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. 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 - 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 manufacturers227228229 - 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 services230231232 Forward-Looking Statements 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 - 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 integration220 Company Overview and History 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 hardware221 - In 2019, the Company moved its headquarters to Carrollton, Texas, and acquired Fulton Technologies, Inc., establishing the Wireless Infrastructure Services segment221 - The Telecommunications segment operates through subsidiaries Nave Communications Company and ADDvantage Triton, LLC221 Website Access to Reports 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 filing224 - The website is intended for disclosing material non-public information and complying with Regulation FD225 Operating Segments 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 Products and Services This section details the specialized services of the Wireless segment and the diverse equipment and support services offered by the Telco segment Wireless Segment 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 OEMs227 - Fulton, with 120 employees, performs equipment installations, upgrades, and maintenance on communication towers, emphasizing safety and quality228 - Demand for tower services increased notably in Q4 fiscal 2021 and is expected to continue with 5G expansion228 - 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 2020229 Telco Segment 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 resellers230 - It also provides repair, testing, and decommissioning services, processing obsolete equipment through its R2 certified recycling program230232 - Customer Premise Equipment sales were severely impacted by office closures in 2020 but showed strong recovery in 2021231 Revenues by Geographic Areas 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 States235 Sales and Marketing 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 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 revenues236 - Products are marketed and sold to wireless carriers, equipment providers, and tower companies236 Telco Segment Sales and Marketing 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 revenues237 - Sales and marketing are conducted by internal staff, outside representatives, and online platforms (website, Amazon, Newegg), driven by customer relationships, manufacturer referrals, and online advertising237 - 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 advantages238 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 resellers239 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 towers240241 - The Telco segment does not anticipate significant seasonal fluctuations in quarterly operating results, apart from normal business variations during the winter holiday season241 Competition This section details the competitive landscape for both the Wireless and Telco segments, highlighting their respective differentiators and market positions Wireless Segment Competition 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 size242 - In niche areas like Special Events and Temporary Pole business, the Wireless segment faces few competitors due to specialized expertise and required investment242 - 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 offerings243 Telco Segment Competition 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 resellers243 - 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 recycling243 Working Capital Practices 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 invoicing244 - Telco segment working capital focuses on inventory and accounts receivable, with excess cash flows reinvested in inventory to maintain or expand product offerings245 - 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 2021247 Significant Customers 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 revenues249 Impact of Inflation on Operations 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 margins250 Off-Balance Sheet Arrangements 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 liquidity251 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 unionized252 Item 2. Properties. 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, Texas253 - Wireless Segment leases additional space in Chicago, Illinois, and Telco Segment has operations in Miami, Florida253 - Buildings in Minneapolis, Minnesota, and Jessup, Maryland, no longer used in operations, were subleased as of September 30, 2021253 Item 3. Legal Proceedings. 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 business254 - These proceedings are not believed to have a material adverse effect on the Company's financial position, results of operations, or cash flows254 Item 4. Mining Safety Disclosures. This item is not applicable to the Company's operations - Mining Safety Disclosures are not applicable to the Company254 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. 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 stock259 - 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 growth260 Item 6. [Reserved] This item is reserved and contains no information - Item 6 is reserved261 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 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 segment270 - 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 million270 - 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 SBA272 - 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 liquidity281284 - 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, 2021247363 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 - 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 installations262 - The Telco segment sells new and refurbished telecommunications networking equipment and offers repair, testing, and decommissioning services primarily in North America263 Recent Business Developments This section highlights recent business developments, including the impact of the COVID-19 pandemic on operations and revenue trends COVID-19 Impact 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 delays264 - No material disruption in the supply chain was experienced. Revenues increased in the last two quarters of 2021 compared to previous pandemic quarters264265 Wireless Segment Operating Results 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 2021266 - The segment is focused on operational improvements and recruiting talent to capitalize on anticipated increased activity from 5G network expansion and densification266 Telco Segment Operating Results 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 procurement267 - Triton's facility streamlines operations, and the company plans to expand refurbishment capabilities, new equipment sales, brokerage business, and internet sales267 - Nave's growth was significantly boosted by the global chip shortage, increasing demand for refurbished equipment, and growth from enterprise fiber network customers267 Results of Operations This section provides a detailed analysis of the consolidated, Wireless, and Telco segment financial results, including revenues, gross profit, and operating losses Consolidated Results 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 segment270 - Increased SG&A expenses were driven by higher sales compensation in Telco and expanded operational support for anticipated 5G expansion271 - 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 segment271 - 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 carrybacks273 Wireless Segment Results 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-out274 - Increased loss from operations is mainly attributable to investment in regional growth strategy for anticipated 5G infrastructure build-outs274 Telco Segment Results 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 shortage275276 - Gross margin increased primarily due to higher revenue and a $1.4 million decrease in inventory obsolescence compared to the prior year276 Non-GAAP Financial Measure (Adjusted EBITDA) 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 value277 - 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 investment277 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 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 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 2020284 - 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 credit284 Cash Flows Provided by Investing Activities 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 sale284 - In 2020, investing activities provided $2.4 million, including $2.6 million in note receivable payments284 Cash Flows (Used in) Provided by Financing Activities 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 sales285 - The Company has $10.8 million available from its Equity Distribution Agreement for common stock sales to fund working capital285 - Cash provided by financing activities was $8.2 million in 2020, from borrowings under notes payable, bank line of credit, share issuances, and PPP loan285 Critical Accounting Policies and Estimates 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 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 factors287 - Actual results may differ from these estimates under different assumptions or conditions287 Inventory Valuation 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 costs289290 - 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 reserve291292 - 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 value292 Accounts Receivable Valuation 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 trends294 - 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 2020294 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 indicate295 - 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 uncertainties295 - No further impairment indicators were present as of September 30, 2021295 Impairment of Long-Lived Assets 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 flows296 - 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 facility296 - No further impairment indicators were present as of September 30, 2021296 Recently Issued Accounting Standards 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 Statements297 Off-Balance Sheet Arrangements The company does not have any off-balance sheet arrangements - The Company has no off-balance sheet arrangements297 Item 8. Financial Statements and Supplementary Data. 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 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 GAAP302 - 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)307308311313 Consolidated Balance Sheets 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 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 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 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 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 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 eliminated325 - 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 method326327 - Trade receivables are carried at original invoice amount less an allowance for doubtful accounts, determined by evaluating customer financial condition, credit history, and economic trends329 - 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 items332 - 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 goodwill335337 - 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 relationships338356 - 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 facility367370 - The Company sponsors a 401(k) plan, with contributions of $0.2 million in 2021 and $0.1 million in 2020345 Note 2 – Revenue Recognition 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 States347 - International sales (Central and South America) for Telco totaled $4.7 million in 2021, up from $1.9 million in 2020347 - Sales to the largest customer accounted for approximately 18% of consolidated sales347 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 2021348 Note 3 – Accounts Receivable Agreements 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% reserve349 - 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 million349 - Proceeds from sold receivables were $18.3 million in 2021, with related costs of $0.2 million recorded as other expense350 Note 4 – Inventories 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 products352 - 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, 2021353 - A lower of cost or net realizable value charge of $0.1 million was recorded in both 2021 and 2020354 Note 5 – Intangible Assets 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 losses356 - Amortization expense was $0.3 million in 2021 and $0.7 million in 2020356 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 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 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 payment361 - 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, 2021362 - 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 process362363 - 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 debt364 Aggregate Maturities of Debt (in thousands) | Year | Amount | | :--- | :----- | | 2022 | $2,050 | | Thereafter | — | | Total | $2,050 | Note 8 – Leases 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 months367 - ROU lease expense is recognized on a straight-line basis, excluding variable expenses. Finance leases are included in net property and equipment368369 - 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, Maryland370 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 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 consultants376 - At September 30, 2021, 2,100,415 shares were reserved under the Plan, with 297,389 shares available for future grants376 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 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 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'387388 - In fiscal 2021, 245,973 shares were sold, generating $0.9 million in gross and net proceeds after commissions and fees389 - The Company pays Northland a 3.0% commission on gross proceeds and reimburses certain expenses389 Note 11 – Supplemental Cash Flow Information 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 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-dilutive392 Anti-Dilutive Stock Options Excluded from EPS Calculation | Item | 2021 | 2020 | | :--- | :----- | :----- | | Stock options excluded | 50,000 | 100,000 | | Weighted average exercise price
ADDvantage Technologies (AEY) - 2021 Q4 - Annual Report