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~~September 30, 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 8,~~November 9, 2022 were ~~13,276,191.~~14,019,642.

Table of Contents

ADDVANTAGE TECHNOLOGIES GROUP, INC.

Form 10-Q

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


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

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

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

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

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

	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	13

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	19

	SIGNATURES

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ADDvantage Technologies Group, Inc.

Consolidated Balance Sheets

(in thousands, except share amounts)

(Unaudited)


		June 30, 2022		September 30, 2021			September 30, 2022		December 31, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	4,157	$	2,608	Cash and cash equivalents	$	4,923	$	1,837
Restricted cash	Restricted cash	1,782		334		Restricted cash	1,785		581
Accounts receivable, net of allowances of $250, respectively	Accounts receivable, net of allowances of $250, respectively	2,384		7,013		Accounts receivable, net of allowances of $250, respectively	2,403		6,469
Unbilled revenue	Unbilled revenue	2,786		2,488		Unbilled revenue	2,578		2,219

Inventories, net of allowances of $3,714 and $3,476, respectively		7,609		5,922
Inventories, net of allowances of $3,831 and $3,567, respectively						Inventories, net of allowances of $3,831 and $3,567, respectively	8,665		5,653
Prepaid expenses and other assets	Prepaid expenses and other assets	1,584		1,431		Prepaid expenses and other assets	1,648		1,371
Total current assets	Total current assets	20,302		19,796		Total current assets	22,002		18,130

Property and equipment, at cost:	Property and equipment, at cost:					Property and equipment, at cost:
Machinery and equipment	Machinery and equipment	5,512		4,973		Machinery and equipment	5,131		5,354
Leasehold improvements	Leasehold improvements	899		813		Leasehold improvements	899		821
Total property and equipment, at cost	Total property and equipment, at cost	6,411		5,786		Total property and equipment, at cost	6,030		6,175
Less: Accumulated depreciation	Less: Accumulated depreciation	(2,899)		(2,293)		Less: Accumulated depreciation	(2,828)		(2,558)
Net property and equipment	Net property and equipment	3,512		3,493		Net property and equipment	3,202		3,617
Right-of-use lease assets	Right-of-use lease assets	2,009		2,730		Right-of-use lease assets	1,776		2,466

Intangibles, net of accumulated amortization	Intangibles, net of accumulated amortization	868		1,107		Intangibles, net of accumulated amortization	788		1,027
Goodwill	Goodwill	58		58		Goodwill	58		58

Other assets	Other assets	117		128		Other assets	124		128
Total assets	Total assets	$	26,866	$	27,312	Total assets	$	27,950	$	25,426


Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	10,559	$	7,044	Accounts payable	$	9,025	$	6,812
Accrued expenses	Accrued expenses	1,509		1,581		Accrued expenses	1,771		1,184
Deferred revenue	Deferred revenue	87		168		Deferred revenue	287		207
Bank line of credit	Bank line of credit	—		2,050		Bank line of credit	—		2,050

Right-of-use lease obligations, current	Right-of-use lease obligations, current	1,215		1,198		Right-of-use lease obligations, current	1,235		1,177
Finance lease obligations, current	Finance lease obligations, current	665		582		Finance lease obligations, current	573		652
Other current liabilities	Other current liabilities	922		692		Other current liabilities	567		706
Total current liabilities	Total current liabilities	14,957		13,315		Total current liabilities	13,458		12,788
Right-of-use lease obligations, long-term	Right-of-use lease obligations, long-term	1,221		2,141		Right-of-use lease obligations, long-term	905		1,839
Finance lease obligations, long-term	Finance lease obligations, long-term	1,335		1,429		Finance lease obligations, long-term	1,117		1,484

Total liabilities	Total liabilities	17,513		16,885		Total liabilities	15,480		16,111
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
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
Common stock, $0.01 par value; 30,000,000 shares authorized; 14,043,642 and 13,041,127 shares issued and outstanding, respectively						Common stock, $0.01 par value; 30,000,000 shares authorized; 14,043,642 and 13,041,127 shares issued and outstanding, respectively	140		130
Paid in capital	Paid in capital	890		(578)		Paid in capital	2,516		335
Retained earnings	Retained earnings	8,331		10,879		Retained earnings	9,814		8,850
Total shareholders’ equity	Total shareholders’ equity	9,353		10,427		Total shareholders’ equity	12,470		9,315
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	26,866	$	27,312	Total liabilities and shareholders’ equity	$	27,950	$	25,426

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,
2022 2021 2022 2021
Sales $ 27,789 $ 17,017 $ 70,238 $ 42,433
Cost of sales 19,642 12,748 51,702 31,354
Gross profit 8,147 4,269 18,536 11,079
Operating expenses 2,544 2,508 7,796 6,733
Selling, general and administrative expenses 4,145 3,561 11,684 10,532
Depreciation and amortization expense 313 314 975 899
Loss (gain) on disposal of assets — (13) 2 (23)
Income (loss) from operations 1,145 (2,101) (1,921) (7,062)
Other income (expense):
Interest income — 34 — 115
Other expense, net (233) (34) (473) (61)
Interest expense (37) (46) (154) (156)
Other income (expense), net (270) (46) (627) (102)
Income (loss) before income taxes 875 (2,147) (2,548) (7,164)
Benefit for income taxes — (23) — (23)
Net income (loss) $ 875 $ (2,124) $ (2,548) $ (7,141)
Income (loss) per share:
Basic and diluted $ 0.07 $ (0.17) $ (0.20) $ (0.58)
Shares used in per share calculation:
Basic and diluted 13,191,792 12,495,438 12,980,634 12,352,960


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Sales	$	25,926	$	19,727	$	77,474	$	49,411
Cost of sales	17,383		14,679		55,026		36,913
Gross profit	8,543		5,048		22,448		12,498
Operating expenses	2,303		2,607		7,600		7,282
Selling, general and administrative expenses	4,464		4,357		12,459		11,675


Depreciation and amortization expense	295		329		925		947
Gain on disposal of assets	311		10		309		23
Income (loss) from operations	1,792		(2,235)		1,773		(7,383)
Other income (expense):
Gain on extinguishment of debt	—		2,955		—		2,955
Interest income	—		20		—		87

Other expense, net	(273)		(49)		(675)		(91)
Interest expense	(36)		(82)		(134)		(170)
Other income (expense), net	(309)		2,844		(809)		2,781

Income (loss) before income taxes	1,483		609		964		(4,602)
Benefit for income taxes	—		(30)		—		(53)




Net income (loss)	$	1,483	$	639	$	964	$	(4,549)

Income (loss) per share:
Basic and diluted	$	0.11	$	0.05	$	0.07	$	(0.36)







Shares used in per share calculation:
Basic and diluted	13,638,162		12,543,727		13,302,410		12,485,719

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

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

Net income																	Net income								1,483					1,483
Common stock issuance																	Common stock issuance		717,451	7			1,414		—					1,421
Stock option exercise																	Stock option exercise		50,000	1			63		—					64
Restricted stock issuance, net of forfeitures																	Restricted stock issuance, net of forfeitures		108,000	1			(1)		—					—
Amortization of stock-based compensation																	Amortization of stock-based compensation		—	—			150		—					150
Balance, September 30, 2022																	Balance, September 30, 2022		14,043,642	$	140		$	2,516	$	9,814				$	12,470


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

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

Net income																	Net income		—	—			—		639					639

Stock option exercise																	Stock option exercise		—	1			(1)		—					—
Restricted stock issuance																	Restricted stock issuance		98,857	1			(1)		—					—
Amortization of stock-based compensation																	Amortization of stock-based compensation		—	—			169		—					169
Balance, September 30, 2021																	Balance, September 30, 2021		12,610,229	$	126		$	(578)	$	10,879				$	10,427

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,
2022 2021
Operating Activities:
Net loss $ (2,548) $ (7,141)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation 736 661
Amortization 239 239
Non cash amortization of right-of-use asset and liability (182) (161)
Provision for excess and obsolete inventories 238 115
Stock based compensation expense 631 840
Loss (gain) from disposal of property and equipment 2 (23)
Changes in assets and liabilities:
Accounts receivable 4,629 (4,379)
Unbilled revenue (298) (274)
Income tax receivable/payable — 1,255
Inventories (1,925) (150)
Prepaid expenses and other assets (142) (269)
Accounts payable 3,515 3,012
Accrued expenses and other liabilities 158 456
Deferred revenue (81) 31
Net cash provided by (used in) operating activities 4,972 (5,788)
Investing Activities:
Proceeds from promissory note receivable — 1,910
Purchases of property and equipment (245) (185)
Disposals of property and equipment 42 43
Net cash (used in) provided by investing activities (203) 1,768
Financing Activities:
Payments on bank line of credit (2,050) —
Payments on financing lease obligations (564) (359)
Payments on notes payable — (1,249)
Proceeds from sale of common stock 842 900
Proceeds from stock options exercised — 89
Net cash used in financing activities (1,772) (619)
Net increase (decrease) in cash, cash equivalents and restricted cash 2,997 (4,639)
Cash, cash equivalents and restricted cash at beginning of period 2,942 8,373
Cash, cash equivalents and restricted cash at end of period $ 5,939 $ 3,734


	Nine Months Ended September 30,
	2022		2021
Operating Activities:
Net income (loss)	$	964	$	(4,549)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation	686		709
Amortization	239		238
Non cash amortization of right-of-use asset and liability	(187)		(236)


Provision for excess and obsolete inventories	265		422
Charge for lower of cost or net realizable value inventories	—		105
Stock based compensation expense	500		694
Gain from disposal of property and equipment	(212)		(13)

Gain on extinguishment of debt	—		(2,955)

Changes in assets and liabilities:
Accounts receivable	4,066		(2,203)
Unbilled revenue	(359)		(1,337)
Income tax receivable/payable	—		1,249
Inventories	(3,276)		(249)
Prepaid expenses and other assets	(273)		(384)

Accounts payable	2,213		3,516
Accrued expenses and other liabilities	448		1,148
Deferred revenue	80		42
Net cash provided by (used in) operating activities	5,154		(3,803)



Investing Activities:
Proceeds from promissory note receivable	—		2,270


Purchases of property and equipment	(209)		(226)
Disposals of property and equipment	423		18
Net cash provided by investing activities	214		2,062



Financing Activities:
Payments on bank line of credit	(2,050)		(750)


Payments on financing lease obligations	(719)		(398)
Payments on notes payable	—		55
Proceeds from sale of common stock	1,627		21
Proceeds from stock options exercised	64		89


Net cash used in financing activities	(1,078)		(983)

Net increase (decrease) in cash, cash equivalents and restricted cash	4,290		(2,724)
Cash, cash equivalents and restricted cash at beginning of period	2,418		5,666
Cash, cash equivalents and restricted cash at end of period	$	6,708	$	2,942

See notes to unaudited consolidated financial statements.

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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~~September 30, 2022 and 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.

Change in year end

In September 2022, the Company's Board of Directors approved a change in the Company's fiscal year end from September 30 to December 31, effective for the fiscal year beginning January 1, 2022. As a result of the change in year end, the Company filed a Transition Report on Form 10-Q for the period from October 1, 2021 through December 31, 2021. The Company's fiscal year will run from January 1, 2022 through December 31, 2022.

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 ~~$2.0~~$1.1 million and ~~$1.6~~$1.7 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$4.7~~$4.6 million and ~~$2.9~~$4.3 million for the nine months ended ~~June~~September 30, 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, which individually amounted to 10% or greater of the Company's revenue, to two customers totaled ~~34%~~30%, and to ~~three customers~~one customer totaled ~~39%~~20% of consolidated revenues for the nine months ended ~~June~~September 30, 2022 and 2021, respectively.

Table of Contents

Our sales by type were as follows, in thousands:


		Three Months Ended June 30,				Nine Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Wireless services sales	Wireless services sales	$	7,243	$	4,136	$	22,128	$	13,716	Wireless services sales	$	7,898	$	6,992	$	22,907	$	15,462

Telco equipment	Telco equipment	20,346		12,826		47,757		28,289		Telco equipment	18,028		12,272		54,363		33,287

Telco repair	Telco repair	8		1		25		14		Telco repair	—		13		12		21
Telco recycle	Telco recycle	192		54		328		414		Telco recycle	—		450		192		641
Total sales	Total sales	$	27,789	$	17,017	$	70,238	$	42,433	Total sales	$	25,926	$	19,727	$	77,474	$	49,411

Contract assets and contract liabilities are included in unbilled revenue and deferred revenue, respectively, in the consolidated balance sheets. At ~~June~~September 30, 2022 and ~~September 30,~~December 31, 2021, contract assets were ~~$2.8~~$2.6 million and ~~$2.5~~$2.2 million, respectively, and contract liabilities were ~~$0.1~~$0.3 million and $0.2 million, respectively. The Company recognized $0.2 million of contract revenue during the nine months ended ~~June~~September 30, 2022 related to contract liabilities recorded in deferred revenue at ~~September 30,~~December 31, 2021.

Note 3 – Accounts Receivable Agreements

On March 17, 2022, the Company replaced its $3.0 million credit facility for 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 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 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 facilities mature on December 17, 2022.

For all four facilities, 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 mature on December 17, 2022.~~

The Company has a total capacity under all 4four facilities of $19.0 million, which has been reallocated between the facilities to accommodate current needs. As of ~~June~~September 30, 2022, the lender has a reserve against the sold receivables of $1.8 million, which is reflected as restricted cash on the 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 ~~$11.8~~$11.0 million at ~~June~~September 30, 2022 for which there is a limit of $19.0 million. Although the sale of receivables is with recourse, the Company did not record a recourse obligation at ~~June~~September 30, 2022 as the Company concluded that the sold receivables are collectible.

For the nine months ended ~~June~~September 30, 2022 and 2021, the Company received proceeds from the sold receivables from all of the facilities of ~~$43.2~~$59.8 million and ~~$12.9~~$13.3 million, respectively, and included the proceeds in net cash provided by or used in operating activities in the consolidated statements of cash flows. The Company recorded costs of ~~$0.6~~$0.8 million and ~~$0.2~~$0.1 million for the nine months ended ~~June~~September 30, 2022 and 2021, respectively, in other expense in the consolidated statements of operations.

Note 4 – Inventories

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


		June 30, 2022		September 30, 2021			September 30, 2022		December 31, 2021
New equipment	New equipment	$	1,951	$	1,295	New equipment	$	2,192	$	1,396
Refurbished and used equipment	Refurbished and used equipment	9,372		8,103		Refurbished and used equipment	10,304		7,824
Allowance for excess and obsolete inventory	Allowance for excess and obsolete inventory	(3,714)		(3,476)		Allowance for excess and obsolete inventory	(3,831)		(3,567)
Total inventories, net	Total inventories, net	$	7,609	$	5,922	Total inventories, net	$	8,665	$	5,653

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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 at ~~June~~September 30, 2022 and ~~September 30,~~December 31, 2021 are as follows, in thousands:


		June 30, 2022				September 30, 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	$	(2,860)		$	295	Customer relationships – 10 years	$	3,155	$	(2,886)	$	269
Trade name – 10 years	Trade name – 10 years	2,122		(1,549)			573		Trade name – 10 years	2,122		(1,603)		519
Total intangible assets	Total intangible assets	$	5,277	$	(4,409)		$	868	Total intangible assets	$	5,277	$	(4,489)	$	788


		September 30, 2021				December 31, 2021
Intangible assets:	Intangible assets:	Gross		Accumulated Amortization			Net		Intangible assets:	Gross		Accumulated Amortization		Net
Customer relationships – 10 years	Customer relationships – 10 years	$	3,155	$	(2,780)		$	375	Customer relationships – 10 years	$	3,155	$	(2,807)	$	348
Trade name – 10 years	Trade name – 10 years	2,122		(1,390)			732		Trade name – 10 years	2,122		(1,443)		679
Total intangible assets	Total intangible assets	$	5,277	$	(4,170)		$	1,107	Total intangible assets	$	5,277	$	(4,250)	$	1,027

Note 6 – Debt

Credit Agreement

On March 17, 2022, the Company closed its $3.0 million credit facility for its Nave and Triton subsidiaries with its primary financial lender. See Note 3 - Accounts Receivable Agreements for more information about the 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 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~~September 30, 2022, ~~495,517~~892,181 shares were sold by Northland on behalf of the Company with gross proceeds of ~~$0.9~~$1.7 million, and net proceeds after commissions and fees of ~~$0.8~~$1.6 million.

Note 8 – Earnings Per Share

Basic and diluted earnings per share for the three and nine months ended ~~June~~September 30, 2022 and 2021 are (in thousands, except per share amounts):


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

Net income (loss) attributable to common shareholders	Net income (loss) attributable to common shareholders	$	875	$	(2,124)	$	(2,548)	$	(7,141)	Net income (loss) attributable to common shareholders	$	1,483	$	639	$	964	$	(4,549)

Basic and diluted weighted average shares	Basic and diluted weighted average shares	13,191,792		12,495,438		12,980,634		12,352,960		Basic and diluted weighted average shares	13,638,162		12,543,727		13,302,410		12,485,719

Basic and diluted income (loss) per common share	Basic and diluted income (loss) per common share	$	0.07	$	(0.17)	$	(0.20)	$	(0.58)	Basic and diluted income (loss) per common share	$	0.11	$	0.05	$	0.07	$	(0.36)

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

Weighted average exercise price of stock options	Weighted average exercise price of stock options	$	1.28	$	1.28	$	1.28	$	1.28	Weighted average exercise price of stock options		$	1.28		$	1.28
Average market price of common stock	Average market price of common stock	$	1.27	$	2.35	$	1.55	$	2.61	Average market price of common stock		$	2.45		$	2.58

Note 9 – Supplemental Cash Flow Information


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

Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Cash paid for interest	Cash paid for interest	$	158	$	106	Cash paid for interest	$	134	$	214

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	$	553	$	832	Assets acquired under financing leases	$	273	$	1,589

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. In September 2022, at the Company's annual meeting of shareholders, the shareholders authorized an additional 1,000,000 shares of common stock be added to the Plan. At ~~June~~September 30, 2022, ~~2,100,415~~3,100,415 shares of common stock were reserved for stock award grants under the Plan. Of these reserved shares, ~~268,695~~1,160,695 shares were available for future grants.

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Stock Options

As of ~~September 30,~~December 31, 2021, there were 50,000 stock options with a weighted average exercise price of $1.28 per share and an aggregate intrinsic value of ~~$54,000~~$22 thousand outstanding under the Plan. There were no50,000 stock options ~~granted,~~ exercised ~~expired or forfeited~~ during the nine months ended ~~June~~September 30, 2022. As of ~~June~~September 30, 2022, ~~50,000~~no stock options remained ~~outstanding and exercisable, with an average exercise price of $1.28 per share and an aggregate intrinsic value of $(1,000).~~outstanding.

Restricted stock awards

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


		Shares	Fair Value			Shares	Fair Value
Non-vested at March 31, 2022		596,787	$	1,377
Non-vested at June 30, 2022					Non-vested at June 30, 2022	531,787	$	1,228
Granted	Granted	—	—		Granted	108,000	146
Vested	Vested	(13,333)	(28)		Vested	(107,190)	(269)
Forfeited	Forfeited	(51,666)	(121)		Forfeited	—	—
Non-vested at June 30, 2022		531,788	$	1,228
Non-vested at September 30, 2022					Non-vested at September 30, 2022	532,597	$	1,105

During the three month period ended ~~June~~September 30, 2022 and 2021, expenses related to share-based arrangements including restricted stock and stock option awards, were $0.1 million and ~~$0.3~~$0.2 million, respectively.

During the nine month period ended ~~June~~September 30, 2022 and 2021, compensation expenses related to share-based arrangements including restricted stock and stock option awards, were ~~$0.6~~$0.5 million and ~~$0.8~~$0.7 million respectively.

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

At ~~June~~September 30, 2022, unrecognized compensation expense related to non-vested stock-based compensation awards not yet recognized in the consolidated statements of operations was $0.4 million. That cost is expected to be recognized over a period of ~~2.7~~2.75 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 2020, Nave completely vacated the building in May 2020 and has subleased the building through the end of the 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 nine month periods ending ~~June~~September 30, 2022 and 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 4four 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.

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.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2022		2021		2022		2021
Sales
Wireless	$	7,898	$	6,992	$	22,908	$	15,462
Telco	18,028		12,735		54,566		33,949
Total sales	$	25,926	$	19,727	$	77,474	$	49,411
Gross profit
Wireless	$	2,839	$	1,908	$	6,350	$	4,668
Telco	5,704		3,140		16,098		7,830
Total gross profit (loss)	$	8,543	$	5,048	$	22,448	$	12,498

Income (loss) from operations
Wireless	$	(202)	$	(2,105)	$	(3,859)	$	(5,759)
Telco	1,994		(130)		5,632		(1,624)
Total income (loss) from operations	$	1,792	$	(2,235)	$	1,773	$	(7,383)


(in thousands)	September 30, 2022		December 31, 2021
Segment assets
Wireless	$	7,655	$	7,640
Telco	14,340		14,545
Non-allocated	5,955		3,241
Total assets	$	27,950	$	25,426

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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.

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 ~~June~~September 30, 2022 and ~~June~~September 30, 2021

Consolidated

Consolidated sales increased ~~$10.8~~$6.2 million, or ~~63%~~31%, to ~~$27.8~~$25.9 million for the three months ended ~~June~~September 30, 2022 from ~~$17.0~~$19.7 million for the three months ended ~~June~~September 30, 2021. The increase in sales was due to a ~~60%~~42% increase in sales in the Telco segment of ~~$7.7~~$5.3 million and a ~~75%~~13% increase in Wireless segment sales of ~~$3.1~~$0.9 million.

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Consolidated gross profit was ~~$8.1~~$8.5 million, or ~~29%~~33% gross margin for the three months ended ~~June~~September 30, 2022, compared to gross profit of ~~$4.3~~$5.0 million, or 25% gross margin for the three months ended ~~June~~September 30, 2021, an increase of ~~$3.8~~$3.5 million. The increase in gross profit was due to an increase in the Telco segment of ~~$3.1~~$2.6 million, and an increase in the Wireless segment of ~~$0.7~~$0.9 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~~transport. Additionally, we saw strong margins in the Wireless segment ~~which was attributable to mobilization costs for the newer markets~~as a result of cost containment measures entered into ~~with a large customer~~ earlier in the ~~year.~~year along with the completion of site builds in lower performing markets exited in previous quarters.

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~~$2.3 million, compared to ~~$2.5~~$2.6 million in the same period last year, ~~representing no change in absolute dollars, but~~a decrease of $0.3 million and a decline from ~~15%~~13% of revenue to 9% of revenue due primarily to cost control measures instituted by the Company during the latter part of the ~~fiscal second~~first 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~~$0.1 million, or ~~16%~~2%, to ~~$4.1~~$4.5 million for the three months ended ~~June~~September 30, 2022 from ~~$3.6~~$4.4 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~~$0.9 million to ~~$7.2~~$7.9 million for the three months ended ~~June~~September 30, 2022 from ~~$4.1~~$7.0 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~~$2.8 million, or ~~27%~~36% for the three months ended ~~June~~September 30, 2022 compared to ~~$1.2~~$1.9 million, or 30%, for the three months ended ~~June~~September 30, 2021. The ~~decrease~~increase in the gross profit percentage was the result of ~~new business~~cost containment measures entered into earlier in the year along with ~~a major customer at a~~completion of site builds in lower ~~margin level caused by deploying to new~~performing markets ~~and related startup costs.~~

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that were exited in previous quarters.

Loss from operations was ~~$1.5~~$0.2 million and $2.1 million for three months ended ~~June~~September 30, 2022 and 2021, respectively. The decrease is mainly attributable to ~~investment~~cost containment measures entered into earlier in ~~our regional growth strategy associated~~the year along with ~~anticipated 5G infrastructure build outs.~~completion of site builds in lower performing markets that were exited in previous quarters.

Telco

Sales for the Telco segment increased ~~$7.7~~$5.3 million to ~~$20.6~~$18.0 million for the three months ended ~~June~~September 30, 2022 from ~~$12.9~~$12.7 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~~$5.7 million and ~~$3.0~~$3.1 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively. The increased gross profit was due primarily to increased revenues of ~~$20.6~~$18.0 million. Additionally, global supply chain issues have generally led to higher pricing to customers.

Income from operations was ~~$2.6~~$2.0 million for the three months ended ~~June~~September 30, 2022 compared to ~~$16 thousand~~a loss of $0.1 million 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~~September 30, 2022 and ~~June~~September 30, 2021

Consolidated

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Consolidated sales increased ~~$27.8~~$28.1 million, or ~~66%~~57%, to ~~$70.2~~$77.5 million for the nine months ended ~~June~~September 30, 2022 from ~~$42.4~~$49.4 million for the nine months ended ~~June~~September 30, 2021. The increase in sales was due to increased sales in the Telco segment of ~~$19.4~~$20.6 million and an increase in Wireless segment sales of ~~$8.4~~$7.5 million.

Consolidated gross profit increased ~~$7.4~~$9.9 million, or ~~67%~~80%, to ~~$18.5~~$22.4 million for the nine months ended ~~June~~September 30, 2022 from ~~$11.1~~$12.5 million for the same period last year. The increase in gross profit was due to an increase in the Telco segment of ~~$6.8~~$8.2 million, ~~as well as~~and an increase in the Wireless segment of ~~$0.6~~$1.7 million.

Consolidated operating expenses increased ~~$1.1~~$0.3 million, or ~~16%~~4%, to ~~$7.8~~$7.6 million for the nine months ended ~~June~~September 30, 2022 from ~~$6.7~~$7.3 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 increased ~~$1.2~~$0.8 million, or ~~11%~~7%, to ~~$11.7~~$12.5 million for the nine months ended ~~June~~September 30, 2022 from ~~$10.5~~$11.7 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 ~~$22.1~~$22.9 million for the nine months ended ~~June~~September 30, 2022 and ~~$13.7~~$15.4 million for the same period last year. The increase in revenues over the prior year period relates to the pace of the 5G services activity the Company estimates is now underway.

Gross profit was ~~$5.0~~$6.4 million, or ~~23%~~28% for the nine months ended ~~June~~September 30, 2022 and ~~$4.4~~$4.7 million, or ~~32%~~30%, for the nine months ended ~~June~~September 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, 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~~$3.9 million and ~~$4.8~~$5.8 million for nine months ended ~~June~~September 30, 2022 and 2021, respectively. The ~~increase~~decrease is mainly attributable to ~~investment~~the increase in ~~our regional growth strategy associated with anticipated 5G infrastructure build outs.~~revenues and improvements in operating efficiencies.

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Telco

Sales for the Telco segment increased ~~$19.4~~$20.6 million to ~~$48.1~~$54.6 million for the nine months ended ~~June~~September 30, 2022 from ~~$28.7~~$34.0 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 ~~$13.5~~$16.1 million for the nine months ended ~~June~~September 30, 2022 compared to ~~$6.7~~$7.8 million for the nine months ended ~~June~~September 30, 2021, as a result of the segment's increase in revenues coupled with an increase in gross profit percent by 5%6% due to price elasticity associated with global supply chain issues.

Income from operations was ~~$4.1~~$5.6 million for the nine months ended ~~June~~September 30, 2022 compared to a loss of ~~$2.3~~$1.6 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, gain on extinguishment of debt 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

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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 loss from operations to Adjusted EBITDA for the three and nine month periods ended ~~June~~September 30, 2022 and 2021, in thousands:


		Three Months Ended June 30, 2022						Three Months Ended June 30, 2021							Three Months Ended September 30, 2022						Three Months Ended September 30, 2021
		Wireless		Telco		Total		Wireless		Telco		Total			Wireless		Telco		Total		Wireless		Telco		Total
Income (loss) from operations	Income (loss) from operations	$	(1,461)	$	2,606	$	1,145	$	(2,117)	$	16	$	(2,101)	Income (loss) from operations	$	(202)	$	1,994	$	1,792	$	(2,105)	$	(130)	$	(2,235)
Depreciation and amortization expense	Depreciation and amortization expense	192		121		313		185		129		314		Depreciation and amortization expense	173		121		294		202		127		329
Stock compensation expense	Stock compensation expense	44		59		103		136		143		279		Stock compensation expense	78		72		150		132		36		168
Adjusted EBITDA	Adjusted EBITDA	$	(1,225)	$	2,786	$	1,561	$	(1,796)	$	288	$	(1,508)	Adjusted EBITDA	$	49	$	2,187	$	2,236	$	(1,771)	$	33	$	(1,738)

		Nine Months Ended June 30, 2022						Nine Months Ended June 30, 2021							Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
		Wireless		Telco		Total		Wireless		Telco		Total			Wireless		Telco		Total		Wireless		Telco		Total
Income (loss) from operations	Income (loss) from operations	$	(5,985)	$	4,064	$	(1,921)	$	(4,759)	$	(2,303)	$	(7,062)	Income (loss) from operations	$	(3,859)	$	5,632	$	1,773	$	(5,759)	$	(1,624)	$	(7,383)
Depreciation and amortization expense	Depreciation and amortization expense	608		367		975		513		387		899		Depreciation and amortization expense	561		364		925		563		384		947
Stock compensation expense	Stock compensation expense	289		342		631		383		457		840		Stock compensation expense	234		266		500		375		318		693
Adjusted EBITDA	Adjusted EBITDA	$	(5,088)	$	4,773	$	(315)	$	(3,863)	$	(1,459)	$	(5,323)	Adjusted EBITDA	$	(3,064)	$	6,262	$	3,198	$	(4,821)	$	(922)	$	(5,743)

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

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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 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~~September 30, 2022, we had total inventory, before the reserve for excess and obsolete inventories, of ~~$11.3~~$12.5 million, consisting of ~~$1.9~~$2.2 million in new products and ~~$9.4~~$10.3 million in used or refurbished products.

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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 ~~$3.7~~$3.8 million at ~~June~~September 30, 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. Intangible assets are also tested for impairment when events and circumstances indicate that the carrying value may not be recoverable. As of ~~June~~September 30, 2022, there were no indicators of impairment present.

Liquidity and Capital Resources

Cash Flows Provided by Operating Activities

During the nine months ended ~~June~~September 30, 2022, cash provided by operations was ~~$5.0~~$5.2 million. Cash flows from operations were ~~negatively~~positively impacted by a net ~~loss~~income of ~~$2.5~~$1.0 million, ~~offset by~~ net cash provided by working capital of ~~$5.8~~$2.9 million primarily related to the reduction of receivables associated with our new accounts receivable purchase facilities, and non-cash adjustments of ~~$1.7~~$1.3 million, primarily depreciation, amortization, and stock based compensation expenses.

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

During the nine months ended ~~June~~September 30, 2022, cash ~~used in~~provided by investing activities was $0.2 million, consisting primarily of disposals of property and equipment, partially offset by purchases of property and equipment.

Cash Flows Used in Financing Activities

During the nine months ended ~~June~~September 30, 2022, cash used in financing activities was ~~$1.8~~$1.1 million, primarily consisting of $2.1 million related to repayment of our bank line of credit and payments on financing lease obligations of ~~$0.5~~$0.7 million, partially offset by net proceeds from the sale of our common stock utilizing our shelf registration of ~~$0.8~~$1.6 million and proceeds from stock options exercised of $0.1 million.

Liquidity and Capital Resources

At ~~June~~September 30, 2022 we had cash and equivalents and restricted cash on hand of ~~$5.9~~$6.7 million.

On March 17, 2022, the Company replaced its $3.0 million credit facility for its Nave and Triton subsidiaries with its primary financial lender 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 an overall capacity to factor its accounts receivable of $19.0 million for 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~~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,

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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 ~~$9.9~~$8.4 million available to us to fund our working capital needs under the Sales Agreement. Based on our availability under our 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.

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~~September 30, 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 2. Unregistered Sales of Securities and Use of Proceeds.

During the nine months ended ~~June~~September 30, 2022, the Company sold ~~495,517~~892,181 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 nine months were ~~$0.9~~$1.7 million and net proceeds were ~~$0.8~~$1.6 million after the payment of ~~$37~~$61 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 ~~$4.0~~$5.5 million and total net proceeds to the Company are ~~$3.9~~$5.3 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.

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 11,~~November 14, 2022
			/s/ Joseph E. Hart
			Joseph E. Hart,
			President and Chief Executive Officer
			(Principal Executive Officer)

Date: ~~August 11,~~November 14, 2022
			/s/ Michael A. Rutledge
			Michael A. Rutledge
			~~Interim~~ Chief Financial Officer
			(Principal Financial Officer)


	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)