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, ~~2021~~2022


☐			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.

(Exact name of registrant as specified in its charter)


Oklahoma						73-1351610
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


1430 Bradley Lane, Suite 196
Carrollton, Texas 75007
(Address of principal executive office)
(918) 251-9121
(Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.			Yes S No £

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).			Yes S No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer £ Accelerated filer £ Non-accelerated filer S Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).			Yes ☐ No ☒

Shares outstanding of the issuer's $.01 par value common stock as of August ~~12, 2021~~8, 2022 were ~~12,511,372.~~13,276,191.

Table of ~~Conten~~tsContents

ADDVANTAGE TECHNOLOGIES GROUP, INC.

Form 10-Q

For Period Ended June 30, ~~2021~~2022


	PART I. FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements.

	Consolidated Balance Sheets (unaudited)	3
	June 30, ~~2021~~2022 and September 30, ~~2020~~2021

	Consolidated Statements of Operations (unaudited)	4
	Three and Nine Months Ended June 30, ~~2021~~2022 and ~~2020~~2021

	Consolidated Statements of Changes in Shareholders’ Equity (unaudited)	5
	Three and Nine Months Ended June 30, ~~2021~~2022 and ~~2020~~2021

	Consolidated Statements of Cash Flows (unaudited)	6
	Nine Months Ended June 30, ~~2021~~2022 and ~~2020~~2021

	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	1513

Item 4.	Controls and Procedures.	2218

	PART II. OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	2319

Item 6.	Exhibits	2319

	SIGNATURES

Table of ~~Conten~~tsContents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ADDvantage Technologies Group, Inc.

Consolidated Balance Sheets

(in thousands, except share amounts)

(Unaudited)


		June 30, 2021		September 30, 2020			June 30, 2022		September 30, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	3,598	$	8,265	Cash and cash equivalents	$	4,157	$	2,608
Restricted cash	Restricted cash	136		108		Restricted cash	1,782		334
Accounts receivable, net of allowances of $250, respectively	Accounts receivable, net of allowances of $250, respectively	8,347		3,968		Accounts receivable, net of allowances of $250, respectively	2,384		7,013
Unbilled revenue	Unbilled revenue	863		590		Unbilled revenue	2,786		2,488
Promissory note – current		0		1,400
Income tax receivable		0		1,283
Inventories, net of allowances of $3,168 and $3,054, respectively		5,611		5,576

Inventories, net of allowances of $3,714 and $3,476, respectively						Inventories, net of allowances of $3,714 and $3,476, respectively	7,609		5,922
Prepaid expenses and other assets	Prepaid expenses and other assets	1,163		884		Prepaid expenses and other assets	1,584		1,431

Total current assets	Total current assets	19,718		22,074		Total current assets	20,302		19,796

Property and equipment, at cost:						Property and equipment, at cost:
Machinery and equipment	Machinery and equipment	4,417		3,500		Machinery and equipment	5,512		4,973
Leasehold improvements	Leasehold improvements	795		720		Leasehold improvements	899		813
Property and equipment, at cost		5,212		4,220
Total property and equipment, at cost						Total property and equipment, at cost	6,411		5,786
Less: Accumulated depreciation	Less: Accumulated depreciation	(2,242)		(1,586)		Less: Accumulated depreciation	(2,899)		(2,293)
Net property and equipment	Net property and equipment	2,970		2,634		Net property and equipment	3,512		3,493
Right-of-use lease assets	Right-of-use lease assets	2,991		3,758		Right-of-use lease assets	2,009		2,730
Promissory note – non current		1,865		2,375

Intangibles, net of accumulated amortization	Intangibles, net of accumulated amortization	1,186		1,425		Intangibles, net of accumulated amortization	868		1,107
Goodwill	Goodwill	58		58		Goodwill	58		58
Deferred income taxes		28		0

Other assets	Other assets	182		179		Other assets	117		128
Total assets	Total assets	$	28,998	$	32,503	Total assets	$	26,866	$	27,312


Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	6,484	$	3,472	Accounts payable	$	10,559	$	7,044
Accrued expenses	Accrued expenses	1,809		1,319		Accrued expenses	1,509		1,581
Deferred revenue	Deferred revenue	144		113		Deferred revenue	87		168
Bank line of credit	Bank line of credit	2,800		2,800		Bank line of credit	—		2,050
Note payable, current		1,927		1,709
Right-of-use lease obligations – current		1,220		1,275
Financing lease obligations – current		440		285

Right-of-use lease obligations, current						Right-of-use lease obligations, current	1,215		1,198
Finance lease obligations, current						Finance lease obligations, current	665		582
Other current liabilities	Other current liabilities	15		41		Other current liabilities	922		692
Total current liabilities	Total current liabilities	14,839		11,014		Total current liabilities	14,957		13,315
Financing lease obligations - long-term		1,108		791
Right-of-use lease obligations - long-term		2,436		3,310
Note payable, less current portion		988		2,440
Other liabilities		7		15
Right-of-use lease obligations, long-term						Right-of-use lease obligations, long-term	1,221		2,141
Finance lease obligations, long-term						Finance lease obligations, long-term	1,335		1,429

Total liabilities	Total liabilities	19,378		17,570		Total liabilities	17,513		16,885
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Common stock, $0.01 par value; 30,000,000 shares authorized; 12,511,372 shares issued and outstanding, and 11,822,009 shares issued and outstanding, respectively		125		118
Common stock, $0.01 par value; 30,000,000 shares authorized; 13,168,191 and 12,610,229 shares issued and outstanding, respectively						Common stock, $0.01 par value; 30,000,000 shares authorized; 13,168,191 and 12,610,229 shares issued and outstanding, respectively	132		126
Paid in capital	Paid in capital	(745)		(2,567)		Paid in capital	890		(578)
Retained earnings	Retained earnings	10,240		17,382		Retained earnings	8,331		10,879

Total shareholders’ equity	Total shareholders’ equity	9,620		14,933		Total shareholders’ equity	9,353		10,427
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	28,998	$	32,503	Total liabilities and shareholders’ equity	$	26,866	$	27,312

See notes to unaudited consolidated financial statements.

Table of Contents

ADDvantage Technologies Group, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(Unaudited)


		Three Months Ended June 30,				Nine Months Ended June 30,				Three Months Ended June 30,				Nine Months Ended June 30,
		2021		2020		2021		2020				2022		2021		2022		2021
Sales	Sales	$	17,017	$	12,022	$	42,433	$	37,943		Sales	$	27,789	$	17,017	$	70,238	$	42,433
Cost of sales	Cost of sales	12,748		7,851		31,354		30,619			Cost of sales	19,642		12,748		51,702		31,354
Gross profit	Gross profit	4,269		4,171		11,079		7,324			Gross profit	8,147		4,269		18,536		11,079
Operating expenses	Operating expenses	2,508		1,998		6,733		6,276			Operating expenses	2,544		2,508		7,796		6,733
Selling, general and administrative expenses	Selling, general and administrative expenses	3,561		2,421		10,532		8,097			Selling, general and administrative expenses	4,145		3,561		11,684		10,532
Impairment of right of use asset		0		660		0		660
Impairment of intangibles including goodwill		0		0		0		8,714

Depreciation and amortization expense	Depreciation and amortization expense	314		242		899		1,197			Depreciation and amortization expense	313		314		975		899
Gain on disposal of assets		(13)		(8)		(23)		(36)
Loss from operations		(2,101)		(1,142)		(7,062)		(17,584)
Loss (gain) on disposal of assets											Loss (gain) on disposal of assets	—		(13)		2		(23)
Income (loss) from operations											Income (loss) from operations	1,145		(2,101)		(1,921)		(7,062)
Other income (expense):	Other income (expense):										Other income (expense):
Interest income	Interest income	34		83		115		259			Interest income	—		34		—		115
Income from equity method investment		0		0		0		41

Other expense, net	Other expense, net	(34)		(37)		(61)		(123)			Other expense, net	(233)		(34)		(473)		(61)
Interest expense	Interest expense	(46)		(101)		(156)		(184)			Interest expense	(37)		(46)		(154)		(156)
Total other income (expense), net		(46)		(55)		(102)		(7)
Other income (expense), net											Other income (expense), net	(270)		(46)		(627)		(102)

Loss before income taxes		(2,147)		(1,197)		(7,164)		(17,591)
Income (loss) before income taxes											Income (loss) before income taxes	875		(2,147)		(2,548)		(7,164)
Benefit for income taxes	Benefit for income taxes	(23)		(1,220)		(23)		(1,236)			Benefit for income taxes	—		(23)		—		(23)

Net income (loss)	Net income (loss)	$	(2,124)	$	23	$	(7,141)	$	(16,355)		Net income (loss)	$	875	$	(2,124)	$	(2,548)	$	(7,141)

Income (loss) per share:	Income (loss) per share:										Income (loss) per share:
Basic		$	(0.17)	$	0	$	(0.58)	$	(1.49)
Basic and diluted											Basic and diluted	$	0.07	$	(0.17)	$	(0.20)	$	(0.58)

Diluted		$	(0.17)	$	0	$	(0.58)	$	(1.49)

Shares used in per share calculation:	Shares used in per share calculation:										Shares used in per share calculation:
Basic		12,495,438		11,079,580		12,352,960		10,955,235
Diluted		12,495,438		11,216,688		12,352,960		10,955,235
Basic and diluted											Basic and diluted	13,191,792		12,495,438		12,980,634		12,352,960

See notes to unaudited consolidated financial statements.

Table of Contents

ADDvantage Technologies Group, Inc.

Consolidated Statements of Changes in Shareholders' Equity

(in thousands, except share amounts)

(Unaudited)

Common Stock Paid-in
Capital Retained
Earnings Treasury
Stock
Shares Amount Total
Balance, September 30, 2020 11,822,009 $ 118 $ (2,567) $ 17,382 $ 0 $ 14,933
Net loss — — — (1,953) — (1,953)
Issuance of common shares 238,194 3 876 — — 879
Restricted stock issuance 306,390 3 (3) — — 0
Stock based compensation expense — — 315 — — 315
Balance, December 31, 2020 12,366,593 $ 124 $ (1,379) $ 15,429 $ 0 $ 14,174
Net loss — — — (3,064) — (3,064)
Issuance of common shares 7,779 — 21 — — 21
Restricted stock issuance, net of forfeitures (10,000) (1) — — — (1)
Stock option exercise 49,000 — 89 — — 89
Stock based compensation expense — — 246 — — 246
Balance, March 31, 2021 12,413,372 $ 124 $ (1,023) $ 12,364 $ 0 $ 11,466
Net loss — — — (2,124) — (2,124)
Restricted stock issuance 98,000 1 (1) — — 0
Stock based compensation expense — — 279 — — 279
Balance, June 30, 2021 12,511,372 $ 125 $ (745) $ 10,240 $ 0 $ 9,620


	Common Stock			Paid-in Capital		Retained Earnings
	Shares	Amount						Total
Balance, September 30, 2021	12,610,229	$	126	$	(578)	$	10,879		$	10,427
Net loss	—	—		—		(2,029)			(2,029)
Common stock issuance	320,787	3		633		—			636
Restricted stock issuance	110,111	1		(1)		—			—
Amortization of stock-based compensation	—	—		281		—			281
Balance, December 31, 2021	13,041,127	$	130	$	335	$	8,850		$	9,315

Net loss	—	—		—		(1,394)			(1,394)
Common stock issuance	143,985	2		166		—			168
Restricted stock issuance	4,000	—		—		—			—
Amortization of stock-based compensation	—	—		247		—			247
Balance, March 31, 2022	13,189,112	$	132	$	748	$	7,456		$	8,336

Net income	—	—		—		875			875
Common stock issuance	30,745	—		38		—			38
Restricted stock forfeitures	(51,666)	(1)		1		—			—
Amortization of stock-based compensation	—	—		103		—			103
Balance, June 30, 2022	13,168,191	$	132	$	890	$	8,331		$	9,353

Common Stock Paid-in
Capital Retained
Earnings Treasury
Stock
Shares Amount Total
Balance, September 30, 2019 10,861,950 $ 109 $ (4,377) $ 34,715 $ (1,000) $ 29,447
Net loss — — — (1,718) — (1,718)
Stock based compensation expense — — 14 — — 14
Balance, December 31, 2019 10,861,950 $ 109 $ (4,363) $ 32,997 $ (1,000) $ 27,743
Net loss — — — (14,661) — (14,661)
Restricted stock issuance — — 377 — — 377
Stock option exercise 110,000 1 172 — — 173
Stock based compensation expense — — 92 — — 92
Balance, March 31, 2020 10,971,950 $ 109 $ (3,722) $ 18,336 $ (1,000) $ 13,724
Net income — — — 23 — 23
Utilization of treasury shares (500,658) (5) (995) — 1,000 0
Issuance of shares 573,199 6 2,103 — — 2,109
Restricted stock issuance 237,014 2 13 — — 15
Stock option exercise 13,334 — 24 — — 24
Stock based compensation expense — — (15) — — (15)
Balance, June 30, 2020 11,294,839 $ 113 $ (2,592) $ 18,360 $ — $ 15,881


	Common Stock			Paid-in Capital		Retained Earnings
	Shares	Amount						Total
Balance, September 30, 2020	11,822,009	$	118	$	(2,567)	$	17,382		$	14,933
Net loss	—	—		—		(1,953)			(1,953)
Common stock issuance	238,194	3		876		—			879
Restricted stock issuance	306,390	3		(3)		—			—
Amortization of stock-based compensation	—	—		315		—			315
Balance, December 31, 2020	12,366,593	$	124	$	(1,379)	$	15,429		$	14,174

Net loss	—	—		—		(3,064)			(3,064)
Common stock issuance	7,779	—		21		—			21
Restricted stock issuance, net of forfeitures	(10,000)	(1)		—		—			(1)
Stock option exercise	49,000	—		89		—			89
Amortization of stock-based compensation	—	—		246		—			246
Balance, March 31, 2021	12,413,372	$	124	$	(1,023)	$	12,364		$	11,466

Net loss	—	—		—		(2,124)			(2,124)
Restricted stock issuance	98,000	1		(1)		—			—
Amortization of stock-based compensation	—	—		279		—			279
Balance, June 30, 2021	12,511,372	$	125	$	(745)	$	10,240		$	9,620

Due to rounding, numbers presented may not foot to the totals provided.

See notes to unaudited consolidated financial statements.

Table of Contents

ADDvantage Technologies Group, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


		Nine Months Ended June 30,					Nine Months Ended June 30,
		2021		2020			2022		2021
Operating Activities:	Operating Activities:					Operating Activities:
Net loss	Net loss	$	(7,141)	$	(16,355)	Net loss	$	(2,548)	$	(7,141)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:						Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation						Depreciation	736		661
Amortization						Amortization	239		239
Non cash amortization of right-of-use asset and liability						Non cash amortization of right-of-use asset and liability	(182)		(161)

Adjustments to reconcile net loss from operations to net cash used in operating activities:
Depreciation		661		590
Amortization		239		607
Change in right-of-use assets and liabilities, net		(161)		0
Impairment of right of use asset		0		660
Impairment of intangibles including goodwill		0		8,714
Provision for excess and obsolete inventories	Provision for excess and obsolete inventories	115		2,125		Provision for excess and obsolete inventories	238		115
Stock based compensation expense	Stock based compensation expense	840		167		Stock based compensation expense	631		840
Gain from disposal of property and equipment		(23)		(36)
Gain from equity method investment		0		(41)
Loss (gain) from disposal of property and equipment						Loss (gain) from disposal of property and equipment	2		(23)

Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable	Accounts receivable	(4,379)		1,662		Accounts receivable	4,629		(4,379)
Unbilled revenue	Unbilled revenue	(274)		2,014		Unbilled revenue	(298)		(274)
Income tax receivable\payable		1,255		(14)
Income tax receivable/payable						Income tax receivable/payable	—		1,255
Inventories	Inventories	(150)		(464)		Inventories	(1,925)		(150)
Prepaid expenses and other assets	Prepaid expenses and other assets	(269)		97		Prepaid expenses and other assets	(142)		(269)
Accounts payable	Accounts payable	3,012		56		Accounts payable	3,515		3,012
Accrued expenses and other liabilities	Accrued expenses and other liabilities	456		(135)		Accrued expenses and other liabilities	158		456
Deferred revenue	Deferred revenue	31		144		Deferred revenue	(81)		31
Net cash used in operating activities		(5,788)		(1,429)
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	4,972		(5,788)

Investing Activities:	Investing Activities:					Investing Activities:
Proceeds from promissory note receivable	Proceeds from promissory note receivable	1,910		2,025		Proceeds from promissory note receivable	—		1,910

Loan repayment from equity method investee		0		40

Purchases of property and equipment	Purchases of property and equipment	(185)		(471)		Purchases of property and equipment	(245)		(185)
Disposals of property and equipment	Disposals of property and equipment	43		78		Disposals of property and equipment	42		43
Net cash provided by investing activities		1,768		1,672
Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	(203)		1,768

Financing Activities:	Financing Activities:					Financing Activities:
Change in bank line of credit		0		2,800
Proceeds from note payable		0		6,374
Guaranteed payments for acquisition of business		0		(667)
Payments on bank line of credit						Payments on bank line of credit	(2,050)		—

Payments on financing lease obligations	Payments on financing lease obligations	(359)		(277)		Payments on financing lease obligations	(564)		(359)
Payments on notes payable	Payments on notes payable	(1,249)		(1,622)		Payments on notes payable	—		(1,249)
Proceeds from sale of common stock	Proceeds from sale of common stock	900		1,829		Proceeds from sale of common stock	842		900
Proceeds from stock options exercised	Proceeds from stock options exercised	89		197		Proceeds from stock options exercised	—		89

Net cash provided by (used in) financing activities		(619)		8,634
Net cash used in financing activities						Net cash used in financing activities	(1,772)		(619)

Net (decrease) increase in cash, cash equivalents and restricted cash		(4,639)		8,877
Net increase (decrease) in cash, cash equivalents and restricted cash						Net increase (decrease) in cash, cash equivalents and restricted cash	2,997		(4,639)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	8,373		1,594		Cash, cash equivalents and restricted cash at beginning of period	2,942		8,373
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	3,734	$	10,471	Cash, cash equivalents and restricted cash at end of period	$	5,939	$	3,734

See notes to unaudited consolidated financial statements.

Table of Contents

ADDvantage Technologies Group, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1 - Basis of Presentation and Accounting Policies

Basis of presentation

The consolidated financial statements include the accounts of ADDvantage Technologies Group, Inc. and its subsidiaries, all of which are wholly owned (collectively, the “Company”). Intercompany balances and transactions have been eliminated in consolidation. The Company’s reportable segments are Wireless Infrastructure Services (“Wireless”) and Telecommunications (“Telco”).

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. However, the information furnished reflects all adjustments, which are, in the opinion of management, necessary in order to make the unaudited consolidated financial statements not misleading.

The Company’s business is subject to seasonal variations due to weather in the geographic areas where services are performed, as well as calendar events and national holidays. Therefore, the results of operations for the nine months ended June 30, ~~2021~~2022 and ~~2020,~~2021, are not necessarily indicative of the results to be expected for the full fiscal year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020.~~

~~Reclassification~~

~~Certain prior period amounts have been reclassified to conform to current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.~~2021.

Recently Issued Accounting Standards

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13: “Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments.” This ASU requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. Upon adoption, entities will use forward-looking information to better form their credit loss estimates. This ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. On November 15, 2019, the FASB delayed the effective date of the standard for companies that qualify under smaller reporting company reporting rules. As amended, the effective date of ASC Topic 326 was delayed until fiscal years beginning after December 15, 2022 for SEC filers that are eligible to be smaller reporting companies under the Securities and Exchange Commission definition. We are currently in the process of evaluating this new standard update, however we do not anticipate the adoption will have a material impact on our results.

Note 2 – Revenue Recognition

The Company’s principal sales are from Wireless services, sales of Telco equipment and Telco recycled equipment, primarily in the United States. Sales to international customers totaled approximately ~~$1.6~~$2.0 million and ~~$0.7~~$1.6 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively and ~~$2.9~~$4.7 million and ~~$1.5~~$2.9 million for the nine ~~month period~~months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

The Company’s customers include wireless carriers, wireless equipment providers, multiple system operators, resellers and direct sales to end-user customers. Sales, ~~to three customers~~ which individually ~~accounted for~~amounted to 10% or greater of the Company's revenue, ~~totaled 39% and sales~~ to two customers ~~comprised approximately 24%~~totaled 34%, and to three customers totaled 39% of consolidated revenues for the nine months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

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Our sales by type were as follows, in thousands:

Three Months Ended June 30, Nine Months Ended June 30,
2021 2020 2021 2020
Wireless services sales $ 4,136 $ 5,123 $ 13,716 $ 16,593
Equipment sales:
Telco 12,826 6,148 28,289 19,912
Intersegment 0 (23) 0 (23)
Telco repair sales 1 33 14 49
Telco recycle sales 55 741 414 1,412
Total sales $ 17,017 $ 12,022 $ 42,433 $ 37,943


	Three Months Ended June 30,				Nine Months Ended June 30,
	2022		2021		2022		2021
Wireless services sales	$	7,243	$	4,136	$	22,128	$	13,716

Telco equipment	20,346		12,826		47,757		28,289

Telco repair	8		1		25		14
Telco recycle	192		54		328		414
Total sales	$	27,789	$	17,017	$	70,238	$	42,433

Contract assets and contract liabilities are included in unbilled revenue and deferred revenue, respectively, in the consolidated balance sheets. At June 30, ~~2021~~2022 and September 30, ~~2020,~~2021, contract assets were ~~$0.9~~$2.8 million and ~~$0.6~~$2.5 million, respectively, and contract liabilities were $0.1 million and ~~$0.1~~$0.2 million, respectively. The Company recognized ~~$0.1~~$0.2 million of contract revenue during the nine months ended June 30, ~~2021~~2022 related to contract liabilities recorded in deferred revenue at September 30, ~~2020.~~2021.

Note 3 – Accounts Receivable Agreements

The Company’s Wireless segment has entered into various agreements, including one agreement with recourse, to sell certain receivables to unrelated third-party financial institutions. For the agreement with recourse,On March 17, 2022, the Company ~~is responsible~~replaced its $3.0 million credit facility for ~~collecting payments on~~its Nave and Triton subsidiaries with its primary financial lender with new accounts receivable purchase facilities with capacities of $12.5 million for Nave and $3.0 million for Triton. Under both facilities, the ~~sold receivables from its customers. Under this agreement, the third-party financial institution~~lender advances the Company 90% of ~~the~~ sold receivables and establishes a reserve of 10% of the sold receivables until the Company collects the sold receivables. AsThe lender charges a fee of 1.3% of sold receivables, and both facilities mature on March 17, 2023.

On March 17, 2022, the Company also restructured its accounts receivable purchase facilities secured by the Company’s Fulton subsidiary’s receivables. Under the restructure, the credit capacity excluding a major customer is $1.0 million, with a fee of 1.6% of sold receivables. The credit capacity secured by receivables of a major customer is $2.5 million, with a fee of 1.5% of sold receivables. The lender advances the Company 90% of sold receivables and establishes a reserve of 10% of the sold receivables at initial sale, which increases to 100% over time after 120 days, until the Company collects the sold ~~receivables,~~receivables. The facilities mature on December 17, 2022.

The Company has a total capacity under all 4 facilities of $19.0 million, which has been reallocated between the ~~third-party financial institution will remit the remaining 10%~~facilities to ~~the Company. At~~accommodate current needs. As of June 30, ~~2021,~~2022, the ~~third-party financial institution~~lender has a reserve against the sold receivables of ~~$0.1~~$1.8 million, which is reflected as restricted cash ~~against~~on the ~~sold receivables of $0.9 million. For the receivables sold under the agreement with recourse, the agreement addresses~~consolidated balance sheets. The facilities agreements address events and conditions which may obligate the Company to immediately repay the institution the outstanding purchase price of the receivables sold. The total amount of receivables uncollected by the institution was ~~$0.9~~$11.8 million at June 30, ~~2021~~2022 for which there is a limit of ~~$4.0~~$19.0 million. Although the sale of receivables is with recourse, the Company did not record a recourse obligation at June 30, ~~2021~~2022 as the Company concluded that the sold receivables are collectible. ~~The other agreements without recourse are under programs offered by certain customers in the Wireless segment.~~

For the nine months ended June 30, ~~2021~~2022 and ~~2020,~~2021, the Company received proceeds from the sold receivables ~~under~~from all of the ~~various agreements~~facilities of ~~$12.9~~$43.2 million and ~~$15.9~~$12.9 million, respectively, and included the proceeds in net cash provided by or used in operating activities in the ~~Consolidated Statements~~consolidated statements of ~~Cash Flows.~~cash flows. The ~~fees associated with selling these receivables ranged from 0.7% to 2.4%~~Company recorded costs of ~~the gross receivables sold~~$0.6 million and $0.2 million for the nine months ended June 30, ~~2021~~2022 and ~~2020. The Company recorded costs of $0.1 million and $0.2 million for the three and nine months ended June 30,~~ 2021, ~~respectively, and $0.1 million and $0.3 million for the three and nine months ended June 30, 2020,~~ respectively, in other expense in the consolidated statements of operations.

Note 4 – ~~Promissory Note Receivable~~

During 2019, the Company completed a sale of its former Cable TV reporting segment to Leveling 8, an entity owned by a member of our board and significant shareholder, David Chymiak. Part of the consideration for the sale was a promissory note bearing interest of 6% received from Mr. Chymiak. Mr. Chymiak personally guaranteed the promissory note due to the Company and pledged certain assets to secure the payment of the promissory note, including substantially all of Mr. Chymiak’s Company common stock. During the nine months ended June 30, 2021, the Company received principal payments totaling $1.9 million, of which approximately $1.4 million was a prepayment. At June 30, 2021, there was $1.9 million outstanding on the promissory note. The remaining promissory note is due in a final payment on June 29, 2024.

On March 10, 2020, the Company entered into a loan agreement with its primary financial lender for $3.5 million to monetize a portion of this promissory note receivable. See Note 7 - Debt for disclosures related to the Company's promissory note payable.

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~~Note 5 –~~ Inventories

Inventories, which are all within the Telco segment, at June 30, ~~2021~~2022 and September 30, ~~2020~~2021 are as follows, in thousands:


		June 30, 2021		September 30, 2020			June 30, 2022		September 30, 2021
New equipment	New equipment	$	1,261	$	1,311	New equipment	$	1,951	$	1,295
Refurbished and used equipment	Refurbished and used equipment	7,518		7,319		Refurbished and used equipment	9,372		8,103
Allowance for excess and obsolete inventory	Allowance for excess and obsolete inventory	(3,168)		(3,054)		Allowance for excess and obsolete inventory	(3,714)		(3,476)
Total inventories, net	Total inventories, net	$	5,611	$	5,576	Total inventories, net	$	7,609	$	5,922

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New equipment includes products purchased from manufacturers plus “surplus-new,” which are unused products purchased from other distributors or multiple system operators. Refurbished and used equipment include factory refurbished, Company refurbished and used products.

Note 65 – Intangible Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. The Company groups assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted future cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.

Intangible assets with their associated accumulated amortization ~~and impairment~~ at June 30, ~~2021~~2022 and September 30, ~~2020~~2021 are as follows, in thousands:


		June 30, 2021									June 30, 2022
Intangible assets:	Intangible assets:	Gross		Accumulated Amortization		Impairment		Net		Intangible assets:	Gross		Accumulated Amortization		Net
Customer relationships – 10 years	Customer relationships – 10 years	$	8,396	$	(4,141)	$	(3,894)	$	361	Customer relationships – 10 years	$	3,155	$	(2,860)	$	295
Trade name – 10 years	Trade name – 10 years	2,122		(1,297)		0		825		Trade name – 10 years	2,122		(1,549)		573

Total intangible assets	Total intangible assets	$	10,518	$	(5,438)	$	(3,894)	$	1,186	Total intangible assets	$	5,277	$	(4,409)	$	868


		September 30, 2020									September 30, 2021
Intangible assets:	Intangible assets:	Gross		Accumulated Amortization		Impairment		Net		Intangible assets:	Gross		Accumulated Amortization		Net
Customer relationships – 10 years	Customer relationships – 10 years	$	8,396	$	(4,021)	$	(3,894)	$	481	Customer relationships – 10 years	$	3,155	$	(2,780)	$	375
Trade name – 10 years	Trade name – 10 years	2,122		(1,178)		0		944		Trade name – 10 years	2,122		(1,390)		732
Non-compete agreements – 3 years		374		(374)		0		0
Total intangible assets	Total intangible assets	$	10,892	$	(5,573)	$	(3,894)	$	1,425	Total intangible assets	$	5,277	$	(4,170)	$	1,107

Note 76 – Debt

~~Loan~~Credit Agreement

On March ~~10, 2020,~~17, 2022, the Company ~~entered into a loan agreement~~closed its $3.0 million credit facility for its Nave and Triton subsidiaries with its primary financial ~~lender~~lender. See Note 3 - Accounts Receivable Agreements for ~~$3.5 million, bearing interest at 6% per annum. The loan was payable in 7 semi-annual installments of principal and interest with~~more information about the first payment occurring June 30, 2020. In connection with the $1.5 million payment received in the first fiscal quarter of 2021 from the promissory note receivable, the Company fully repaid the remaining $1.2 million of principal outstanding under this loan.

~~Credit Agreement~~

The Company has a $4.0 million revolving line of credit agreement with its primary financial lender, which matures on December 17, 2021. The line of credit requires quarterly interest payments based on the prevailing Wall Street Journal Prime Rate, floating (3.25% at June 30, 2021), with the addition of a 4% floor rate and a fixed charge coverage ratio of 1.25 to be tested quarterly beginning June 30, 2021. At June 30, 2021, there was $2.8 million

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outstanding under the line of credit. Future borrowings under the line of credit are limited to the lesser of $4.0 million or the sum of 80% of eligible accounts receivable and 60% of eligible Telco segment inventory. Under these limitations, the Company’s total line of credit borrowing capacity was $4.0 million at June 30, 2021.

~~Loan Covenant with Primary Financial Lender~~

The credit agreement provides that the Company maintain a fixed charge coverage ratio (net cash flow to total fixed charge) of not less than 1.25 to 1.0 to be tested quarterly beginning June 30, 2021. The Company was not in compliance with this covenant at June 30, 2021. The Company notified its primary financial lender of the covenant violation, and on August 4, 2021, the primary financial lender granted a waiver of the covenant violation under the credit agreement. Although the covenant violation was waived at June 30, 2021, the Company believes it may again be out of compliance with this covenant at September 30, 2021. If the Company is not in compliance with the covenant at September 30, 2021, it would result in an event of default, which if not cured or waived, could result in the lender accelerating the maturity of the Company’s indebtedness or preventing access to additional funds under the line of credit agreement, or requiring prepayment of outstanding indebtedness under the loan agreement or the line of credit agreement.

~~Paycheck Protection Program Loan~~

On April 14, 2020, the Company entered into an unsecured loan in the amount of $2.9 million ("PPP Loan") with its primary lender pursuant to the Paycheck Protection Program ("PPP") which is sponsored by the Small Business Administration (“SBA”), and is part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), as amended by the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”). The PPP provides for loans to qualifying businesses, the proceeds of which may be used for payroll costs, rent, utilities, mortgage interest, and interest on other pre-existing indebtedness (the “Permissible Expenses”). The PPP Loan, and accrued interest, may be forgiven partially or in full, if certain conditions are met, which includes if funds were expended for Permissible Expenses.

The PPP Loan matures on April 14, 2022, bears interest at 1% per annum, with monthly payments of principal and interest in the amount of $164,045 commencing on the date on which the amount of loan forgiveness is determined by the SBA. On August 28, 2020, we submitted our application to our lender, requesting PPP Loan forgiveness of $2.9 million. Our lender reviewed our application for forgiveness and forwarded to the SBA on September 27, 2020 for approval. In the absence of an approval or denial of our application for forgiveness from the SBA, per the Flexibility Act, the date for commencement of loan payments has not yet occurred, and we have made no loan payments.

While we believe we have met the eligibility requirements for the PPP Loan, and believe we have used the loan proceeds for Permissible Expenses, we can provide no assurances that we will receive full or partial forgiveness of the PPP Loan. Accordingly, we have recorded the full amount of the PPP Loan as debt, which is included in current and long-term debt, on our consolidated balance sheet at June 30, 2021.

~~Fair Value of Debt~~

The carrying value of the Company’s variable-rate line of credit approximates its fair value since the interest rate fluctuates periodically based on a floating interest rate. The carrying value of the Company’s term debt approximates fair value.Company's receivables purchase facilities.

Note 87 – Equity Distribution Agreement and Sale of Common Stock

On April 24, 2020, the Company entered into an Equity Distribution Agreement with Northland Securities, Inc., as agent (“Northland”), pursuant to which the Company may offer and sell, from time to time, through Northland, shares of the Company’s common stock, par value 0.01 per share, having an aggregate offering price of up to ~~$13,850,000~~$13.9 million ("Shares").

The offer and sale of the Shares will be made pursuant to a shelf registration statement on Form S-3 and the related prospectus filed by the Company with the Securities and Exchange Commission (the “SEC”) on March 3, 2020, as amended on March 23, 2020, and declared effective by the SEC on April 1, 2020.

Pursuant to the Sales Agreement, Northland may sell the Shares by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933 (the “Securities Act”), including sales made by means of ordinary brokers’ transactions, including on The Nasdaq Global Market, at market prices or as otherwise agreed with Northland. Northland will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the Shares from time to time, based upon instructions from the Company, including any price or size limits or other customary parameters or conditions the Company may impose. The Sales Agreement may be terminated without prior notice at any time prior to the fulfillment if additional sales are deemed not warranted.

The Company will pay Northland a commission rate equal to an aggregate of 3.0% of the aggregate gross proceeds from each sale of Shares and have agreed to provide Northland with customary indemnification and contribution rights. The Company will also reimburse Northland for certain specified expenses in connection with entering into the Sales Agreement. The Sales Agreement contains customary representations and warranties and conditions to the placements of the Shares pursuant thereto.

During the nine months ended June 30, ~~2021, 245,973~~2022, 495,517 shares were sold by Northland on behalf of the Company with gross proceeds of $0.9 million, and net proceeds after commissions and fees of ~~$0.9~~$0.8 million.

Note 98 – Earnings Per Share

Basic earnings per share are based on the sum of the average number of common shares outstanding and issuable, restricted and deferred shares. Diluted earnings per share include any dilutive effect of stock options and restricted stock. In computing the diluted weighted average shares, the average share price for the period is used in determining the number of shares assumed to be reacquired under the treasury stock method from the exercise of options. Basic and diluted earnings per share for the three and nine months ended June 30, ~~2021~~2022 and ~~2020~~2021 are (in thousands, except per share amounts):

Three Months Ended June 30, Nine Months Ended June 30,
2021 2020 2021 2020
Net income (loss) attributable to common shareholders $ (2,124) $ 23 (7,141) (16,355)
Basic weighted average shares 12,495,438 11,079,580 12,352,960 10,955,235
Effect of dilutive securities: — — — —
Stock options 0 137,108 0 0
Diluted weighted average shares 12,495,438 11,216,688 12,352,960 10,955,235
Income (loss) per common share:
Basic $ (0.17) $ 0 $ (0.58) $ (1.49)
Diluted $ (0.17) $ 0 $ (0.58) $ (1.49)


	Three Months Ended June 30,				Nine Months Ended June 30,
	2022		2021		2022		2021


Net income (loss) attributable to common shareholders	$	875	$	(2,124)	$	(2,548)	$	(7,141)

Basic and diluted weighted average shares	13,191,792		12,495,438		12,980,634		12,352,960





Basic and diluted income (loss) per common share	$	0.07	$	(0.17)	$	(0.20)	$	(0.58)

The table below includes information related to stock options that were outstanding at the end of each respective three and nine month period ended June 30, but have been excluded from the computation of weighted-average stock options for dilutive securities because their effect would be anti-dilutive. The stock options were anti-dilutive either due to the Company incurring a net loss for the periods presented or the exercise price exceeded the average market price per share of our common stock for the three and nine months ended June 30, 2021 and 2020.

Three Months Ended June 30, Nine Months Ended June 30,
2021 2020 2021 2020
Stock options excluded 50,000 150,000 50,000 480,000
Weighted average exercise price of stock options $ 1.28 $ 2.96 $ 1.28 $ 1.89
Average market price of common stock $ 2.35 $ 2.41 $ 2.61 $ 2.48


	Three Months Ended June 30,				Nine Months Ended June 30,
	2022		2021		2022		2021
Stock options excluded	50,000		50,000		50,000		50,000

Weighted average exercise price of stock options	$	1.28	$	1.28	$	1.28	$	1.28
Average market price of common stock	$	1.27	$	2.35	$	1.55	$	2.61

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Note 109 – Supplemental Cash Flow Information


(in thousands)	(in thousands)	Nine Months Ended June 30,				(in thousands)	Nine Months Ended June 30,
		2021		2020			2022		2021

Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Cash paid for interest	Cash paid for interest	$	106	$	144	Cash paid for interest	$	158	$	106

Supplemental noncash investing and financing activities:	Supplemental noncash investing and financing activities:					Supplemental noncash investing and financing activities:
Assets acquired under financing leases	Assets acquired under financing leases	$	832	$	454	Assets acquired under financing leases	$	553	$	832

Note 1110 – Stock-Based Compensation

Plan Information

The 2015 Incentive Stock Plan (the “Plan”) provides for awards of stock options and restricted stock to officers, directors, key employees and consultants. At June 30, ~~2021,~~2022, 2,100,415 shares of common stock were reserved for stock award grants under the Plan. Of these reserved shares, ~~396,246~~268,695 shares were available for future grants.

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Stock Options

~~A summary~~As of ~~the status of the Company's~~September 30, 2021, there were 50,000 stock options ~~at June 30, 2021~~with a weighted average exercise price of $1.28 per share and ~~changes~~an aggregate intrinsic value of $54,000 outstanding under the Plan. There were no stock options granted, exercised, expired or forfeited during the nine months ended June 30, ~~2021 is presented below:~~
Wtd. Avg.
Ex. Price Shares
Aggregate Intrinsic
Value
(in thousands)
Outstanding at September 30, 2020 $ 1.55 100,000 $ 37
Exercised 1.81 (49,000) 49
Forfeited 1.81 (1,000) —
Outstanding at June 30, 2021 $ 1.28 50,000 $ 69
Exercisable at June 30, 2021 $ 1.28 34,334 $ 44
2022. As of June 30, 2022, 50,000 stock options remained outstanding and exercisable, with an average exercise price of $1.28 per share and an aggregate intrinsic value of $(1,000).

Restricted stock awards

A summary of the Company's non-vested restricted share awards ~~(RSA)~~ at June 30, ~~2021~~2022 and changes during the ~~nine months~~quarter ended June 30, ~~2021~~2022 is presented in the following table (in thousands, except shares):


		Shares	Fair Value			Shares	Fair Value
Non-vested at September 30, 2020		475,024	$	1,058
Non-vested at March 31, 2022					Non-vested at March 31, 2022	596,787	$	1,377
Granted	Granted	444,390	965		Granted	—	—
Vested	Vested	(228,358)	(455)		Vested	(13,333)	(28)
Forfeited	Forfeited	(50,000)	(125)		Forfeited	(51,666)	(121)
Non-vested at June 30, 2021		641,056	$	1,443
Non-vested at June 30, 2022					Non-vested at June 30, 2022	531,788	$	1,228

During the three month period ended June 30, 2022 and 2021, ~~and 2020,~~ expenses ~~(income)~~ related to share-based arrangements including restricted stock and stock option awards, were ~~$0.3~~$0.1 million and ~~$(15) thousand,~~$0.3 million, respectively.

During the nine month period ended June 30, ~~2021~~2022 and ~~2020,~~2021, compensation expenses related to share-based arrangements including restricted stock and stock option awards, were ~~$0.8~~$0.6 million and ~~$0.1~~$0.8 million respectively.

The Company did not recognize a tax benefit for compensation expense recognized during the three and nine month period ended June 30, ~~2021~~2022 and ~~2020.~~

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2021.

At June 30, ~~2021,~~2022, unrecognized compensation expense related to non-vested stock-based compensation awards not yet recognized in the consolidated statements of operations was ~~$0.8~~$0.4 million. That cost is expected to be recognized over a period of ~~2.9~~2.7 years.

Note 1211 – Leases

Our Wireless segment has an operating lease for a building in Fridley, Minnesota for Fulton Technologies, Inc. As a result of closing down and vacating Fulton Technologies, Inc.’s Minnesota office in May 2019, a third-party telecom company began subleasing this building in June 2019. The lease term expired on December 31, 2021.

Our Telco segment has an operating lease for a building in Jessup, Maryland for Nave Communications. As a result of moving Nave’s operations to Palco Telecom, a third-party logistics provider in Huntsville, Alabama, in fiscal year 2020, Nave completely vacated the building in May 2020 and has subleased ~~part~~the building through the end of the ~~building during certain periods of fiscal year 2021.~~lease period.

Rental payments received related to these subleases were recorded as a reduction to rent expense in our consolidated statements of operations for the three and ~~six~~nine month periods ending June 30, ~~2021~~2022 and ~~2020. Rental payments received from subleased right-of-use assets is as follows:~~

(in thousands) Three Months Ended June 30, Nine Months Ended June 30,
2021 2020 2021 2020
Subleased rental receipts:
Wireless $ 46 $ 46 $ 137 $ 136
Telco 0 100 115 301
Total subleased rental receipts $ 46 $ 146 $ 252 $ 437
2021.

Note 1312 – Segment Reporting

The Company is reporting its financial performance based on its external reporting segments: Wireless Infrastructure Services and Telecommunications. These reportable segments are described below.

Wireless Infrastructure Services (“Wireless”)

The Company's Wireless segment provides turn-key wireless infrastructure services for the ~~four~~4 major U.S. wireless carriers, communication tower companies, national integrators, and original equipment manufacturers that support these wireless carriers. These services primarily consist of the installation and upgrade of technology on cell sites and the construction of new small cells for 5G.

Telecommunications (“Telco”)

The Company’s Telco segment sells new and refurbished telecommunications networking equipment, including both central office and customer premise equipment, to its customer base of

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telecommunications providers, enterprise customers and resellers located primarily in North America. This segment also offers its customers repair and testing services for telecommunications networking equipment. ~~In addition, this segment offers its customers decommissioning services for surplus and obsolete equipment, which it in turn processes through its recycling program.~~

The Company evaluates performance and allocates its resources based on operating income. The accounting policies of its reportable segments are the same as those described in the summary of significant accounting policies. Segment assets consist primarily of cash and cash equivalents, accounts receivable, ~~inventories,~~inventory, property and equipment, goodwill and intangible assets.

The Company changed the allocation of corporate general and administrative expenses between our reportable business segments. At September 30, 2020, the Company did not allocate the corporate general and administrative expenses to the reportable segments and listed those expenses separate from the operating results of those reportable segments. During fiscal 2021, the Company reviewed its reportable segments and its corporate general and administrative expenses and allocation methodology, which resulted in the Company allocatingallocates its corporate general and administrative expenses to the reportable segments. ~~The prior period allocations have been adjusted to reflect the Company's current allocation methodology.~~

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Three Months Ended Nine Months Ended
(in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020
Sales
Wireless $ 4,136 $ 5,123 $ 13,716 $ 16,593
Telco 12,881 6,899 28,717 21,350
Total sales $ 17,017 $ 12,022 $ 42,433 $ 37,943
Gross profit
Wireless $ 1,233 $ 2,251 $ 4,370 $ 4,299
Telco 3,036 1,920 6,710 3,025
Total gross profit (loss) $ 4,269 $ 4,171 $ 11,079 $ 7,324
Wireless 30 % 44 % 32 % 26 %
Telco 24 % 28 % 23 % 14 %
Total gross profit margin (loss) 25 % 35 % 26 % 19 %
Gain (loss) from operations
Wireless $ (2,117) $ (75) $ (4,759) $ (3,310)
Telco 16 (1,067) (2,303) (14,274)
Total gain (loss) from operations $ (2,101) $ (1,142) $ (7,062) $ (17,584)
(in thousands) June 30, 2021 September 30, 2020
Segment assets
Wireless $ 5,645 $ 5,324
Telco 16,689 12,298
Non-allocated 6,664 14,881
Total assets $ 28,998 $ 32,503


	Three Months Ended				Nine Months Ended
(in thousands)	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Sales
Wireless	$	7,243	$	4,136	$	22,128	$	13,716
Telco	20,546		12,881		48,110		28,717
Total sales	$	27,789	$	17,017	$	70,238	$	42,433
Gross profit
Wireless	$	1,974	$	1,233	$	5,018	$	4,369
Telco	6,173		3,036		13,518		6,710
Total gross profit (loss)	$	8,147	$	4,269	$	18,536	$	11,079

Income (loss) from operations
Wireless	$	(1,461)	$	(2,117)	$	(5,985)	$	(4,759)
Telco	2,606		16		4,064		(2,303)
Total income (loss) from operations	$	1,145	$	(2,101)	$	(1,921)	$	(7,062)


(in thousands)	June 30, 2022		September 30, 2021
Segment assets
Wireless	$	7,968	$	7,867
Telco	13,595		14,472
Non-allocated	5,303		4,973
Total assets	$	26,866	$	27,312

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Special Note on Forward-Looking Statements

Certain statements in Management's Discussion and Analysis (“MD&A”), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements generally are identified by the words “estimates,” “projects,” "anticipates," “believes,” “plans,” “intends,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. These statements are subject to a number of risks, uncertainties and developments beyond our control or foresight, including changes in the trends of the wireless infrastructure services industry, changes in the trends of the telecommunications industry, changes in our supplier agreements, technological developments, changes in the general economic environment, the potential impact of the novel strain of coronavirus (“COVID-19”) pandemic, the growth or formation of competitors, changes in governmental regulation or taxation, ~~the potential forgiveness of any portion of the PPP Loan,~~ changes in our personnel and other such factors. Our actual results, performance or achievements may differ significantly from the results, performance or achievements expressed or implied in the forward-looking statements. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

Overview

The following MD&A is intended to help the reader understand the results of operations, financial condition, and cash flows of the Company. MD&A is provided as a supplement to, and should be read in conjunction with the information presented elsewhere in this quarterly report on Form 10-Q and with the information presented in our annual report on Form 10-K for the year ended September 30, ~~2020,~~2021, which includes our audited consolidated financial statements and the accompanying notes to the consolidated financial statements.

The Company reports its financial performance based on two external reporting segments: Wireless and Telecommunications. These reportable segments are described below.

Wireless Infrastructure Services (“Wireless”)

The Company’s Wireless segment provides turn-key wireless infrastructure services for the four major U.S. wireless carriers, communication tower companies, national integrators, and original equipment manufacturers that support these wireless carriers. These services primarily consist of the installation and upgrade of technology on cell sites and the construction of new small cells for 5G.

Telecommunications (“Telco”)

The Company’s Telco segment sells new and refurbished telecommunications networking equipment, including both central office and customer premise equipment, to its customer base of telecommunications providers, enterprise customers and resellers located primarily in North America. This segment also offers its customers repair and testing services for telecommunications networking equipment. In addition, this segment offers its customers decommissioning services for surplus and obsolete ~~equipment, which it in turn processes through its recycling program.~~equipment.

Recent Business Developments

COVID-19

On March 11, 2020, the World Health Organization declared the current outbreak of COVID-19 to be a global pandemic, and on March 13, 2020, the United States declared a national emergency. In response to these declarations and the rapid spread of COVID-19, federal, state and local governments have imposed varying degrees of restrictions on business and social activities to contain COVID-19, including quarantine and “stay-at-home” or “shelter-in-place” orders in markets where we operate. Despite these “stay-at-home” or “shelter-in-place”

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orders, we are classified as an essential business due to the services and products we provide to the

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telecommunications industry. Therefore, we continue to operate in the markets we serve while these orders were in place. Most of our back-office and administrative personnel worked from home while these orders were in place, these personnel began working in the office as restrictions were relaxed or lifted. Although we can continue to operate our businesses, our revenues have slowed, especially in our Wireless segment, due to the carriers slowing down various wireless tower projects. We have not experienced a material disruption in our supply chain to date.

With the partial reopening of the economy the economic effects of the pandemic, including new Covid 19 variants, and resulting societal changes remain unpredictable. Although we experienced increased revenues ~~this quarter~~in recent quarters compared to ~~recent~~prior year quarters since the pandemic began ~~last year,~~in 2020, there are a number of uncertainties that could impact our future results of operations, including the efficacy and widespread distribution of a vaccine, the return of major outdoor events during the summer and fall months, and the impact of COVID-19 on the operating results and capital budgets of our customers.

Results of Operations

Comparison of Results of Operations for the ~~Three Months Ended~~three months ended June 30, ~~2021~~2022 and June 30, ~~2020~~2021

Consolidated

Consolidated ~~revenues~~sales increased ~~$5.0~~$10.8 million, or ~~42%~~63%, to $27.8 million for the three months ended June 30, 2022 from $17.0 million for the three months ended June 30, 2021. The increase in sales was due to a 60% increase in sales in the Telco segment of $7.7 million and a 75% increase in Wireless segment sales of $3.1 million.

Consolidated gross profit was $8.1 million, or 29% gross margin for the three months ended June 30, 2022, compared to gross profit of $4.3 million, or 25% gross margin for the three months ended June 30, 2021, an increase of $3.8 million. The increase in gross profit was due to an increase in the Telco segment of $3.1 million, and an increase in the Wireless segment of $0.7 million. The improvement in margin percent was due to strong demand in our Telco segment fueled by global supply issues, along with expansion of our offerings to both wireless and optical network carriers to support both wireless and broadband connectivity for optical and IP transport offset by 3% lower margins in the Wireless segment which was attributable to mobilization costs for the newer markets entered into with a large customer earlier in the year.

Consolidated operating expenses include indirect costs associated with operating our business. Indirect costs include indirect personnel costs, facility costs, vehicles, fuel, insurance, communication, and business taxes, among other cost categories. Operating expenses were $2.5 million, compared to $2.5 million in the same period last year, representing no change in absolute dollars, but a decline from ~~$12.0~~15% of revenue to 9% of revenue due primarily to cost control measures instituted by the Company during the latter part of the fiscal second quarter and continuing into the fiscal third quarter of 2022.

Consolidated selling, general and administrative ("SG&A") expenses include overhead costs, which consist of personnel costs, insurance, professional services, and communication, among other less significant cost categories. SG&A expense increased $0.5 million, or 16%, to $4.1 million for the three months ended June 30, ~~2020.~~2022 from $3.6 million for the same period last year. The increase in SG&A relates primarily to increased selling and commissions expenses to support higher revenues.

Segment Results

Wireless

Revenues for the Wireless segment increased $3.1 million to $7.2 million for the three months ended June 30, 2022 from $4.1 million for the same period of last year. The growth in revenues over the prior year period relates to the pace of the 5G services activity undertaken on behalf of our expanded customer base. Revenues from some customers have been impacted by global supply chain issues as components necessary for build outs have slowed in some cases.

Gross profit was $2.0 million, or 27% for the three months ended June 30, 2022 compared to $1.2 million, or 30%, for the three months ended June 30, 2021. The decrease in the gross profit percentage was the result of new business with a major customer at a lower margin level caused by deploying to new markets and related startup costs.

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Loss from operations was $1.5 million and $2.1 million for three months ended June 30, 2022 and 2021, respectively. The decrease is mainly attributable to investment in our regional growth strategy associated with anticipated 5G infrastructure build outs.

Telco

Sales for the Telco segment increased $7.7 million to $20.6 million for the three months ended June 30, 2022 from $12.9 million for the same period last year. The increase was related to increased sales of used and refurbished equipment as a result of continued global supply chain constraints along with expansion of our offerings to both wireless and optical network carriers to support both wireless and broadband connectivity for optical and IP transport.

Gross profit was $6.2 million and $3.0 million for the three months ended June 30, 2022 and 2021, respectively. The increased gross profit was due primarily to increased revenues of $20.6 million. Additionally, global supply chain issues have generally led to higher pricing to customers.

Income from operations was $2.6 million for the three months ended June 30, 2022 compared to $16 thousand for the same period last year, increasing primarily due to the reasons discussed above.

Comparison of Results of Operations for the nine months ended June 30, 2022 and June 30, 2021

Consolidated

Consolidated sales increased $27.8 million, or 66%, to $70.2 million for the nine months ended June 30, 2022 from $42.4 million for the nine months ended June 30, 2021. The increase in sales was due to increased sales in the Telco segment of ~~$6.0~~$19.4 million ~~partially offset by a decrease~~and an increase in Wireless segment sales of ~~$1.0~~$8.4 million.

Consolidated gross profit increased $0.1 million for the three months ended June 30, 2021 to $4.3 million compared to $4.2 million for the same period last year. The increases in gross profit were due to an increase in the Telco segment of $1.1 million, and a Wireless segment decrease of $1.0 million.

Consolidated operating expenses include indirect costs associated with operating our business such as indirect personnel, facilities, vehicles, insurance, communication, and business taxes. Operating expenses increased $0.5$7.4 million, or ~~26%~~67%, to $2.5 million for the three months ended June 30, 2021 from $2.0 million for the same period last year. The increase in operating expenses were due to an increase in the Wireless segment of $0.6 million, partially offset by a decrease in the Telco segment of $0.1 million.

Consolidated selling, general and administrative ("SG&A") expenses include overhead, which consist of personnel, insurance, professional services, communication, and other cost categories. SG&A expense increased $1.1 million, or 47%, to $3.6 million for the three months ended June 30, 2021 from $2.4 million for the same period last year. General and administrative costs accounted for $0.4 million of the increase, while selling costs accounted for $0.7 million of the increase.

~~Impairment of right of use assets for the three months ended June 30, 2020 was $0.7 million related to impairing an asset associated with a building lease in the Telco segment.~~

~~Depreciation and amortization expenses increased $0.1 million, or 30%, to $0.3 million for the three months ended June 30, 2021, from $0.2 million for the same period last year.~~

Interest income primarily consists of interest earned on the promissory note receivable. Interest income decreased to $34 thousand for the three months ended June 30, 2021 compared to $83 thousand for the same period last year, as the note receivable principal has decreased.

Interest expense for the three months ended June 30, 2021 was $46 thousand as compared to $101 thousand for the same period last year. The expense was related to interest expense on the revolving bank line of credit and the loan with our primary financial lender.

Income tax benefit was $23 thousand for the three months ended June 30, 2021 and $1.2 million for the same period in 2020. Our effective tax rate during the three months ended June 30, 2021 was approximately 0% because increases in our valuation allowance offset against our deferred tax assets. As a result of the CARES Act, the Company can carryback net operating losses generated in 2018 through 2020 for a period of five years. As a result, the Company’s effective tax rate included an income tax benefit of $1.2 million recognized during the three months

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~~ended June 30, 2020 related to tax losses generated during the fiscal year up to the amount that the Company estimates is realizable based upon taxable income in the carryback periods.~~

~~Segment Results~~

~~Wireless~~

Revenues for the Wireless segment decreased $1.0 million to $4.1 million for the three months ended June 30, 2021 from $5.1 million for the same period of last year. Revenues continued to be negatively impacted due to both delays in infrastructure spending from the major U.S. carriers and circumstances related to the COVID-19 pandemic. However, we believe that the 5G rollout will gain momentum in the calendar year and that there is substantial constrained demand for 5G-related work on existing towers, new raw-land builds, and small cell networks. In addition, we have made and are continuing to make the necessary operational adjustments in order to be well positioned to secure 5G construction services work.

Gross profit was $1.3 million, or 30% for the three months ended June 30, 2021 compared to $2.3 million, or 44%, for the three months ended June 30, 2020. The decrease in the gross profit percentage was driven by a higher gross profit percentage for the three months ended June 30, 2020 due primarily to recognition of change order revenues where expenses had been incurred in prior quarters.

Operating expenses increased $0.6 million to $1.8 million for the three months ended June 30, 2021 from $1.2 million for the same period last year. This increase is primarily attributable to increased personnel costs as we prepare for the rollout of 5G-related work and increased rent expense.

Selling, general and administrative expenses increased $0.4 million to $1.4 million for the three months ended June 30, 2021 from $1.0 million for the three months ended June 30, 2020. This increase was due to increased sales-related personnel costs. The corporate overhead allocation increased $0.2 million mainly as a result of increased employee stock-based compensation expenses and executive severance costs.

~~Depreciation and amortization expense was $0.2 million for the three months ended June 30, 2021 compared to $0.1 million for the the same period last year.~~

~~Telco~~

Revenues for the Telco segment increased $6.0 million to $12.9 million for the three months ended June 30, 2021 from $6.9 million for the same period last year. The increase in revenues were related to increased sales of used and refurbished equipment.

Gross profit was $3.0 million for the three months ended June 30, 2021 and $1.9 million for the three months ended June 30, 2020. The increase in gross profit was due primarily increased revenues for the three months ended June 30, 2021.

~~Operating expenses decreased $0.1 million to $0.7 million for the three months ended June 30, 2021 compared to $0.8 million the three months ended June 30, 2020.~~

Selling, general and administrative expenses increased $0.8 million to $2.2 million for the three months ended June 30, 2021 from $1.4 million for the same period last year. This increase was due primarily to increased sales commissions. In addition, the corporate allocation increased $0.2 million, which primarily related to increased employee stock-based compensation expenses and executive severance costs.

~~Impairment of right of use assets for the three months ended June 30, 2020 was $0.7 million related to the impairment of a right of use asset associated with a building lease in the Telco segment.~~

~~Depreciation and amortization expense was $0.1 million for the three months ended June 30, 2021 and 2020.~~

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~~Comparison of Results of Operations for the Nine Months Ended June 30, 2021 and June 30, 2020~~

~~Consolidated~~

~~Consolidated revenues increased $4.5 million, or 12%, to $42.4~~$18.5 million for the nine months ended June 30, ~~2021~~2022 from $37.9 million for the nine months ended June 30, 2020. The increase in revenue was primarily in the Telco segment, which increased $7.4 million, partially offset by a decrease of $2.9 million in the Wireless segment.

~~Consolidated gross profit increased $3.8 million, or 51%, to~~ $11.1 ~~million for the nine months ended June 30, 2021 from $7.3~~ million for the same period last year. The increase in gross profit was due to an increase in the Telco segment of ~~$3.7~~$6.8 million, as well as an increase in the Wireless segment of ~~$0.1~~$0.6 million.

Consolidated operating expenses include indirect costs associated with operating our business such as indirect personnel costs, facilities, vehicles, insurance, communication, and business taxes, among other costs. Operating expenses increased ~~$0.4~~$1.1 million, or 7%16%, to ~~$6.7~~$7.8 million for the nine months ended June 30, ~~2021~~2022 from ~~$6.3~~$6.7 million for the same period last year, due primarily to increases in headcount in our Wireless segment to support 5G services activity during the year.

Consolidated selling, general and administrative expenses ~~include overhead costs, which primarily consist of personnel, insurance, professional services, and communication, among other costs. Selling, general and administrative expenses~~ increased ~~$2.4~~$1.2 million, or ~~30%~~11%, to ~~$10.5~~$11.7 million for the nine months ended June 30, ~~2021~~2022 from $8.1 million for the same period last year. General and administrative costs accounted for $1.2 million of the increase, while selling costs accounted for $1.3 million of the increase. Non-cash stock-based compensation expense accounted for $0.7 million of the increased general and administrative costs.

~~Depreciation and amortization expenses decreased $0.3 million, or 25%, to $0.9 million for the nine months ended June 30, 2021 from $1.2~~$10.5 million for the same period last year. The ~~decrease was due~~increase in SG&A relates primarily to ~~decreased amortization expense resulting from the impairment of intangible assets in the nine months ended June 30, 2020.~~

~~Interest income primarily consists of interest earned on the promissory note from the sale of the cable business in June 2019. Interest income was $0.1 million for nine months ended June 30, 2021~~increased selling and ~~$0.3 million for the nine months ended June 30, 2020.~~

~~Other expense for the nine months ended June 30, 2021 was $61 thousand as compared~~commissions expenses to ~~$0.1 million for the same period last year. The expense for the both the nine months ended June 30, 2021 and June 30, 2020 is primarily related to our factoring arrangements in our Wireless segment.~~

Interest expense for the nine months ended June 30, 2021 was $0.1 million as compared to $0.2 million for the same period last year. Interest expense for the nine months ended June 30, 2021 was related to the revolving bank line of credit and the loan with our primary financial lender.

The provision for income taxes was $23 thousand for the nine months ended June 30, 2021 compared to a benefit of $1.2 million for the nine months ended June 30, 2020. Our effective tax rates during the nine months ended June 30, 2021 was approximately 0% because of increases in our valuation allowance against our deferred tax assets. As a result of the CARES Act, the Company can carryback net operating losses generated in 2018 through 2020 for a period of five years. As a result, the Company’s effective tax rate included an income tax benefit of $1.2 million recognized during the nine months ended June 30, 2020 related to tax losses generated during the fiscal year up to the amount that the Company estimates is realizable based upon taxable income in the carryback periods.support higher revenues.

Segment Results

Wireless

Revenues for the Wireless segment were ~~$13.7~~$22.1 million for the nine months ended June 30, ~~2021~~2022 and ~~$16.6~~$13.7 million for the same period last year. The ~~decrease~~increase in ~~revenue was due~~revenues over the prior year period relates to ~~a full nine months~~the pace of ~~COVID-19 related slow-down in~~the 5G services activity ~~included in~~ the ~~current year results.~~Company estimates is now underway.

Gross profit was ~~$4.4~~$5.0 million, or ~~32%~~23% for the nine months ended June 30, ~~2021~~2022 and ~~$4.3~~$4.4 million, or ~~26%~~32%, for the nine months ended June 30, ~~2020.~~2021. The ~~increase~~decrease in the gross profit percentage was the result of new business with a major customer at a lower margin level caused by deploying to new markets and related startup costs, and as a result of a couple of non-profitable markets, due to lower volume commitments from some customers, which we have exited.

Loss from operations was $6.0 million and $4.8 million for nine months ended June 30, 2022 and 2021, respectively. The increase is ~~due primarily~~mainly attributable to ~~the impact of~~investment in our regional growth strategy associated with anticipated 5G infrastructure build outs.

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~~structural operational changes and more effective customer sales change order processes in place during the current fiscal year.~~Telco

~~Operating expenses~~Sales for the Telco segment increased ~~$0.3~~$19.4 million to ~~$4.4~~$48.1 million for the nine months ended June 30, ~~2021~~2022 from $4.1 million for the same period last year, mainly as a result of lower vehicle and equipment costs as a result of decreased revenues. This increase is primarily attributable to increased personnel costs as we prepare for the rollout of 5G-related work and increased rent expense.

Selling, general and administrative expenses increased $1.3 million to $4.3 million for the nine months ended June 30, 2021 from $3.0 million for the nine months ended June 30, 2020, mainly as a result of personnel costs. In addition, the corporate allocation increased $0.7 million, which primarily related to increased employee stock-based compensation expenses and executive severance costs.

~~Depreciation and amortization expense was consistent at $0.5 million for both the nine months ended June 30, 2021 and 2020.~~

~~Telco~~

~~Revenues for the Telco segment increased $7.4 million to~~ $28.7 ~~million for the nine months ended June 30, 2021 from $21.4~~ million for the same period last year. The increase was ~~mainly~~ related to increased sales of used and refurbished ~~equipment.~~equipment as a result of continued global supply chain constraints along with expansion of our offerings to both wireless and optical network carriers to support both wireless and broadband connectivity for optical and IP transport.

Gross profit was $13.5 million for the nine months ended June 30, 2022 compared to $6.7 million for the nine months ended June 30, 2021, ~~compared~~as a result of the segment's increase in revenues coupled with an increase in gross profit percent by 5% due to $3.0 million for nine months ended June 30, 2020. Gross profit for the nine months ended June 30, 2021 rebounded after taking a charge of $2.1 million for inventory obsolescence expense in the same period last year.price elasticity associated with global supply chain issues.

~~Operating expenses increased $1.2 million to $2.3~~Income from operations was $4.1 million for the nine months ended June 30, ~~2021 from $2.1~~2022 compared to a loss of $2.3 million for the same period last year. ~~This increase was due primarily to increased costs from our third-party logistics provider due to revenue increases and severance costs for certain employees resulting from cost reduction activities.~~

Selling, general and administrative expenses increased $1.2 million to $6.3 million for the nine months ended June 30, 2021 from $5.1 million for the same period last year. This increase was due to increased selling expenses of $0.8 million, partially offset by decreased general and administrative expenses of $0.2 million. In addition, the corporate allocation increased $0.6 million, which primarily related to increased employee stock-based compensation expenses and executive severance costs.

Depreciation and amortization expense decreased $0.3 million to $0.4 million from $0.7 million for the nine months ended June 30, 2021 and 2020, respectively, resulting from significant impairments of intangible assets in the second quarter of 2020.

Non-GAAP Financial Measure

Adjusted EBITDA is a supplemental, non-GAAP financial measure. EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA as presented also excludes impairment charges for operating lease right-of-use assets and intangible assets including goodwill, ~~stock-based~~stock compensation expense, other income, other expense, interest income and income from equity method investment. Adjusted EBITDA is presented below because this metric is used by the financial community as a method of measuring our financial performance and of evaluating the market value of companies considered to be in similar businesses. Since Adjusted EBITDA is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net earnings as an indicator of operating performance. Adjusted EBITDA, as calculated below, may not be comparable to similarly titled measures employed by other companies. In addition, Adjusted EBITDA is not necessarily a measure of our ability to fund our cash needs.

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The following table provides a reconciliation by segment of loss from operations to Adjusted EBITDA for the three and nine month periods ended June 30, ~~2021~~2022 and ~~June 30, 2020,~~2021, in thousands:
Three Months Ended June 30, 2021 Three Months Ended June 30, 2020
Wireless Telco Total Wireless Telco Total
Loss from operations $ (2,117) $ 16 $ (2,101) $ (75) $ (1,067) $ (1,142)
Impairment of right of use asset — — — — 660 660
Depreciation and amortization expense 185 129 314 145 97 242
Stock based compensation expense 136 143 279 24 37 61
Adjusted EBITDA $ (1,796) $ 288 $ (1,508) $ 94 $ (273) $ (179)
Nine Months Ended June 30, 2021 Nine Months Ended June 30, 2020
Wireless Telco Total Wireless Telco Total
Loss from operations $ (4,759) $ (2,303) $ (7,062) $ (3,310) $ (14,274) $ (17,584)
Impairment of right of use asset — — — — 660 660
Impairment of intangibles including goodwill — — — — 8,714 8,714
Depreciation and amortization expense 513 387 899 460 737 1,197
Stock based compensation expense 383 457 840 56 111 167
Adjusted EBITDA $ (3,863) $ (1,459) $ (5,323) $ (2,794) $ (4,052) $ (6,846)
~~Due to rounding, numbers presented may not foot to the totals provided.~~


	Three Months Ended June 30, 2022						Three Months Ended June 30, 2021
	Wireless		Telco		Total		Wireless		Telco		Total
Income (loss) from operations	$	(1,461)	$	2,606	$	1,145	$	(2,117)	$	16	$	(2,101)
Depreciation and amortization expense	192		121		313		185		129		314
Stock compensation expense	44		59		103		136		143		279
Adjusted EBITDA	$	(1,225)	$	2,786	$	1,561	$	(1,796)	$	288	$	(1,508)

	Nine Months Ended June 30, 2022						Nine Months Ended June 30, 2021
	Wireless		Telco		Total		Wireless		Telco		Total
Income (loss) from operations	$	(5,985)	$	4,064	$	(1,921)	$	(4,759)	$	(2,303)	$	(7,062)
Depreciation and amortization expense	608		367		975		513		387		899
Stock compensation expense	289		342		631		383		457		840
Adjusted EBITDA	$	(5,088)	$	4,773	$	(315)	$	(3,863)	$	(1,459)	$	(5,323)

Critical Accounting Policies

Our unaudited consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of our significant accounting policies is included in Note 1- Basis of Presentation and Accounting Policies in our Form 10-K.

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The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on historical experience, current market conditions, and various other factors we believe to be reasonable, which form the basis for making judgments about the carrying values of certain assets. Actual results could differ from these estimates under different assumptions or conditions. The most significant estimates and assumptions are discussed below.

Inventory Valuation

For our Telco segment, our position in the telecommunications industry requires us to carry large inventory quantities relative to annual sales, but it also allows us to realize ~~high~~higher gross profit margins on our sales. We market our products primarily to telecommunication providers, resellers, and other users of telecommunication equipment who are seeking products for which manufacturers have discontinued production or cannot ship new equipment on a same-day basis, as well as providing used products as an alternative to new products from the manufacturer. Carrying these large inventory quantities represents our largest risk for our Telco segment.

Our inventories are all carried in the Telco segment and consist of new and used electronic components for the telecommunications industry. Inventory is stated at the lower of cost or net realizable value, with cost determined using the weighted-average method. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. At June 30, ~~2021,~~2022, we had total inventory, before the reserve for excess and obsolete inventories, of ~~$8.8~~$11.3 million, consisting of ~~$1.3~~$1.9 million in new products and ~~$7.5~~$9.4 million in used or refurbished products.

We regularly review the value of our inventory in detail with consideration given to rapidly changing technology which can significantly affect future customer demand. For individual inventory items, we may carry inventory

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quantities that are excessive relative to market potential, or we may not be able to recover our acquisition costs. In order to address the risks associated with our investment in inventory, we review inventory quantities on hand and reduce the carrying value for obsolete and excess inventories, when our analysis indicates that cost will not be recovered when an item is sold.

We identified certain inventory that more than likely will not be sold or that the cost will not be ~~recovered when it is processed through our recycling program.~~recovered. Therefore, we have an obsolete and excess inventory reserve of ~~$3.2~~$3.7 million at June 30, ~~2021.~~2022. If actual market conditions differ from those projected by management, this could have a material impact on our gross margin and inventory balances based on additional write-downs to net realizable value or a benefit from inventories previously written down.

Inbound freight charges are included in cost of sales. Purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs and other inventory expenditures are included in operating expenses.

Intangibles

Intangible assets that have finite useful lives are amortized on a straight-line basis over their estimated useful ~~lives ranging from 3 years to 10 years.~~lives. Intangible assets are also tested for impairment when events and circumstances indicate that the carrying value may not be recoverable. As of June 30, ~~2021,~~2022, there were no indicators of impairment present.

Liquidity and Capital Resources

Cash Flows ~~Used in~~Provided by Operating Activities

During the nine months ended June 30, ~~2021,~~2022, cash ~~used in~~provided by operations was ~~$5.8~~$5.0 million. Cash flows from operations were negatively impacted by a net loss of ~~$7.1~~$2.5 million, ~~and~~offset by net cash ~~used~~provided by working capital of ~~$0.3~~$5.8 million ~~which was partially offset by~~primarily related to the reduction of receivables associated with our new accounts receivable purchase facilities, and non-cash adjustments of $1.7 ~~million.~~million, primarily depreciation, amortization, and stock based compensation expenses.

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Cash Flows ~~Provided by~~Used in Investing Activities

During the nine months ended June 30, ~~2021,~~2022, cash ~~provided by~~used in investing activities was ~~$1.8~~$0.2 million, ~~which~~consisting primarily ~~consisted~~ of ~~$1.9 million~~purchases of ~~payments received under the promissory note receivable.~~property and equipment.

Cash Flows Used in Financing Activities

During the nine months ended June 30, ~~2021,~~2022, cash used in financing activities was ~~$0.6~~$1.8 million, primarily consisting of ~~which $1.2~~$2.1 million related to repayment of our ~~promissory note payable~~bank line of credit and ~~$0.4 million related to~~ payments ~~under our~~on financing lease ~~arrangements,~~obligations of $0.5 million, partially offset by net proceeds from the sale of our common stock utilizing our shelf registration of ~~$0.9~~$0.8 million.

InLiquidity and Capital Resources

At June 30, 2022 we had cash and equivalents and restricted cash on hand of $5.9 million.

On March ~~2020, we entered into a loan agreement with our primary financial lender~~17, 2022, the Company replaced its $3.0 million credit facility for ~~$3.5 million, bearing interest at 6% per annum. The principal~~its Nave and interest payments correlate to our promissory note receivable with Leveling 8. We monetized $3.5 million of the $5.8 million remaining balance of the promissory note receivable. In connection with the $1.8 million in payments received in the first quarter of 2021, we paid down the remaining outstanding principal under this loan.

~~The Company has a $4.0 million revolving line of credit agreement~~Triton subsidiaries with its primary financial lender ~~which matures on December 17, 2021. The line of credit requires quarterly interest payments based on the prevailing Wall Street Journal Prime Rate, floating (3.25% at June 30, 2021),~~ with the addition of a 4% floor rate and a fixed charge coverage ratio of 1.25 to be tested quarterly beginning June 30, 2021. At June 30, 2021, there was $2.8 million outstanding under the line of credit. Future borrowings under the line of credit are limited to the lesser of $4.0 million or the sum of 80% of eligiblenew accounts receivable ~~and 60% of eligible Telco segment inventory. Under these limitations,~~purchase facilities. The Company also restructured its accounts receivable purchase facilities secured by the Company’s ~~total line of credit borrowing capacity was $4.0 million at June 30, 2021.~~

~~The line of credit agreement provides that~~Fulton subsidiary’s receivables. With the new and restructured receivables purchase facilities, the Company ~~maintain a fixed charge coverage ratio (net cash flow~~has an overall capacity to ~~total fixed charge)~~factor its accounts receivable of not less than 1.25 to 1.0 to be tested quarterly beginning June 30, 2021. The Company was not in compliance with this covenant at June 30, 2021. The Company notified its primary financial lender of the covenant violation, and on August 4, 2021, the primary financial lender granted a waiver of the covenant violation$19.0 million for working capital needs.

~~Table of~~ ~~Content~~s

under the credit agreement. Although the covenant violation was waived at June 30, 2021, the Company believes it may again be out of compliance with this covenant at September 30, 2021. If the Company is not in compliance with the covenant at September 30, 2021, it would result in an event of default, which if not cured or waived, could result in the lender accelerating the maturity of the Company’s indebtedness or preventing access to additional funds under the line of credit agreement, or requiring prepayment of outstanding indebtedness under the loan agreement or the line of credit agreement.

~~On April 14, 2020, the Company~~We entered into an ~~unsecured loan in the amount of $2.9 million ("PPP Loan"~~Equity Distribution Agreement (the “Sales Agreement”) with Northland Securities, Inc., as agent (“Northland”), pursuant to which we may offer and sell, from time to time, through Northland, shares of our ~~primary lender.~~common stock, par value $0.01 per share, having an aggregate offering price of up to $13.9 million ("Shares"). The ~~PPP Loan matures~~offer and sale of the Shares will be made pursuant to a shelf registration statement on Form S-3 and the related prospectus filed by us with the Securities and Exchange Commission (the "SEC") on March 3, 2020, as amended on March 23, 2020, and declared effective by the SEC on April ~~14, 2022, bears interest at 1% per annum, with monthly payments of principal and interest in the amount of $164,045 commencing on~~1, 2020. The shelf registration statement will remain effective for three years from the date declared effective by the SEC. We currently have approximately $9.9 million available to us to fund our working capital needs under the Sales Agreement. Based on ~~which the amount of loan forgiveness is determined. On August 28, 2020,~~our availability under our accounts receivable purchase facilities and our Sales Agreement, we submitted our application to our lender, requesting PPP Loan forgiveness of $2.9 million. Our lender reviewed our application and forwarded to the SBA for approval on September 27, 2020. As of the filing of this Report,believe we have not received an approval or denial of our application for forgiveness from the SBA; per the Flexibility Act, the date for commencement of loan payments has not yet occurred, and we have made no loan payments. The Company deferred $0.8 million of loan payments during the six months ended June 30, 2021.

We continue to take actions to preserve and improve our liquidity. We believe that our cash and cash equivalents and restricted cash of $3.7 million at June 30, 2021 and our existing revolving bank line of credit will provide sufficient liquidity and capital resources to cover our operating losses and our additional working capital and debt payment needs. However, we will need to seek an additional waiver from our primary financial lender if we are not in compliance with our covenant under our loan agreement again next quarter. Further, as discussed above, we received the PPP Loan in April 2020, which provided funding necessary to offset the immediate and anticipated impacts of COVID-19, and we are awaiting the final determination from the SBA on our forgiveness application. In addition, there is still uncertainty surrounding the timing of the overall recovery of the economy and the timing of wireless infrastructure service opportunities for the upgrade to 5G. Therefore, depending on the timing of these factors and our primary financial lender granting us a waiver of any future covenant violations, there is still risk that we may not have sufficient cash and cash equivalents available for us to sustain our operations at our current level. If that were to occur, we would need to seek additional funding and further utilize our shelf registration that we have available to us in order to enhance our cash position and assist in our working capital needs.

In the nine months ended June 30, 2021, we utilized our recently filed shelf registration statement to raise additional cash by selling common shares utilizing an at the market offering under our equity distribution agreement with Northland Securities, Inc. (“Northland”). Under this program, we sold 245,973 shares for net proceeds of $0.9 million.

Item 4. Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure the information we are required to disclose in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based on their evaluation as of June 30, ~~2021,~~2022, our Chief Executive Officer and ~~interim~~ Chief Financial Officer concluded that our disclosure controls and procedures are effective to accomplish their objectives and to ensure the information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and ~~interim~~ Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Securities and Use of Proceeds.

During the nine months ended June 30, ~~2021,~~2022, the Company sold ~~245,973~~495,517 shares of common stock under its registration statement on Form S-3 effective as of April 1, 2020 (333-236859). Gross proceeds from such sales during the ~~quarter~~nine months were $0.9 million and net proceeds were ~~$0.9~~$0.8 million after the payment of ~~approximately $31,313~~$37 thousand in commissions to Northland Securities, Inc., the underwriter of the offering. Total gross proceeds to the Company from sales under such registration statement since its effective date are ~~$3.1~~$4.0 million and total net proceeds to the Company are ~~$3.0~~$3.9 million after the payment of $0.1 million in commissions to Northland. All sales have been made pursuant to the Prospectus Supplement filed with the Commission on April 24, 2020, under which the Company may sell up to ~~$13,850,000~~$13.9 million in common stock. All net proceeds to the Company from such sales have been used in accordance with the “Use of Proceeds” section of such Prospectus Supplement.

Item 6. Exhibits.


Exhibit No.			Description



31.1			Certification of Chief Executive Officer under Section 302 of the Sarbanes Oxley Act of 2002.

31.2			Certification of interim Chief Financial Officer under Section 302 of the Sarbanes Oxley Act of 2002.

32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2			Certification of interim Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS			XBRL Instance Document.

101.SCH			XBRL Taxonomy Extension Schema.

101.CAL			XBRL Taxonomy Extension Calculation Linkbase.

101.DEF			XBRL Taxonomy Extension Definition Linkbase.

101.LAB			XBRL Taxonomy Extension Label Linkbase.

101.PRE			XBRL Taxonomy Extension Presentation Linkbase.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			ADDVANTAGE TECHNOLOGIES GROUP, INC. (Registrant)
Date: August ~~13, 2021~~11, 2022
			/s/ Joseph E. Hart
			Joseph E. Hart,
			President and Chief Executive Officer
			(Principal Executive Officer)

Date: August ~~13, 2021~~11, 2022
			/s/ Michael ~~G. Ramke~~A. Rutledge
			Michael ~~G. Ramke~~A. Rutledge
			Interim Chief Financial Officer
			(Principal Financial Officer)

2420


	Wtd. Avg. Ex. Price		Shares	Aggregate Intrinsic Value (in thousands)
Outstanding at September 30, 2020	$	1.55	100,000	$	37

Exercised	1.81		(49,000)	49

Forfeited	1.81		(1,000)	—
Outstanding at June 30, 2021	$	1.28	50,000	$	69

Exercisable at June 30, 2021	$	1.28	34,334	$	44


	Three Months Ended June 30, 2021						Three Months Ended June 30, 2020
	Wireless		Telco		Total		Wireless		Telco		Total
Loss from operations	$	(2,117)	$	16	$	(2,101)	$	(75)	$	(1,067)	$	(1,142)
Impairment of right of use asset	—		—		—		—		660		660

Depreciation and amortization expense	185		129		314		145		97		242
Stock based compensation expense	136		143		279		24		37		61
Adjusted EBITDA	$	(1,796)	$	288	$	(1,508)	$	94	$	(273)	$	(179)

	Nine Months Ended June 30, 2021						Nine Months Ended June 30, 2020
	Wireless		Telco		Total		Wireless		Telco		Total
Loss from operations	$	(4,759)	$	(2,303)	$	(7,062)	$	(3,310)	$	(14,274)	$	(17,584)
Impairment of right of use asset	—		—		—		—		660		660
Impairment of intangibles including goodwill	—		—		—		—		8,714		8,714
Depreciation and amortization expense	513		387		899		460		737		1,197
Stock based compensation expense	383		457		840		56		111		167
Adjusted EBITDA	$	(3,863)	$	(1,459)	$	(5,323)	$	(2,794)	$	(4,052)	$	(6,846)