EXHIBIT 99
EXHIBIT C
PRESS RELEASE: FOR IMMEDIATE RELEASE
For further information:
ADDvantage Media Group, Inc. Contact: TULSAT Contact:
Charles H. Hood Kenneth A. Chymiak
Gary W. Young David E. Chymiak
(918) 665-8414 (918) 251-2887
ADDVANTAGE MEDIA ANNOUNCES
AGREEMENT TO ACQUIRE TULSAT
TULSA, OKLAHOMA, September 16, 1999 . . . ADDvantage Media Group, Inc. and
Kenneth A. Chymiak and David E. Chymiak, the owners of DRK Enterprises, Inc.
d/b/a TULSAT, jointly announced today that they have entered into an agreement
whereby ADDvantage Media will acquire from the Chymiaks all of the outstanding
stock of TULSAT. In return, the Chymiaks will receive 8,000,000 shares of
ADDvantage Media common stock (Nasdaq SmallCap: ADDM) plus 500,000 shares of two
newly issued series of ADDvantage Media preferred stock having an aggregate
stated value of $20 million. Closing of the transaction is expected to occur on
September 30, 1999 and is subject to the normal conditions to transactions of
this nature except that ADDvantage Media shareholder approval is not required.
As a result of the transaction, TULSAT will become a wholly owned subsidiary of
ADDvantage Media and Ken Chymiak and Dave Chymiak will own approximately 83% of
the issued and outstanding common stock of ADDvantage Media and 100% of the
outstanding and preferred stock. Approximately 40% of the preferred stock will
be convertible into ADDvantage Media common stock at a price of $4.00 per share.
Management of TULSAT is expected to assume management and control of ADDvantage
Media.
TULSAT was established in 1985 by the Chymiaks and is a leader in providing
sales and service to the cable television industry. It maintains one of the
largest inventories in the industry with new, surplus and refurbished equipment,
accessories and construction hardware. It has 85 employees and services its more
than 3,000 customers from facilities in excess of 100,000 square feet located in
Broken Arrow, Oklahoma. Customers include cable television system operators,
hotels, motels, hospitals, apartments and a myriad of other companies involved
in the distribution of television signals. TULSAT's revenues for 1998 were
approximately $19.7 million and are expected to exceed $20 million in 1999.
ADDvantage Media Group, Inc. has been a marketing company with a primary
focus on in-store, point-of-sale consumer advertising, primarily through a
solar-powered calculator that attaches directly to the handle of a shopping
cart. The calculator also carries an advertising display area. Since its
contract with Wal-Mart terminated over a year ago, ADDvantage Media has not
had any Shoppers Calculators in stores nor has it conducted any other material
business operations and has attempted to sell or dispose of its Shoppers
Calculator assets. It does own a 27% stake in a private educational company,
Ventures Education Systems Corporation.
ADDvantage Media also announced that it has been notified that its common
stock will be delisted from the Nasdaq SmallCap Market on September 22, 1999
because the stock price was
below $1.00 per share for an extended period of time. Charles H. Hood, President
and Chairman of the Board of ADDvantage Media noted that assuming the
transaction with the TULSAT shareholders is consummated, ADDvantage Media would
have to reapply for the Nasdaq SmallCap listing, in any event, because TULSAT
would be considered the surviving company under applicable accounting and
securities rules. The parties are in agreement that they will reapply for a new
Nasdaq listing after the transaction is consummated as soon as the combined
company is able to meet the various listing criteria. Hood further stated that
"AMG explored business opportunities with a number of other firms. Based upon
TULSAT's historical and present levels of profitability, in combination with its
opportunities for the future, TULSAT was clearly the proper choice for the
benefit of our stockholders. Quite frankly, we're very excited about TULSAT and
its future potential."
Statements regarding the anticipated consummation of the acquisition of
TULSAT, the future listing of the ADDvantage Media shares on The Nasdaq Stock
Market, projected future revenues of TULSAT and related matters are forward-
looking statements which are subject to a number of uncertainties, risks and
other cautionary statements, including those contained in ADDvantage Media's
quarterly report on Form 10-QSB for the quarter ended June 30, 1999 and its
annual report on Form 10-KSB for the year ended December 31, 1998, filed with
the Securities and Exchange Commission.
Exhibit D is a Commercial/Industrial Lease (Net) between Chymiak Investments,
L.L.C. as Landlord and D.R.K. Enterprises, Inc. dba/TULSAT as Tenant dated as of
September 15, 1999. The Lease to be entered into between Registrant and the
Landlord on similar terms will be included as an exhibit to the Registrant's
Report on Form 10-KSB.
DRK ENTERPRISES, INC. D/B/A TULSAT
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
AND SIX-MONTH PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
with
INDEPENDENT AUDITORS' REPORT
CONTENTS
Independent Auditors' Report.......................................... 1
Balance Sheets........................................................ 2
Statements of Income and Retained Earnings............................ 3
Statements of Cash Flows.............................................. 4
Notes to Financial Statements......................................... 5
INDEPENDENT AUDITORS' REPORT
The Stockholders of
DRK Enterprises, Inc. d/b/a Tulsat
We have audited the accompanying balance sheet of DRK Enterprises, Inc. d/b/a
Tulsat (Tulsat) as of December 31, 1998, and the related statements of income
and retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of Tulsat's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tulsat as of December 31, 1998,
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Tullius Taylor Sartain & Sartain LLP
Tulsa, Oklahoma
May 18, 1999
1
DRK ENTERPRISES, INC. D/B/A TULSAT
BALANCE SHEETS
December 31, 1998
and June 30, 1999 (unaudited)
December 31, 1998 June 30, 1999
(unaudited)
---------------------------------------------
Assets
Current assets:
Accounts receivable $ 2,190,173 $ 2,110,105
Inventories 10,642,016 12,209,688
---------------------------------------------
Total current assets 12,832,189 14,319,793
Property and equipment, at cost:
Land 50,000 50,000
Building 1,198,050 1,198,050
Machinery and equipment 806,962 842,614
---------------------------------------------
2,055,012 2,090,664
Less accumulated depreciation 656,716 707,716
---------------------------------------------
Net property and equipment 1,398,296 1,382,948
Other assets 44,050 45,050
---------------------------------------------
Total assets $14,274,535 $15,747,791
=============================================
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdrafts $ 788,097 $ 926,051
Accounts payable 847,520 537,827
Bank notes payable 2,362,874 3,428,810
Stockholder loans 750,000 750,000
---------------------------------------------
Total current liabilities 4,748,491 5,642,688
Stockholders' equity:
Common stock, $1 par value; 2,000 shares
authorized and 1,000 shares issued 1,000 1,000
Treasury stock, at cost, 300 shares (55,002) (55,002)
Retained earnings 9,580,046 10,159,105
---------------------------------------------
Total stockholders' equity 9,526,044 10,105,103
---------------------------------------------
Total liabilities and stockholders' equity $14,274,535 $15,747,791
=============================================
See notes to financial statements
2
DRK ENTERPRISES, INC. D/B/A TULSAT
STATEMENTS OF INCOME AND RETAINED EARNINGS
Year ended December 31, 1998
and six-month period ended June 30, 1999 (unaudited)
Six months ended
June 30, 1999
1998 (unaudited)
------------------------------------------
Net sales and service income $19,704,556 $ 9,809,656
Cost of sales and services 10,525,561 4,801,126
------------------------------------------
Gross profit 9,178,995 5,008,530
Operating expenses 3,200,245 1,537,788
------------------------------------------
Income from operations 5,978,750 3,470,742
Other income (expense):
Interest expense (328,757) (177,770)
Interest income 94,632 4,907
Loss on sale of investments (87,696) -
Miscellaneous 19,023 5,691
------------------------------------------
Total other income (expense) (302,798) (167,172)
------------------------------------------
Net income 5,675,952 3,303,570
Retained earnings, beginning of period 7,188,376 9,580,046
Distributions to stockholders (3,284,282) (2,724,511)
------------------------------------------
Retained earnings, end of period $ 9,580,046 $10,159,105
==========================================
Pro-forma net income (unaudited):
Income before income taxes $ 5,675,952 $ 3,303,570
Provision for income taxes 2,157,000 1,255,000
------------------------------------------
Net income $ 3,518,952 $ 2,048,570
==========================================
See notes to financial statements
3
DRK ENTERPRISES, INC. D/B/A TULSAT
STATEMENTS OF CASH FLOWS
Year ended December 31, 1998 and
and six-month period ended June 30, 1999 (unaudited)
Six months ended
June 30, 1999
1998 (unaudited)
-----------------------------------
Cash Flows from Operating Activities
Net income:
Adjustments to reconcile net income to net cash $ 5,675,952 $ 3,303,570
provided by operating activities:
Depreciation and amortization 124,649 51,000
Loss on sale of investments 87,843 -
Decrease in receivables 383,317 80,068
(Increase ) decrease in other assets 37,202 (1,000)
Increase in inventories (3,057,732) (1,567,672)
Decrease in accounts payable (58,495) (309,693)
-----------------------------------
Net cash provided by operating activities 3,192,736 1,556,273
Cash Flows from Investing Activities
Additions to property and equipment (54,960) (35,652)
Proceeds from the sales of long-term investments 71,477 -
-----------------------------------
Net cash provided by (used in) investing activities 16,517 (35,652)
Cash Flows from Financing Activities
Distributions to owners (3,284,282) (2,724,511)
Net change in line of credit (13,014) 1,083,357
Repayments of notes payable (32,592) (17,421)
-----------------------------------
Net cash used in financing activities (3,329,888) (1,658,575)
-----------------------------------
Net increase in bank overdraft (120,635) (137,954)
Bank overdraft, beginning of period (667,462) (788,097)
-----------------------------------
Bank overdraft, end of period $ (788,097) $ (926,051)
===================================
See note sto financial statements 4
DRK ENTERPRISES, INC. D/B/A TULSAT
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1998
Six-month period ended June 30, 1999 (unaudited)
Note 1 - Summary of Significant Accounting Policies
Description of business
DRK Enterprises, Inc. d/b/a Tulsat sells new, surplus, and refurbished cable
television equipment throughout North America in addition to being a repair
center for various cable companies.
Inventories
Inventory is stated at cost using the weighted average method.
Property and equipment
Depreciation is provided using straight line and accelerated methods over the
estimated useful lives of the related assets. Repairs and maintenance are
expensed as incurred, whereas major improvements are capitalized.
Income taxes
Tulsat is taxed as an S Corporation under the Internal Revenue Code and
applicable state statutes. Under an S Corporation election, the income of
Tulsat flows through to the stockholders to be taxed at the individual level
rather than the corporate level. Accordingly, Tulsat will have no tax liability
as long as the S Corporation election is in effect.
Advertising costs
Advertising costs are expensed in the year incurred. Advertising expense was
$162,398 in 1998 and $87,939 in the six-month period ended June 30, 1999
(unaudited).
Management estimates
The preparation of financial statements in conformity with 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.
5
Concentrations of credit risk
Financial instruments that potentially subject Tulsat 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 Tulsat's customer base, thus spreading
the trade credit risk. Tulsat controls credit risk through credit approvals,
credit limits, and monitoring procedures. Tulsat performs in-depth credit
evaluations for all new customers but does not require collateral to support
customer receivables.
Note 2 - Cash Management
Cash receipts are applied from Tulsat'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, is
presented as a current liability. The bank overdraft balance includes $510,000
of checks outstanding to one of Tulsat's owners.
Note 3 - Notes Payable
Notes payable consist of the following:
June 30,
December 31, 1999
1998 (unaudited)
------------------------------
Mortgage note due August 17, 1999, payable $7,000
monthly, including interest at 8.25% $ 596,625 $ 579,204
$4,500,000 line of credit due August 31, 1999,
interest payable monthly at Chase Manhattan Prime
(8.50% at December 31, 1998) 1,766,249 2,849,606
------------------------------
$2,362,874 $3,428,810
==============================
The borrowings are collateralized by inventory, accounts receivable, equipment
and fixtures, and general intangibles.
Borrowings under the line of credit are limited to the lesser of $4,500,000 or
the sum of 80% of qualified accounts receivable and 25% of qualified inventory.
The line of credit is also guaranteed by the stockholders.
The $750,000 shareholder note bears interest, payable monthly, at 8.50% and is
subordinate to the bank notes payable.
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Note 4 - Operating Leases
Tulsat leases various properties primarily from a company owned by Tulsat's
owners. Future minimum lease payments under these leases are as follows:
1999 $ 92,900
2000 72,000
2001 72,000
2002 72,000
2003 30,500
------------
$339,400
============
Total rental expense for all operating leases was $54,300 for the year ended
December 31, 1998 and $58,102 for the six-month period ended June 30, 1999
(unaudited).
Note 5 - Retirement Plan
Tulsat 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. Tulsat's contributions to the plan consist of a matching contribution as
determined by the plan document. Pension expense under the 401(k) plan was
$26,164 in 1998 and $17,227 during the six-month period ended June 30, 1999.
Note 6 - Subsequent Event (Unaudited)
On September 16, 1999, Tulsat entered into an agreement with ADDvantage Media
Group, Inc., whereby ADDvantage Media will acquire all of the outstanding stock
of Tulsat. Tulsat's shareholders will receive 8,000,000 shares of ADDvantage
Media common stock plus 500,000 shares of two newly issued series of ADDvantage
Media preferred stock having an aggregate stated value of $20 million. Closing
is expected to occur on September 30, 1999. As a result of the transaction,
Tulsat will become a wholly-owned subsidiary of ADDvantage Media and Tulsat's
owners will own approximately 83% of ADDvantage Media's common stock and 100% of
its outstanding preferred stock. Tulsat's management is expected to assume
management and control of ADDvantage Media.
Tulsat will account for the transaction as a purchase of ADDvantage Media.
ADDvantage Media's assets and liabilities will be adjusted to fair value as of
closing date, and any excess of purchase price over the fair value of ADDvantage
Media's net assets will be accounted for as goodwill.
The transaction will cause Tulsat to lose its S Corporation status and to be
taxed as a regular corporation in the future. The accompanying statements of
income have been supplemented with
7
a pro-forma provision for income taxes as if Tulsat were a taxable corporation
during the period presented. The pro-forma tax rate used is 38% representing a
combined federal and state tax provision.
8