,240,000 1,240,000
----------- ----------- -----------
Net income attributable
to common stockholders 4,573,753 $ 3,252,588 $ 961,208
=========== =========== ===========
Earnings per share:
Basic $ 0.46 $ 0.33 $ 0.10
Diluted $ 0.41 $ 0.30 $ 0.10
Shares used in per share calculation
Basic 10,041,197 10,007,756 9,991,716
Diluted 12,104,541 12,021,235 11,991,716
See notes to audited consolidated financial statements.
F-5
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended September 30, 2004, 2003 and 2002
Series A Series B Retained
Common Stock Preferred Preferred Paid-in Earnings Treasury
Shares Amount Stock Stock Capital (Deficit) Stock Total
--------------------------------------------------------------------------------------------------
Balance, September 30, 2001 10,011,716 $100,117 $8,000,000 $12,000,000 ($7,389,010) $ 4,099,026 ($54,164) $16,755,969
Net income - - - - - 2,201,208 - 2,201,208
Preferred stock dividends - - - - - (1,240,000) - (1,240,000)
--------------------------------------------------------------------------------------------------
Balance, September 30, 2002 10,011,716 100,117 8,000,000 12,000,000 (7,389,010) (5,060,234) (54,164) 17,717,177
Net income - - - - - 4,492,588 - 4,492,588
Preferred stock dividends - - - - - (1,240,000) - (1,240,000)
Issue common shares for
business purchase 18,698 187 - - (187) - - -
--------------------------------------------------------------------------------------------------
Balance, September 30, 2003 10,030,414 100,304 8,000,000 12,000,000 (7,389,197) 8,312,822 (54,164) 20,969,765
Net income - - - - - 5,813,753 - 5,813,753
Preferred stock dividends - - - - - (1,240,000) - (1,240,000)
Stock options exercised 51,375 514 - - 103,633 - - 104,147
Redemption of Series A
Preferred Stock - - (8,000,000) - - - - (8,000,000)
--------------------------------------------------------------------------------------------------
Balance, September 30, 2004 10,081,789 $100,818 - $12,000,000 ($7,285,564) $12,886,575 ($54,164) $17,647,665
===================================================================================================
See notes to audited consolidated financial statements.
F-6
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended September 30,
2004 2003 2002
---- ---- ----
Cash Flows from Operating Activities
Net income $ 5,813,753 $4,492,588 $2,201,208
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 277,352 257,821 315,691
Loss on disposal of property and equipment 24,412 - -
Deferred income tax benefit (172,000) (414,000) (81,000)
Change in:
Receivables (1,004,069) (278,382) (509,811)
Inventories 1,152,382 (4,456,859) 144,883
Other assets 8,406 (12,770) 79,634
Accounts payable (872,526) 1,159,549 619,248
Accrued liabilities 208,086 337,975 (397,385)
-------------- ---------- ----------
Net cash provided by operating activities 5,435,796 995,922 2,372,468
-------------- ---------- ----------
Cash Flows from Investing Activities
Additions to property and equipment (77,201) (671,412) (610,630)
-------------- ---------- ----------
Net cash used in investing activities (77,201) (671,412) (610,630)
-------------- ---------- ----------
Cash Flows from Financing Activities
Net change under bank revolving line of credit (1,960,719) 712,221 222,548
Payments on stockholder notes (1,223,644) (335,705) (150,000)
Proceeds on notes payable 8,000,000 440,000 -
Payments on notes payable (118,423) (180,483) (49,204)
Proceeds from stock options exercised 104,147 - -
Payments of preferred dividends (1,340,000)(1,240,000)(1,240,000)
Redemption of preferred stock (8,000,000) - -
-------------- ---------- ----------
Net cash used in financing activities (4,538,639) (603,967)(1,216,656)
-------------- ---------- ----------
Net (increase) decrease in cash 819,956 (279,457) 545,182
Cash, beginning of year 496,283 775,740 230,558
-------------- ---------- ----------
Cash, end of year $ 1,316,239 $496,283 $775,740
============== ======== ========
Supplemental Cash Flow Information
Cash paid for interest $ 172,426 $205,626 $244,253
Cash paid for income taxes $ 3,669,170 $1,699,785 $1,832,342
See notes to audited consolidated financial statements.
F-7
ADDVANTAGE TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 2004, 2003 and 2002
Note 1 - Summary of Significant Accounting Policies
Description of business
ADDvantage Technologies Group, Inc. and its subsidiaries (the "Company")
sell new, surplus, and re-manufactured cable television equipment throughout
North America, Latin America and South America in addition to being a repair
center for various cable companies. The Company operates in one business
segment.
Principles of consolidation
The consolidated financial statements include the accounts of ADDvantage
Technologies Group, Inc. and its subsidiaries: Tulsat Corporation, NCS
Industries, Inc., Tulsat Atlanta LLC, ADDvantage Technologies Group of Missouri,
Inc. (dba "ComTech Services"), ADDvantage Technologies Group of Nebraska, Inc.
(dba "Lee Enterprise") and ADDvantage Technologies Group of Texas, Inc. (dba
"Tulsat Texas"). All significant intercompany balances and transactions have
been eliminated in consolidation.
Accounts receivable
Trade receivables are carried at original invoice amount less an estimate
made for doubtful receivables based on a review of all outstanding amounts on a
monthly basis. Management determines the allowance for doubtful accounts by
regularly evaluating individual customer receivables and considering a
customer's financial condition, credit history, and current economic conditions.
Trade receivables are written-off when deemed uncollectible. Recoveries of trade
receivables previously written-off are recorded when received.
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.
Property and equipment
Property and equipment consists of office equipment, other equipment, and
buildings, with estimated useful lives of 5 years, 10 years, and 40 years,
respectively. Depreciation is provided using straight line and accelerated
methods over the estimated useful lives of the related assets. Leasehold
improvements are amortized over the remainder of the lease agreement. Repairs
and maintenance are expensed as incurred, whereas major improvements are
capitalized. Depreciation and amortization expense was $277,352, $257,821 and
$157,267 for the years ended September 30, 2004, 2003 and 2002, respectively.
F-8
Income taxes
The Company provides for income taxes in accordance with the liability
method of accounting pursuant to Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." Under this method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and tax
carryforward amounts. Management provides a valuation allowance against deferred
tax assets for amounts which are not considered "more likely than not" to be
realized.
Revenue recognition
Our principal sources of revenues are from sales of new, remanufactured or
used equipment, and repair services. The Company recognizes revenue for product
sales when title transfers, the risks and rewards of ownership have been
transferred to the customer, the fee is fixed and determinable, and the
collection of the related receivable is probable which is generally at the time
of shipment. The stated shipping terms are FOB shipping point per our sales
agreements with customers. Accruals are established for expected returns based
on historical activity. Revenue for services is recognized when the repair is
completed and the product is shipped back to the customer.
Derivatives
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended, requires that all derivatives, whether designated in
hedging relationships or not, be recorded on the balance sheet at fair value. If
the derivative is designated as a fair value hedge, the changes in the fair
value of the derivative and of the hedged item attributable to the hedged risk
are recognized in earnings. If the derivative is designated as a cash flow
hedge, the effective portions of the changes in the fair value of the derivative
are recorded in Other Comprehensive Income and are recognized in the income
statement when the hedged item affects earnings. Ineffective portions of changes
in the fair value of cash flow hedges are recognized in other income (expense).
Our objective of holding derivatives is to minimize the risks of interest
rate fluctuation by using the most effective methods to eliminate or reduce the
impact of this exposure. The Company has designated its interest rate swap as a
hedge for the underlying note payable. Interest expense on the note is adjusted
to include the payment made or received under the interest rate swap agreement.
Freight
Amounts billed to customers for shipping and handling represent revenues
earned and are included in Net Sales Income and Net Service Income in the
accompanying Consolidated Statements of Income. Actual costs for shipping and
handling of these sales is included in Costs of Sales.
F-9
Advertising costs
Advertising costs are expensed as incurred. Advertising expense was
$265,112, $229,534 and $224,468 for the years ended September 30, 2004, 2003 and
2002 respectively.
Management estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Any significant, unanticipated changes in product demand, technological
developments or continued economic trends affecting the cable industry could
have a significant impact on the value of our inventory and operating results.
Concentrations of credit risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist principally of trade receivables. Concentrations of
credit risk with respect to trade receivables are limited because a large number
of geographically diverse customers make up our customer base, thus spreading
the trade credit risk. The Company controls credit risk through credit
approvals, credit limits, and monitoring procedures. The Company performs
in-depth credit evaluations for all new customers but does not require
collateral to support customer receivables. In 2004, we purchased approximately
39% of our inventory from Scientific-Atlanta and approximately 14% of our
inventory from Motorola. The concentration of suppliers of our inventory
subjects us to risk.
Goodwill
In July, 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 142 addresses financial accounting and
reporting for acquired goodwill and other intangible assets. SFAS 142 requires,
among other things, that companies no longer amortize goodwill, but instead test
goodwill for impairment at least annually. SFAS 142 was adopted by the Company
on October 1, 2002, the date of the annual impairment review. The Company
completed its transitional impairment testing of goodwill, which indicated that
goodwill was not impaired as of October 1, 2002. Therefore, the adoption of this
pronouncement had no impact on the Company's carrying value of its goodwill.
Annual impairment testing indicates that goodwill is not impaired as of
September 30, 2004. If SFAS 142 had been adopted in 2002, the Company's earnings
would have been improved because of reduced amortization, as described below:
Goodwill - Adoption of Statement 142
------------------------------------
Year ended September 30,
------------------------
2004 2003 2002
---- ---- ----
Reported Net Income $ 5,813,753 $ 4,492,588 $ 2,201,208
Add back: Goodwill amortization - - 158,424
----------- ----------- -----------
Adjusted Net Income $ 5,813,753 $ 4,492,588 $ 2,359,632
=========== =========== ===========
Basic Earnings per Share
Reported Net Income $0.46 $0.33 $0.10
Add back: Goodwill amortization - - 0.01
----------- ----------- -----------
Adjusted Net Income $0.46 $0.33 $0.11
=========== =========== ===========
Diluted Earnings per Share
Reported Net Income $0.41 $0.30 $0.10
Add back: Goodwill amortization - - 0.01
----------- ----------- -----------
Adjusted Net Income $0.41 $0.30 $0.11
=========== =========== ===========
Employee stock-based awards
Employee stock-based awards are accounted for using the intrinsic value
method prescribed in Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees" and related interpretations. Under
APB No. 25, compensation expense is based on the difference, if any, on the date
of grant between the fair value of the Company's stock and the exercise price.
The Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123")
provides an alternative method of determining compensation cost for employee
stock options, which alternative method may be adopted at the option of the
Company. Had compensation cost been determined consistent with SFAS 123, the
Company's net income would not have changed significantly.
Earnings per share
Basic earnings per share are based on the sum of the average number of
common shares outstanding and issuable restricted and deferred shares. Diluted
earnings per share include any dilutive effect of stock options, restricted
stock and convertible preferred stock.
Fair value of financial instruments
The carrying amounts of accounts receivable and accounts payable
approximate fair value due to their short maturities. The carrying value of the
Company's line of credit approximates fair value since the interest rate
fluctuates periodically based on the prime rate. Terms of the stockholder loans
are similar to the bank loan. Management believes that the carrying value of the
Company's borrowings approximate fair value based on credit terms currently
available for similar debt.
F-10
Impact of recently issued accounting standards
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities," and a revised interpretation of
FIN 46 (FIN 46R) in December 2003. FIN 46 requires certain variable interest
entities to be consolidated by the primary beneficiary of the entity if the
equity investors in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. The provisions of FIN 46 were effective immediately for all
arrangements entered into after January 31, 2003. We have not invested in any
entities that we believe are variable interest entities for which we are the
primary beneficiary. The adoption of FIN 46 and 46R had no impact on our
financial position, results of operations or cash flows.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs", which
revised ARB No. 43, relating to inventory costs. This revision is to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs and wasted material (spoilage). This Statement requires that these items
be recognized as a current period charge regardless of whether they meet the
criterion specified in ARB 43. In addition, this Statement requires the
allocation of fixed production overheads to the costs of conversion be based on
normal capacity of the production facilities. SFAS 151 is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005. We
believe that the adoption of this standard will have no material impact on our
financial position and results of operations.
Reclassifications
Certain reclassifications have been made to the 2003 and 2002 financial
statements to conform to the 2004 presentation.
Note 2 - Inventories
Inventories are summarized as follows:
2004 2003
------------------------ -----------------------
New $ 16,410,694 $ 16,479,825
Used 5,661,020 6,098,371
Allowance for excess and obsolete inventory
(1,093,000) (447,100)
------------------------ -----------------------
$ 20,978,714 $ 22,131,096
======================== =======================
New inventory includes products purchased from the manufacturers plus
"surplus-new" which is unused products purchased from other distributors or
multiple system operators. Used inventory includes factory remanufactured,
Company remanufactured and used products.
We regularly review inventory quantities on hand and a departure from cost
is required when the loss of usefulness of an item or other factors, such as
obsolete and excess inventories, indicate that cost will not be recovered when
an item is sold. Demand for some of the items in our inventory has been impacted
by recent economic conditions present in the cable industry. The Company
recorded a charge to allow for obsolete inventory at September 30, 2004,
increasing the cost of sales by $645,900. We recorded a charge to allow for
obsolete inventory at September 30, 2003, increasing the cost of sales by
$447,100. We wrote certain items in inventory down to their estimated market
values at September 30, 2002, increasing the cost of sales by $1,442,938.
F-11
Note 3 - Line of Credit, Stockholder Notes, and Notes Payable
At September 30, 2004, a $3,225,183 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% (3.84% at September 30,
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.
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 $471,620 at September 30, 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 share of the Series A Convertible
Preferred Stock at September 30, 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 September 30, 2004, the fair
market value of the interest rate swap approximated its carrying value of $0.
Notes payable secured by real estate of $384,381 are due in monthly payments
through 2013 with interest at 5.5% through 2008, converting thereafter to prime
minus .25%.
The aggregate maturities of notes payable and the line of credit for the
five years ending September 30, 2009 are as follows:
2005 $ 4,462,230
2006 1,237,047
2007 1,237,047
2008 1,237,047
2009 3,237,047
Thereafter 199,146
-------------
Total $ 11,609,564
=============
F-12
Note 4 - Income Taxes
The provisions for income taxes consist of:
2004 2003 2002
----------------------- ------------------- -------------------
Current $ 3,685,000 $ 1,901,000 $1,185,000
Deferred (172,000) (414,000) (81,000)
----------------------- ------------------- -------------------
$ 3,513,000 $ 1,487,000 $1,104,000
======================= =================== ===================
The following table summarizes the differences between the U.S. federal
statutory rate and the Company's effective tax rate for financial statement
purposes for the year ended September 30,:
2004 2003 2002
--------------- ---------------- -------------
Statutory tax rate 34.0% 34.0% 34.0%
State income taxes, net of U.S.
federal tax benefit 4.7 5.0 2.4
Non-deductible goodwill
amortization and other
non-deductible expenses - - 1.4
Tax credits and exclusions (0.6) (2.8) -
Adjustment of deferred tax
asset valuation allowance - (7.4) (3.8)
Other (0.4) (3.9) (0.6)
---------------- --------------- -------------
37.7% 24.9% 33.4%
================ =============== =============
Deferred tax assets consist of the following at September 30:
2004 2003
------------------------- ---------------------
Net operating loss carryforwards $ 1,316,000 $ 1,417,000
Financial basis in excess of tax basis
of certain assets (155,000) (131,000)
Financial liability accruals 532,000 235,000
------------------------- ---------------------
Net deferred tax asset $ 1,693,000 $ 1,521,000
========================= =====================
Deferred tax assets are classified as:
Current $ 651,000 $ 367,000
Non-Current 1,042,000 1,154,000
------------------------- ---------------------
$ 1,693,000 $ 1,521,000
========================= =====================
F-13
Utilization of ADDvantage's net operating loss carry forward of
approximately $3,467,000 to reduce future taxable income is limited to an annual
amount of $265,000. The NOL carryforward expires in varying amounts from 2014 to
2019.
Note 5 - Stockholders' Equity
The 1998 Incentive Stock Plan (the "Plan") provides for the award to
officers, directors, key employees and consultants of stock options and
restricted stock. The Plan provides that upon any issuance of additional shares
of common stock by the Company, other than pursuant to the Plan, the number of
shares covered by the Plan will increase to an amount equal to 10% of the then
outstanding shares of common stock. Under the Plan, option prices will be set by
the Board of Directors and may be greater than, equal to, or less than fair
market value on the grant date.
At September 30, 2004, 1,001,041 shares of common stock were reserved for
the exercise of stock awards under the 1998 Incentive Stock Plan. Of the shares
reserved for exercise of stock awards, 811,041 shares were available for future
grants at September 30, 2004.
A summary of the status of the Company's stock options at September 30,
2004, 2003 and 2002 and changes during the years then ended is presented below.
2004 2003 2002
----------------------------------------------------------------------------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
---------------------------------------------------------------------------------------
Outstanding, beginning of year 179,000 $1.97 114,500 $2.07 114,500 $2.07
Granted 4,000 4.40 71,500 1.81 - -
Exercised (51,375) 2.03 - - - -
Canceled (500) 1.50 (7,000) 1.50 - -
Outstanding, end of year 131,125 $2.83 179,000 $1.97 114,500 $2.07
Exercisable, end of year 108,500 $3.08 129,875 $2.79 46,125 $2.31
Weighted average fair value of
Options granted $4.04 $1.55 N/A
============== ============== ==============
The following table summarizes information about fixed stock options
outstanding at September 30, 2004:
Options Outstanding Options Exercisable
----------------------------------------------- --------------------------------
Number Remaining Number
Outstanding Contractual Exercise Exercisable Exercise
Exercise Price At 9/30/04 Life Price At 9/30/04 Price
----------------------------------------------------------------------------- --------------------------------
$4.400 4,000 9.5 years $4.400 2,500 $1.900
$1.650 5,000 7.5 years $1.650 5,000 $1.650
$0.810 5,000 6.5 years $0.810 5,000 $0.810
$1.500 5,000 5.5 years $1.500 5,000 $1.500
$1.500 29,625 4.5 years $1.500 14,500 $1.500
$3.125 22,500 3.5 years $3.125 22,500 $3.125
$4.000 50,000 3.0 years $4.000 50,000 $4.000
---------------- ----------------
131,125 108,500
================ ================
F-14
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2004: risk-free interest rates of 2.0%; expected
dividend yield of 0.0%; expected lives of 6 years; and estimated volatility of
142%.
The Series B Preferred Stock (the "Preferred Stock") has priority over the
Company's common stock with respect to the payment of dividends and the
distribution of assets. Cash dividends on the Preferred Stock shall be payable
quarterly when and as declared by the Board of Directors. Interest accrues on
unpaid dividends at the rate of 7% per annum. No dividends may be paid on any
class of stock ranking junior to the Preferred Stock unless Preferred Stock
dividends have been paid. Liquidation preference is equal to the stated value
per share. The Preferred Stock is redeemable at any time at the option of the
Board of Directors at a redemption price equal to the stated value per share.
Holders of the Preferred Stock do not have any voting rights unless the Company
fails to pay dividends for four consecutive dividend payment dates.
Note 6 - Related Parties
Cash used in financing activities in 2004 was primarily used to pay
dividends on the Company's Series A and Series B Preferred Stock. On September
30, 2004, the Company redeemed, at the $8 million stated value, all of the
Series A Preferred Stock, which was beneficially owned by David E. Chymiak and
Kenneth A. Chymiak. With the redemption of the Series A Preferred Stock on
September 30, 2004, dividends on the remaining Series B Preferred Stock total
$840,000 annually. The outstanding common and preferred stock is beneficially
owned by our principal shareholders as reflected in the following table.
Stock Ownership
---------------
Percent of
Percent of Series B
Common Preferred
Stock Stock
Name of Beneficially Beneficially
Beneficial Owner Owned Owned (A)
---------------- ----- ---------
David E. Chymiak 39.0% 50.0%
Kenneth A. Chymiak 35.2% 50.0%
(A) The outstanding preferred stock has an aggregate preference upon
liquidation of $12,000,000.
In fiscal 1999, Chymiak Investments, L.L.C., which is owned by David E.
Chymiak and Kenneth A. Chymiak, purchased from TULSAT Corporation on September
30, 1999, the real estate and improvements comprising the headquarters and a
substantial portion of the other office and warehouse space of TULSAT
Corporation for a price of $1,286,000. The price represents the appraised value
of the property less the sales commission and other sales expenses that would
have been incurred by TULSAT Corporation if it had sold the property to a third
party in an arm's-length transaction. TULSAT Corporation entered into a
five-year lease commencing October 1, 1999 with Chymiak Investments, L.L.C.
covering the property. This lease was renewed on October 1, 2004 and will expire
on September 30, 2008.
F-15
In fiscal 2001, ADDvantage Technologies Group of Texas borrowed $150,000 on
June 26, 2001 from Chymiak Investments, L.L.C for the purchase of a building
consisting of office and warehouse space at the location in Texas. The note is
payable at 7.5% over 10 years and total interest paid in 2004, 2003 and 2002 was
$4,898, $9,869 and $10,694, respectively. The note was repaid in April 2004.
In fiscal 2002, ADDvantage Technologies Group of Missouri completed
additions at its location in Missouri and financed $342,000 from Chymiak
Investments, L.L.C for a building consisting of office and warehouse space. The
note is payable at 7.5% over 10 years and total interest paid in 2004, 2003 and
2002 was $11,694, $23,371 and $21,657, respectively. The note was repaid in
April 2004.
Chymiak Investments Inc., which is owned by Kenneth A. Chymiak and his
wife, Susan C. Chymiak, owns three other properties leased to TULSAT Corporation
for five-year terms (all ending in 2008).
The Company had outstanding, unsecured stockholder loans of $800,000 at
September 30, 2003. Of this amount, $650,000 was payable to revocable trusts for
the benefit of Kenneth A. Chymiak and his wife and $150,000 was payable to David
E. Chymiak. The interest rate on the notes was 1.25% below the Chase Manhattan
Bank Prime, which was the same rate as the Company's bank line of credit. The
total interest paid on the notes was $19,134 in 2004, $30,323 in 2003 and
$47,352 in 2002. These notes were repaid in August and September 2004.
The Company leases various properties primarily from two companies owned by
David E. Chymiak and Kenneth A. Chymiak. Future minimum lease payments under
these leases are as follows:
2005 $ 480,240
2006 380,040
2007 360,000
2008 324,000
------------
$ 1,544,280
============
Related party rental expense for the years ended September 30, 2004, 2003
and 2002 was $466,000, $461,000 and $438,000, respectively.
Note 7 - Retirement Plan
The Company sponsors a 401(k) plan that covers all employees who are at
least 21 years of age and have completed one year of service as of the plan
effective date. The Company's contributions to the plan consist of a matching
contribution as determined by the plan document. Pension expense under the
401(k) plan was $161,644 during the year ended September 30, 2004, $140,673
during the year ended September 30, 2003, and $111,144 during the year ended
September 30, 2002.
Note 8 - Earnings per Share
Year ended Year ended Year Ended
September 30, September 30, September 30,
2004 2003 2002
------------------- ------------------- -------------------
Net income $ 5,813,753 $ 4,492,588 $ 2,201,208
Dividends on preferred stock 1,240,000 1,240,000 1,240,000
------------------- ------------------- -------------------
Net income attributable to
common shareholders - basic 4,573,753 3,252,588 961,208
Dividends on Series A convertible
preferred stock 400,000 400,000 400,000
------------------- ------------------- -------------------
Net income attributable to common
shareholders - diluted $ 4,973,753 $ 3,652,588 $ 1,361,208
=================== =================== ===================
Weighted average shares outstanding 10,041,197 10,007,756 9,991,716
Potentially dilutive securities
Assumed conversion of 200,000 shares of
Series A convertible preferred stock 2,000,000 2,000,000 2,000,000
Effect of dilutive stock options 63,344 13,479 -
------------------- ------------------- -------------------
Weighted average shares outstanding -
assuming dilution 12,104,541 12,021,235 11,991,716
=================== =================== ===================
Earnings per common share:
Basic $ 0.46 $ 0.33 $ 0.10
Diluted $ 0.41 $ 0.30 $ 0.10
=================== =================== ===================
Earnings per common share-diluted for the year ended September 30, 2002 are
the same as basic earnings per share as conversion of potentially dilutive
securities are anti-dilutive.
F-16
Note 9 - Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the
years ended September 30, 2004 and 2003.
Three months ended
------------------ -- ------------------ -- --------------- -- ---------------
December 31 March 31 June 30 September 30
------------------ ------------------ --------------- ---------------
Fiscal year ended 2004
Net sales and service income $ 11,292,500 $ 11,654,041 $ 12,682,449 $ 11,442,339
Gross profit 4,447,890 4,427,620 4,830,899 4,549,788
Net income 1,393,170 1,523,626 1,715,232 1,181,725
Basic earnings per common share 0.11 0.12 0.14 0.09
Diluted earnings per common share 0.10 0.11 0.12 0.08
Fiscal year ended 2003
Net sales and service income $7,696,978 $8,570,726 $8,249,732 $8,810,309
Gross profit 3,624,056 3,696,875 3,631,845 3,302,927
Net income 1,014,175 1,049,409 1,308,592 1,120,412
Basic earnings per common share 0.07 0.07 0.10 0.09
Diluted earnings per common share 0.07 0.07 0.10 0.06
F-17
INDEX TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets,
December 31, 2004 (Unaudited) and September 30, 2004 (Audited) F-19
Consolidated Condensed Statements of Income and Comprehensive
Income (Unaudited), Three Months Ended December 31, 2004 and 2003 F-21
Consolidated Condensed Statements of Cash Flows (Unaudited),
Three Months Ended December 31, 2004 and 2003 F-22
Notes to Unaudited Consolidated Condensed Financial Statements F-23
F18
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.
F-19
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.
F-20
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.
F-21
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.
F-22
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 audited
financial statements and the notes thereto included in this prospectus.
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.
F-23
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.
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.
F-24
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%.
F-25
----------------------------------
3,500,000 Shares of Common Stock
ADDvantage Technologies Group, Inc.
Amended Prospectus
[DATE]
---------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The estimated expenses to be incurred by ADDvantage Technologies Group,
Inc., or the registrant, in connection with the issuance and distribution of
the securities being offered hereby:
SEC filing fee $ 1,812
Accounting fees and expenses 1,500
Legal fees and expenses 7,000
Printing and engraving 1,000
Miscellaneous 1,000
--------
Total $ 12,312
Item 14. Indemnification of Directors and Officers.
The registrant's Certificate of Incorporation, as amended ("Certificate of
Incorporation") and Bylaws provide that each person who was or is made a party
to, or is involved in, any action, suit or proceeding by reason of the fact
that he or she was a director, officer, employee or agent of the registrant (or
was serving at the request of the registrant as a director, officer, employee
or agent for another entity) will be indemnified and held harmless by the
registrant, to the fullest extent not prohibited by the laws of Oklahoma.
Under Section 1031 of the Oklahoma General Corporation Act (the "OGCA"), a
corporation may indemnify a director, officer, employee or agent of the
corporation against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful. In the case of an action brought by or in the right
of a corporation, the corporation may indemnify a director, officer, employee
or agent of the corporation against expenses (including attorneys' fees)
actually and reasonably incurred by him or her if he or she acted in good faith
and in a manner he or she reasonably believed to be in the best interests of
the corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless a court finds that, in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court shall deem proper.
The OGCA permits Oklahoma corporations to include in their certificates of
incorporation a provision eliminating or limiting director liability for
monetary damages arising from breaches of their fiduciary duty. The
Certificate of Incorporation provides that to the maximum extent permitted by
law, a director of the registrant shall not be liable to the registrant or its
shareholders for monetary damages for breach of fiduciary duty as a director.
The only limitations imposed under the OGCA and the Certificate of
Incorporation are that a director's liability will not be limited: (i) for
breaches of the director's duty of loyalty to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or involving
intentional misconduct or known violations or law, (iii) for the payment of
unlawful dividends or unlawful stock purchases or redemptions, or (iv) for
transactions in which the director derived an improper personal benefit.
The foregoing summaries are necessarily subject to the complete text of
the statutes, the Certificate of Incorporation and Bylaws referred to above and
are qualified in their entirety by reference thereto.
II-I
Item 16. Exhibits and Financial Statement Schedules
The following exhibits are filed herewith unless otherwise indicated:
3.1 Certificate of Incorporation of the Company and amendments thereto
incorporated by reference to Exhibit 3.1 to the Annual Report on
Form 10-KSB filed with the Securities Exchange Commission by the
Company on January 10, 2003.
3.2 By-laws of the Company, as amended, incorporated by reference to
Exhibit 3.2 to the Annual Report on Form 10-KSB filed with the
Securities Exchange Commission by the Company on January 10, 2003.
4.1 Certificate of Designation, Preferences, Rights and Limitations of
ADDvantage Media Group, Inc. Series A 5% Cumulative Convertible
Preferred Stock and Series B 7% Cumulative Preferred Stock as filed
with the Oklahoma Secretary of State on September 30, 1999
incorporated by reference to Exhibit 4.1 to the Current Report on
Form 8-K filed with the Securities Exchange Commission by the
Company on October 14, 1999.
5.1 Legal Opinion of Conner & Winters, P.C. incorporated by reference to
Exhibit 5.1 to the Registration Statement on Form S-3 filed with the
Securities Exchange Commission by the Company on October 28, 2004
10.1 Lease Agreement dated September 15, 1999 by and between Chymiak
Investments, L.L.C. and TULSAT Corporation (formerly named DRK
Enterprises, Inc.) incorporated by reference to Exhibit 10.3 to the
Annual Report on Form 10-KSB filed with the Securities Exchange
Commission by the Company on December 30, 1999.
10.2 Schedule of documents substantially similar to Exhibit 10.1
incorporated by reference to Exhibit 10.3 to the Annual Report on
Form 10-KSB filed with the Securities Exchange Commission by the
Company on December 30, 1999.
10.3 Revolving Credit and Term Loan Agreement dated September 30, 2004,
by and between Bank of Oklahoma, N.A. ("Lender") and Registrant
("Borrower") incorporated by reference to Exhibit 10.5 to the Annual
Report on Form 10-K filed with the Securities Exchange Commission by
the Company on December 22, 2004.
21 Subsidiaries incorporated by reference to exhibit 21.1 to the Annual
Report on Form 10-KSB filed with the Securities and Exchange
Commission by the Company on January 10, 2003.
23.1 Consent of Conner & Winters, P.C., is contained in its opinion
included as Exhibit 5.1 incorporated by reference to Exhibit 5.1 to
the Registration Statement on Form S-3 filed with the Securities
Exchange Commission by the Company on October 28, 2004.
23.2 Consent of Tullius Taylor Sartain & Sartain LLP.
24.1 Power of Attorney (appears on the signature page of the Registration
Statement on Form S-3 filed with the Securities Exchange Commission
by the Company on October 28, 2004).
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Tulsa, State of
Oklahoma, on March 30, 2005.
ADDvantage Technologies Group, Inc.
By: /s/ Kenneth A. Chymiak
-----------------------------------
Kenneth A. Chymiak, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
President, and Chief Executive
Officer
/s/ Kenneth A. Chymiak (Principal Executive and
---------------------- Financial Officer) March 30, 2005
Kenneth A. Chymiak
* Dee Cooper Controller
---------------------- (Principal Accounting Officer) March 30, 2005
Dee Cooper
* David E. Chymiak Chairman of the Board of
---------------------- Directors March 30, 2005
David E. Chymiak
* Freddie H. Gibson Director
---------------------- March 30, 2005
Freddie H. Gibson
* Stephen J. Tyde Director
---------------------- March 30, 2005
Stephen J. Tyde
* Henry F. McCabe Director
----------------------
Henry F. McCabe March 30, 2005
*By: /s/ Kenneth A. Chymiak
---------------------------
Kenneth A. Chymiak, Attorney-in-fact
II-3
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Certificate of Incorporation of the Company and amendments
thereto incorporated by reference to Exhibit 3.1 to the
Annual Report on Form 10-KSB filed with the Securities
Exchange Commission by the Company on January 10, 2003.
3.2 By-laws of the Company, as amended, incorporated by reference
to Exhibit 3.2 to the Annual Report on Form 10-KSB filed with
the Securities Exchange Commission by the Company on January
10, 2003.
4.1 Certificate of Designation, Preferences, Rights and
Limitations of ADDvantage Media Group, Inc. Series A 5%
Cumulative Convertible Preferred Stock and Series B 7%
Cumulative Preferred Stock as filed with the Oklahoma
Secretary of State on September 30, 1999 incorporated by
reference to Exhibit 4.1 to the Current Report on Form 8-K
filed with the Securities Exchange Commission by the Company
on October 14, 1999.
5.1 Legal Opinion of Conner & Winters, P.C. incorporated by
reference to Exhibit 5.1 to the Registration Statement on
Form S-3 filed with the Securities Exchange Commission by the
Company on October 28, 2004
10.1 Lease Agreement dated September 15, 1999 by and between
Chymiak Investments, L.L.C. and TULSAT Corporation (formerly
named DRK Enterprises, Inc.) incorporated by reference to
Exhibit 10.3 to the Annual Report on Form 10-KSB filed with
the Securities Exchange Commission by the Company on December
30, 1999.
10.2 Schedule of documents substantially similar to Exhibit 10.1
incorporated by reference to Exhibit 10.3 to the Annual
Report on Form 10-KSB filed with the Securities Exchange
Commission by the Company on December 30, 1999.
10.3 Revolving Credit and Term Loan Agreement dated September 30,
2004, by and between Bank of Oklahoma, N.A. ("Lender") and
Registrant ("Borrower") incorporated by reference to Exhibit
10.5 to the Annual Report on Form 10-K filed with the
Securities Exchange Commission by the Company on December 22,
2004.
21 Subsidiaries incorporated by reference to exhibit 21.1 to the
Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission by the Company on January 10, 2003
23.1 Consent of Conner & Winters, P.C., is contained in its
opinion included as Exhibit 5.1, incorporated by reference to
Exhibit 5.1 to the Registration Statement on Form S-3 filed
with the Securities Exchange Commission by the Company on
October 28, 2004.
23.2 Consent of Tullius Taylor Sartain & Sartain LLP.
24.1 Power of Attorney (appears on the signature page of the
Registration Statement on Form S-3 filed with the Securities
Exchange Commission by the Company on October 28, 2004).