ADDvantage Technologies (AEY) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements. 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 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][117] Consolidated Statements of Operations 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][120] Consolidated Statements of Changes in Shareholders' Equity 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 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 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 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][126] - 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][130] Note 2 – Revenue Recognition 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][131] - 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][131] Note 3 – Accounts Receivable Agreements 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][135] - Fees for selling receivables ranged from 1.4% to 2.3% of gross receivables sold[26][135] - 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][134] Note 4 – Promissory Note Receivable 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][136] - Principal payments totaling $1.5 million were received during the six months ended March 31, 2021, including a $1.0 million prepayment[27][136] - The note bears interest at 6% and is personally guaranteed by David Chymiak, a board member and significant shareholder[27][136] Note 5 – Inventories 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][138] Note 6 – Intangible Assets 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][204] Note 7 – Debt 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][141] - A $4.0 million revolving line of credit has $2.8 million outstanding at March 31, 2021, maturing on December 17, 2021[33][142] - 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][144] - 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][146] Note 8 – Equity Distribution Agreement and Sale of Common Stock 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][149] - 245,973 shares were sold for net proceeds of $0.9 million during the six months ended March 31, 2021[43][152] - Northland receives a 3.0% commission on gross proceeds from each sale[42][151] Note 9 – Earnings Per Share 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][154] Note 10 – Supplemental Cash Flow Information 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 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][160] Note 12 – Leases 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 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][164] - Corporate general and administrative expenses are now allocated to reportable segments, a change from prior periods where they were listed separately[58][167] | 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. 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 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][172] - 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][172] 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][173] - 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][173] - The Telco segment sells new and refurbished telecommunications networking equipment, offers repair/testing services, and decommissioning/recycling programs primarily to North American customers[65][174] Recent Business Developments 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][176] - Revenues, especially in the Wireless segment, have slowed due to major U.S. carriers delaying wireless tower projects[67][176] - Uncertainties include vaccine efficacy, return of major outdoor events, and COVID-19's impact on customer operating results and capital budgets[68][177] Results of Operations 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 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][180] Wireless Segment (Three Months) 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][183] - 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][184] Telco Segment (Three Months) 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][185] - Operating expenses increased by $0.1 million due to fees for a third-party logistics provider[76][185] Comparison of Results of Operations for the Six Months Ended March 31, 2021 and March 31, 2020 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][188] Wireless Segment (Six Months) 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][191] - Selling, general and administrative expenses increased by $0.3 million to $1.3 million, mainly due to personnel costs[82][191] Telco Segment (Six Months) 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][193] - Depreciation and amortization expense decreased by $0.4 million to $0.2 million, resulting from significant intangible asset impairments in the prior year[85][194] Non-GAAP Financial Measure (Adjusted EBITDA) 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] | 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 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][201][202] - At March 31, 2021, the company had an obsolete and excess inventory reserve of $3.2 million[203] - Intangible assets are amortized over 3 to 10 years and tested for impairment; no impairment indicators were present as of March 31, 2021[204] Liquidity and Capital Resources 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][205] - Cash provided by investing activities was $1.4 million, primarily from promissory note receivable payments[96][205] - 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][205] - The company anticipates a probable violation of its fixed charge coverage ratio covenant by June 30, 2021, which could lead to default[100][209] - 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][211] Item 4. Controls and Procedures. 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][212] - The CEO and Controller concluded that disclosure controls and procedures were effective as of March 31, 2021[103][212] PART II. OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 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][214] - Net proceeds from these sales totaled $0.9 million after commissions[105][214] - 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][214] Item 6. Exhibits 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][215] - Certifications from the Chief Executive Officer and Controller are provided under Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002[106][215] - XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, and Presentation Linkbase are included[106][215] 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][217] - The signing date for the report was May 14, 2021[108][217]