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 ~~December~~March 31, ~~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 ☒ 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 ☒ 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 ☒ 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☐NoS ☒

Shares outstanding of the issuer's $.01 par value common stock as of ~~February 11,~~May 10, 2022 were ~~13,029,127.~~13,219,857.

Table of Content

ADDVANTAGE TECHNOLOGIES GROUP, INC.

Form 10-Q

For Period Ended ~~December~~March 31, ~~2021~~2022


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

	Consolidated Balance Sheets (unaudited)	3
	~~December~~March 31, ~~2021~~2022 and September 30, 2021

	Consolidated Statements of Operations (unaudited)	4
	Three and Six Months Ended ~~December~~March 31, ~~2021~~2022 and ~~2020~~2021

	Consolidated Statements of Changes in Shareholders’ Equity (unaudited)	5
	Three and Six Months Ended ~~December~~March 31, ~~2021~~2022 and ~~2020~~2021

	Consolidated Statements of Cash Flows (unaudited)	6
	~~Three~~Six Months Ended ~~December~~March 31, ~~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.	1413

Item 4.	Controls and Procedures.	18

	PART II. OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	19

Item 6.	~~Exhibits.~~Exhibits	1920

	SIGNATURES

Table of Content

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ADDvantage Technologies Group, Inc.

Consolidated Balance Sheets

(in thousands, except share amounts)

(Unaudited)


		December 31, 2021		September 30, 2021			March 31, 2022		September 30, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,837	2,608		Cash and cash equivalents	$	3,934	$	2,608
Restricted cash	Restricted cash	581		334		Restricted cash	1,912		334
Accounts receivable, net of allowances of $250		6,469		7,013
Accounts receivable, net of allowances of $250, respectively						Accounts receivable, net of allowances of $250, respectively	369		7,013
Unbilled revenue	Unbilled revenue	2,219		2,488		Unbilled revenue	3,177		2,488

Inventories, net of allowances of 3,567 and 3,476, respectively		5,653		5,922
Prepaid expenses and other current assets		1,371		1,431
Inventories, net of allowances of $3,647 and $3,476, respectively						Inventories, net of allowances of $3,647 and $3,476, respectively	5,808		5,922
Prepaid expenses and other assets						Prepaid expenses and other assets	1,682		1,431
Total current assets	Total current assets	18,130		19,796		Total current assets	16,882		19,796

Property and equipment, at cost:	Property and equipment, at cost:					Property and equipment, at cost:
Machinery and equipment	Machinery and equipment	5,354		4,973		Machinery and equipment	5,386		4,973
Leasehold improvements	Leasehold improvements	821		813		Leasehold improvements	899		813
Total property and equipment, at cost	Total property and equipment, at cost	6,175		5,786		Total property and equipment, at cost	6,285		5,786
Less: Accumulated depreciation	Less: Accumulated depreciation	(2,558)		(2,293)		Less: Accumulated depreciation	(2,670)		(2,293)
Net property and equipment	Net property and equipment	3,617		3,493		Net property and equipment	3,615		3,493
Right-of-use lease assets	Right-of-use lease assets	2,466		2,730		Right-of-use lease assets	2,239		2,730

Intangibles, net of accumulated amortization	Intangibles, net of accumulated amortization	1,027		1,107		Intangibles, net of accumulated amortization	948		1,107
Goodwill	Goodwill	58		58		Goodwill	58		58

Other assets	Other assets	128		128		Other assets	130		128
Total assets	Total assets	$	25,426	$	27,312	Total assets	$	23,872	$	27,312


Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	6,812	$	7,044	Accounts payable	$	8,093	$	7,044
Accrued expenses	Accrued expenses	1,184		1,581		Accrued expenses	1,449		1,581
Deferred revenue	Deferred revenue	207		168		Deferred revenue	225		168
Bank line of credit	Bank line of credit	2,050		2,050		Bank line of credit	—		2,050

Right-of-use lease obligations, current	Right-of-use lease obligations, current	1,177		1,198		Right-of-use lease obligations, current	1,196		1,198
Finance lease obligations, current	Finance lease obligations, current	652		582		Finance lease obligations, current	698		582
Other current liabilities	Other current liabilities	706		692		Other current liabilities	843		692
Total current liabilities	Total current liabilities	12,788		13,315		Total current liabilities	12,504		13,315

Right-of-use lease obligations, long-term	Right-of-use lease obligations, long-term	1,839		2,141		Right-of-use lease obligations, long-term	1,533		2,141
Finance lease obligations, long-term	Finance lease obligations, long-term	1,484		1,429		Finance lease obligations, long-term	1,499		1,429

Total liabilities	Total liabilities	16,111		16,885		Total liabilities	15,536		16,885
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Common stock, $0.01 par value; 30,000,000 shares authorized; 13,041,127 shares issued and outstanding, and 12,610,229 shares issued and outstanding, respectively		130		126
Common stock, $0.01 par value; 30,000,000 shares authorized; 13,189,112 and 12,610,229 shares issued and outstanding, respectively						Common stock, $0.01 par value; 30,000,000 shares authorized; 13,189,112 and 12,610,229 shares issued and outstanding, respectively	132		126
Paid in capital	Paid in capital	335		(578)		Paid in capital	748		(578)
Retained earnings	Retained earnings	8,850		10,879		Retained earnings	7,456		10,879
Total shareholders’ equity	Total shareholders’ equity	9,315		10,427		Total shareholders’ equity	8,336		10,427
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	25,426	$	27,312	Total liabilities and shareholders’ equity	$	23,872	$	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 December 31,
2021 2020
Sales $ 18,690 $ 12,749
Cost of sales 14,059 9,120
Gross profit 4,631 3,629
Operating expenses 2,500 2,047
Selling, general and administrative expenses 3,688 3,215
Depreciation and amortization expense 345 281
Loss from operations (1,902) (1,914)
Other income (expense):
Interest income — 48
Other income (expense) (72) (19)
Interest expense (55) (68)
Other income (expense), net (127) (39)
Loss before income taxes (2,029) (1,953)
Income tax benefit — —
Net loss $ (2,029) $ (1,953)
Loss per share:
Basic and diluted $ (0.16) $ (0.16)
Shares used in per share calculation:
Basic and diluted 12,683,312 12,149,778


	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Sales	$	23,759	$	12,667	$	42,449	$	25,416
Cost of sales	18,001		9,486		32,060		18,606
Gross profit	5,758		3,181		10,389		6,810
Operating expenses	2,753		2,167		5,253		4,224
Selling, general and administrative expenses	3,850		3,757		7,538		6,972


Depreciation and amortization expense	318		304		662		585
Loss (gain) on disposal of assets	2		—		2		(10)
Loss from operations	(1,165)		(3,047)		(3,066)		(4,961)
Other income (expense):
Interest income	—		33		—		81

Other expense, net	(168)		(8)		(240)		(27)
Interest expense	(61)		(42)		(116)		(110)
Other income (expense), net	(229)		(17)		(356)		(56)

Loss before income taxes	(1,394)		(3,064)		(3,422)		(5,017)
Income tax expense	—		—		—		—

Net loss	$	(1,394)	$	(3,064)	$	(3,422)	$	(5,017)

Loss per share:
Basic and diluted	$	(0.11)	$	(0.25)	$	(0.27)	$	(0.41)
Shares used in per share calculation:
Basic and diluted	13,071,053		12,416,594		12,875,055		12,281,721

See notes to unaudited consolidated financial statements.

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ADDvantage Technologies Group, Inc.

Consolidated Statements of Changes in Shareholders' Equity

(in thousands, except share amounts)

(Unaudited)


		Common Stock			Paid-in Capital				Retained Earnings										Common Stock						Paid-in Capital				Retained Earnings
		Shares	Amount										Total	Shares					Amount			Paid-in Capital		Retained Earnings							Total
Balance, September 30, 2021	Balance, September 30, 2021	12,610,229	$	126			$	(578)			$	10,879					$	10,427		Balance, September 30, 2021	12,610,229						$	126	$	(578)	$	10,879			$	10,427
Net loss	Net loss	—	—		—				(2,029)						(2,029)		Net loss		—			—			—				(2,029)				(2,029)
Common stock issuance	Common stock issuance	320,787	3		633				—						636		Common stock issuance		320,787			3			633				—				636
Restricted stock issuance	Restricted stock issuance	110,111	1		(1)				—						—		Restricted stock issuance		110,111			1			(1)				—				—
Amortization of stock-based compensation	Amortization of stock-based compensation	—	—		281				—						281		Amortization of stock-based compensation		—			—			281				—				281
Balance, December 31, 2021	Balance, December 31, 2021	13,041,127	$	130	$	335			$	8,850					$	9,315	Balance, December 31, 2021		13,041,127			$	130		$	335			$	8,850			$	9,315
Net loss																	Net loss		—			—			—				(1,394)				(1,394)
Common stock issuance																	Common stock issuance		143,985			2			166				—				168
Restricted stock issuance																	Restricted stock issuance		4,000			—			—				—				—
Amortization of stock-based compensation																	Amortization of stock-based compensation		—			—			247				—				247
Balance, March 31, 2022																	Balance, March 31, 2022		13,189,112			$	132		$	748			$	7,456			$	8,336


		Common Stock			Paid-in Capital				Retained Earnings										Common Stock						Paid-in Capital				Retained Earnings
		Shares	Amount										Total	Shares					Amount			Paid-in Capital		Retained Earnings							Total
Balance, September 30, 2020	Balance, September 30, 2020	11,822,009	$	118			$	(2,567)			$	17,382					$	14,933		Balance, September 30, 2020	11,822,009						$	118	$	(2,567)	$	17,382			$	14,933
Net loss	Net loss	—	—		—				(1,953)						(1,953)		Net loss		—			—			—				(1,953)				(1,953)
Common stock issuance	Common stock issuance	238,194	3		876				—						879		Common stock issuance		238,194			3			876				—				879
Restricted stock issuance	Restricted stock issuance	306,390	3		(3)				—						—		Restricted stock issuance		306,390			3			(3)				—				—
Amortization of stock-based compensation	Amortization of stock-based compensation	—	—		315				—						315		Amortization of stock-based compensation		—			—			315				—				315
Balance, December 31, 2020	Balance, December 31, 2020	12,366,593	$	124	$	(1,379)			$	15,429					$	14,174	Balance, December 31, 2020		12,366,593			$	124		$	(1,379)			$	15,429			$	14,174
Net loss																	Net loss		—			—			—				(3,064)				(3,064)
Common stock issuance																	Common stock issuance		7,779			—			21				—				21
Restricted stock issuance																	Restricted stock issuance		(10,000)			(1)			—				—				(1)
Stock option exercise																	Stock option exercise		49,000			—			89				—				89
Amortization of stock-based compensation																	Amortization of stock-based compensation		—			—			246				—				246
Balance, March 31, 2021																	Balance, March 31, 2021		12,413,372			$	124		$	(1,023)			$	12,364			$	11,465

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~~Inc.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

Three Months Ended December 31,
2021 2020
Operating Activities:
Net loss $ (2,029) $ (1,953)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 265 201
Amortization 80 80
Non cash amortization of right-of-use asset and liability (51) (52)
Provision for excess and obsolete inventories 91 —
Share based compensation expense 281 315
Gain on disposal of property and equipment — (10)
Changes in assets and liabilities:
Accounts receivable 544 (842)
Unbilled revenue 269 (562)
Income tax receivable\payable — 35
Inventories 179 (626)
Prepaid expenses and other current assets 59 (112)
Accounts payable (232) 56
Accrued expenses and other liabilities (384) (250)
Deferred revenue 39 13
Net cash used in operating activities (889) (3,707)
Investing Activities:
Proceeds from promissory note receivable — 1,505
Purchases of property and equipment (116) (74)
Disposals of property and equipment — 26
Net cash (used in) provided by investing activities (116) 1,457
Financing Activities:
Payments on financing lease obligations (155) (86)
Payments on notes payable — (1,249)
Proceeds from sale of common stock 636 878
Net cash provided by (used in) financing activities 481 (457)
Net decrease in cash, cash equivalents and restricted cash (524) (2,707)
Cash, cash equivalents and restricted cash at beginning of period 2,942 8,373
Cash, cash equivalents and restricted cash at end of period $ 2,418 $ 5,666


	Six Months Ended March 31,
	2022		2021
Operating Activities:
Net loss	$	(3,422)	$	(5,017)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation	503		426
Amortization	159		159
Non cash amortization of right-of-use asset and liability	(58)		(105)


Provision for excess and obsolete inventories	171		115
Share based compensation expense	528		561
Loss (gain) from disposal of property and equipment	2		(10)


Changes in assets and liabilities:
Accounts receivable	6,644		(649)
Unbilled revenue	(689)		(54)
Income tax receivable/payable	—		35
Inventories	(57)		(247)
Prepaid expenses and other assets	(254)		(533)
Accounts payable	1,049		881
Accrued expenses and other liabilities	19		375
Deferred revenue	57		(46)
Net cash provided by (used in) operating activities	4,652		(4,109)

Investing Activities:
Proceeds from promissory note receivable	—		1,505


Purchases of property and equipment	(194)		(93)
Disposals of property and equipment	42		29
Net cash (used in) provided by investing activities	(152)		1,441

Financing Activities:
Change in bank line of credit	(2,050)		—


Payments on financing lease obligations	(350)		(207)
Payments on notes payable	—		(1,249)
Proceeds from sale of common stock	804		900
Proceeds from stock options exercised	—		89
Net cash used in financing activities	(1,596)		(467)

Net increase (decrease) in cash, cash equivalents and restricted cash	2,904		(3,135)
Cash, cash equivalents and restricted cash at beginning of period	2,942		8,373
Cash, cash equivalents and restricted cash at end of period	$	5,846	$	5,238

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 ~~three~~six months ended ~~December~~March 31, ~~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, 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 ~~in Central and South America~~ totaled approximately ~~$1.1~~$1.5 million and ~~$0.3~~$0.9 million for the three months ended ~~December~~March 31, 2022 and 2021, respectively, and ~~2020,~~$2.6 million and $1.3 million for the six month period ended March 31, 2022 and 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 two customers~~ which individually accounted ~~for~~to 10% or greater of the Company's revenue, to two customers which totaled 38%, and to three customers comprised approximately ~~37% and 29%~~24%, of consolidated revenues for the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

Table of Contents

Our sales by type were as follows, in thousands:

Three Months Ended December 31,
2021 2020
Wireless services sales $ 7,119 $ 5,246
Telco equipment sales 11,424 7,275
Telco repair sales 11 6
Telco recycle sales 136 222
Total sales $ 18,690 $ 12,749


	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Wireless services	$	7,767	$	4,334	$	14,885	$	9,581

Telco equipment	15,986		8,189		27,410		15,464

Telco repair	6		7		18		13
Telco recycle	—		137		136		358
Total sales	$	23,759	$	12,667	$	42,449	$	25,416

Contract assets and contract liabilities are included in ~~Unbilled~~unbilled revenue and ~~Deferred~~deferred revenue, respectively, in the consolidated balance sheets. At ~~December~~March 31, ~~2021~~2022 and September 30, 2021, contract assets were ~~$2.2~~$3.2 million and $2.5 million, respectively, and contract liabilities were $0.2 million and $0.2 million, respectively. The Company recognized ~~the entire~~ $0.2 million of contract revenue during the ~~three~~six months ended ~~December~~March 31, 2021 related to contract liabilities recorded in ~~Deferred~~deferred revenue at September 30, 2021.

Note 3 – Accounts Receivable Agreements

~~The Company’s Fulton segment renewed~~On March 17, 2022, the Company replaced its ~~$4.5~~$3.0 million ~~accounts receivable purchase~~credit facility ~~(“Existing Facility”)~~for its Nave and Triton subsidiaries with its primary financial lender ~~secured by the subsidiary’s accounts receivable excluding a major customer. This credit facility was increased by $0.5 million in connection~~ with ~~the renewal. In connection with the renewal, the lender originated a~~ new accounts receivable purchase ~~facility (“New Facility”)~~facilities with ~~a total capacity~~capacities of ~~$8.5~~$9.0 million ~~secured by receivables of a major customer that previously was collateralized under the Existing Facility.~~for Nave and $1.5 million for Triton. Under both facilities, the lender advances the Company 90% of sold receivables and establishes a reserve of 10% of the sold receivables until the Company collects the sold receivables. The 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 ~~Existing Facility,~~restructure, the ~~lender charges~~credit capacity excluding a major customer was reduced from $4.5 million to $2.0 million, with a fee of 1.6% of sold receivables. The credit capacity secured by receivables ~~and under the New Facility the lender charges~~of a major customer was reduced from $8.5 million to $6.5 million, with a fee of 1.5% of sold receivables. ~~Both~~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. The facilities ~~have a fixed charge coverage ratio of 1.25x to be tested quarterly. Both the Existing Facility and the New Facility~~ mature on December 17, 2022.

~~At December~~The Company has a total capacity under all four lines of $19.0 million, which can be reallocated between the lines as needed. As of March 31, ~~2021,~~2022, the lender has a reserve against the sold receivables of ~~$0.6~~$1.9 million, which is reflected as restricted cash. ~~For the receivables sold under the agreement with recourse, the agreement addresses~~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 ~~$4.3~~$11.3 million at ~~December~~March 31, ~~2021~~2022 for which there is a limit of ~~$13.0~~$19.0 million. Although the sale of receivables is with recourse, the Company did not record a recourse obligation at ~~December~~March 31, ~~2021~~2022 as the Company concluded that the sold receivables are collectible.

For the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, the Company received proceeds from the sold receivables ~~under~~from all of the ~~various agreements~~facilities of ~~$7.8~~$19.9 million and ~~$5.0~~$9.5 million, respectively, and included the proceeds in net cash used in operating activities in the consolidated statements of cash flows. The Company recorded costs of $0.3 million and $0.1 million ~~and $43 thousand~~ for the ~~three~~six months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, in other expense in the consolidated statements of operations.

Note 4 – Inventories

Inventories, which are all within the Telco segment, at ~~December~~March 31, ~~2021~~2022 and September 30, 2021 are as follows, in thousands:


		December 31, 2021		September 30, 2021			March 31, 2022		September 30, 2021
New equipment	New equipment	$	1,396	$	1,295	New equipment	$	1,437	$	1,295
Refurbished and used equipment	Refurbished and used equipment	7,824		8,103		Refurbished and used equipment	8,018		8,103
Allowance for excess and obsolete inventory	Allowance for excess and obsolete inventory	(3,567)		(3,476)		Allowance for excess and obsolete inventory	(3,647)		(3,476)

Total inventories, net	Total inventories, net	$	5,653	$	5,922	Total inventories, net	$	5,808	$	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 5 – 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 ~~December~~March 31, ~~2021~~2022 and September 30, 2021 are as follows, in thousands:


		December 31, 2021				March 31, 2022
Intangible assets:	Intangible assets:	Gross		Accumulated Amortization			Net		Intangible assets:	Gross		Accumulated Amortization		Net
Customer relationships – 10 years	Customer relationships – 10 years	$	3,155	$	(2,807)		$	348	Customer relationships – 10 years	$	3,155	$	(2,833)	$	322
Trade name – 10 years	Trade name – 10 years	2,122		(1,443)			679		Trade name – 10 years	2,122		(1,496)		626
Total intangible assets	Total intangible assets	$	5,277	$	(4,250)		$	1,027	Total intangible assets	$	5,277	$	(4,329)	$	948


	September 30, 2021
Intangible assets:	Gross		Accumulated Amortization		Net
Customer relationships – 10 years	$	3,155	$	(2,780)	$	375
Trade name – 10 years	2,122		(1,390)		732
Total intangible assets	$	5,277	$	(4,170)	$	1,107

Note 6 – Debt

Credit Agreement

On ~~December 28, 2021,~~March 17, 2022, the Company ~~renewed~~closed its $3.0 million credit facility for its Nave and Triton subsidiaries with its primary financial ~~lender by entering into a Business Loan Agreement and various ancillary debt and collateral agreements. The renewed Nave and Triton credit facility is~~lender. See Note 3 - Accounts Receivable Agreements for ~~a maximum of $3.0 million and is secured by~~more information about the Company’s Nave and Triton Subsidiaries’ accounts receivable and inventory. As renewed, the Nave and Triton credit facility has been reduced by $1.0 million and requires quarterly interest payments based on the Wall Street Journal Prime Rate floating rate (3.25% as of December 31, 2021) plus 0.75%, and a fixed charge coverage ratio of 1.25x to be tested quarterly. The Company is required to pay a non-use fee equal to 25 basis points if the line of credit is not utilized. The Company may repay outstanding loans at any time without premium or penalty. The Nave and Triton credit facility matures on December 17, 2022.

At December 31, 2021, there was $2.1 million outstanding under the line of credit. Future borrowings under the line of credit are limited to the lesser of $3.0 million or the sum of 80% of eligible accounts receivable and 50% of eligible Telco segment inventory. Under these limitations, the Company’s total line of credit borrowing capacity was $3.0 million at December 31, 2021.

As of December, 31, 2021, the Company was not in compliance with the fixed charge coverage ratio. The Company notified its primary financial lender of the covenant violation, and on February 14, 2022, the lender granted a waiver of the covenant violation under the credit facility. Although the covenant violation was waived at December 31, 2021, the Company believes it may again be out of compliance with this covenant at March 31, 2022. If the Company is not in compliance with the covenant at March 31, 2022, 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

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~~preventing access to additional funds or requiring prepayment of outstanding indebtedness under the line of credit agreement.~~Company's receivables purchase facilities.

Note 7 – 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 ~~13.9~~$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~~Capital 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 ~~three~~six months ended ~~December~~March 31, ~~2021, 320,787 Shares~~2022, 464,772 shares were sold by Northland on behalf of the Company with gross proceeds of ~~$0.7~~$0.8 million, and net proceeds after commissions and fees of ~~$0.6~~$0.8 million.

Note 8 – Earnings Per Share

Basic and diluted earnings per share for the three and six months ended ~~December~~March 31, 2022 and 2021 ~~and 2020, in thousands:~~are (in thousands, except per share amounts):

Three Months Ended December 31,
2021 2020
Net loss attributable to common shareholders $ (2,029) $ (1,953)
Basic weighted average shares 12,683 12,150
Effect of dilutive securities:
Stock options — —
Diluted weighted average shares 12,683 12,150
Loss per common share:
Basic $ (0.16) $ (0.16)
Diluted $ (0.16) $ (0.16)

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	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021


Net loss attributable to common shareholders	$	(1,394)	$	(3,064)	(3,422)		(5,017)

Basic and diluted weighted average shares	13,071,053		12,416,594		12,875,055		12,281,721








Basic and diluted loss per common share:	$	(0.11)	$	(0.25)	$	(0.27)	$	(0.41)

The table below includes information related to stock options that were outstanding at the end of each respective ~~three-month~~three and six-month period ended ~~December~~March 31, but have been excluded from the computation of weighted-average stock options for dilutive securities because their effect would be anti-dilutive.


		Three Months Ended December 31,				Three Months Ended March 31,				Six Months Ended March 31,
		2021		2020				2022		2021		2022		2021
Stock options excluded	Stock options excluded	50,000		100,000			Stock options excluded	50,000		90,744		50,000		95,423
Weighted average exercise price of stock options	Weighted average exercise price of stock options	$	1.28	$	1.55		Weighted average exercise price of stock options	$	1.28	$	1.52	$	1.28	$	1.53
Average market price of common stock	Average market price of common stock	$	2.05	$	2.54		Average market price of common stock	$	1.32	$	2.94	$	1.69	$	2.74

Note 9 – Supplemental Cash Flow Information


(in thousands)	(in thousands)	Three Months Ended December 31,				(in thousands)	Six Months Ended March 31,
		2021		2020			2022		2021

Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Cash paid for interest	Cash paid for interest	$	59	$	43	Cash paid for interest	$	121	$	73

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	$	272	$	34	Assets acquired under financing leases	$	475	$	369

Note 10 – 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 ~~December~~March 31, ~~2021,~~2022, 2,100,415 shares of common stock were reserved for stock award grants under the Plan. Of these reserved shares, ~~221,029~~217,029 shares were available for future grants.

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Stock Options

As of September 30, 2021, there were 50,000 stock options with a weighted average exercise price of $1.28 per share and an aggregate intrinsic value of ~~$54 thousand~~$54,000 outstanding under the Plan. There were no stock options granted, exercised, expired or forfeited during the ~~quarter~~six months ended ~~December~~March 31, ~~2021.~~2022. As of ~~December~~March 31, ~~2021,~~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 ~~$22 thousand.~~$7,500.

Restricted stock awards

A summary of the Company's non-vested restricted share awards (RSA) at ~~December~~March 31, ~~2021~~2022 and changes during the quarter ended ~~December~~March 31, ~~2021~~2022 is presented in the following table (in thousands, except shares):


	Shares	Fair Value
Non-vested at December 31, 2021	737,634	$	1,768
Granted	40,000	53
Vested	(144,847)	(370)
Forfeited	(36,000)	(74)
Non-vested at March 31, 2022	596,787	$	1,377

Shares Fair Value
Non-vested at September 30, 2021 739,913 $ 1,706
Granted 130,111 333
Vested (112,390) (230)
Forfeited (20,000) (41)
Non-vested at December 31, 2021 737,634 $ 1,768

~~Expenses~~During the three month period ended March 31, 2022 and 2021, compensation expenses related to ~~stock-based compensation~~share-based arrangements including restricted stock and stock option awards, were ~~$0.3~~$0.2 million ~~in each of~~and $0.2 million, respectively.

During the ~~three~~six month ~~periods~~period ended ~~December~~March 31, 2022 and 2021, compensation expenses related to share-based arrangements including restricted stock and ~~2020.~~

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stock option awards, were $0.5 million and $0.6 million respectively.

The Company did not recognize a tax benefit for compensation expense recognized during the three ~~months~~and six month period ended ~~December~~March 31, ~~2021~~2022 and ~~2020.~~2021.

At ~~December~~March 31, ~~2021,~~2022, unrecognized compensation expense related to non-vested ~~stock-based~~share-based compensation awards not yet recognized in the consolidated statements of operations was ~~$0.9~~$0.6 million. That cost is expected to be recognized over a period of ~~2.8~~2.9 years.

Note 11 – 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 ~~2021,~~2020, Nave completely vacated the building in May 2020 and has subleased part of the building ~~during certain periods~~through the end of ~~fiscal year 2022.~~the lease period.

Rental payments received related to these subleases were recorded as a reduction ofto rent expense in our consolidated statements of operations for the three and six month periods ending ~~December~~March 31, ~~2021~~2022 and ~~2020.~~2021.

Note 12 – 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 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, inventory, property and equipment, goodwill and intangible assets. The Company allocates its corporate general and administrative expenses to the reportable segments.

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(in thousands) Three Months Ended
December 31, 2021 December 31, 2020
Sales
Wireless $ 7,119 $ 5,247
Telco 11,571 7,502
Total sales $ 18,690 $ 12,749
Gross profit
Wireless $ 1,507 $ 1,609
Telco 3,124 2,020
Total gross profit $ 4,631 $ 3,629
Income (loss) from operations
Wireless $ (2,326) $ (1,105)
Telco 424 (809)
Total loss from operations $ (1,902) $ (1,914)

(in thousands) December 31, 2021 September 30, 2021
Segment assets
Wireless $ 7,640 $ 7,867
Telco 14,545 14,472
Non-allocated 3,241 4,973
Total assets $ 25,426 $ 27,312


	Three Months Ended				Six Months Ended
(in thousands)	March 31, 2022		March 31, 2021		March 31, 2022		March 31, 2021
Sales
Wireless	$	7,766	$	4,334	$	14,885	$	9,581
Telco	15,993		8,333		27,564		15,835
Total sales	$	23,759	$	12,667	$	42,449	$	25,416
Gross profit
Wireless	$	1,537	$	1,527	$	3,044	$	3,136
Telco	4,221		1,654		7,345		3,674
Total gross profit (loss)	$	5,758	$	3,181	$	10,389	$	6,810

Loss from operations
Wireless	$	(2,203)	$	(1,537)	$	(4,528)	$	(2,642)
Telco	1,038		(1,510)		1,462		(2,319)
Total loss from operations	$	(1,165)	$	(3,047)	$	(3,066)	$	(4,961)


(in thousands)	March 31, 2022		September 30, 2021
Segment assets
Wireless	$	9,290	$	7,867
Telco	9,256		14,472
Non-allocated	5,326		4,973
Total assets	$	23,872	$	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, 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, 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.

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” 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. ~~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 in recent quarters compared to prior year quarters since the pandemic began 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 December~~three months ended March 31, ~~2021~~2022 and ~~December~~March 31, ~~2020~~2021

Consolidated

Consolidated sales increased ~~$6.0~~$11.1 million, or ~~47%~~88%, to ~~$18.7~~$23.8 million for ~~the~~ three months ended ~~December~~March 31, ~~2021~~2022 from $12.7 million for the three months ended ~~December~~March 31, ~~2020.~~2021. The increase in sales was ~~primarily~~ due to ~~a $1.9~~increased sales in the Telco segment of $7.7 million and an increase in Wireless ~~revenue related to 5G tower work, and an increase~~segment sales of ~~$4.1 million in Telco revenue due to increased demand for refurbished telecommunications equipment sold by the Telco segment.~~$3.4 million.

Consolidated gross profit was ~~$4.6~~$5.8 million, or 24% gross margin for the three months ended March 31, 2022, compared to gross profit of $3.2 million, or 25% gross margin ~~compared to gross profit of $3.6 million, or 28% gross margin,~~ for the ~~same period last year.~~three months ended march 31, 2021, an increase of $2.6 million. The ~~net changes~~increase in gross profit ~~were~~was due to ~~higher overall sales~~an increase in ~~both~~ the ~~Wireless and~~ Telco ~~segments, and the~~segment of $2.6 million. The decrease in gross margin ~~as a~~ percent ~~of sales~~ was due to ~~investments made with~~lower margins in the Wireless segment offset by increases in the Telco segment as a ~~new wireless customer and the impact~~result of ~~the Company onboarding new crews in anticipation of near-term wireless revenue increases.~~continued global supply chain constraints.

Consolidated operating expenses include indirect costs associated with operating our business. Indirect costs include indirect personnel costs, facility costs, vehicles, insurance, communication, and business taxes, among other cost categories. Operating expenses ~~increased $0.5~~were $2.8 million, ~~to $2.5 million for the three months ended December 31, 2021~~ compared to ~~$2.0~~$2.2 million in the same period last ~~year. The~~year, an increase ~~reflects the Company's investment~~of $0.6 million due primarily to increases in ~~its regional growth strategy related~~headcount in our Wireless segment to ~~expected~~support 5G ~~infrastructure growth.~~services activity.

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~~$0.1 million, or ~~15%~~2%, to ~~$3.7~~$3.9 million for the three months ended ~~December~~March 31, ~~2021~~2022 from ~~$3.2~~$3.8 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 ~~$1.9~~$3.5 million to ~~$7.1~~$7.8 million for the three months ended ~~December~~March 31, ~~2021~~2022 from ~~$5.2~~$4.3 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 ~~now underway and we project further growth~~construction 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 ~~the second half of the fiscal year.~~some cases.

Gross profit was $1.5 million, or ~~21%~~20% for the three months ended ~~December~~March 31, ~~2021 and $1.6~~2022 compared to $1.5 million, or ~~31%~~35%, for the three months ended ~~December~~March 31, ~~2020.~~2021. The decrease in the gross profit percentage was the result of new business with a major customer at a lower margin level ~~along with continuing investment in our regional growth strategy associated with anticipated 5G infrastructure build outs,~~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 ~~includes the expansion and training of new wireless service crews.~~we have exited.

Loss from operations was ~~$2.3~~$2.2 million and ~~$1.1~~$1.5 million for three months ended ~~December~~March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. The increase is mainly attributable to investment in our regional growth strategy associated with anticipated 5G infrastructure build outs.

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Telco

~~Revenues~~Sales for the Telco segment increased ~~$4.1~~$7.7 million to ~~$11.6~~$16.0 million for the three months ended ~~December~~March 31, ~~2021~~2022 from ~~$7.5~~$8.3 million for the same period last year. The increase in revenues was related to increased sales of used and refurbished equipment as a result of continued global supply chain constraints.

Gross profit was ~~$3.1~~$4.2 million and $1.7 million for the three months ended ~~December~~March 31, 2022 and 2021, ~~and $2.0 million for the three months ended December 31, 2020.~~respectively. The increased gross profit was due primarily to increased revenues of ~~$4.1~~$16.0 million. Additionally, global supply chain issues have generally led to higher pricing to customers.

Income from operations was ~~$0.4~~$1.0 million for the three months ended ~~December~~March 31, ~~2021~~2022 compared to a loss of ~~$0.8~~$1.5 million for the same period last year, primarily due to the reasons discussed above.

Comparison of Results of Operations for the six months ended March 31, 2022 and March 31, 2021

Consolidated

Consolidated sales increased $17.0 million, or 67%, to $42.4 million for the six months ended March 31, 2022 from $25.4 million for the six months ended March 31, 2021. The increase in sales was due to increased sales in the Telco segment of $11.7 million and an increase in Wireless segment sales of $5.3 million.

Consolidated gross profit increased $3.6 million, or 53%, to $10.4 million for the six months ended March 31, 2022 from $6.8 million for the same period last year. The increase in gross profit was due to an increase in the Telco segment of $3.6 million, partially offset by a decrease in the Wireless segment of $0.1 million.

Consolidated operating expenses increased $1.1 million, or 24%, to $5.3 million for the six months ended March 31, 2022 from $4.2 million for the same period last year, due primarily to increases in headcount in our Wireless segment to support 5G services activity.

Consolidated selling, general and administrative expenses increased $0.5 million, or 8%, to $7.5 million for the six months ended March 31, 2022 from $7.0 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 were $14.9 million for the six months ended March 31, 2022 and $9.6 million for the same period last year, an increase of $5.3 million. The increase in revenues over the prior year period relates to the pace of the 5G services activity now underway.

Gross profit was $3.0 million, or 20% for the six months ended March 31, 2022 and $3.1 million, or 33%, for six months ended March 31, 2021. The decreases were 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 $4.5 million and $2.6 million for six months ended March 31, 2022 and 2021, respectively. The increase is mainly attributable to investment in our regional growth strategy associated with anticipated 5G infrastructure build outs.

Telco

Sales for the Telco segment increased $11.7 million to $27.5 million for the six months ended March 31, 2022 from $15.8 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.

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Gross profit was $7.3 million for the six months ended March 31, 2022 compared to $3.7 million for six months ended March 31, 2021, primarily as a result of the segment's increase in revenues.

Income from operations was $1.5 million for the six months ended March 31, 2022 compared to a loss of $2.3 million for the same period last year.

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 compensation expense, other income, other expense, interest income and ~~interest income.~~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.

The following table provides a reconciliation by segment of ~~income (loss)~~loss from operations to Adjusted EBITDA for the three- and six-month periods ended March 31, 2022 and 2021, in thousands:


		Three Months Ended December 31, 2021						Three Months Ended December 31, 2020							Three Months Ended March 31, 2022						Three Months Ended March 31, 2021
		Wireless		Telco		Total		Wireless		Telco		Total			Wireless		Telco		Total		Wireless		Telco		Total
Income (loss) from operations	Income (loss) from operations	$	(2,326)	$	424	$	(1,902)	$	(1,105)	$	(809)	$	(1,914)	Income (loss) from operations	$	(2,203)	$	1,038	$	(1,165)	$	(1,537)	$	(1,510)	$	(3,047)

Depreciation and amortization expense	Depreciation and amortization expense	220		125		345		152		129		281		Depreciation and amortization expense	197		121		318		176		128		304
Stock compensation expense	Stock compensation expense	144		137		281		140		175		315		Stock compensation expense	114		133		247		107		139		246
Adjusted EBITDA	Adjusted EBITDA	$	(1,962)	$	686	$	(1,276)	$	(813)	$	(505)	$	(1,318)	Adjusted EBITDA	$	(1,892)	$	1,292	$	(600)	$	(1,254)	$	(1,243)	$	(2,497)

															Six Months Ended March 31, 2022						Six Months Ended March 31, 2021
															Wireless		Telco		Total		Wireless		Telco		Total
Income (loss) from operations														Income (loss) from operations	$	(4,528)	$	1,462	$	(3,066)	$	(2,642)	$	(2,319)	$	(4,961)
Depreciation and amortization expense														Depreciation and amortization expense	416		246		662		328		257		585
Stock compensation expense														Stock compensation expense	257		271		528		247		314		561
Adjusted EBITDA														Adjusted EBITDA	$	(3,855)	$	1,979	$	(1,876)	$	(2,067)	$	(1,748)	$	(3,815)

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.

General

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.

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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 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

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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 ~~December~~March 31, ~~2021,~~2022, we had total inventory, before the reserve for excess and obsolete inventories, of ~~$9.2~~$9.5 million, consisting of $1.4 million in new products and ~~$7.8~~$8.0 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 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. Therefore, we have an obsolete and excess inventory reserve of $3.6 million at ~~December~~March 31, ~~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. Intangible assets are also tested for impairment when events and circumstances indicate that the carrying value may not be recoverable. As of ~~December~~March 31, ~~2021,~~2022, there were no indicators of impairment present.

Liquidity and Capital Resources

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

During the ~~three~~six months ended ~~December~~March 31, ~~2021,~~2022, cash ~~used in~~provided by operations was ~~$0.9~~$4.7 million. Cash flows from operations were negatively impacted by a net loss of ~~$2.0~~$3.4 million, ~~partially~~ offset by net cash provided by working capital of ~~$0.5~~$6.8 million primarily related to the reduction of receivables associated with our new accounts receivable purchase facilities, and non-cash adjustments of ~~$0.7 million.~~$1.3 million, primarily depreciation and amortization.

Cash Flows Used in Investing Activities

During the ~~three~~six months ended ~~December~~March 31, ~~2021,~~2022, cash used in investing activities was ~~$0.1~~$0.2 million, consisting of purchases of property and equipment.

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

During the ~~three~~six months ended ~~December~~March 31, ~~2021,~~2022, cash ~~provided by~~used in financing activities was ~~$0.5~~$1.6 million, primarily consisting of $2.1 million related to repayment of our bank line of credit and payments on financing lease obligations of $0.3 million, partially offset by net proceeds from the sale of our common stock utilizing our shelf registration of ~~$0.6 million, partially offset by payments on financing lease obligations of $0.1~~$0.8 million.

~~Liquidity and Capital Resources~~

~~At December 31, 2021 we had cash and equivalents and restricted cash on hand of $2.4 million and availability under our bank line of credit of $1.0 million, for a total liquidity of $3.4 million.~~

On December 28, 2021, the Company signed amendments to its credit facilities with its primary financial lender for its Telco and Wireless business segments. In anticipation of significant growth in the Wireless segment to meet

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~~growing demand related to the 5G expansion,~~Liquidity and Capital Resources

At March 31, 2022 we had cash and equivalents and restricted cash on hand of $5.8 million.

On March 17, 2022, the Company ~~signed an accounts receivable factoring line~~replaced its $3.0 million credit facility for its Nave and Triton subsidiaries with its primary financial lender ~~increasing available borrowing~~with new accounts receivable purchase facilities. The Company also restructured its accounts receivable purchase facilities secured by the Company’s Fulton subsidiary’s receivables. With the new and restructured receivables purchase facilities, the Company has increased its overall capacity to factor its accounts receivable during the quarter ended March 31, 2022 from ~~$4.0~~$16.0 million to ~~$13.0~~$19.0 million ~~subject to available collateral. In addition, the company renewed its line of credit, collateralized by receivables and inventory,~~ for its Telco segment, with a total maximum available borrowing capacity of $3.0 million. The result of the new agreements raises the Company’s total borrowing capacity, subject to available collateral, from $8.0 million to $16.0 million.

We were not in compliance with a covenant on our credit facilities at December 31, 2021. We notified our primary financial lender of the covenant violation, and on February 14, 2022 the primary lender granted a waiver of the covenant violation.working capital needs.

We entered into an 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 common stock, par value $0.01 per share, having an aggregate offering price of up to $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 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 1, 2020. The shelf registration statement will remain effective for three years from the date declared effective by the SEC. We currently have approximately ~~$10.1~~$9.9 million available to us to fund our working capital needs under the Sales Agreement. Based on our availability under our ~~bank line of credit~~accounts receivable purchase facilities and our Sales Agreement, we believe we have sufficient liquidity and capital resources to cover our operating losses and our additional working capital and debt payment needs.

We continue to evaluate opportunities to expand our business through selective acquisitions and internal growth initiatives. Our capital investment decisions are determined by an analysis of the projected return on capital employed of each of those alternatives, which is substantially driven by the cost to acquire existing assets from a third party, the capital required to invest in new equipment and the point in the 5G densification cycle. Based on these factors, we make capital investment decisions that we believe will support our long-term growth strategy. Depending on the timing and scope of these opportunities, we may need to seek additional funding to finance the necessary working capital for such opportunities.

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 ~~December~~March 31, ~~2021,~~2022, our Chief Executive Officer and 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 Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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PART II. OTHER INFORMATION

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

During the ~~quarter~~six months ended ~~December~~March 31, ~~2021,~~2022, the Company sold ~~320,787~~464,772 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~~six months were ~~$0.7~~$0.8 million and net proceeds were ~~$0.6~~$0.8 million after the payment of ~~$20~~$34 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 ~~$3.8~~$4.0 million and total net proceeds to the Company are ~~$3.7~~$3.8 million after the payment of ~~$0.1~~$0.2 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 $13.9 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.

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Item 6. Exhibits.


Exhibit No.			Description

10.1			Business Loan Agreement between ADDvantage Technologies Group Inc. and Nave Communications Company and Vast Bank, N.A. executed March 17, 2022.

10.2			Business Manager Agreement between Nave Communications Company and Vast Bank, N.A. executed March 17, 2022.

10.3			Business Loan Agreement between ADDvantage Technologies Group Inc. and ADDvantage Triton LLC and Vast Bank, N.A. executed March 17, 2022.

10.4			Business Manager Agreement between ADDvantage Triton LLC and Vast Bank, N.A. executed March 17, 2022.

10.5			Modification Addendum to the Business Manager Agreement between Fulton Technologies, Inc., and Vast Bank, N.A., executed March 17, 2022

10.6			Modification Addendum to the Business Manager Agreement between Fulton Technologies, Inc., and Vast Bank, N.A., executed March 17, 2022

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

31.2			Certification of 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 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.

1920

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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: ~~February 14,~~May 12, 2022
			/s/ Joseph E. Hart
			Joseph E. Hart
			President and Chief Executive Officer
			(Principal Executive Officer)

Date: ~~February 14,~~May 12, 2022
			/s/ Michael A. Rutledge
			Michael A. Rutledge
			Chief Financial Officer
			(Principal Financial Officer)

2021


	Shares	Fair Value
Non-vested at September 30, 2021	739,913	$	1,706
Granted	130,111	333
Vested	(112,390)	(230)
Forfeited	(20,000)	(41)
Non-vested at December 31, 2021	737,634	$	1,768