ADDvantage Technologies Group, Inc. Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO ______________ Commission File number 1-10799 (Registrant's telephone number, in ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO ______________ Commission File number 1-10799 ADDvantage Technologies Group, Inc. Table of Contents (Exact name of registrant as specified ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the unaudited consolidated financial statements and management's discussion and analysis of the Company's financial condition and results of operations [Item 1. Financial Statements.](index=3&type=section&id=Item%201.%20Financial%20Statements.) This section presents the unaudited consolidated financial statements, including balance sheets, income statements, equity changes, cash flows, and detailed accounting notes [Consolidated Balance Sheets (unaudited)](index=3&type=section&id=Consolidated%20Balance%20Sheets%20(unaudited)) Total assets and liabilities decreased, leading to a reduction in total shareholders' equity as of March 31, 2023 | Metric (in thousands) | March 31, 2023 | December 31, 2022 | Change (vs. Dec 31, 2022) | | :-------------------- | :------------- | :---------------- | :------------------------ | | Total Assets | $24,009 | $27,218 | -$3,209 | | Total Liabilities | $14,311 | $15,171 | -$860 | | Total Shareholders' Equity | $9,698 | $12,047 | -$2,349 | - **Total current assets decreased by $2,738 thousand**, primarily driven by **decreases** in unbilled **revenue**, inventories, and accounts receivable[10](index=10&type=chunk) - **Total current liabilities decreased by $522 thousand**, mainly due to a **decrease** in accounts payable[10](index=10&type=chunk) [Consolidated Statements of Operations (unaudited)](index=5&type=section&id=Consolidated%20Statements%20of%20Operations%20(unaudited)) Sales and gross profit declined significantly, resulting in a more than doubled net loss for the three months ended March 31, 2023 | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | | :-------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Sales | $14,720 | $23,759 | -$9,039 | | Cost of sales | $11,303 | $18,001 | -$6,698 | | Gross profit | $3,417 | $5,758 | -$2,341 | | Operating expenses | $2,047 | $2,753 | -$706 | | Selling, general and administrative expenses | $3,606 | $3,850 | -$244 | | Loss from operations | $(2,553) | $(1,165) | -$1,388 | | Net loss | $(2,748) | $(1,394) | -$1,354 | | Basic and diluted loss per share | $(0.21) | $(0.11) | -$0.10 | - **Sales decreased by 38%** year-over-year, leading to a **40.6% decrease** in **gross profit**[13](index=13&type=chunk) - **Net loss** more than doubled from **$(1,394) thousand** in Q1 **2022** to **$(2,748) thousand** in Q1 **2023**[13](index=13&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity (unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity%20(unaudited)) Shareholders' equity decreased primarily due to the net loss, partially offset by stock-based compensation during the period | Metric (in thousands, except shares) | Balance, Dec 31, 2022 | Net Loss | Restricted Stock Issuance | Amortization of Stock-Based Compensation | Balance, Mar 31, 2023 | | :----------------------------------- | :-------------------- | :------- | :------------------------ | :--------------------------------------- | :-------------------- | | Common Stock (Shares) | 14,132,033 | — | 656,824 | — | 14,788,857 | | Common Stock (Amount) | $141 | — | $7 | — | $148 | | Paid-in Capital | $2,585 | — | $(7) | $399 | $2,977 | | Retained Earnings | $9,321 | $(2,748) | — | — | $6,573 | | Total Shareholders' Equity | $12,047 | $(2,748) | — | $399 | $9,698 | - **Total shareholders' equity decreased by $2,349 thousand** from December **31, 2022**, to March **31, 2023**, primarily due to the **net loss of $(2,748) thousand**, partially offset by **stock-based compensation**[16](index=16&type=chunk) [Consolidated Statements of Cash Flows (unaudited)](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(unaudited)) Operating cash flow significantly decreased year-over-year, primarily due to higher net loss and changes in working capital | Activity (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | | :---------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Operating Activities | $533 | $5,541 | -$5,008 | | Investing Activities | $(1) | $(36) | +$35 | | Financing Activities | $(157) | $(2,077) | +$1,920 | | Net increase in cash, cash equivalents and restricted cash | $375 | $3,428 | -$3,053 | | Cash, cash equivalents and restricted cash at end of period | $4,028 | $5,846 | -$1,818 | - **Net cash provided by operating activities significantly decreased by $5,008 thousand** year-over-year, from **$5,541 thousand** in Q1 **2022** to **$533 thousand** in Q1 **2023**[20](index=20&type=chunk) - The **decrease** in **operating cash flow** was primarily due to a higher **net loss** and reduced positive impact from changes in accounts receivable compared to the prior year[20](index=20&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the accounting policies and specific financial statement line items [Note 1 - Basis of Presentation and Accounting Policies](index=9&type=section&id=Note%201%20-%20Basis%20of%20Presentation%20and%20Accounting%20Policies) This note outlines the consolidation principles, reportable segments, fiscal year change, and impact of new accounting guidance - The consolidated financial statements include ADDvantage Technologies Group, Inc. and its wholly-owned subsidiaries, with intercompany balances eliminated[23](index=23&type=chunk) - The Company's reportable segments are Wireless Infrastructure Services ("Wireless") and Telecommunications ("Telco")[23](index=23&type=chunk) - The Company changed its fiscal year end from September **30** to December **31**, effective September **2022**[26](index=26&type=chunk) - The adoption of new accounting guidance related to financial instruments – credit **losses** (ASU **2016-13** and related updates) on January **1, 2023**, did not have a material impact on the consolidated financial statements[30](index=30&type=chunk) [Note 2 – Revenue Recognition](index=10&type=section&id=Note%202%20%E2%80%93%20Revenue%20Recognition) This note details the Company's revenue sources, customer concentration, and changes in contract assets and liabilities - Principal **sales** are from Wireless services and Telco equipment, primarily in the United States, with international **sales of approximately $1.6 million** in Q1 **2023**[31](index=31&type=chunk) - **Sales** to one customer accounted for **19%** of consolidated **revenues** in Q1 **2023**, and **sales** to two customers accounted for **39%** in Q1 **2022**[32](index=32&type=chunk) | Sales Type (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Wireless services sales | $6,572 | $7,767 | | Telco equipment | $8,147 | $15,986 | | Telco repair | $1 | $6 | | Total sales | $14,720 | $23,759 | - Contract **assets decreased from $5.0 million** at December **31, 2022**, to **$3.1 million** at March **31, 2023**, while contract **liabilities increased from $0.1 million** to **$0.2 million**[32](index=32&type=chunk) [Note 3 – Accounts Receivable Agreements](index=10&type=section&id=Note%203%20%E2%80%93%20Accounts%20Receivable%20Agreements) This note describes the Company's accounts receivable factoring facilities, utilization, and associated costs - The Company maintains accounts receivable purchase facilities with a **total capacity of $19.0 million** across its subsidiaries (Nave, Triton, Fulton)[35](index=35&type=chunk) - As of March **31, 2023**, **$7.0 million** of receivables were utilized under these facilities, with **$12.0 million** remaining available[35](index=35&type=chunk) - The lender charges fees ranging from **1.6%** to **2.0%** of sold receivables and maintains a reserve, which was **$1.5 million** (reflected as restricted cash) at March **31, 2023**[33](index=33&type=chunk)[35](index=35&type=chunk) - The Company received **$12.9 million** in **proceeds** from sold receivables and incurred **$0.2 million** in related costs during Q1 **2023**[36](index=36&type=chunk) [Note 4 – Inventories](index=11&type=section&id=Note%204%20%E2%80%93%20Inventories) This note details inventory composition, valuation methods, and the allowance for excess and obsolete inventory | Inventory Type (in thousands) | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | New equipment | $2,144 | $2,286 | | Refurbished and used equipment | $10,443 | $11,148 | | Allowance for excess and obsolete inventory | $(4,118) | $(3,871) | | Total inventories, net | $8,469 | $9,563 | - All inventories are within the Telco segment and are stated at the lower of cost or net realizable value, with cost determined using the weighted-average method[37](index=37&type=chunk)[84](index=84&type=chunk) - The **allowance for excess and obsolete inventory increased to $4.1 million** at March **31, 2023**, from **$3.871 million** at December **31, 2022**[37](index=37&type=chunk) [Note 5 – Intangible Assets](index=11&type=section&id=Note%205%20%E2%80%93%20Intangible%20Assets) This note outlines the Company's intangible assets, their amortization, and net carrying values | Intangible Asset (in thousands) | Gross (Mar 31, 2023) | Accumulated Amortization (Mar 31, 2023) | Net (Mar 31, 2023) | Net (Dec 31, 2022) | | :------------------------------ | :------------------- | :-------------------------------------- | :----------------- | :----------------- | | Customer relationships | $3,155 | $(2,940) | $215 | $242 | | Trade name | $2,122 | $(1,708) | $414 | $467 | | Total intangible assets | $5,277 | $(4,648) | $629 | $709 | - **Intangible assets**, primarily customer relationships and trade names, are amortized on a straight-line basis over **10 years**[38](index=38&type=chunk)[88](index=88&type=chunk) - **Net intangible assets decreased from $709 thousand** at December **31, 2022**, to **$629 thousand** at March **31, 2023**[38](index=38&type=chunk) [Note 6 – Debt](index=11&type=section&id=Note%206%20%E2%80%93%20Debt) This note provides information on the Company's credit facilities and debt arrangements - The Company closed a **$3.0 million** credit facility for its Nave and Triton subsidiaries on March **17, 2022**[39](index=39&type=chunk) [Note 7 – Equity Distribution Agreement and Sale of Common Stock](index=12&type=section&id=Note%207%20%E2%80%93%20Equity%20Distribution%20Agreement%20and%20Sale%20of%20Common%20Stock) This note details the Company's past equity distribution agreement and common stock sales activities - The Company had an Equity Distribution Agreement with Northland Securities, Inc. to sell up to **$13.9 million** in common stock via an "at the market offering"[41](index=41&type=chunk)[43](index=43&type=chunk) - During Q1 **2022**, **143,985 shares** were sold, generating **$0.2 million** in gross and **net proceeds**[45](index=45&type=chunk) - The Sales Agreement was terminated on November **28, 2022**, with no shares sold in Q1 **2023**[45](index=45&type=chunk) [Note 8 – Earnings Per Share](index=12&type=section&id=Note%208%20%E2%80%93%20Earnings%20Per%20Share) This note presents the calculation of basic and diluted loss per share and anti-dilutive exclusions | Metric (in thousands, except per share) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss attributable to common shareholders | $(2,748) | $(1,394) | | Basic and diluted weighted average shares | 13,273 | 13,071 | | Basic and diluted loss per common share | $(0.21) | $(0.11) | - Stock options and unvested restricted stock awards were excluded from diluted EPS calculation due to their anti-dilutive effect[47](index=47&type=chunk) [Note 9 – Supplemental Cash Flow Information](index=13&type=section&id=Note%209%20%E2%80%93%20Supplemental%20Cash%20Flow%20Information) This note provides additional details on non-cash investing and financing activities and cash paid for interest | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Cash paid for interest | $46 | $62 | | Assets acquired under financing leases | $0 | $203 | [Note 10 – Stock-Based Compensation](index=13&type=section&id=Note%2010%20%E2%80%93%20Stock-Based%20Compensation) This note describes the Company's stock incentive plan, restricted stock awards, and compensation expense - The **2015** Incentive Stock Plan reserves **3,100,415 shares** for awards, with **415,480 shares** available for future grants at March **31, 2023**[49](index=49&type=chunk) - No stock options were outstanding or granted in Q1 **2023**[50](index=50&type=chunk) | Restricted Stock Awards (in thousands, except shares) | Shares | Fair Value | | :---------------------------------------------------- | :-------- | :--------- | | Non-vested at December 31, 2022 | 531,725 | $1,016 | | Granted | 692,824 | $804 | | Vested | (275,666) | $(368) | | Forfeited | (36,000) | $(49) | | Non-vested at March 31, 2023 | 912,883 | $1,403 | - **Stock-based compensation expense was $0.4 million** in Q1 **2023**, up from **$0.2 million** in Q1 **2022**. Unrecognized **compensation expense of $0.8 million** is expected to be recognized over **3.0 years**[51](index=51&type=chunk)[52](index=52&type=chunk) [Note 11 – Leases](index=13&type=section&id=Note%2011%20%E2%80%93%20Leases) This note details the Company's lease arrangements, including a sublease agreement - The Company subleased a building in Jessup, Maryland, which was no longer used in operations, with the sublease ending in November **2023**[53](index=53&type=chunk) - Rental payments received from the sublease were recorded as a reduction of rent expense[53](index=53&type=chunk) [Note 12 – Segment Reporting](index=14&type=section&id=Note%2012%20%E2%80%93%20Segment%20Reporting) This note provides financial performance and asset information for the Wireless and Telco operating segments - The Company operates in two reportable segments: Wireless Infrastructure Services ("Wireless") and Telecommunications ("Telco")[54](index=54&type=chunk) - Wireless segment provides turn-key wireless infrastructure services, including **5G** small cell construction and technology upgrades on cell sites[55](index=55&type=chunk) - Telco segment sells new and refurbished telecommunications networking equipment and offers repair, testing, and decommissioning services[56](index=56&type=chunk) | Segment Performance (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | **Sales:** | | | | Wireless | $6,572 | $7,766 | | Telco | $8,148 | $15,993 | | Total sales | $14,720 | $23,759 | | **Gross profit:** | | | | Wireless | $1,344 | $1,537 | | Telco | $2,073 | $4,221 | | Total gross profit | $3,417 | $5,758 | | **Income (loss) from operations:** | | | | Wireless | $(2,097) | $(2,203) | | Telco | $(456) | $1,038 | | Total income (loss) from operations | $(2,553) | $(1,165) | | Segment Assets (in thousands) | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | Wireless | $8,223 | $9,790 | | Telco | $12,224 | $13,217 | | Non-allocated | $3,562 | $4,211 | | Total assets | $24,009 | $27,218 | [Note 13 – Subsequent Events](index=14&type=section&id=Note%2013%20%E2%80%93%20Subsequent%20Events) This note discloses significant financing activities that occurred after the reporting period end - On April **7** and April **12, 2023**, the Company entered into securities purchase agreements with Mast Hill Fund, L.P. for the issuance of **13%** senior secured promissory notes totaling **$3.0 million**[60](index=60&type=chunk)[61](index=61&type=chunk) - The transaction involved an original issue discount of **$0.1 million**, resulting in **net proceeds of $2.9 million**[62](index=62&type=chunk)[63](index=63&type=chunk)[94](index=94&type=chunk) - As part of the agreement, the Company issued warrants to purchase **648,000 shares** of common stock and **72,000 shares** of common stock as a commitment fee and additional consideration[60](index=60&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses the Company's financial condition, results of operations, and cash flows, analyzing segment performance, critical accounting policies, and liquidity [Special Note on Forward-Looking Statements](index=16&type=section&id=Special%20Note%20on%20Forward-Looking%20Statements) This note cautions that forward-looking statements are subject to risks and uncertainties, and actual results may differ materially - The section contains forward-looking statements subject to risks and uncertainties, including changes in the wireless telecommunications industry, customer/supplier relationships, technology, economic environment, competition, and regulation[65](index=65&type=chunk) - Actual results may differ materially from projections, and the Company does not undertake to update these statements[65](index=65&type=chunk) [Overview](index=16&type=section&id=Overview) This section provides an overview of the Company's two reportable segments: Wireless Infrastructure Services and Telecommunications - The Company reports financial performance based on two segments: Wireless Infrastructure Services and Telecommunications[67](index=67&type=chunk) - The Wireless segment provides turn-key wireless infrastructure services for major U.S. wireless carriers, tower companies, and OEMs, focusing on **5G** small cell construction and cell site technology upgrades[68](index=68&type=chunk) - The Telco segment sells new and refurbished telecommunications networking equipment and offers repair, testing, and decommissioning services primarily in North America[69](index=69&type=chunk) [Results of Operations](index=16&type=section&id=Results%20of%20Operations) This section analyzes the consolidated and segment-specific financial performance for the reporting period [Consolidated](index=16&type=section&id=Consolidated) Consolidated sales and gross profit declined significantly, while operating and SG&A expenses decreased due to cost control - Consolidated **sales decreased by $9.1 million** (**38%**) to **$14.7 million** in Q1 **2023**, driven by **declines** in both Telco (**$7.9 million**) and Wireless (**$1.2 million**) segments[70](index=70&type=chunk) - Consolidated **gross profit decreased by $2.4 million** to **$3.4 million**, with **gross margin** slightly down from **24%** to **23%**[71](index=71&type=chunk) - **Operating expenses decreased by $0.8 million** due to cost control measures, and SG&A **expenses decreased by $0.2 million** (**6%**) primarily due to lower selling and commission expenses[72](index=72&type=chunk)[73](index=73&type=chunk) [Segment Results](index=17&type=section&id=Segment%20Results) Wireless segment revenues decreased due to 5G construction pace, while Telco sales significantly declined from lower equipment demand - Wireless segment **revenues decreased by $1.2 million** to **$6.6 million**, attributed to the pace of **5G** construction and global supply chain issues impacting component availability[74](index=74&type=chunk) - Wireless **gross profit decreased** in dollar terms but maintained a **20% gross margin**. **Loss from operations** for Wireless was **$(2.1) million**, a slight improvement from **$(2.2) million** in Q1 **2022**[75](index=75&type=chunk) - Telco segment **sales decreased significantly by $7.9 million** to **$8.1 million**, primarily due to lower **sales** of used and refurbished equipment as customers absorbed prior year inventory[76](index=76&type=chunk) - Telco **gross profit decreased by $2.1 million**, and the segment shifted from an **operating income of $1.0 million** in Q1 **2022** to an **operating loss of $(0.5) million** in Q1 **2023**[77](index=77&type=chunk) [Non-GAAP Financial Measure](index=17&type=section&id=Non-GAAP%20Financial%20Measure) This section defines and presents Adjusted EBITDA as a non-GAAP measure used to evaluate financial performance and market value - **Adjusted EBITDA** is a non-GAAP measure defined as earnings before interest expense, income taxes, depreciation, amortization, stock compensation expense, other income, other expense, and interest income[78](index=78&type=chunk) - **Adjusted EBITDA** is used by the financial community to measure financial performance and evaluate market value[78](index=78&type=chunk) | Adjusted EBITDA (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------- | :-------------------------------- | :-------------------------------- | | Wireless | $(1,764) | $(1,892) | | Telco | $(73) | $1,292 | | Total Adjusted EBITDA | $(1,837) | $(600) | [Critical Accounting Policies](index=18&type=section&id=Critical%20Accounting%20Policies) This section discusses key accounting policies for accounts receivable, inventory valuation, and intangible assets [Accounts receivable](index=18&type=section&id=Accounts%20receivable) This policy outlines the valuation of trade receivables and the allowance for doubtful accounts - Trade receivables are carried at original invoice amount less an allowance for doubtful accounts, determined by evaluating individual customer financial condition, credit history, and economic conditions[82](index=82&type=chunk) - The adoption of ASC **326** guidance on credit **losses** did not materially impact trade receivables or the allowance for doubtful accounts[82](index=82&type=chunk) [Inventory Valuation](index=18&type=section&id=Inventory%20Valuation) This policy details the valuation of Telco segment inventories and the assessment for obsolescence - Inventories, all within the Telco segment, consist of new and used electronic components and are stated at the lower of cost or net realizable value using the weighted-average method[84](index=84&type=chunk) - The Company carries large inventory quantities, which represents the largest risk for the Telco segment, and regularly reviews inventory for obsolescence due to rapidly changing technology[83](index=83&type=chunk)[85](index=85&type=chunk) - An **obsolete and excess inventory reserve of $4.1 million** was recorded at March **31, 2023**[86](index=86&type=chunk) [Intangibles](index=19&type=section&id=Intangibles) This policy describes the amortization and impairment testing of intangible assets with finite useful lives - **Intangible assets** with finite useful lives are amortized on a straight-line basis over **10 years** and are tested for impairment when indicators are present[88](index=88&type=chunk) - As of March **31, 2023**, no indicators of impairment were present for **intangible assets**[88](index=88&type=chunk) [Liquidity and Capital Resources](index=19&type=section&id=Liquidity%20and%20Capital%20Resources) This section analyzes the Company's cash flows, available liquidity, and future capital needs [Cash Flows Provided by Operating Activities](index=19&type=section&id=Cash%20Flows%20Provided%20by%20Operating%20Activities) Operating cash flow was positively impacted by working capital changes and non-cash adjustments, despite a net loss - **Cash provided by operations was $0.5 million** during Q1 **2023**, negatively impacted by a **$2.7 million net loss**, but offset by **$2.3 million** from working capital changes and **$0.9 million** in non-cash adjustments[89](index=89&type=chunk) [Cash Flows Used in Investing Activities](index=19&type=section&id=Cash%20Flows%20Used%20in%20Investing%20Activities) Investing activities primarily involved minimal purchases of property and equipment during the period - **Cash used in investing activities was minimal at $1 thousand** in Q1 **2023**, primarily for property and equipment purchases[90](index=90&type=chunk) [Cash Flows Used in Financing Activities](index=19&type=section&id=Cash%20Flows%20Used%20in%20Financing%20Activities) Financing activities primarily consisted of payments made on financing leases - **Cash used in financing activities was $0.2 million** in Q1 **2023**, consisting of payments on financing leases[91](index=91&type=chunk) [Liquidity and Capital Resources (General)](index=19&type=section&id=Liquidity%20and%20Capital%20Resources%20(General)) The Company's liquidity includes cash and available factoring facilities, with potential need for additional funding - At March **31, 2023**, the Company had **$4.0 million** in cash and equivalents and restricted cash[92](index=92&type=chunk) - The Company has **$12.0 million** available under its **$19.0 million** accounts receivable factoring facilities[92](index=92&type=chunk) - If negative operating results continue, the Company may need to seek additional funding through equity **sales** or debt issuance[93](index=93&type=chunk) [Subsequent Event: Mast Hill Fund Investments](index=19&type=section&id=Subsequent%20Event%3A%20Mast%20Hill%20Fund%20Investments) Post-quarter, the Company secured $2.9 million in net proceeds through senior secured promissory notes and issued warrants - Post-quarter, the Company secured **$2.9 million** in **net proceeds** from Mast Hill Fund, L.P. through the issuance of **$3.0 million** in **13%** senior secured promissory notes[94](index=94&type=chunk)[95](index=95&type=chunk) - The financing also included the issuance of warrants to purchase **648,000 shares** and **72,000 shares** of common stock as part of the consideration[60](index=60&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk.](index=21&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk.) This section states that there are no applicable quantitative and qualitative disclosures about market risk for the Company - The Company has no applicable quantitative and qualitative disclosures about market risk[96](index=96&type=chunk) [Item 4. Controls and Procedures.](index=21&type=section&id=Item%204.%20Controls%20and%20Procedures.) The Company's management, including the CEO and CFO, concluded that the disclosure controls and procedures were effective as of March 31, 2023, ensuring timely and accurate reporting of required information under the Exchange Act - As of March **31, 2023**, the CEO and CFO concluded that the Company's disclosure controls and procedures are effective[97](index=97&type=chunk) - These controls are designed to ensure information required for Exchange Act reports is recorded, processed, summarized, and reported within specified time periods[97](index=97&type=chunk) [PART II. OTHER INFORMATION](index=22&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits [Item 1. Legal Proceedings.](index=22&type=section&id=Item%201.%20Legal%20Proceedings.) The Company is not currently involved in any material legal claims outside the ordinary course of business - The Company is not currently involved in any material legal proceedings outside the ordinary course of business[100](index=100&type=chunk) [Item 1A. Risk Factors.](index=22&type=section&id=Item%201A.%20Risk%20Factors.) This section indicates that there are no new material risk factors to report for the current period - Not Applicable[101](index=101&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.](index=22&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) The Company did not engage in any unregistered sales of equity securities or use of proceeds during the reporting period - None[102](index=102&type=chunk) [Item 3. Defaults Upon Senior Securities.](index=22&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities.) The Company reported no defaults upon senior securities during the reporting period - None[103](index=103&type=chunk) [Item 4. Mine Safety Disclosures.](index=22&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This section is not applicable to the Company's operations - Not Applicable[104](index=104&type=chunk) [Item 5. Other Information.](index=22&type=section&id=Item%205.%20Other%20Information.) No other information requiring disclosure was reported in this section - None[105](index=105&type=chunk) [Item 6. Exhibits.](index=23&type=section&id=Item%206.%20Exhibits.) This section lists the exhibits filed as part of the Form 10-Q, including certifications under the Sarbanes-Oxley Act and XBRL-related documents - The exhibits include certifications of the CEO and CFO under Sections **302** and **906** of the Sarbanes-Oxley Act of **2002**[107](index=107&type=chunk) - XBRL Instance Document and Taxonomy Extension Schema, Calculation, Definition, Label, and Presentation Linkbases are also filed[107](index=107&type=chunk) [SIGNATURES](index=24&type=section&id=SIGNATURES) The report is duly signed on behalf of ADDvantage Technologies Group, Inc. by Joseph E. Hart, President and CEO, and Michael A. Rutledge, CFO, on May 15, 2023 - The report was signed by Joseph E. Hart, President and Chief Executive Officer, and Michael A. Rutledge, Chief Financial Officer, on May **15, 2023**[111](index=111&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-10799 ADDvantage Technologies Group, Inc. (Exact name of registrant as specified in its charter) | Oklahoma | 73-1351610 | | --- | --- | | (State or other jurisdiction of incorporation or organizat ...

PART I This section outlines the company's business operations, including segment performance, market dynamics, and operational details, alongside property, legal, and mining safety disclosures [Item 1. Business.](index=3&type=section&id=Item%201.%20Business.) ADDvantage Technologies Group, Inc. operates through two main segments: Wireless Infrastructure Services and Telecommunications. The Wireless segment focuses on 5G infrastructure and temporary tower solutions, while the Telco segment distributes new, refurbished, and used telecommunications equipment, along with repair and recycling services. The company experienced a shift in revenue contribution, with Telco growing to 67% of consolidated revenues in 2021, up from 57% in 2020, while Wireless declined. Key differentiators include extensive experience, safety records, diverse inventory, and strong customer relationships - The Company operates two reportable segments: Wireless Infrastructure Services ('Wireless') and Telecommunications ('Telco')[226](index=226&type=chunk) - The Wireless segment provides turn-key wireless infrastructure services, including 5G installations and temporary tower solutions, for major U.S. wireless carriers, tower companies, and equipment manufacturers[227](index=227&type=chunk)[228](index=228&type=chunk)[229](index=229&type=chunk) - The Telco segment sells new, surplus-new, and refurbished telecommunication networking equipment (central office and customer premise equipment), and offers repair, testing, decommissioning, and recycling services[230](index=230&type=chunk)[231](index=231&type=chunk)[232](index=232&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section identifies forward-looking statements and outlines the various risks and uncertainties that could impact future performance - This report contains forward-looking statements regarding business environment, future performance, market opportunities, goals, and objectives, identified by words like 'estimates', 'expects', 'anticipates', 'believes', 'plans', 'goals', 'strategy', 'may', 'should'[220](index=220&type=chunk) - These statements are subject to risks and uncertainties including changes in the cable television and telecommunications industries, customer/supplier relationships, technological developments, economic environment, competition, regulation, taxation, personnel changes, and acquisition integration[220](index=220&type=chunk) [Company Overview and History](index=3&type=section&id=Background) The company, incorporated in Oklahoma in 1989, provides wireless infrastructure services and telecommunications equipment, with its headquarters in Carrollton, Texas, and operations through its Wireless and Telco segments - The Company, incorporated in Oklahoma in September 1989, provides turn-key wireless infrastructure services and distributes telecommunications electronics and hardware[221](index=221&type=chunk) - In 2019, the Company moved its headquarters to Carrollton, Texas, and acquired Fulton Technologies, Inc., establishing the Wireless Infrastructure Services segment[221](index=221&type=chunk) - The Telecommunications segment operates through subsidiaries Nave Communications Company and ADDvantage Triton, LLC[221](index=221&type=chunk) [Website Access to Reports](index=3&type=section&id=Website%20Access%20to%20Reports) The company provides free access to its annual, quarterly, and current SEC reports on its investor relations website for public disclosure - The Company makes its annual, quarterly, and current reports (10-K, 10-Q, 8-K) available free of charge on the 'Investor Relations' section of its website (www.addvantagetechnologies.com) as soon as practicable after SEC filing[224](index=224&type=chunk) - The website is intended for disclosing material non-public information and complying with Regulation FD[225](index=225&type=chunk) [Operating Segments](index=4&type=section&id=Operating%20Segments) The company operates through two primary reportable segments: Wireless Infrastructure Services and Telecommunications - The Company's reportable segments are Wireless Infrastructure Services ('Wireless') and Telecommunications ('Telco')[226](index=226&type=chunk) [Products and Services](index=4&type=section&id=Products%20and%20Services) This section details the specialized services of the Wireless segment and the diverse equipment and support services offered by the Telco segment [Wireless Segment](index=4&type=section&id=Wireless%20Segment) The Wireless segment delivers turn-key infrastructure services, including 5G installations and temporary tower solutions, to major U.S. carriers and OEMs - The Wireless segment provides turn-key wireless infrastructure services, including installation and upgrade of technology on cell sites and construction of new small cells for 5G, to major U.S. wireless carriers, tower companies, and OEMs[227](index=227&type=chunk) - Fulton, with 120 employees, performs equipment installations, upgrades, and maintenance on communication towers, emphasizing safety and quality[228](index=228&type=chunk) - Demand for tower services increased notably in Q4 fiscal 2021 and is expected to continue with 5G expansion[228](index=228&type=chunk) - Fulton also offers temporary tower solutions for maintenance and special events, a business that recovered strongly in fiscal year 2021 after being severely impacted by COVID-19 in 2020[229](index=229&type=chunk) [Telco Segment](index=4&type=section&id=Telco%20Segment) The Telco segment supplies new and used telecommunication equipment, offering repair, testing, decommissioning, and recycling services, with strong recovery in 2021 - The Telco segment supplies new and used telecommunication networking equipment, including central office and customer premise equipment, to providers, enterprise customers, and resellers[230](index=230&type=chunk) - It also provides repair, testing, and decommissioning services, processing obsolete equipment through its R2 certified recycling program[230](index=230&type=chunk)[232](index=232&type=chunk) - Customer Premise Equipment sales were severely impacted by office closures in 2020 but showed strong recovery in 2021[231](index=231&type=chunk) [Revenues by Geographic Areas](index=5&type=section&id=Revenues%20by%20Geographic%20Areas) Revenue is primarily generated in the United States, with international sales contributing to the Telco segment, and all long-lived assets located domestically Revenues by Geographic Areas (in thousands) | Geographic Area | 2021 Revenue | 2020 Revenue | | :---------------- | :----------- | :----------- | | United States - Wireless | $20,708 | $21,354 | | United States - Telco | $36,799 | $26,880 | | International - Telco | $4,653 | $1,948 | | **Total** | **$62,160** | **$50,182** | - Revenues are attributed based on customer location, and all long-lived assets are located within the United States[235](index=235&type=chunk) [Sales and Marketing](index=5&type=section&id=Sales%20and%20Marketing) This section outlines the sales and marketing strategies for both the Wireless and Telco segments, highlighting their respective customer bases and competitive advantages [Wireless Segment Sales and Marketing](index=5&type=section&id=Wireless%20Segment%20Sales%20and%20Marketing) The Wireless segment, contributing 33% of 2021 consolidated revenues, markets its services to wireless carriers, equipment providers, and tower companies - The Wireless segment accounted for **33% of consolidated revenues in 2021** (down from 43% in 2020), with wireless tower and temporary tower services comprising substantially all segment revenues[236](index=236&type=chunk) - Products are marketed and sold to wireless carriers, equipment providers, and tower companies[236](index=236&type=chunk) [Telco Segment Sales and Marketing](index=5&type=section&id=Telco%20Segment%20Sales%20and%20Marketing) The Telco segment, accounting for 67% of 2021 consolidated revenues, utilizes internal staff, representatives, and online platforms, leveraging diverse inventory and experienced teams - The Telco segment accounted for **67% of consolidated revenues in 2021** (up from 57% in 2020), with new products representing 25% and refurbished products 73% of segment revenues[237](index=237&type=chunk) - Sales and marketing are conducted by internal staff, outside representatives, and online platforms (website, Amazon, Newegg), driven by customer relationships, manufacturer referrals, and online advertising[237](index=237&type=chunk) - The Company maintains a diverse inventory of new and used products, offering same-day shipments and leveraging its inventory, supply channels, and experienced team as competitive advantages[238](index=238&type=chunk) [Suppliers](index=5&type=section&id=Suppliers) The Telco segment primarily sources its used inventory from telecommunication companies, wholesale suppliers, and other industry resellers - The Telco segment primarily sources used inventory from telecommunication companies, wholesale suppliers with excess equipment, or other industry resellers[239](index=239&type=chunk) [Seasonality](index=5&type=section&id=Seasonality) The Wireless segment experiences seasonal demand fluctuations, while the Telco segment anticipates no significant seasonal impact on its quarterly operating results - Wireless segment services are seasonal, with increased demand from late spring to early fall due to severe weather and slower winter months due to cold and inaccessible towers[240](index=240&type=chunk)[241](index=241&type=chunk) - The Telco segment does not anticipate significant seasonal fluctuations in quarterly operating results, apart from normal business variations during the winter holiday season[241](index=241&type=chunk) [Competition](index=6&type=section&id=Competition) This section details the competitive landscape for both the Wireless and Telco segments, highlighting their respective differentiators and market positions [Wireless Segment Competition](index=6&type=section&id=Wireless%20Segment%20Competition) The Wireless segment competes with regional service companies, distinguishing itself through extensive experience, safety, personnel retention, and diversified service offerings - The Wireless segment competes with other wireless service companies locally, regionally, or nationally, primarily with regionally based companies of similar size[242](index=242&type=chunk) - In niche areas like Special Events and Temporary Pole business, the Wireless segment faces few competitors due to specialized expertise and required investment[242](index=242&type=chunk) - Key differentiators include **30+ years of experience**, a robust safety organization, ability to recruit and retain personnel, multi-year master service agreements, industry relationships, and diversified service offerings[243](index=243&type=chunk) [Telco Segment Competition](index=6&type=section&id=Telco%20Segment%20Competition) The highly competitive Telco segment differentiates itself with a broad inventory, sourcing capabilities, repair services, technical sales staff, and quality certifications - The telecommunications equipment industry is highly competitive, with numerous direct and online resellers[243](index=243&type=chunk) - Telco segment differentiators include a broad range of new, refurbished, and used inventory, ability to source unique items, repair and testing capabilities, experienced sales staff with technical knowledge, quality certifications (TL9000, ISO 14001, OHSAS18000, R2), and comprehensive services like deinstallation, storage, and recycling[243](index=243&type=chunk) [Working Capital Practices](index=6&type=section&id=Working%20Capital%20Practices) The company manages working capital through quick payment programs and a revolving line of credit, with a focus on inventory and accounts receivable for the Telco segment - Wireless segment uses quick payment accounts receivable programs and a revolving bank line of credit to manage working capital needs, primarily for project-related costs before invoicing[244](index=244&type=chunk) - Telco segment working capital focuses on inventory and accounts receivable, with excess cash flows reinvested in inventory to maintain or expand product offerings[245](index=245&type=chunk) - The Company has a **$4.0 million revolving line of credit**, with **$1.9 million additional borrowing capacity** as of September 30, 2021. A covenant violation at that date was waived by the lender in December 2021[247](index=247&type=chunk) [Significant Customers](index=8&type=section&id=Significant%20Customers) The company has significant customer concentration, with AT&T Mobility and Zayo Group LLC being major contributors to Wireless and Telco segment revenues, respectively Significant Customer Revenue Concentration (Fiscal Year 2021) | Customer/Group | % of Consolidated Revenues | % of Segment Revenues | | :--------------- | :------------------------- | :-------------------- | | AT&T Mobility | 10% | 31% (Wireless) | | Top 5 Wireless Customers | 28% | 84% (Wireless) | | Zayo Group LLC | 18% | 27% (Telco) | | Top 5 Telco Customers | 30% | 45% (Telco) | - In fiscal year 2020, AT&T Mobility accounted for **14% of consolidated revenues** and **32% of Wireless segment revenues**, with top five Wireless customers accounting for **33% of consolidated revenues** and **77% of Wireless segment revenues**[249](index=249&type=chunk) [Impact of Inflation on Operations](index=8&type=section&id=Impact%20of%20Inflation%20on%20Operations) Inflation had no material impact on operations in 2021 and 2020, though component price increases affected Wireless segment gross margins in Q4 2021 - Inflation had no material impact on operations in fiscal years 2021 and 2020, but component price increases in Q4 2021 negatively affected Wireless segment gross margins[250](index=250&type=chunk) [Off-Balance Sheet Arrangements](index=8&type=section&id=Off-Balance%20Sheet%20Arrangements) The company has no off-balance sheet arrangements that are material to its financial condition, results of operations, or liquidity - The Company has no off-balance sheet arrangements that are material to its financial condition, results of operations, or liquidity[251](index=251&type=chunk) [Personnel](index=8&type=section&id=Personnel) As of September 30, 2021, the company had 170 employees, with excellent employee relations and no unionization - As of September 30, 2021, the Company had **170 employees**, with **169 full-time**. Employee relations are considered excellent, and employees are not unionized[252](index=252&type=chunk) [Item 2. Properties.](index=7&type=section&id=Item%202.%20Properties.) The Company leases its corporate headquarters in Carrollton, Texas, and maintains additional leased facilities for its Wireless segment in Chicago, Illinois, and Telco segment in Miami, Florida. Two previously used properties in Minneapolis, Minnesota, and Jessup, Maryland, were subleased as of September 30, 2021 - Corporate headquarters are leased in Carrollton, Texas[253](index=253&type=chunk) - Wireless Segment leases additional space in Chicago, Illinois, and Telco Segment has operations in Miami, Florida[253](index=253&type=chunk) - Buildings in Minneapolis, Minnesota, and Jessup, Maryland, no longer used in operations, were subleased as of September 30, 2021[253](index=253&type=chunk) [Item 3. Legal Proceedings.](index=8&type=section&id=Item%203.%20Legal%20Proceedings.) The Company is occasionally involved in various legal proceedings in the ordinary course of business but does not anticipate any material adverse effects on its financial position, results of operations, or cash flows from these matters - The Company is a party to various legal proceedings in the ordinary course of business[254](index=254&type=chunk) - These proceedings are not believed to have a material adverse effect on the Company's financial position, results of operations, or cash flows[254](index=254&type=chunk) [Item 4. Mining Safety Disclosures.](index=9&type=section&id=Item%204.%20Mining%20Safety%20Disclosures.) This item is not applicable to the Company's operations - Mining Safety Disclosures are not applicable to the Company[254](index=254&type=chunk) PART II This section covers the market for the company's common equity, management's discussion and analysis of financial condition, audited financial statements, and disclosures on controls and procedures [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.](index=10&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) The Company's common stock trades on the NASDAQ Global Market under the symbol 'AEY'. As of December 27, 2021, there were approximately 80 shareholders of record and 5,800 beneficial owners. The Company has not declared or paid cash dividends and intends to retain future earnings for business development Common Stock High and Low Sales Prices (NASDAQ Global Market - AEY) | Year Ended September 30, 2021 | High | Low | | :---------------------------- | :---- | :---- | | First Quarter | $4.24 | $1.80 | | Second Quarter | $3.59 | $2.50 | | Third Quarter | $2.92 | $1.90 | | Fourth Quarter | $2.82 | $2.18 | | Year Ended September 30, 2020 | High | Low | | First Quarter | $2.85 | $1.85 | | Second Quarter | $6.49 | $1.80 | | Third Quarter | $4.40 | $1.50 | | Fourth Quarter | $3.47 | $1.87 | - As of December 27, 2021, there were approximately **80 shareholders of record** and **5,800 beneficial owners** of common stock[259](index=259&type=chunk) - The Company has not declared or paid cash dividends on its common stock and intends to retain all future earnings to fund business development and growth[260](index=260&type=chunk) [Item 6. [Reserved]](index=10&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information - Item 6 is reserved[261](index=261&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=10&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) This section provides a detailed analysis of ADDvantage Technologies Group, Inc.'s financial condition and results of operations for the fiscal years ended September 30, 2021, and 2020. It covers segment performance, the impact of COVID-19, consolidated financial results, liquidity, capital resources, and critical accounting policies. The company saw significant revenue growth in its Telco segment, offsetting a slight decline in Wireless, leading to improved gross profit and reduced operating losses. Liquidity was maintained despite a bank covenant violation, which was subsequently waived - Consolidated sales increased by **$12.0 million**, or **24%**, to **$62.2 million in 2021** from **$50.2 million in 2020**, primarily driven by a **$12.7 million increase in the Telco segment**[270](index=270&type=chunk) - Consolidated gross profit increased by **$4.4 million**, or **38%**, to **$16.1 million in 2021** from **$11.7 million in 2020**, with Telco gross profit increasing by **$4.7 million**[270](index=270&type=chunk) - The Company recorded a **$3.0 million gain on extinguishment of debt** in Q4 fiscal 2021 due to the forgiveness of a **$2.9 million PPP loan** by the SBA[272](index=272&type=chunk) - As of September 30, 2021, the Company had **$2.9 million in cash and equivalents** and restricted cash, with **$1.9 million available** under its bank line of credit, totaling **$4.8 million in liquidity**[281](index=281&type=chunk)[284](index=284&type=chunk) - The Company was not in compliance with a fixed charge coverage ratio covenant on its bank line of credit at September 30, 2021, but received a waiver from its primary financial lender on December 22, 2021[247](index=247&type=chunk)[363](index=363&type=chunk) [General](index=10&type=section&id=General) The company reports financial performance through its Wireless Infrastructure Services and Telecommunications segments, detailing their respective service offerings - The Company reports financial performance based on two external reporting segments: Wireless Infrastructure Services ('Wireless') and Telecommunications ('Telco')[262](index=262&type=chunk) - The Wireless segment, consisting of Fulton's assets, provides turn-key wireless infrastructure services for major U.S. wireless carriers, tower companies, and OEMs, focusing on 5G installations[262](index=262&type=chunk) - The Telco segment sells new and refurbished telecommunications networking equipment and offers repair, testing, and decommissioning services primarily in North America[263](index=263&type=chunk) [Recent Business Developments](index=11&type=section&id=Recent%20Business%20Developments) This section highlights recent business developments, including the impact of the COVID-19 pandemic on operations and revenue trends [COVID-19 Impact](index=11&type=section&id=COVID-19) The company, classified as an essential business, experienced initial revenue slowdowns due to COVID-19 but saw recovery in the latter half of fiscal 2021 - The Company was classified as an essential business during the COVID-19 pandemic, allowing continued operations, though revenues slowed, particularly in the Wireless segment due to carrier project delays[264](index=264&type=chunk) - No material disruption in the supply chain was experienced. Revenues increased in the last two quarters of 2021 compared to previous pandemic quarters[264](index=264&type=chunk)[265](index=265&type=chunk) [Wireless Segment Operating Results](index=11&type=section&id=Wireless%20Segment%20Operating%20Results) The Wireless segment generated $20.7 million in revenues in 2021, focusing on operational improvements and talent recruitment for 5G expansion - Fulton (Wireless segment) achieved **$20.7 million in revenues** during 2021[266](index=266&type=chunk) - The segment is focused on operational improvements and recruiting talent to capitalize on anticipated increased activity from 5G network expansion and densification[266](index=266&type=chunk) [Telco Segment Operating Results](index=11&type=section&id=Telco%20Segment%20Operating%20Results) The Telco segment achieved $41.5 million in revenues in 2021, driven by sales and procurement focus, expanded refurbishment, and increased demand due to chip shortages - The Telco segment achieved **$41.5 million in revenues** during 2021, with a focus on sales and procurement[267](index=267&type=chunk) - Triton's facility streamlines operations, and the company plans to expand refurbishment capabilities, new equipment sales, brokerage business, and internet sales[267](index=267&type=chunk) - Nave's growth was significantly boosted by the global chip shortage, increasing demand for refurbished equipment, and growth from enterprise fiber network customers[267](index=267&type=chunk) [Results of Operations](index=11&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the consolidated, Wireless, and Telco segment financial results, including revenues, gross profit, and operating losses [Consolidated Results](index=12&type=section&id=Consolidated) Consolidated results show increased sales and gross profit, driven by Telco segment growth, alongside higher operating expenses and a reduced income tax benefit Consolidated Financial Performance (in thousands) | Metric | 2021 | 2020 | Change | | :-------------- | :---------- | :---------- | :---------- | | Sales | $62,200 | $50,200 | $12,000 | | Gross Profit | $16,100 | $11,700 | $4,400 | | Operating Expenses | $9,300 | $8,200 | $1,100 | | SG&A Expenses | $14,900 | $11,200 | $3,700 | | Income Tax Benefit | $(100) | $(1,200) | $1,100 | - The increase in operating expenses was primarily due to investment in regional growth strategy for the Wireless segment[270](index=270&type=chunk) - Increased SG&A expenses were driven by higher sales compensation in Telco and expanded operational support for anticipated 5G expansion[271](index=271&type=chunk) - In 2020, the Company recorded impairment charges of **$8.7 million on intangibles** (including goodwill) and **$0.7 million on a right-of-use asset** in the Telco segment[271](index=271&type=chunk) - The income tax benefit in 2021 was **$0.1 million (0.8% effective rate)**, compared to **$1.2 million (6.7% effective rate)** in 2020, influenced by valuation allowance increases and CARES Act provisions for NOL carrybacks[273](index=273&type=chunk) [Wireless Segment Results](index=12&type=section&id=Wireless%20Segment%20Results) The Wireless segment experienced a revenue decrease and increased operating loss in 2021, primarily due to customer delays in 5G build-out and regional growth investments Wireless Segment Financial Performance (in thousands) | Metric | 2021 | 2020 | Change | | :-------------- | :---------- | :---------- | :---------- | | Revenues | $20,700 | $21,400 | $(700) (-3%)| | Gross Profit | $6,277 | $6,580 | $(303) | | Gross Margin | 30% | 31% | -1% | | Loss from Operations | $(6,900) | $(4,400) | $(2,500) | - Revenue decrease was due to customer delays in 5G infrastructure build-out[274](index=274&type=chunk) - Increased loss from operations is mainly attributable to investment in regional growth strategy for anticipated 5G infrastructure build-outs[274](index=274&type=chunk) [Telco Segment Results](index=12&type=section&id=Telco%20Segment%20Results) The Telco segment achieved significant revenue and gross profit growth in 2021, driven by economic recovery and increased demand for refurbished equipment due to chip shortages Telco Segment Financial Performance (in thousands) | Metric | 2021 | 2020 | Change | | :-------------- | :---------- | :---------- | :---------- | | Revenues | $41,500 | $28,800 | $12,700 (44%)| | Gross Profit | $9,900 | $5,100 | $4,800 (93%)| | Gross Margin | 24% | 18% | +6% | | Loss from Operations | $(2,400) | $(14,200) | $11,800 | - Revenue increase was driven by economic recovery from COVID-19 and increased demand for refurbished equipment due to the global circuit chip supply shortage[275](index=275&type=chunk)[276](index=276&type=chunk) - Gross margin increased primarily due to higher revenue and a **$1.4 million decrease in inventory obsolescence** compared to the prior year[276](index=276&type=chunk) [Non-GAAP Financial Measure (Adjusted EBITDA)](index=13&type=section&id=Non-GAAP%20Financial%20Measure) Adjusted EBITDA, a non-GAAP measure, is used to evaluate performance and market value by excluding specific non-operating and non-cash items - Adjusted EBITDA is a supplemental non-GAAP financial measure used by the financial community to evaluate performance and market value[277](index=277&type=chunk) - Adjusted EBITDA excludes interest expense, income taxes, depreciation, amortization, stock compensation expense, gain on extinguishment of debt, impairment of intangibles and right-of-use assets, other income/expense, interest income, and income from equity method investment[277](index=277&type=chunk) Adjusted EBITDA by Segment (in thousands) | Metric | 2021 Wireless | 2021 Telco | 2021 Total | 2020 Wireless | 2020 Telco | 2020 Total | | :-------------- | :------------ | :--------- | :--------- | :------------ | :--------- | :--------- | | Loss from operations | $(6,864) | $(2,433) | $(9,297) | $(4,377) | $(14,153) | $(18,530) | | Depreciation and amortization expense | 715 | 513 | 1,228 | 628 | 926 | 1,554 | | Intangible Impairment | — | — | — | — | 8,714 | 8,714 | | Impairment of right of use asset | — | — | — | — | 660 | 660 | | Stock compensation expense | 515 | 493 | 1,008 | 216 | 358 | 574 | | **Adjusted EBITDA** | **$(5,634)** | **$(1,427)** | **$(7,061)** | **$(3,533)** | **$(3,495)** | **$(7,028)** | [Liquidity and Capital Resources](index=13&type=section&id=Liquidity%20and%20Capital%20Resources) This section analyzes the company's liquidity and capital resources, detailing cash flows from operating, investing, and financing activities [Cash Flows Used in Operating Activities](index=14&type=section&id=Cash%20Flows%20Used%20in%20Operating%20Activities) Cash used in operations increased to $7.5 million in 2021, with total liquidity at $4.8 million, including cash and available credit - Cash used in operations was **$7.5 million in 2021**, compared to **$3.8 million in 2020**[284](index=284&type=chunk) - Total liquidity at September 30, 2021, was **$4.8 million**, comprising **$2.9 million cash** and **$1.9 million availability** under the bank line of credit[284](index=284&type=chunk) [Cash Flows Provided by Investing Activities](index=14&type=section&id=Cash%20Flows%20Provided%20by%20Investing%20Activities) Investing activities provided $3.5 million in 2021, primarily from the final proceeds of a note receivable from a prior segment sale - Cash provided by investing activities was **$3.5 million in 2021**, including **$3.8 million from the final proceeds** of a note receivable from the 2019 Cable Segment sale[284](index=284&type=chunk) - In 2020, investing activities provided **$2.4 million**, including **$2.6 million in note receivable payments**[284](index=284&type=chunk) [Cash Flows (Used in) Provided by Financing Activities](index=14&type=section&id=Cash%20Flows%20%28Used%20in%29%20Provided%20by%20Financing%20Activities) Financing activities used $1.4 million in 2021 due to debt repayments, partially offset by stock sales, while 2020 saw significant cash provided by borrowings and share issuances - Cash used in financing activities was **$1.4 million in 2021**, primarily due to repayments on notes payable and bank line of credit, partially offset by common stock sales[285](index=285&type=chunk) - The Company has **$10.8 million available** from its Equity Distribution Agreement for common stock sales to fund working capital[285](index=285&type=chunk) - Cash provided by financing activities was **$8.2 million in 2020**, from borrowings under notes payable, bank line of credit, share issuances, and PPP loan[285](index=285&type=chunk) [Critical Accounting Policies and Estimates](index=14&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section outlines the critical accounting policies and estimates, including inventory, accounts receivable, intangibles, and long-lived asset valuations, which require significant management judgment [General](index=14&type=section&id=General) Financial statement preparation involves management estimates and assumptions based on historical data and market conditions, which may differ from actual results - Financial statement preparation requires management to make estimates and assumptions affecting reported asset/liability amounts and revenue/expenses, based on historical experience, market conditions, and other reasonable factors[287](index=287&type=chunk) - Actual results may differ from these estimates under different assumptions or conditions[287](index=287&type=chunk) [Inventory Valuation](index=14&type=section&id=Inventory%20Valuation) The Telco segment's inventory is valued at the lower of cost or net realizable value, with significant reserves for obsolescence due to technological changes and market risks - The Telco segment carries large inventory quantities, representing a significant risk due to rapidly changing technology and potential for excessive quantities or unrecoverable costs[289](index=289&type=chunk)[290](index=290&type=chunk) - Inventory is valued at the lower of cost or net realizable value (weighted-average method). At September 30, 2021, total inventory was **$9.4 million** (**$1.3 million new**, **$8.1 million used/refurbished**) before a **$3.5 million obsolete and excess inventory reserve**[291](index=291&type=chunk)[292](index=292&type=chunk) - In 2021, the reserve increased by **$0.4 million**, and a **$0.1 million write-off** was recorded for inventories with costs exceeding net realizable value[292](index=292&type=chunk) [Accounts Receivable Valuation](index=15&type=section&id=Accounts%20Receivable%20Valuation) Management estimates the allowance for doubtful accounts based on aging, historical bad debts, customer concentrations, and economic trends - Management estimates the allowance for doubtful accounts based on aging, historical bad debts, customer concentrations, credit-worthiness, and economic trends[294](index=294&type=chunk) - The reserve for bad debts was **$0.3 million** at September 30, 2021 and 2020. Net accounts receivable were **$7.0 million in 2021** and **$4.0 million in 2020**[294](index=294&type=chunk) [Intangibles](index=15&type=section&id=Intangibles) Intangible assets are amortized over 3 to 10 years and tested for impairment, with a $3.9 million charge recorded in 2020 for Telco customer relationships - Intangible assets (customer relationships, trade names, intellectual property) are amortized over 3 to 10 years and tested for impairment when circumstances indicate[295](index=295&type=chunk) - A **$3.9 million impairment charge** was recorded in the Telco segment's customer relationship intangibles as of March 31, 2020, due to operating losses and COVID-19 uncertainties[295](index=295&type=chunk) - No further impairment indicators were present as of September 30, 2021[295](index=295&type=chunk) [Impairment of Long-Lived Assets](index=16&type=section&id=Impairment%20of%20Long-Lived%20Assets) Long-lived assets are reviewed for impairment when events indicate non-recoverability, leading to a $0.7 million impairment of a right-of-use asset in 2020 - Long-lived assets are reviewed for impairment when events indicate the carrying amount may not be recoverable, comparing asset groups against undiscounted future cash flows[296](index=296&type=chunk) - A **$0.7 million impairment of a right-of-use asset** was recorded in the Telco segment as of September 30, 2020, related to vacating and partially subleasing a leased facility[296](index=296&type=chunk) - No further impairment indicators were present as of September 30, 2021[296](index=296&type=chunk) [Recently Issued Accounting Standards](index=16&type=section&id=Recently%20Issued%20Accounting%20Standards) Recent accounting pronouncements are addressed in detail within Note 1 to the Consolidated Financial Statements - Consideration of recent accounting pronouncements is included in Note 1 to the Consolidated Financial Statements[297](index=297&type=chunk) [Off-Balance Sheet Arrangements](index=16&type=section&id=Off-Balance%20Sheet%20Arrangements) The company does not have any off-balance sheet arrangements - The Company has no off-balance sheet arrangements[297](index=297&type=chunk) [Item 8. Financial Statements and Supplementary Data.](index=16&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data.) This section presents the audited consolidated financial statements for ADDvantage Technologies Group, Inc. for the fiscal years ended September 30, 2021 and 2020, including balance sheets, statements of operations, changes in shareholders' equity, and cash flows, along with comprehensive notes detailing significant accounting policies, revenue recognition, inventory, debt, leases, and other financial information. The financial statements show a reduction in net loss and improved gross profit, primarily driven by the Telco segment, while managing liquidity and addressing debt covenants Consolidated Balance Sheet Highlights (in thousands) | Asset/Liability | 2021 | 2020 | Change | | :-------------- | :---------- | :---------- | :---------- | | Total Assets | $27,312 | $32,503 | $(5,191) | | Total Liabilities | $16,885 | $17,570 | $(685) | | Total Shareholders' Equity | $10,427 | $14,933 | $(4,506) | | Cash & Equivalents | $2,608 | $8,265 | $(5,657) | | Accounts Receivable, net | $7,013 | $3,968 | $3,045 | | Inventories, net | $5,922 | $5,576 | $346 | Consolidated Statement of Operations Highlights (in thousands) | Metric | 2021 | 2020 | Change | | :-------------- | :---------- | :---------- | :---------- | | Sales | $62,160 | $50,182 | $11,978 | | Cost of Sales | $46,033 | $38,502 | $7,531 | | Gross Profit | $16,127 | $11,680 | $4,447 | | Operating Expenses | $9,329 | $8,166 | $1,163 | | Selling, General and Administrative Expense | $14,890 | $11,249 | $3,641 | | Impairment of right-of-use asset | — | $660 | $(660) | | Impairment of intangibles including goodwill | — | $8,714 | $(8,714) | | Depreciation and amortization expense | $1,228 | $1,554 | $(326) | | Loss from Operations | $(9,297) | $(18,530) | $9,233 | | Gain on extinguishment of debt | $2,955 | — | $2,955 | | Net Loss | $(6,502) | $(17,333) | $10,831 | | Basic and Diluted Loss per Share | $(0.52) | $(1.55) | $1.03 | Consolidated Statement of Cash Flows Highlights (in thousands) | Activity | 2021 | 2020 | Change | | :------------------------ | :---------- | :---------- | :---------- | | Net cash used in operating activities | $(7,510) | $(3,824) | $(3,686) | | Net cash provided by investing activities | $3,519 | $2,394 | $1,125 | | Net cash (used in) provided by financing activities | $(1,440) | $8,209 | $(9,649) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(5,431) | $6,779 | $(12,210) | | Cash, cash equivalents and restricted cash at end of year | $2,942 | $8,373 | $(5,431) | [Report of Independent Registered Public Accounting Firm](index=18&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) HoganTaylor LLP issued an unqualified opinion on the consolidated financial statements, highlighting inventory valuation and revenue recognition as critical audit matters - HoganTaylor LLP audited the consolidated financial statements for September 30, 2021 and 2020, and issued an unqualified opinion, stating they present fairly the financial position and results of operations in conformity with GAAP[302](index=302&type=chunk) - Critical audit matters identified were Inventory Valuation (due to high estimation uncertainty in future demand and market conditions) and Revenue Recognition (due to complexity and judgment in estimating costs to complete and variable consideration)[307](index=307&type=chunk)[308](index=308&type=chunk)[311](index=311&type=chunk)[313](index=313&type=chunk) [Consolidated Balance Sheets](index=20&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheets present the company's financial position, detailing assets, liabilities, and shareholders' equity for 2021 and 2020 Consolidated Balance Sheets (in thousands) | Asset/Liability | 2021 | 2020 | | :-------------- | :---------- | :---------- | | Cash and cash equivalents | $2,608 | $8,265 | | Restricted cash | $334 | $108 | | Accounts receivable, net | $7,013 | $3,968 | | Unbilled revenue | $2,488 | $590 | | Inventories, net | $5,922 | $5,576 | | Total current assets | $19,796 | $22,074 | | Net property and equipment | $3,493 | $2,634 | | Right-of-use lease assets | $2,730 | $3,758 | | Intangibles, net | $1,107 | $1,425 | | Goodwill | $58 | $58 | | Total assets | $27,312 | $32,503 | | Accounts payable | $7,044 | $3,472 | | Bank line of credit | $2,050 | $2,800 | | Total current liabilities | $13,315 | $11,014 | | Total liabilities | $16,885 | $17,570 | | Total shareholders' equity | $10,427 | $14,933 | [Consolidated Statements of Operations](index=22&type=section&id=Consolidated%20Statements%20of%20Operations) The consolidated statements of operations detail the company's revenues, expenses, and net loss for the fiscal years 2021 and 2020 Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | 2021 | 2020 | | :-------------- | :---------- | :---------- | | Sales | $62,160 | $50,182 | | Cost of sales | $46,033 | $38,502 | | Gross profit | $16,127 | $11,680 | | Operating expenses | $9,329 | $8,166 | | Selling, general and administrative expense | $14,890 | $11,249 | | Impairment of right-of-use asset | — | $660 | | Impairment of intangibles including goodwill | — | $8,714 | | Depreciation and amortization expense | $1,228 | $1,554 | | Gain on disposal of assets | $23 | $133 | | Loss from operations | $(9,297) | $(18,530) | | Gain on extinguishment of debt | $2,955 | — | | Interest income | $135 | $321 | | Interest expense | $(238) | $(254) | | Other income (expense), net | $2,742 | $(52) | | Loss before income taxes | $(6,555) | $(18,582) | | Income tax benefit | $(53) | $(1,249) | | Net loss | $(6,502) | $(17,333) | | Basic and diluted loss per share | $(0.52) | $(1.55) | | Shares used in per share calculation | 12,401,043 | 11,163,660 | [Consolidated Statements of Changes in Shareholders' Equity](index=23&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) The consolidated statements of changes in shareholders' equity track the movements in common shares, paid-in capital, and retained earnings for 2020 and 2021 Consolidated Statements of Changes in Shareholders' Equity (in thousands, except share amounts) | Item | Balance, Sep 30, 2019 | Net Loss | Treasury Stock, net | Common Stock Issuance | Stock Option Exercise | Restricted Stock Issuance | Amortization of Stock-Based Compensation | Balance, Sep 30, 2020 | | :--- | :-------------------- | :------- | :------------------ | :-------------------- | :-------------------- | :------------------------ | :--------------------------------------- | :-------------------- | | Common Shares | 10,861,950 | — | (500,658) | 573,199 | 123,334 | 764,184 | — | 11,822,009 | | Common Stock Amount | $109 | — | $(5) | $6 | $1 | $7 | — | $118 | | Paid-in Capital | $(4,377) | — | $(995) | $2,103 | $204 | $(76) | $574 | $(2,567) | | Retained Earnings | $34,715 | $(17,333) | — | — | — | — | — | $17,382 | | Treasury Stock | $(1,000) | — | $1,000 | — | — | — | — | — | | Total | $29,447 | $(17,333) | — | $2,109 | $205 | $(69) | $574 | $14,933 | | Item | Balance, Sep 30, 2020 | Net Loss | Common Stock Issuance | Stock Option Exercise | Restricted Stock Issuance | Amortization of Stock-Based Compensation | Balance, Sep 30, 2021 | | :--- | :-------------------- | :------- | :-------------------- | :-------------------- | :------------------------ | :--------------------------------------- | :-------------------- | | Common Shares | 11,822,009 | — | 245,973 | 49,000 | 493,247 | — | 12,610,229 | | Common Stock Amount | $118 | — | $2 | $1 | $5 | — | $126 | | Paid-in Capital | $(2,567) | — | $897 | $88 | $(5) | $1,009 | $(578) |\ | Retained Earnings | $17,382 | $(6,502) | — | — | — | — | $10,879 | | Total | $14,933 | $(6,502) | $899 | $89 | — | $1,009 | $10,427 | [Consolidated Statements of Cash Flows](index=25&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The consolidated statements of cash flows present the cash inflows and outflows from operating, investing, and financing activities for 2021 and 2020 Consolidated Statements of Cash Flows (in thousands) | Activity | 2021 | 2020 | | :------------------------ | :---------- | :---------- | | Net loss | $(6,502) | $(17,333) | | Depreciation | $910 | $868 | | Amortization | $318 | $687 | | Provision for excess and obsolete inventories | $422 | $1,782 | | Impairment of intangibles including goodwill | — | $8,714 | | Gain on extinguishment of debt | $(2,955) | — | | Changes in Accounts receivable | $(3,045) | $859 | | Changes in Inventories | $(875) | $27 | | Changes in Accounts payable | $3,572 | $(1,259) | | Net cash used in operating activities | $(7,510) | $(3,824) | | Proceeds from promissory note receivable | $3,775 | $2,600 | | Purchases of property and equipment | $(300) | $(608) | | Net cash provided by investing activities | $3,519 | $2,394 | | Change in bank line of credit | $(750) | $2,800 | | Proceeds from note payable | — | $6,372 | | Payments on notes payable | $(1,194) | $(2,223) | | Proceeds from sale of common stock | $899 | $2,109 | | Net cash (used in) provided by financing activities | $(1,440) | $8,209 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(5,431) | $6,779 | | Cash, cash equivalents and restricted cash at end of year | $2,942 | $8,373 | [Notes to Consolidated Financial Statements](index=27&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed disclosures and explanations for the consolidated financial statements, covering significant accounting policies, revenue, inventory, debt, leases, and other financial information [Note 1 – Summary of Significant Accounting Policies](index=27&type=section&id=Note%201%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's significant accounting policies, including consolidation, revenue recognition, inventory valuation, goodwill and intangible asset impairment, lease accounting, and employee benefit plans - The consolidated financial statements include ADDvantage Technologies Group, Inc. and its wholly-owned subsidiaries, with intercompany balances and transactions eliminated[325](index=325&type=chunk) - Revenue is recognized when goods or services are transferred to the customer, typically at shipment for goods or over time for wireless infrastructure services using an input method[326](index=326&type=chunk)[327](index=327&type=chunk) - Trade receivables are carried at original invoice amount less an allowance for doubtful accounts, determined by evaluating customer financial condition, credit history, and economic trends[329](index=329&type=chunk) - Telco segment inventories (new, refurbished, used equipment) are stated at the lower of cost or net realizable value, with cost determined by the weighted-average method. Reserves are recorded for slow-moving, excess, or obsolete items[332](index=332&type=chunk) - Goodwill is not amortized but tested annually for impairment by comparing the fair value of reporting units (Wireless, Triton, Nave) to their carrying values. A **$4.8 million impairment charge** was recorded in 2020 for Nave and Triton goodwill[335](index=335&type=chunk)[337](index=337&type=chunk) - Intangible assets with finite lives are amortized over 3 to 10 years and tested for impairment. A **$3.9 million impairment charge** was recorded in 2020 for Telco segment customer relationships[338](index=338&type=chunk)[356](index=356&type=chunk) - The Company adopted ASU 2016-02 (ASC 842) for leases, recognizing ROU assets and liabilities on the balance sheet for leases over twelve months. A **$0.7 million impairment of a ROU asset** was recorded in 2020 for a vacated Maryland facility[367](index=367&type=chunk)[370](index=370&type=chunk) - The Company sponsors a 401(k) plan, with contributions of **$0.2 million in 2021** and **$0.1 million in 2020**[345](index=345&type=chunk) [Note 2 – Revenue Recognition](index=30&type=section&id=Note%202%20%E2%80%93%20Revenue%20Recognition) This note details the company's revenue recognition policies, breaking down sales by type and geographic area, and disclosing contract assets and liabilities - Principal sales are from Wireless services, Telco equipment, and Telco recycled equipment, primarily in the United States[347](index=347&type=chunk) - International sales (Central and South America) for Telco totaled **$4.7 million in 2021**, up from **$1.9 million in 2020**[347](index=347&type=chunk) - Sales to the largest customer accounted for approximately **18% of consolidated sales**[347](index=347&type=chunk) Sales by Type (in thousands) | Sales Type | 2021 | 2020 | | :-------------------- | :---------- | :---------- | | Wireless services sales | $20,708 | $21,354 | | Telco equipment sales | $40,663 | $27,109 | | Inter-segment | $(101) | $(25) | | Telco repair sales | $27 | $68 | | Telco recycle sales | $863 | $1,676 | | **Total sales** | **$62,160** | **$50,182** | - Contract assets were **$2.5 million** and contract liabilities were **$0.2 million** at September 30, 2021. The Company recognized **$0.1 million as revenue** from deferred revenue in 2021[348](index=348&type=chunk) [Note 3 – Accounts Receivable Agreements](index=31&type=section&id=Note%203%20%E2%80%93%20Accounts%20Receivable%20Agreements) The Wireless segment sells certain receivables with recourse to a third-party, maintaining a reserve and utilizing a revolving facility - The Wireless segment sells certain receivables with recourse to a third-party financial institution, which advances **90% of sold receivables** and holds a **10% reserve**[349](index=349&type=chunk) - At September 30, 2021, the institution held a **$0.3 million reserve** (restricted cash) against sold receivables. The total uncollected receivables were **$2.1 million**, with a limit of **$3.5 million**[349](index=349&type=chunk) - Proceeds from sold receivables were **$18.3 million in 2021**, with related costs of **$0.2 million** recorded as other expense[350](index=350&type=chunk) [Note 4 – Inventories](index=31&type=section&id=Note%204%20%E2%80%93%20Inventories) This note details the Telco segment's inventory, including new, refurbished, and used equipment, along with the allowance for excess and obsolete inventory Inventories (Telco Segment, in thousands) | Inventory Type | 2021 | 2020 | | :------------- | :---------- | :---------- | | New equipment | $1,295 | $1,311 | | Refurbished and used equipment | $8,103 | $7,319 | | Allowance for excess and obsolete inventory | $(3,476) | $(3,054) | | **Total inventories, net** | **$5,922** | **$5,576** | - New equipment includes products from manufacturers and 'surplus-new' items. Refurbished and used equipment includes factory refurbished, Company refurbished, and used products[352](index=352&type=chunk) - The Telco segment recorded inventory obsolescence charges of **$0.4 million in 2021** and **$1.8 million in 2020**, with a **$3.5 million allowance** at September 30, 2021[353](index=353&type=chunk) - A lower of cost or net realizable value charge of **$0.1 million** was recorded in both 2021 and 2020[354](index=354&type=chunk) [Note 5 – Intangible Assets](index=33&type=section&id=Note%205%20%E2%80%93%20Intangible%20Assets) This note provides details on intangible assets, including customer relationships and trade names, along with impairment charges and amortization expenses Intangible Assets, Net (in thousands) | Intangible Asset | 2021 Net | 2020 Net | | :----------------- | :------- | :------- | | Customer relationships | $375 | $481 | | Trade name | $732 | $944 | | Non-compete agreements | — | — | | **Total intangible assets** | **$1,107** | **$1,425** | - A **$3.9 million impairment charge** was recorded in the Telco segment for customer relationships as of March 31, 2020, due to economic changes from COVID-19 and continued losses[356](index=356&type=chunk) - Amortization expense was **$0.3 million in 2021** and **$0.7 million in 2020**[356](index=356&type=chunk) Estimated Aggregate Amortization Expense (in thousands) | Fiscal Year | Amount | | :---------- | :----- | | 2022 | $319 | | 2023 | $319 | | 2024 | $195 | | 2025 | $107 | | 2026 | $107 | | Thereafter | $60 | | **Total** | **$1,107** | [Note 6 – Accrued Expenses](index=34&type=section&id=Note%206%20%E2%80%93%20Accrued%20Expenses) This note presents a breakdown of accrued expenses, including employee costs, taxes, interest, and other miscellaneous accruals Accrued Expenses (in thousands) | Accrued Expense | 2021 | 2020 | | :---------------- | :---------- | :---------- | | Employee costs | $1,255 | $942 | | Taxes other than income tax | $(13) | $49 | | Interest | $5 | $23 | | Other, net | $334 | $263 | | **Total accrued expenses** | **$1,581** | **$1,277** | [Note 7 – Debt](index=34&type=section&id=Note%207%20%E2%80%93%20Debt) This note details the company's debt, including a revolving line of credit, a waived covenant violation, and the forgiveness of a Paycheck Protection Program loan - A **$3.5 million loan agreement** from March 2020 was fully repaid in Q1 fiscal 2021 with a **$1.2 million principal payment**[361](index=361&type=chunk) - The Company has a **$4.0 million revolving line of credit**, with **$2.1 million outstanding** and **$1.9 million additional borrowing capacity** at September 30, 2021[362](index=362&type=chunk) - A covenant violation (fixed charge coverage ratio) at September 30, 2021, was waived by the lender on December 22, 2021. The line of credit expiration was extended to January 17, 2022, with an annual extension in process[362](index=362&type=chunk)[363](index=363&type=chunk) - A **$2.9 million Paycheck Protection Program (PPP) loan** from April 2020 was forgiven by the SBA in fiscal 2021, resulting in a gain on extinguishment of debt[364](index=364&type=chunk) Aggregate Maturities of Debt (in thousands) | Year | Amount | | :--- | :----- | | 2022 | $2,050 | | Thereafter | — | | **Total** | **$2,050** | [Note 8 – Leases](index=35&type=section&id=Note%208%20%E2%80%93%20Leases) This note outlines the company's lease accounting under ASC 842, detailing right-of-use assets and liabilities, lease expenses, and maturity schedules - The Company adopted ASU No. 2016-02 (ASC 842) for leases effective October 1, 2019, recognizing ROU assets and liabilities for leases over twelve months[367](index=367&type=chunk) - ROU lease expense is recognized on a straight-line basis, excluding variable expenses. Finance leases are included in net property and equipment[368](index=368&type=chunk)[369](index=369&type=chunk) - A **$0.7 million impairment charge** was recorded in the Telco segment during 2020 for a ROU asset related to a vacated and partially subleased building in Jessup, Maryland[370](index=370&type=chunk) Components of Lease Expense (in thousands) | Lease Cost Component | 2021 | 2020 | | :------------------- | :---------- | :---------- | | Impairment of right-of-use asset | — | $660 | | Right-of-use lease cost | $1,160 | $926 | | Total right-of-use lease cost | $1,160 | $1,586 | | Amortization assets under finance leases | $412 | $335 | | Interest on finance lease liabilities | $75 | $59 | | Total finance lease cost | $487 | $394 | Supplemental Balance Sheet Information Related to Leases (in thousands) | Item | September 30, 2021 | September 30, 2020 | | :--- | :----------------- | :----------------- | | Right-of-use lease assets | $2,730 | $3,758 | | Total right-of-use lease liabilities | $3,339 | $4,585 | | Finance lease property and equipment, net | $2,136 | $1,070 | | Total finance lease liabilities | $2,011 | $1,076 | | Weighted Average Remaining Lease Term (ROU) | 2.78 years | 3.75 years | | Weighted Average Remaining Lease Term (Finance) | 3.75 years | 3.88 years | | Weighted Average Discount Rate (ROU) | 5.00% | 5.00% | | Weighted Average Discount Rate (Finance) | 6.72% | 4.96% | Maturities of Lease Liabilities (in thousands) | Year | Right-of-Use Leases | Finance Leases | | :--- | :------------------ | :------------- | | 2022 | $1,341 | $700 | | 2023 | $1,328 | $605 | | 2024 | $802 | $523 | | 2025 | $151 | $303 | | 2026 | — | $166 | | Total lease payments | $3,622 | $2,297 | | Less: imputed interest | $283 | $286 | | Total lease obligations | $3,339 | $2,011 | [Note 9 – Stock-Based Compensation](index=38&type=section&id=Note%209%20%E2%80%93%20Stock-Based%20Compensation) This note describes the company's stock-based compensation plans, including stock options and restricted share awards, and their associated activity and expense - The 2015 Incentive Stock Plan allows for stock options and restricted stock awards to officers, directors, key employees, and consultants[376](index=376&type=chunk) - At September 30, 2021, **2,100,415 shares were reserved** under the Plan, with **297,389 shares available** for future grants[376](index=376&type=chunk) Stock Option Activity (in thousands, except share and per share amounts) | Item | Outstanding at Sep 30, 2020 | Granted | Exercised | Expired | Forfeited | Outstanding at Sep 30, 2021 | Exercisable at Sep 30, 2021 | | :--- | :-------------------------- | :------ | :-------- | :------ | :-------- | :-------------------------- | :-------------------------- | | Options (Shares) | 100,000 | — | (49,000) | — | (1,000) | 50,000 | 33,334 | | Weighted Average Exercise Price | $1.55 | — | $1.81 | — | $1.81 | $1.28 | $1.28 | | Aggregate Intrinsic Value | $37 | — | $49 | — | — | $54 | $36 | Stock Option Compensation Expense (in thousands) | Grant Year | 2021 | 2020 | | :--------- | :--- | :--- | | Fiscal year 2017 | — | $(6) | | Fiscal year 2019 | $3 | — | | **Total compensation expense** | **$3** | **$(6)** | - In fiscal 2021, **24,390 shares were granted** to a board member (valued at **$0.1 million**, vested immediately) and **588,857 shares to management** (valued at **$1.3 million**, vesting over 1-3 years)[384](index=384&type=chunk) Non-Vested Restricted Share Awards (RSA) Activity (in thousands) | Item | Non-vested at Sep 30, 2020 | Granted | Vested | Forfeited | Non-vested at Sep 30, 2021 | | :--- | :------------------------- | :------ | :----- | :-------- | :------------------------- | | Shares | 475,024 | 613,247 | (228,358) | (120,000) | 739,913 | | Fair Value | $1,058 | $1,372 | $(455) | $(270) | $1,706 | Restricted Stock Compensation Expense (in thousands) | Grant Year | 2021 | 2020 | | :--------- | :---------- | :---------- | | Fiscal year 2020 | $450 | $15 | | Fiscal year 2021 | $556 | $565 | | **Total compensation expense** | **$1,006** | **$580** | [Note 10 – Equity Distribution Agreement and Sale of Common Stock](index=40&type=section&id=Note%2010%20%E2%80%93%20Equity%20Distribution%20Agreement%20and%20Sale%20of%20Common%20Stock) This note details the Equity Distribution Agreement for selling common stock through an 'at the market offering' and the proceeds generated - The Company entered into an Equity Distribution Agreement with Northland Securities, Inc. in April 2020 to sell up to **$13.9 million of common stock** through an 'at the market offering'[387](index=387&type=chunk)[388](index=388&type=chunk) - In fiscal 2021, **245,973 shares were sold**, generating **$0.9 million in gross and net proceeds** after commissions and fees[389](index=389&type=chunk) - The Company pays Northland a **3.0% commission** on gross proceeds and reimburses certain expenses[389](index=389&type=chunk) [Note 11 – Supplemental Cash Flow Information](index=40&type=section&id=Note%2011%20%E2%80%93%20Supplemental%20Cash%20Flow%20Information) This note provides supplemental cash flow information, including cash paid for interest and assets acquired under financing leases Supplemental Cash Flow Information (in thousands) | Item | 2021 | 2020 | | :--- | :--- | :--- | | Cash paid for interest | $257 | $230 | | Assets acquired under financing leases | $1,623 | $1,352 | [Note 12 – Earnings per Share](index=41&type=section&id=Note%2012%20%E2%80%93%20Earnings%20per%20Share) This note presents the calculation of basic and diluted earnings per share, including the impact of anti-dilutive stock options Earnings per Share (in thousands, except per share amounts) | Metric | 2021 | 2020 | | :----- | :---------- | :---------- | | Net loss attributable to common shareholders | $(6,502) | $(17,333) | | Basic weighted average shares | 12,401 | 11,164 | | Diluted weighted average shares | 12,401 | 11,164 | | Loss per common share: Basic | $(0.52) | $(1.55) | | Loss per common share: Diluted | $(0.52) | $(1.55) | - Stock options were excluded from diluted EPS calculation as their effect would be anti-dilutive[392](index=392&type=chunk) Anti-Dilutive Stock Options Excluded from EPS Calculation | Item | 2021 | 2020 | | :--- | :----- | :----- | | Stock options excluded | 50,000 | 100,000 | | Weighted average exercise price

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements.](index=3&type=section&id=Item%201.%20Financial%20Statements.) This section presents the unaudited consolidated financial statements of ADDvantage Technologies Group, Inc. for the period ended March 31, 2021, including balance sheets, statements of operations, changes in shareholders' equity, and cash flows, along with detailed notes on accounting policies, revenue recognition, inventory, debt, equity, and segment reporting [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheets show a decrease in total assets and shareholders' equity, while total liabilities remained relatively stable from September 30, 2020, to March 31, 2021 | Metric (in thousands) | March 31, 2021 | September 30, 2020 | | :-------------------- | :------------- | :----------------- | | Total assets | $28,558 | $32,503 | | Total liabilities | $17,093 | $17,570 | | Total shareholders' equity | $11,465 | $14,933 | - **Cash and cash equivalents decreased by $3,316 thousand** from **$8,265 thousand** to **$4,949 thousand**[8](index=8&type=chunk)[117](index=117&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) The consolidated statements of operations show a significant improvement in gross profit and a reduced net loss for both the three and six months ended March 31, 2021, compared to the prior year, primarily due to the absence of a large impairment charge and improved segment performance | Metric (in thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Sales | $12,667 | $11,959 | | Gross profit | $3,181 | $(439) | | Loss from operations | $(3,047) | $(14,679) | | Net loss | $(3,064) | $(14,661) | | Basic and diluted loss per share | $(0.25) | $(1.41) | | Metric (in thousands) | Six Months Ended March 31, 2021 | Six Months Ended March 31, 2020 | | :-------------------- | :------------------------------ | :------------------------------ | | Sales | $25,416 | $25,921 | | Gross profit | $6,810 | $3,153 | | Loss from operations | $(4,961) | $(16,442) |\n| Net loss | $(5,017) | $(16,379) | | Basic and diluted loss per share | $(0.41) | $(1.58) | - **Impairment of intangibles including goodwill was $0** for the three and six months ended **March 31, 2021**, compared to **$8,714 thousand** in the prior year, significantly impacting the reduction in loss from operations[11](index=11&type=chunk)[120](index=120&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Shareholders' equity decreased from $14,933 thousand at September 30, 2020, to $11,465 thousand at March 31, 2021, primarily due to net losses, partially offset by common stock issuances and share-based compensation | Metric (in thousands) | September 30, 2020 | March 31, 2021 | | :-------------------- | :----------------- | :------------- | | Total Shareholders' Equity | $14,933 | $11,465 | | Net loss | N/A | $(5,017) | | Issuance of common shares | N/A | $900 | | Share based compensation expense | N/A | $561 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The company experienced a net decrease in cash, cash equivalents, and restricted cash of $3,135 thousand for the six months ended March 31, 2021, primarily driven by cash used in operating activities and financing activities, partially offset by cash provided by investing activities | Cash Flow Activity (in thousands) | Six Months Ended March 31, 2021 | Six Months Ended March 31, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Net cash used in operating activities | $(4,109) | $(4,206) | | Net cash provided by investing activities | $1,441 | $582 | | Net cash provided by (used in) financing activities | $(467) | $6,290 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(3,135) | $2,666 | | Cash, cash equivalents and restricted cash at end of period | $5,238 | $4,260 | [Notes to Unaudited Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) These notes provide essential details and context for the unaudited consolidated financial statements, covering the basis of presentation, significant accounting policies, revenue recognition, accounts receivable, promissory notes, inventory valuation, intangible assets, debt obligations, equity transactions, earnings per share, stock-based compensation, leases, and segment reporting [Note 1 - Basis of Presentation and Accounting Policies](index=9&type=section&id=Note%201%20-%20Basis%20of%20Presentation%20and%20Accounting%20Policies) The financial statements are unaudited and prepared in accordance with GAAP for interim reporting, consolidating all wholly-owned subsidiaries. The company operates in two segments: Wireless Infrastructure Services and Telecommunications. Business is subject to seasonal variations, and prior period reclassifications had no impact on reported results or retained earnings. The company is evaluating ASU 2016-13 but does not anticipate a material impact - The Company's reportable segments are **Wireless Infrastructure Services ("Wireless")** and **Telecommunications ("Telco")**[17](index=17&type=chunk)[126](index=126&type=chunk) - The company is evaluating **ASU 2016-13** on credit losses, with an effective date for smaller reporting companies after **December 15, 2022**, and does not anticipate a material impact[21](index=21&type=chunk)[130](index=130&type=chunk) [Note 2 – Revenue Recognition](index=9&type=section&id=Note%202%20%E2%80%93%20Revenue%20Recognition) The company generates revenue primarily from Wireless services and Telco equipment sales in the U.S., with international sales increasing. A significant portion of consolidated revenue comes from a few key customers | Sales Type (in thousands) | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | 6 Months Ended March 31, 2021 | 6 Months Ended March 31, 2020 | | :------------------------ | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Wireless services sales | $4,334 | $4,672 | $9,581 | $11,470 | | Telco equipment sales | $8,189 | $6,981 | $15,464 | $13,764 | | Telco repair sales | $7 | $8 | $13 | $16 | | Telco recycle sales | $137 | $298 | $358 | $671 | | Total sales | $12,667 | $11,959 | $25,416 | $25,921 | - Sales to international customers increased to **$0.9 million** for the three months ended **March 31, 2021** (from **$0.4 million** in 2020) and to **$1.3 million** for the six months ended **March 31, 2021** (from **$0.8 million** in 2020)[22](index=22&type=chunk)[131](index=131&type=chunk) - Sales to three customers accounted for **39%** of consolidated revenue for the six months ended **March 31, 2021**, and sales to one customer comprised approximately **10%** for the six months ended **March 31, 2020**[22](index=22&type=chunk)[131](index=131&type=chunk) [Note 3 – Accounts Receivable Agreements](index=10&type=section&id=Note%203%20%E2%80%93%20Accounts%20Receivable%20Agreements) The Wireless segment sells receivables to third-party financial institutions, including one with recourse where the company is responsible for collection. Proceeds from these sales were $9.5 million for the six months ended March 31, 2021, down from $11.4 million in the prior year, incurring fees between 1.4% and 2.3% - **Proceeds from sold receivables were $9.5 million** for the six months ended **March 31, 2021**, compared to **$11.4 million** for the same period in 2020[26](index=26&type=chunk)[135](index=135&type=chunk) - Fees for selling receivables ranged from **1.4% to 2.3%** of gross receivables sold[26](index=26&type=chunk)[135](index=135&type=chunk) - At **March 31, 2021**, the third-party financial institution held a **$0.3 million reserve** (restricted cash) against **$1.3 million** in sold receivables with recourse[25](index=25&type=chunk)[134](index=134&type=chunk) [Note 4 – Promissory Note Receivable](index=10&type=section&id=Note%204%20%E2%80%93%20Promissory%20Note%20Receivable) The company holds a $2.3 million promissory note receivable from the sale of its former Cable TV segment in 2019, with $1.5 million in principal payments received during the six months ended March 31, 2021, including a $1.0 million prepayment. The note matures on June 29, 2024 - The **promissory note receivable** had an **outstanding balance of $2.3 million** at **March 31, 2021**[27](index=27&type=chunk)[136](index=136&type=chunk) - **Principal payments totaling $1.5 million** were received during the six months ended **March 31, 2021**, including a **$1.0 million** prepayment[27](index=27&type=chunk)[136](index=136&type=chunk) - The note bears interest at **6%** and is personally guaranteed by David Chymiak, a board member and significant shareholder[27](index=27&type=chunk)[136](index=136&type=chunk) [Note 5 – Inventories](index=11&type=section&id=Note%205%20%E2%80%93%20Inventories) All inventories are within the Telco segment, consisting of new, refurbished, and used telecommunications equipment. The company maintains a significant allowance for excess and obsolete inventory, which increased slightly to $3.168 million at March 31, 2021 | Inventory Type (in thousands) | March 31, 2021 | September 30, 2020 | | :---------------------------- | :------------- | :----------------- | | New equipment | $1,241 | $1,311 | | Refurbished and used equipment | $7,635 | $7,319 | | Allowance for excess and obsolete inventory | $(3,168) | $(3,054) | | Total inventories, net | $5,708 | $5,576 | - The **allowance for excess and obsolete inventory increased by $114 thousand** from **$3,054 thousand** to **$3,168 thousand**[29](index=29&type=chunk)[138](index=138&type=chunk) [Note 6 – Intangible Assets](index=11&type=section&id=Note%206%20%E2%80%93%20Intangible%20Assets) Intangible assets, primarily customer relationships and trade names, are amortized over 3 to 10 years. Net intangible assets decreased from $1,425 thousand at September 30, 2020, to $1,266 thousand at March 31, 2021, due to ongoing amortization | Intangible Asset (in thousands) | September 30, 2020 Net | March 31, 2021 Net | | :------------------------------ | :--------------------- | :----------------- | | Customer relationships | $481 | $401 | | Trade name | $944 | $865 | | Non-compete agreements | $0 | $0 | | Total intangible assets | $1,425 | $1,266 | - **No impairment indicators were present** as of **March 31, 2021**[95](index=95&type=chunk)[204](index=204&type=chunk) [Note 7 – Debt](index=11&type=section&id=Note%207%20%E2%80%93%20Debt) The company fully repaid a $3.5 million loan agreement in the first fiscal quarter of 2021. It maintains a $4.0 million revolving line of credit, with $2.8 million outstanding at March 31, 2021, and anticipates a probable covenant violation for its fixed charge coverage ratio by June 30, 2021. The $2.9 million PPP Loan, received in April 2020, remains outstanding with a forgiveness application submitted, and no payments have been made pending SBA determination - The **$3.5 million loan agreement** with the primary financial lender was fully repaid in the first fiscal quarter of **2021**[32](index=32&type=chunk)[141](index=141&type=chunk) - A **$4.0 million revolving line of credit** has **$2.8 million outstanding** at **March 31, 2021**, maturing on **December 17, 2021**[33](index=33&type=chunk)[142](index=142&type=chunk) - The company believes it will likely not comply with the **fixed charge coverage ratio covenant (1.25 to 1.0)** by **June 30, 2021**, which could lead to an event of default[35](index=35&type=chunk)[144](index=144&type=chunk) - The **$2.9 million PPP Loan**, obtained in **April 2020**, has an application for forgiveness submitted, and no payments have commenced pending SBA approval[37](index=37&type=chunk)[146](index=146&type=chunk) [Note 8 – Equity Distribution Agreement and Sale of Common Stock](index=12&type=section&id=Note%208%20%E2%80%93%20Equity%20Distribution%20Agreement%20and%20Sale%20of%20Common%20Stock) The company has an Equity Distribution Agreement with Northland Securities, Inc. to sell up to $13.85 million in common stock through an 'at the market offering'. During the six months ended March 31, 2021, 245,973 shares were sold, generating $0.9 million in net proceeds - The company can sell up to **$13,850,000 of common stock** through an 'at the market offering' via Northland Securities, Inc[40](index=40&type=chunk)[149](index=149&type=chunk) - **245,973 shares** were sold for **net proceeds of $0.9 million** during the six months ended **March 31, 2021**[43](index=43&type=chunk)[152](index=152&type=chunk) - Northland receives a **3.0% commission** on gross proceeds from each sale[42](index=42&type=chunk)[151](index=151&type=chunk) [Note 9 – Earnings Per Share](index=13&type=section&id=Note%209%20%E2%80%93%20Earnings%20Per%20Share) Basic and diluted loss per share improved significantly for both the three and six months ended March 31, 2021, compared to the prior year, primarily due to a reduced net loss. Stock options were anti-dilutive and excluded from diluted EPS calculations | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :----- | :-------------------------------- | :-------------------------------- | | Net loss per common share | $(0.25) | $(1.41) | | Weighted average shares | 12,416,594 | 10,423,514 | | Metric | Six Months Ended March 31, 2021 | Six Months Ended March 31, 2020 | | :----- | :------------------------------ | :------------------------------ | | Net loss per common share | $(0.41) | $(1.58) | | Weighted average shares | 12,281,721 | 10,392,404 | - **Stock options were excluded from diluted EPS calculations** as their effect would be anti-dilutive due to net losses or exercise price exceeding market price[45](index=45&type=chunk)[154](index=154&type=chunk) [Note 10 – Supplemental Cash Flow Information](index=13&type=section&id=Note%2010%20%E2%80%93%20Supplemental%20Cash%20Flow%20Information) Supplemental cash flow information indicates a decrease in cash paid for interest and assets acquired under financing leases for the six months ended March 31, 2021, compared to the prior year | Metric (in thousands) | Six Months Ended March 31, 2021 | Six Months Ended March 31, 2020 | | :-------------------- | :------------------------------ | :------------------------------ | | Cash paid for interest | $73 | $144 | | Assets acquired under financing leases | $369 | $454 | [Note 11 – Stock-Based Compensation](index=14&type=section&id=Note%2011%20%E2%80%93%20Stock-Based%20Compensation) The 2015 Incentive Stock Plan reserves 2,100,415 shares for awards, with 450,636 shares available for future grants at March 31, 2021. Stock options outstanding decreased, while non-vested restricted stock awards also decreased, with total share-based compensation expense increasing significantly for the six-month period | Stock Options (in thousands) | September 30, 2020 | March 31, 2021 | | :--------------------------- | :----------------- | :------------- | | Outstanding shares | 100,000 | 51,000 | | Weighted Average Exercise Price | $1.55 | $1.29 | | Restricted Stock Awards (in thousands) | December 31, 2020 | March 31, 2021 | | :------------------------------------- | :---------------- | :------------- | | Non-vested shares | 715,256 | 543,056 | | Fair Value | $1,058 | $1,220 | - **Share-based compensation expense** for the six months ended **March 31, 2021**, was **$0.6 million**, compared to **$0.1 million** in the prior year[51](index=51&type=chunk)[160](index=160&type=chunk) [Note 12 – Leases](index=14&type=section&id=Note%2012%20%E2%80%93%20Leases) The company has operating leases for buildings in its Wireless and Telco segments, with portions subleased to third parties. Total subleased rental receipts decreased for both the three and six months ended March 31, 2021, compared to the prior year | Subleased Rental Receipts (in thousands) | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | 6 Months Ended March 31, 2021 | 6 Months Ended March 31, 2020 | | :--------------------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Wireless | $46 | $46 | $91 | $91 | | Telco | $57 | $100 | $115 | $201 | | Total | $103 | $146 | $206 | $292 | [Note 13 – Segment Reporting](index=15&type=section&id=Note%2013%20%E2%80%93%20Segment%20Reporting) The company reports financial performance across two segments: Wireless Infrastructure Services and Telecommunications. Corporate general and administrative expenses are now allocated to these segments, a change from prior periods. Both segments showed improved gross profit margins for the three and six months ended March 31, 2021, despite a decrease in total sales for the six-month period - The Company's reportable segments are **Wireless Infrastructure Services ("Wireless")** and **Telecommunications ("Telco")**[55](index=55&type=chunk)[164](index=164&type=chunk) - **Corporate general and administrative expenses are now allocated** to reportable segments, a change from prior periods where they were listed separately[58](index=58&type=chunk)[167](index=167&type=chunk) | Segment Performance (in thousands) | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | 6 Months Ended March 31, 2021 | 6 Months Ended March 31, 2020 | | :--------------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Wireless Sales | $4,334 | $4,672 | $9,581 | $11,470 | | Telco Sales | $8,333 | $7,287 | $15,835 | $14,451 | | Total Sales | $12,667 | $11,959 | $25,416 | $25,921 | | Wireless Gross Profit | $1,527 | $175 | $3,136 | $2,048 | | Telco Gross Profit | $1,654 | $(614) | $3,674 | $1,105 | | Total Gross Profit | $3,181 | $(439) | $6,810 | $3,153 | | Wireless Gross Profit Margin | 35% | 4% | 33% | 18% | | Telco Gross Profit Margin | 20% | (8)% | 23% | 8% | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.](index=17&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) This section provides management's perspective on the company's financial performance, condition, and cash flows, highlighting forward-looking statements, recent business developments including COVID-19 impacts, detailed results of operations for both consolidated and segment levels, non-GAAP financial measures, critical accounting policies, and liquidity and capital resources [Special Note on Forward-Looking Statements](index=17&type=section&id=Special%20Note%20on%20Forward-Looking%20Statements) This section cautions readers that the MD&A contains forward-looking statements subject to various risks and uncertainties, including industry trends, supplier agreements, technological developments, economic conditions, COVID-19 impacts, competition, regulatory changes, PPP Loan forgiveness, and personnel changes, which could cause actual results to differ materially - Forward-looking statements are identified by words like "estimates," "projects," "believes," "plans," "intends," "will likely result," and similar expressions[63](index=63&type=chunk)[172](index=172&type=chunk) - Risks and uncertainties include changes in wireless infrastructure and telecommunications industry trends, supplier agreements, technological developments, economic environment, COVID-19 pandemic impact, competition, governmental regulation, **PPP Loan** forgiveness, and personnel changes[63](index=63&type=chunk)[172](index=172&type=chunk) [Overview](index=17&type=section&id=Overview) The overview states that the MD&A supplements the financial statements and should be read in conjunction with the annual report. It reiterates the company's two reportable segments: Wireless Infrastructure Services and Telecommunications, detailing their primary services and equipment offerings - The company's financial performance is based on two external reporting segments: **Wireless Infrastructure Services** and **Telecommunications**[64](index=64&type=chunk)[173](index=173&type=chunk) - The **Wireless segment** provides turn-key wireless infrastructure services for major U.S. wireless carriers, tower companies, integrators, and OEMs, focusing on cell site installation/upgrades and 5G small cell construction[64](index=64&type=chunk)[173](index=173&type=chunk) - The **Telco segment** sells new and refurbished telecommunications networking equipment, offers repair/testing services, and decommissioning/recycling programs primarily to North American customers[65](index=65&type=chunk)[174](index=174&type=chunk) [Recent Business Developments](index=17&type=section&id=Recent%20Business%20Developments) The COVID-19 pandemic, declared in March 2020, has impacted the company's operations, particularly slowing revenues in the Wireless segment due to carrier project delays. Despite being classified as an essential business, uncertainties remain regarding future economic effects, vaccine distribution, and customer capital budgets - The company is classified as an **essential business**, allowing continued operations despite COVID-19 restrictions[67](index=67&type=chunk)[176](index=176&type=chunk) - Revenues, especially in the Wireless segment, have **slowed** due to major U.S. carriers delaying wireless tower projects[67](index=67&type=chunk)[176](index=176&type=chunk) - Uncertainties include vaccine efficacy, return of major outdoor events, and COVID-19's impact on customer operating results and capital budgets[68](index=68&type=chunk)[177](index=177&type=chunk) [Results of Operations](index=18&type=section&id=Results%20of%20Operations) The company's results of operations show mixed performance, with consolidated sales increasing for the three-month period but decreasing for the six-month period. Gross profit significantly improved across both periods, driven by strong performance in the Telco segment and margin strengthening in Wireless. Operating expenses remained stable, while SG&A increased due to personnel and selling costs. Net loss decreased substantially, largely due to the absence of prior year's intangible asset impairment [Comparison of Results of Operations for the Three Months Ended March 31, 2021 and March 31, 2020](index=18&type=section&id=Comparison%20of%20Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20March%2031,%202021%20and%20March%2031,%202020) For the three months ended March 31, 2021, consolidated sales increased by 6% to $12.7 million, driven by Telco segment growth. Gross profit saw a substantial increase to $3.2 million from a deficit of $0.4 million, with both segments contributing positively. Operating expenses remained consistent, while SG&A expenses rose by 30% due to increased personnel and selling costs. Net loss significantly reduced from $(14.7) million to $(3.1) million | Metric (in thousands) | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | Change ($) | Change (%) | | :-------------------- | :---------------------------- | :---------------------------- | :--------- | :--------- | | Consolidated Sales | $12,667 | $11,959 | $708 | 6% | | Consolidated Gross Profit | $3,181 | $(439) | $3,620 | N/A | | Consolidated Operating Expenses | $2,167 | $2,143 | $24 | 1% | | Consolidated SG&A Expenses | $3,757 | $2,899 | $858 | 30% | | Consolidated Net Loss | $(3,064) | $(14,661) | $11,597 | (79)% | - **Depreciation and amortization expenses decreased by 40%** to **$0.3 million**, primarily due to decreased amortization in the Telco segment from prior year intangible impairments[71](index=71&type=chunk)[180](index=180&type=chunk) [Wireless Segment (Three Months)](index=19&type=section&id=Wireless%20(3%20Months)) The Wireless segment experienced a revenue decrease of $0.3 million, attributed to COVID-19 related delays in carrier infrastructure spending. However, gross profit significantly improved to $1.5 million (35% margin) from $0.2 million (4% margin) in the prior year, due to organizational changes to strengthen margins | Metric (in thousands) | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :-------------------- | :---------------------------- | :---------------------------- | | Revenues | $4,334 | $4,672 | | Gross Profit | $1,527 | $175 | | Gross Profit Margin | 35% | 4% | - Revenues were negatively impacted by **delays in infrastructure spending** from major U.S. carriers due to the COVID-19 pandemic[74](index=74&type=chunk)[183](index=183&type=chunk) - **Selling, general and administrative expenses increased by $0.2 million** to **$0.6 million**, driven by increased sales-related personnel costs and a **$0.3 million** increase in corporate overhead allocation[75](index=75&type=chunk)[184](index=184&type=chunk) [Telco Segment (Three Months)](index=19&type=section&id=Telco%20(3%20Months)) The Telco segment's sales increased by $1.0 million to $8.3 million, primarily due to higher sales of used and refurbished equipment and fewer returns. Gross profit rebounded significantly to $1.7 million from a $0.6 million deficit, largely due to the absence of a $2.1 million obsolescence expense recorded in the prior year | Metric (in thousands) | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :-------------------- | :---------------------------- | :---------------------------- | | Sales | $8,333 | $7,287 | | Gross Profit | $1,654 | $(614) | | Gross Profit Margin | 20% | (8)% | - The increase in gross profit was mainly related to a **$2.1 million obsolescence expense** recorded in the prior year quarter[76](index=76&type=chunk)[185](index=185&type=chunk) - **Operating expenses increased by $0.1 million** due to fees for a third-party logistics provider[76](index=76&type=chunk)[185](index=185&type=chunk) [Comparison of Results of Operations for the Six Months Ended March 31, 2021 and March 31, 2020](index=19&type=section&id=Comparison%20of%20Results%20of%20Operations%20for%20the%20Six%20Months%20Ended%20March%2031,%202021%20and%20March%2031,%202020) For the six months ended March 31, 2021, consolidated sales decreased by 2% to $25.4 million, primarily due to a decline in the Wireless segment. Gross profit, however, surged by 116% to $6.8 million, with both Telco and Wireless segments showing significant improvements. SG&A expenses increased by 23%, largely due to personnel and share-based compensation costs. The net loss was substantially reduced from $(16.4) million to $(5.0) million | Metric (in thousands) | 6 Months Ended March 31, 2021 | 6 Months Ended March 31, 2020 | Change ($) | Change (%) | | :-------------------- | :---------------------------- | :---------------------------- | :--------- | :--------- | | Consolidated Sales | $25,416 | $25,921 | $(505) | (2)% | | Consolidated Gross Profit | $6,810 | $3,153 | $3,657 | 116% | | Consolidated Operating Expenses | $4,224 | $4,278 | $(54) | (1)% | | Consolidated SG&A Expenses | $6,972 | $5,676 | $1,296 | 23% | | Consolidated Net Loss | $(5,017) | $(16,379) | $11,362 | (69)% | - **Depreciation and amortization expenses decreased by 39%** to **$0.6 million**, mainly due to decreased amortization from intangible asset impairments in the prior year[79](index=79&type=chunk)[188](index=188&type=chunk) [Wireless Segment (Six Months)](index=20&type=section&id=Wireless%20(6%20Months)) Wireless segment revenues decreased by $1.9 million to $9.6 million, primarily due to a full six months of COVID-19 related slowdown. Despite this, gross profit increased to $3.1 million (33% margin) from $2.0 million (18% margin), driven by operational changes and improved customer sales processes | Metric (in thousands) | 6 Months Ended March 31, 2021 | 6 Months Ended March 31, 2020 | | :-------------------- | :---------------------------- | :---------------------------- | | Revenues | $9,581 | $11,470 | | Gross Profit | $3,136 | $2,048 | | Gross Profit Margin | 33% | 18% | - **Operating expenses decreased by $0.3 million** to **$2.6 million**, mainly due to lower vehicle and equipment costs[82](index=82&type=chunk)[191](index=191&type=chunk) - **Selling, general and administrative expenses increased by $0.3 million** to **$1.3 million**, mainly due to personnel costs[82](index=82&type=chunk)[191](index=191&type=chunk) [Telco Segment (Six Months)](index=21&type=section&id=Telco%20(6%20Months)) Telco segment sales increased by $1.4 million to $15.8 million, driven by higher sales of used and refurbished equipment. Gross profit significantly improved to $3.7 million from $1.1 million, rebounding from a $2.1 million inventory obsolescence charge in the prior year | Metric (in thousands) | 6 Months Ended March 31, 2021 | 6 Months Ended March 31, 2020 | | :-------------------- | :---------------------------- | :---------------------------- | | Sales | $15,835 | $14,451 | | Gross Profit | $3,674 | $1,105 | | Gross Profit Margin | 23% | 8% | - **Operating expenses increased by $0.2 million** due to higher costs from the third-party logistics provider and severance costs[84](index=84&type=chunk)[193](index=193&type=chunk) - **Depreciation and amortization expense decreased by $0.4 million** to **$0.2 million**, resulting from significant intangible asset impairments in the prior year[85](index=85&type=chunk)[194](index=194&type=chunk) [Non-GAAP Financial Measure (Adjusted EBITDA)](index=21&type=section&id=Non-GAAP%20Financial%20Measure) Adjusted EBITDA, a non-GAAP measure, is presented to evaluate financial performance, excluding interest, taxes, depreciation, amortization, impairment charges, stock compensation, and other non-operating items. Consolidated Adjusted EBITDA significantly improved for both the three and six months ended March 31, 2021, compared to the prior year, primarily due to the absence of large impairment charges - **Adjusted EBITDA** excludes impairment charges for operating lease right-of-use assets and intangible assets including goodwill, stock compensation expense, other income, other expense, interest income and income from equity method investment[195](index=195&type=chunk) | Adjusted EBITDA (in thousands) | 3 Months Ended March 31, 2021 | 3 Months Ended March 31, 2020 | | :----------------------------- | :---------------------------- | :---------------------------- | | Wireless | $(1,254) | $(2,261) | | Telco | $(1,243) | $(3,108) | | Total | $(2,497) | $(5,369) | | Adjusted EBITDA (in thousands) | 6 Months Ended March 31, 2021 | 6 Months Ended March 31, 2020 | | :----------------------------- | :---------------------------- | :---------------------------- | | Wireless | $(2,067) | $(2,888) | | Telco | $(1,748) | $(3,779) | | Total | $(3,815) | $(6,667) | [Critical Accounting Policies](index=22&type=section&id=Critical%20Accounting%20Policies) This section outlines the critical accounting policies and significant management estimates, particularly focusing on inventory valuation and intangible assets. The Telco segment's large inventory quantities, including new and used electronic components, pose the largest risk, necessitating regular review and a $3.2 million reserve for obsolete and excess inventories at March 31, 2021. Intangible assets are amortized over their useful lives and tested for impairment, with no indicators present as of March 31, 2021 - The **Telco segment's large inventory quantities**, consisting of new and used electronic components, represent the **largest risk** due to rapidly changing technology and potential for obsolescence[200](index=200&type=chunk)[201](index=201&type=chunk)[202](index=202&type=chunk) - At **March 31, 2021**, the company had an **obsolete and excess inventory reserve of $3.2 million**[203](index=203&type=chunk) - Intangible assets are amortized over **3 to 10 years** and tested for impairment; **no impairment indicators were present** as of **March 31, 2021**[204](index=204&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) The company used $4.1 million in operating activities and $0.5 million in financing activities, while investing activities provided $1.4 million for the six months ended March 31, 2021. Cash and cash equivalents, along with the revolving line of credit, are expected to provide sufficient liquidity, but a probable covenant violation on the fixed charge coverage ratio and uncertainty regarding PPP Loan forgiveness pose risks. The company raised $0.9 million in net proceeds from common stock sales under its shelf registration to enhance liquidity - **Cash used in operating activities was $4.1 million** for the six months ended **March 31, 2021**[96](index=96&type=chunk)[205](index=205&type=chunk) - **Cash provided by investing activities was $1.4 million**, primarily from promissory note receivable payments[96](index=96&type=chunk)[205](index=205&type=chunk) - **Cash used in financing activities was $0.5 million**, including **$1.2 million in note payable repayments**, partially offset by **$0.9 million from common stock sales**[96](index=96&type=chunk)[205](index=205&type=chunk) - The company anticipates a **probable violation of its fixed charge coverage ratio covenant** by **June 30, 2021**, which could lead to default[100](index=100&type=chunk)[209](index=209&type=chunk) - **Net proceeds of $0.9 million** were raised from selling **245,973 common shares** through an at-the-market offering during the six months ended **March 31, 2021**[102](index=102&type=chunk)[211](index=211&type=chunk) [Item 4. Controls and Procedures.](index=24&type=section&id=Item%204.%20Controls%20and%20Procedures.) The company's disclosure controls and procedures were deemed effective as of March 31, 2021, ensuring that required information for SEC reports is accurately recorded, processed, summarized, and reported in a timely manner - Disclosure controls and procedures are designed to ensure timely and accurate reporting of information required under the Exchange Act[103](index=103&type=chunk)[212](index=212&type=chunk) - The **CEO and Controller** concluded that disclosure controls and procedures were **effective** as of **March 31, 2021**[103](index=103&type=chunk)[212](index=212&type=chunk) PART II. OTHER INFORMATION [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.](index=25&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) During the six months ended March 31, 2021, the company sold 245,973 shares of common stock under its effective Form S-3 registration statement, generating $0.9 million in net proceeds. Total net proceeds from this program since its effective date amount to $3.0 million, all used in accordance with the prospectus supplement - **245,973 shares of common stock** were sold during the six months ended **March 31, 2021**, under a Form S-3 registration statement[105](index=105&type=chunk)[214](index=214&type=chunk) - **Net proceeds from these sales totaled $0.9 million** after commissions[105](index=105&type=chunk)[214](index=214&type=chunk) - **Total net proceeds from sales** under this registration statement since its effective date are **$3.0 million**, with all proceeds used as specified in the prospectus supplement[105](index=105&type=chunk)[214](index=214&type=chunk) [Item 6. Exhibits](index=25&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including a financial institution business loan agreement, certifications from the CEO and Controller under Sarbanes-Oxley Act Sections 302 and 906, and various XBRL taxonomy documents - Exhibits include a Financial Institution Business Loan Agreement dated **December 17, 2020**[106](index=106&type=chunk)[215](index=215&type=chunk) - Certifications from the Chief Executive Officer and Controller are provided under Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002[106](index=106&type=chunk)[215](index=215&type=chunk) - XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, and Presentation Linkbase are included[106](index=106&type=chunk)[215](index=215&type=chunk) [SIGNATURES](index=26&type=section&id=SIGNATURES) The report is signed by Joseph E. Hart, President and Chief Executive Officer, and Donna L. Guy, Controller, on May 14, 2021, certifying its submission pursuant to the Securities Exchange Act of 1934 - The report was signed by **Joseph E. Hart, President and Chief Executive Officer**, and **Donna L. Guy, Controller**[108](index=108&type=chunk)[217](index=217&type=chunk) - The **signing date** for the report was **May 14, 2021**[108](index=108&type=chunk)[217](index=217&type=chunk)