UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~June 30, 2022~~March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD ~~FROM________________~~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, 2022~~May 9, 2023 were ~~13,276,191.~~14,860,857.

Table of ~~Contents~~Conten ts

ADDVANTAGE TECHNOLOGIES GROUP, INC.

Form 10-Q

For Period Ended ~~June 30, 2022~~March 31, 2023


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

	Consolidated Balance Sheets (unaudited)	3
	~~June 30,~~March 31, 2023 and December 31, 2022 ~~and September 30, 2021~~

	Consolidated Statements of Operations (unaudited)	4
	Three ~~and Nine~~ Months Ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~

	Consolidated Statements of Changes in Shareholders’ Equity (unaudited)	5
	Three ~~and Nine~~ Months Ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~

	Consolidated Statements of Cash Flows (unaudited)	6
	~~Nine~~Three Months Ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~

	Notes to Unaudited Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	1314
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	18
Item 4.	Controls and Procedures.	18

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings.	19
Item 1A.	Risk Factors.	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	19
Item 3	Defaults Upon Sales of Securities and Use of Proceeds.	19
Item 4.	Mine Safety Disclosures.	19
Item 5.	Other Information.	19
Item 6.	~~Exhibits~~Exhibits.	1920

	SIGNATURES

Table of ~~Contents~~Conten ts

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			March 31, 2023		December 31, 2022
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	$	2,555	$	2,552
Restricted cash	Restricted cash	1,782		334		Restricted cash	1,473		1,101
Accounts receivable, net of allowances of $250, respectively		2,384		7,013
Accounts receivable, net of allowances of $304 and $262, respectively						Accounts receivable, net of allowances of $304 and $262, respectively	1,635		1,682
Unbilled revenue	Unbilled revenue	2,786		2,488		Unbilled revenue	3,124		5,005

Inventories, net of allowances of $3,714 and $3,476, respectively		7,609		5,922
Prepaid expenses and other assets		1,584		1,431
Income tax receivable						Income tax receivable	102		102
Inventories, net of allowances of $4,118 and $3,871, respectively						Inventories, net of allowances of $4,118 and $3,871, respectively	8,469		9,563
Prepaid expenses and other current assets						Prepaid expenses and other current assets	1,308		1,399
Total current assets	Total current assets	20,302		19,796		Total current assets	18,666		21,404

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	5,543		5,542
Leasehold improvements	Leasehold improvements	899		813		Leasehold improvements	899		899
Total property and equipment, at cost	Total property and equipment, at cost	6,411		5,786		Total property and equipment, at cost	6,442		6,441
Less: Accumulated depreciation	Less: Accumulated depreciation	(2,899)		(2,293)		Less: Accumulated depreciation	(3,295)		(3,057)
Net property and equipment	Net property and equipment	3,512		3,493		Net property and equipment	3,147		3,384
Right-of-use lease assets	Right-of-use lease assets	2,009		2,730		Right-of-use lease assets	1,302		1,540

Intangibles, net of accumulated amortization	Intangibles, net of accumulated amortization	868		1,107		Intangibles, net of accumulated amortization	629		709
Goodwill	Goodwill	58		58		Goodwill	58		58

Other assets	Other assets	117		128		Other assets	207		123
Total assets	Total assets	$	26,866	$	27,312	Total assets	$	24,009	$	27,218


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	$	8,755	$	9,407
Accrued expenses	Accrued expenses	1,509		1,581		Accrued expenses	1,552		1,445
Deferred revenue	Deferred revenue	87		168		Deferred revenue	207		148
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	1,069		1,204
Finance lease obligations, current	Finance lease obligations, current	665		582		Finance lease obligations, current	645		636
Other current liabilities	Other current liabilities	922		692		Other current liabilities	532		442
Total current liabilities	Total current liabilities	14,957		13,315		Total current liabilities	12,760		13,282

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	463		635
Finance lease obligations, long-term	Finance lease obligations, long-term	1,335		1,429		Finance lease obligations, long-term	1,088		1,254

Total liabilities	Total liabilities	17,513		16,885		Total liabilities	14,311		15,171
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; 14,788,857 and 14,132,033 shares issued and outstanding, respectively						Common stock, $0.01 par value; 30,000,000 shares authorized; 14,788,857 and 14,132,033 shares issued and outstanding, respectively	148		141
Paid in capital	Paid in capital	890		(578)		Paid in capital	2,977		2,585
Retained earnings	Retained earnings	8,331		10,879		Retained earnings	6,573		9,321
Total shareholders’ equity	Total shareholders’ equity	9,353		10,427		Total shareholders’ equity	9,698		12,047
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	26,866	$	27,312	Total liabilities and shareholders’ equity	$	24,009	$	27,218

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 March 31,
	2023		2022
Sales	$	14,720	$	23,759
Cost of sales	11,303		18,001
Gross profit	3,417		5,758
Operating expenses	2,047		2,753
Selling, general and administrative expenses	3,606		3,850


Depreciation and amortization expense	317		318
Loss on disposal of assets	—		2
Loss from operations	(2,553)		(1,165)
Other income (expense):


Other income (expense)	(149)		(168)
Interest expense	(46)		(61)
Other income (expense), net	(195)		(229)

Loss before income taxes	(2,748)		(1,394)
Income tax benefit	—		—




Net loss	$	(2,748)	$	(1,394)

Loss per share:
Basic and diluted	$	(0.21)	$	(0.11)

Shares used in per share calculation:
Basic and diluted	13,273,330		13,071,053

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
Shares Amount Total
Balance, September 30, 2021 12,610,229 $ 126 $ (578) $ 10,879 $ 10,427
Net loss — — — (2,029) (2,029)
Common stock issuance 320,787 3 633 — 636
Restricted stock issuance 110,111 1 (1) — —
Amortization of stock-based compensation — — 281 — 281
Balance, December 31, 2021 13,041,127 $ 130 $ 335 $ 8,850 $ 9,315
Net loss — — — (1,394) (1,394)
Common stock issuance 143,985 2 166 — 168
Restricted stock issuance 4,000 — — — —
Amortization of stock-based compensation — — 247 — 247
Balance, March 31, 2022 13,189,112 $ 132 $ 748 $ 7,456 $ 8,336
Net income — — — 875 875
Common stock issuance 30,745 — 38 — 38
Restricted stock forfeitures (51,666) (1) 1 — —
Amortization of stock-based compensation — — 103 — 103
Balance, June 30, 2022 13,168,191 $ 132 $ 890 $ 8,331 $ 9,353


	Common Stock			Paid-in Capital		Retained Earnings
	Shares	Amount						Total
Balance, December 31, 2022	14,132,033	$	141	$	2,585	$	9,321		$	12,047
Net loss	—	—		—		(2,748)			(2,748)

Restricted stock issuance	656,824	7		(7)		—			—
Amortization of stock-based compensation	—	—		399		—			399
Balance, March 31, 2023	14,788,857	$	148	$	2,977	$	6,573		$	9,698


		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
Balance, December 31, 2021																	Balance, December 31, 2021		13,041,127				$	130	$	335		$	8,850			$	9,315
Net loss	Net loss	—	—		—				(1,953)						(1,953)		Net loss		—	—			—		(1,394)					(1,394)
Common stock issuance	Common stock issuance	238,194	3		876				—						879		Common stock issuance		143,985	2			166		—					168
Restricted stock issuance	Restricted stock issuance	306,390	3		(3)				—						—		Restricted stock issuance		4,000	—			—		—					—
Amortization of stock-based compensation	Amortization of stock-based compensation	—	—		315				—						315		Amortization of stock-based compensation		—	—			247		—					247
Balance, December 31, 2020		12,366,593	$	124	$	(1,379)			$	15,429					$	14,174

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

Net loss		—	—		—				(2,124)						(2,124)
Restricted stock issuance		98,000	1		(1)				—						—
Amortization of stock-based compensation		—	—		279				—						279
Balance, June 30, 2021		12,511,372	$	125	$	(745)			$	10,240					$	9,620
Balance, March 31, 2022																	Balance, March 31, 2022		13,189,112	$	132		$	748	$	7,456				$	8,336

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

See notes to unaudited consolidated financial statements.

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ADDvantage Technologies Group, ~~Inc.~~Inc

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


		Nine Months Ended June 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Operating Activities:	Operating Activities:					Operating Activities:
Net loss	Net loss	$	(2,548)	$	(7,141)	Net loss	$	(2,748)	$	(1,394)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:						Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation	Depreciation	736		661		Depreciation	237		238
Amortization	Amortization	239		239		Amortization	80		80
Non cash amortization of right-of-use asset and liability	Non cash amortization of right-of-use asset and liability	(182)		(161)		Non cash amortization of right-of-use asset and liability	(68)		(7)

Provision for excess and obsolete inventories	Provision for excess and obsolete inventories	238		115		Provision for excess and obsolete inventories	247		80
Stock based compensation expense		631		840
Loss (gain) from disposal of property and equipment		2		(23)
Share based compensation expense						Share based compensation expense	399		247
Gain on disposal of property and equipment						Gain on disposal of property and equipment	—		2

Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable	Accounts receivable	4,629		(4,379)		Accounts receivable	47		6,100
Unbilled revenue	Unbilled revenue	(298)		(274)		Unbilled revenue	1,881		(958)
Income tax receivable/payable		—		1,255

Inventories	Inventories	(1,925)		(150)		Inventories	847		(236)
Prepaid expenses and other assets		(142)		(269)
Prepaid expenses and other current assets						Prepaid expenses and other current assets	7		(313)

Accounts payable	Accounts payable	3,515		3,012		Accounts payable	(652)		1,281
Accrued expenses and other liabilities	Accrued expenses and other liabilities	158		456		Accrued expenses and other liabilities	197		403
Deferred revenue	Deferred revenue	(81)		31		Deferred revenue	59		18
Net cash provided by (used in) operating activities		4,972		(5,788)

Net cash provided by operating activities						Net cash provided by operating activities	533		5,541

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

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

Net cash used in investing activities						Net cash used in investing activities	(1)		(36)

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

Payments on financing lease obligations	Payments on financing lease obligations	(564)		(359)		Payments on financing lease obligations	(157)		(195)
Payments on notes payable		—		(1,249)

Proceeds from sale of common stock	Proceeds from sale of common stock	842		900		Proceeds from sale of common stock	—		168
Proceeds from stock options exercised		—		89

Net cash used in financing activities	Net cash used in financing activities	(1,772)		(619)		Net cash used in financing activities	(157)		(2,077)

Net increase (decrease) in cash, cash equivalents and restricted cash		2,997		(4,639)
Net increase in cash, cash equivalents and restricted cash						Net increase in cash, cash equivalents and restricted cash	375		3,428
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	2,942		8,373		Cash, cash equivalents and restricted cash at beginning of period	3,653		2,418
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	5,939	$	3,734	Cash, cash equivalents and restricted cash at end of period	$	4,028	$	5,846

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~~three months ended ~~June 30,~~March 31, 2023 and 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 December 31, 2022.

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. The Company's current fiscal year runs from January 1 through December 31. 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.

Recently ~~Issued~~Adopted Accounting Standards

~~In June 2016, the~~Financial Instruments – Credit Losses. The Financial Accounting Standards Board ~~(FASB)~~("FASB") issued five Accounting Standards ~~Update (ASU) 2016-13: “Financial~~Updates (ASUs) related to financial instruments – credit losses. The ASUs issued were: (1) in June 2016, ASU 2016-13, “Financial Instruments – Credit Losses (“ASC 326”): Measurement of Credit Losses on Financial Instruments,” (2) in November 2018, ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” (3) in April 2019, ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” (4) in May 2019, ASU 2019-05, “Financial Instruments – Credit Losses (Topic 326) ~~– Measurement of~~ : Targeted Transition Relief” and (5) in November 2019, ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses.” Additionally, in February and March 2020, the FASB issued ASU 2020-02, “Financial Instruments—Credit Losses (Topic 326) and Leases (ASC 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (ASC 842)” and ASU 2020-03, “Codification Improvements to Financial ~~Instruments.~~Instruments,” ~~This~~ respectively, which include amendments to ASC 326.

ASU ~~requires entities~~2016-13 is intended to ~~measure all expected~~improve financial reporting by requiring timelier recording of credit losses ~~for most~~on loans and other financial ~~assets~~instruments held atby financial institutions and other organizations. ASU 2018-19 clarifies that receivables arising from operating leases are not within 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 estimatingscope of the credit losses ~~as well as~~standard, but rather, should be accounted for in accordance with the leasing standard. ASU 2019-04 clarifies and improves areas of guidance related to the recently issued standards on financial instruments – credit ~~quality~~losses, derivatives and ~~underwriting standards~~hedging, and financial instruments. ASU 2019-05 provides entities that have certain instruments within the scope of ASC Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost, with an ~~entity’s portfolio. On November 15, 2019,~~option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments—Overall. ASU 2019-11 clarifies guidance around how to report expected recoveries and reinforces existing guidance that prohibits organizations from recording negative allowances for available-for-sale debt securities, among other narrow scope and technical improvements. ASU 2020-02 adds a Securities and Exchange Commission (SEC) paragraph pursuant to the

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issuance of SEC Staff Accounting Bulletin No. 119 on loan losses to FASB ~~delayed~~Codification ASC 326 and also updates the ~~effective date~~SEC section of the ~~standard~~Codification for ~~companies that qualify under smaller reporting company reporting rules. As amended,~~the change in the effective date of ASC ~~Topic 326 was delayed until fiscal years beginning after December 15, 2022 for SEC filers that are eligible~~842. ASU 2020-03 makes narrow-scope improvements to ~~be smaller reporting companies under~~various aspects of the ~~Securities~~financial instrument guidance as part of the FASB’s ongoing Codification improvement project aimed at clarifying specific areas of accounting guidance to help avoid unintended application.

The Company adopted the applicable guidance in ASU 2016-13, ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-11, ASU 2020-02 and ~~Exchange Commission definition. We are currently in the process of evaluating this new standard update, however we do not anticipate~~ASU 2020-03 on January 1, 2023, and the adoption ~~will~~did not have a material impact on ~~our results.~~its consolidated financial statements and related disclosures.

Note 2 – Revenue Recognition

The Company’s principal sales are from Wireless services and sales of Telco ~~equipment and Telco recycled~~ equipment, primarily in the United States. Sales to international customers totaled approximately ~~$2.0~~$1.6 million and ~~$1.6~~$1.5 million for the three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021, respectively and $4.7 million and $2.9 million for the nine months ended June 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~~one customer totaled ~~34%~~19%, and to ~~three~~two customers totaled 39% of consolidated revenues for the ~~nine~~three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

~~Table of Content~~s

Our sales by type were as follows, in thousands:


		Three Months Ended June 30,				Nine Months Ended June 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Wireless services sales	Wireless services sales	$	7,243	$	4,136	$	22,128	$	13,716	Wireless services sales	$	6,572	$	7,767

Telco equipment	Telco equipment	20,346		12,826		47,757		28,289		Telco equipment	8,147		15,986

Telco repair	Telco repair	8		1		25		14		Telco repair	1		6
Telco recycle		192		54		328		414

Total sales	Total sales	$	27,789	$	17,017	$	70,238	$	42,433	Total sales	$	14,720	$	23,759

Contract assets and contract liabilities are included in unbilled revenue and deferred revenue, respectively, in the consolidated balance sheets. At ~~June 30,~~March 31, 2023 and December 31, 2022, ~~and September 30, 2021,~~ contract assets were ~~$2.8~~$3.1 million and ~~$2.5~~$5.0 million, respectively, and contract liabilities were ~~$0.1~~$0.2 million and ~~$0.2~~$0.1 million, respectively. The Company recognized ~~$0.2~~$0.1 million of contract revenue during the ~~nine~~three months ended ~~June 30, 2022~~March 31, 2023 related to contract liabilities recorded in deferred revenue at ~~September 30, 2021.~~December 31, 2022.

Note 3 – Accounts Receivable Agreements

~~On March 17, 2022, the~~The Company ~~replaced its $3.0 million credit facility~~maintains accounts receivable purchase facilities for its Nave and Triton subsidiaries with its primary financial lender with ~~new accounts receivable purchase facilities with~~ capacities of ~~$12.5~~$10.0 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%~~1.75% of sold ~~receivables, and both facilities mature on March 17, 2023.~~

~~On March 17, 2022, the~~receivables. The Company also ~~restructured its~~maintains accounts receivable purchase facilities ~~secured by the Company’s~~for its Fulton ~~subsidiary’s receivables. Under the restructure, the~~subsidiary, providing a credit capacity excluding a major customer ~~is $1.0~~of $3.0 million, with a fee of ~~1.6%~~2.0% of sold ~~receivables. The~~receivables, and credit capacity secured by receivables of a major customer ~~is $2.5~~of $3.0 million, with a fee of ~~1.5%~~1.6% of sold receivables. ~~The~~

All four facilities are secured by the subsidiary's receivables, and 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~~All four facilities mature on December 17, ~~2022.~~2023.

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.~~million. As of ~~June 30, 2022,~~March 31, 2023, the lender has a reserve against the sold receivables of ~~$1.8~~$1.5 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~~$7.0 million at ~~June 30, 2022 for which there is a limit of $19.0 million.~~March 31, 2023. Although the sale of receivables is with recourse, the Company did not record a recourse obligation at ~~June 30, 2022~~March 31, 2023 as the Company concluded that the sold receivables are collectible.

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For the ~~nine~~three months ended ~~June 30, 2022 and 2021,~~March 31, 2023, the Company received proceeds from the sold receivables ~~from~~under all of ~~the facilities~~their various agreements of ~~$43.2 million and~~ $12.9 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 related costs of ~~$0.6 million and~~ $0.2 million for the ~~nine~~three months ended ~~June 30, 2022 and 2021, respectively,~~March 31, 2023, in other expense in the consolidated statements of operations.

Note 4 – Inventories

Inventories, which are all within the Telco segment, at ~~June 30,~~March 31, 2023 and December 31, 2022 ~~and September 30, 2021~~ are as follows, in thousands:
June 30, 2022 September 30, 2021
New equipment $ 1,951 $ 1,295
Refurbished and used equipment 9,372 8,103
Allowance for excess and obsolete inventory (3,714) (3,476)
Total inventories, net $ 7,609 $ 5,922

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	March 31, 2023		December 31, 2022
New equipment	$	2,144	$	2,286
Refurbished and used equipment	10,443		11,148
Allowance for excess and obsolete inventory	(4,118)		(3,871)

Total inventories, net	$	8,469	$	9,563

New equipment includes products purchased from manufacturers plus ~~“surplus-new,”~~“surplus-new”, which are unused products purchased from other distributors or multiple system operators. Refurbished and used equipment ~~include~~includes factory refurbished, Company refurbished and used products. Generally, the Company does not refurbish its used inventory until there is a sale of that product or to keep a certain quantity on hand.

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 ~~June 30,~~March 31, 2023 and December 31, 2022 ~~and September 30, 2021~~ are as follows, in thousands:
June 30, 2022
Intangible assets: Gross Accumulated Amortization Net
Customer relationships – 10 years $ 3,155 $ (2,860) $ 295
Trade name – 10 years 2,122 (1,549) 573
Total intangible assets $ 5,277 $ (4,409) $ 868


		September 30, 2021				March 31, 2023
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	$	(2,940)	$	215
Trade name – 10 years	Trade name – 10 years	2,122		(1,390)			732		Trade name – 10 years	2,122		(1,708)		414
Total intangible assets	Total intangible assets	$	5,277	$	(4,170)		$	1,107	Total intangible assets	$	5,277	$	(4,648)	$	629


	December 31, 2022
Intangible assets:	Gross		Accumulated Amortization		Net
Customer relationships – 10 years	$	3,155	$	(2,913)	$	242
Trade name – 10 years	2,122		(1,655)		467
Total intangible assets	$	5,277	$	(4,568)	$	709

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.

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Note 7 – Equity Distribution Agreement and Sale of Common Stock

On April 24, 2020, the Company entered into an Equity Distribution Agreement (the “Sales 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~~$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~~were 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”~~"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~~sold 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~~used 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.~~have imposed.

The Company ~~will pay~~paid 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~~reimbursed Northland for certain specified expenses in connection with entering into the Sales Agreement. The Sales Agreement ~~contains~~contained customary representations and warranties and conditions to the placements of the Shares pursuant thereto.

During the ~~nine~~three months ended ~~June 30,~~March 31, 2022, ~~495,517 shares~~143,985 Shares were sold by Northland on behalf of the Company with gross proceeds of ~~$0.9~~$0.2 million, and net proceeds after commissions and fees of ~~$0.8~~$0.2 million. On November 28, 2022, the Company terminated the Sales Agreement with Northland. There were no penalties associated with the termination of the Sales Agreement. As a result of the termination, no shares were sold during the three months ended March 31, 2023.

Note 8 – Earnings Per Share

Basic and diluted earnings per share for the three ~~and nine~~ months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021 are (in thousands, except per share amounts):~~in thousands:

Three Months Ended June 30, Nine Months Ended June 30,
2022 2021 2022 2021
Net income (loss) attributable to common shareholders $ 875 $ (2,124) $ (2,548) $ (7,141)
Basic and diluted weighted average shares 13,191,792 12,495,438 12,980,634 12,352,960
Basic and diluted income (loss) per common share $ 0.07 $ (0.17) $ (0.20) $ (0.58)


	Three Months Ended March 31,
	2023		2022


Net loss attributable to common shareholders	$	(2,748)	$	(1,394)

Basic and diluted weighted average shares	13,273		13,071





Basic and diluted loss per common share	$	(0.21)	$	(0.11)

The table below includes information related to stock options and restricted stock awards that were outstanding at the end of each respective ~~three and nine month~~three-month period ended ~~June 30,~~March 31, but have been excluded from the computation of ~~weighted-average stock options~~weighted average shares for dilutive securities because their effect would be anti-dilutive.


		Three Months Ended June 30,				Nine Months Ended June 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023	2022
Stock options excluded	Stock options excluded	50,000		50,000		50,000		50,000		Stock options excluded	—	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
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		$	1.32

Unvested restricted stock awards										Unvested restricted stock awards	912,883	—

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Note 9 – Supplemental Cash Flow Information


(in thousands)	(in thousands)	Nine Months Ended June 30,				(in thousands)	Three Months Ended March 31,
		2022		2021			2023		2022

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	$	46	$	62

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	$	—	$	203

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 ~~June 30, 2022, 2,100,415~~March 31, 2023, 3,100,415 shares of common stock were reserved for stock award grants under the Plan. Of these reserved shares, ~~268,695~~415,480 shares were available for future grants.

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Stock Options

As of ~~September 30, 2021,~~December 31, 2022, there were ~~50,000~~no outstanding stock options ~~with a weighted average exercise price of $1.28 per share and an aggregate intrinsic value of $54,000 outstanding~~ under the Plan. There were no stock options granted ~~exercised, expired or forfeited~~ during the ~~nine~~three months ended ~~June 30, 2022. As of June 30, 2022, 50,000 stock options remained outstanding and exercisable, with an average exercise price of $1.28 per share and an aggregate intrinsic value of $(1,000).~~March 31, 2023.

Restricted stock awards

A summary of the Company's non-vested restricted share awards at ~~June 30, 2022~~March 31, 2023 and changes during the ~~quarter~~three months ended ~~June 30, 2022~~March 31, 2023 is presented in the following table (in thousands, except shares):
Shares Fair Value
Non-vested at March 31, 2022 596,787 $ 1,377
Granted — —
Vested (13,333) (28)
Forfeited (51,666) (121)
Non-vested at June 30, 2022 531,788 $ 1,228


	Shares	Fair Value
Non-vested at December 31, 2022	531,725	$	1,016
Granted	692,824	804
Vested	(275,666)	(368)
Forfeited	(36,000)	(49)
Non-vested at March 31, 2023	912,883	$	1,403

During the three month period ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ expenses related to share-based arrangements including restricted stock and stock option awards, were ~~$0.1~~$0.4 million and ~~$0.3 million, respectively.~~

~~During the nine month period ended June 30, 2022 and 2021, compensation expenses related to share-based arrangements including restricted stock and stock option awards, were $0.6 million and $0.8~~$0.2 million, respectively.

The Company did not recognize a tax benefit for compensation expense recognized during the three months ended March 31, 2023 and ~~nine month period ended June 30, 2022 and 2021.~~2022.

At ~~June 30, 2022,~~March 31, 2023, unrecognized compensation expense related to non-vested stock-based compensation awards not yet recognized in the consolidated statements of operations was ~~$0.4~~$0.8 million. That cost is expected to be recognized over a period of ~~2.7~~3.0 years.

Note 11 – Leases

~~Our Wireless segment~~The Company 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~~right-of-use for a building in Jessup, Maryland ~~for Nave Communications. As a result~~which was no longer being used in operations. The Maryland property was subleased as of ~~moving Nave’s operations to Palco Telecom, a third-party logistics provider~~March 31, 2023 and will end 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.~~

November, 2023. Rental payments received related to ~~these subleases were~~the sublease was recorded as a reduction toof rent expense in our consolidated statements of operations for the ~~three and nine month~~ periods ending ~~June 30, 2022~~March 31, 2023 and ~~2021.~~2022.

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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


(in thousands)	Three Months Ended
	March 31, 2023		March 31, 2022
Sales
Wireless	$	6,572	$	7,766
Telco	8,148		15,993
Total sales	$	14,720	$	23,759
Gross profit
Wireless	$	1,344	$	1,537
Telco	2,073		4,221
Total gross profit	$	3,417	$	5,758
Income (loss) from operations
Wireless	$	(2,097)	$	(2,203)
Telco	(456)		1,038
Total income (loss) from operations	$	(2,553)	$	(1,165)


(in thousands)	March 31, 2023		December 31, 2022
Segment assets
Wireless	$	8,223	$	9,790
Telco	12,224		13,217
Non-allocated	3,562		4,211
Total assets	$	24,009	$	27,218

Note 13 – Subsequent Events

The Company has evaluated subsequent events through the filing of this Form 10-Q, and except as described below, determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements.

Mast Hill Fund Investments

On April 7 and April 12, 2023, the Company entered into securities purchase agreements (the “Securities Purchase Agreements”) with Mast Hill Fund, L.P. (the "Purchaser") for the issuance of 13% senior secured promissory notes in the aggregate principal amount of $3.0 million (collectively the “Notes”) convertible into shares of common stock of the Company, as well as the issuance of up to 72,000 shares of common stock as a commitment fee and

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warrants for the purchase of 648,000 shares of common stock of the Company. The Company and its subsidiaries entered into certain Security Agreements, creating a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Notes. The Purchaser transactions closed on April 7 and April 12, 2023 (each, a “Closing Date”).

On April 7, 2023, the Purchaser acquired the Notes with principal amount of $2.4 million and paid the purchase price of $2.3 million after an original issue discount of $0.1 million. On the same Closing Date, the Company issued (i) a warrant to purchase 290,526 shares of common stock with an exercise price of $2.50 exercisable until the five-year anniversary of the Closing Date, (ii) a warrant to purchase 232,421 shares of common stock with an exercise price of $1.40 exercisable until the five-year anniversary of the Closing Date, which warrant shall be cancelled and extinguished against payment of the Notes, and (iii) 58,105 shares of common stock to the Purchaser as additional consideration for the purchase of the Note. On the Closing Date, the Company delivered such duly executed Notes, warrants and common stock to the Purchaser against delivery of such purchase price.

On April 12, 2023, the Purchaser acquired the Notes with principal amount of $0.6 million and paid the purchase price of $0.6 million after an original issue discount of $29 thousand. On the same Closing Date, the Company issued (i) a warrant to purchase 69,474 shares of common stock with an exercise price of $2.50 exercisable until the five-year anniversary of the Closing Date, (ii) a warrant to purchase 55,579 shares of common stock with an exercise price of $1.40 exercisable until the five-year anniversary of the Closing Date, which warrant shall be cancelled and extinguished against payment of the Notes, and (iii) 13,895 shares of common stock to the Purchaser as additional consideration for the purchase of the Note. On the Closing Date, the Company delivered such duly executed Notes, warrants and common stock to the Purchaser against delivery of such purchase price.

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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~~customer and supplier ~~agreements,~~relationships, technological developments, changes in the ~~general~~ economic environment ~~the potential impact of the novel strain of coronavirus (“COVID-19”) pandemic,~~generally, the growth or formation of competitors, changes in governmental regulation or taxation, changes in our personnel, our ability to identify, complete and integrate acquisitions on favorable terms 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,~~December 31, 2022, 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 30,~~March 31, 2023 and March 31, 2022 ~~and June 30, 2021~~

Consolidated

Consolidated sales ~~increased $10.8~~decreased $9.1 million, or ~~63%~~38%, to ~~$27.8~~$14.7 million for three months ended March 31, 2023 from $23.8 million for the three months ended ~~June 30, 2022 from $17.0 million for the three months ended June 30, 2021.~~March 31, 2022. The ~~increase~~decrease in sales was due to ~~a 60% increase in~~decreased sales in the Telco segment of ~~$7.7~~$7.9 million and a ~~75% increase~~decrease in Wireless segment sales of ~~$3.1~~$1.2 million.

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Consolidated gross profit was ~~$8.1~~$3.4 million, or ~~29%~~23% gross margin for the three months ended ~~June 30, 2022,~~March 31, 2023, compared to gross profit of ~~$4.3~~$5.8 million, or ~~25%~~24% gross margin for the three months ended ~~June 30, 2021, an increase~~March 31, 2022, a decrease of ~~$3.8~~$2.4 million. The ~~increase~~decrease in gross profit was primarily due to ~~an increase~~a decrease in the Telco segment of ~~$3.1 million, and an increase in the Wireless segment of $0.7~~$2.1 million. The improvement in margin percent was due to strong demand in our Telco segment fueled by global supply issues, along with expansion of our offerings to both wireless and optical network carriers to support both wireless and broadband connectivity for optical and IP transport offset by 3% lower margins in the Wireless segment which was attributable to mobilization costs for the newer markets entered into with a large customer earlier in the year.

Consolidated operating expenses include indirect costs associated with operating our business. Indirect costs include indirect personnel costs, facility costs, vehicles, ~~fuel,~~ insurance, communication, and business taxes, among other cost categories. Operating expenses were ~~$2.5~~$2.0 million, compared to ~~$2.5~~$2.8 million in the same period last year, ~~representing no change in absolute dollars, but~~ a ~~decline from 15%~~decrease of ~~revenue to 9% of revenue~~$0.8 million due primarily to cost control measures instituted by the Company ~~during the latter part of the fiscal second quarter and continuing into the fiscal third quarter of~~throughout 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~~decreased $0.2 million, or ~~16%~~6%, to ~~$4.1~~$3.6 million for the three months ended ~~June 30, 2022~~March 31, 2023 from ~~$3.6~~$3.9 million for the same period last year. The ~~increase~~decrease in SG&A relates primarily to ~~increased~~decreased selling and commissions expenses related to ~~support higher~~lower revenues.

Segment Results

Wireless

Revenues for the Wireless segment ~~increased $3.1~~decreased $1.2 million to ~~$7.2~~$6.6 million for the three months ended ~~June 30, 2022~~March 31, 2023 from ~~$4.1~~$7.8 million for the same period of last year. The ~~growth~~decline in revenues over the prior year period relates to the pace of the 5G services ~~activity~~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 some cases.

Gross profit was ~~$2.0~~$1.3 million, or ~~27%~~20% for the three months ended ~~June 30, 2022~~March 31, 2023 compared to ~~$1.2~~$1.5 million, or ~~30%~~20%, for the three months ended ~~June 30, 2021.~~March 31, 2022. The decrease in ~~the~~ gross profit ~~percentage~~dollars was the result of ~~new business with a major customer at a~~ lower ~~margin level caused by deploying to new markets and related startup costs.~~

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revenues quarter-over-quarter.

Loss from operations was ~~$1.5~~$2.1 million and ~~$2.1~~$2.2 million for three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. The decrease is mainly attributable to ~~investment~~the decline in ~~our regional growth strategy associated with anticipated 5G infrastructure build outs.~~revenue.

Telco

Sales for the Telco segment ~~increased $7.7~~decreased $7.9 million to ~~$20.6~~$8.1 million for the three months ended ~~June 30, 2022~~March 31, 2023 from ~~$12.9~~$16.0 million for the same period last year. The ~~increase~~decrease in revenues was related to ~~increased~~lower 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.~~carrier customers absorbed quantities of inventory purchased in 2022.

Gross profit was ~~$6.2~~$2.1 million and ~~$3.0~~$4.2 million for the three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. The ~~increased~~decreased gross profit was due primarily to ~~increased~~lower revenues of ~~$20.6~~$8.1 million. ~~Additionally, global supply chain issues have generally led to higher pricing to customers.~~

~~Income~~Loss from operations was ~~$2.6~~$0.5 million for the three months ended ~~June 30, 2022~~March 31, 2023 compared to ~~$16 thousand for the same period last year, increasing primarily due to the reasons discussed above.~~

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

~~Consolidated~~

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

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

~~Consolidated operating expenses increased $1.1 million, or 16%, to $7.8 million for the nine months ended June 30, 2022 from $6.7~~$1.0 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 million, or 11%, to $11.7 million for the nine months ended June 30, 2022 from $10.5 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 million for the nine months ended June 30, 2022 and $13.7 million for the same period last year. The increase in revenues over the prior year period relatesdue to the ~~pace of the 5G services activity the Company estimates is now underway.~~

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

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

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~~Telco~~

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

~~Income from operations was $4.1 million for the nine months ended June 30, 2022 compared to a loss of $2.3 million for the same period last year.~~reasons discussed above.

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, and interest ~~income and income from equity method investment.~~income. 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

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

Three Months Ended June 30, 2022 Three Months Ended June 30, 2021
Wireless Telco Total Wireless Telco Total
Income (loss) from operations $ (1,461) $ 2,606 $ 1,145 $ (2,117) $ 16 $ (2,101)
Depreciation and amortization expense 192 121 313 185 129 314
Stock compensation expense 44 59 103 136 143 279
Adjusted EBITDA $ (1,225) $ 2,786 $ 1,561 $ (1,796) $ 288 $ (1,508)
Nine Months Ended June 30, 2022 Nine Months Ended June 30, 2021
Wireless Telco Total Wireless Telco Total
Income (loss) from operations $ (5,985) $ 4,064 $ (1,921) $ (4,759) $ (2,303) $ (7,062)
Depreciation and amortization expense 608 367 975 513 387 899
Stock compensation expense 289 342 631 383 457 840
Adjusted EBITDA $ (5,088) $ 4,773 $ (315) $ (3,863) $ (1,459) $ (5,323)


	Three Months Ended March 31, 2023						Three Months Ended March 31, 2022
	Wireless		Telco		Total		Wireless		Telco		Total
Income (loss) from operations	$	(2,097)	$	(456)	$	(2,553)	$	(2,203)	$	1,038	$	(1,165)


Depreciation and amortization expense	120		197		317		197		121		318
Stock compensation expense	213		186		399		114		133		247
Adjusted EBITDA	$	(1,764)	$	(73)	$	(1,837)	$	(1,892)	$	1,292	$	(600)

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~~Summary of ~~Presentation and~~Significant 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.

Accounts receivable

Trade receivables are carried at original invoice amount less an estimate made for doubtful accounts. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions. Trade receivables are written off against the allowance when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. The Company generally does not charge interest on past due accounts. The adoption of the guidance in ASC 326 did not have a material impact on trade receivables and the allowance for doubtful accounts.

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, telecommunication resellers, and other users of telecommunication equipment who are seeking products for which manufacturers have discontinued production or cannot ship new equipment on a same-day basis, as well as providing used products as an alternative to new products from the manufacturer. Carrying these large inventory quantities represents our largest risk for our Telco segment.

Our inventories are all carried in the Telco segment and consist of new and used electronic components for the telecommunications industry. Inventory is stated at the lower of cost or net realizable value, with cost determined using the weighted-average method. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. At ~~June 30, 2022,~~March 31, 2023, we had total inventory, before the reserve for excess and obsolete inventories, of ~~$11.3~~$12.6 million, consisting of ~~$1.9~~$2.1 million in new products and ~~$9.4~~$10.4 million in used or refurbished products.

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We are required to make judgments as to future demand requirements from our customers. 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.~~costs for sales that we do make. In order to address the risks associated with our investment in inventory, we review inventory quantities on hand and reduce the carrying value ~~for~~when the loss of usefulness of an item or other factors, such as obsolete and excess inventories, ~~when our analysis indicates~~indicate 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.~~recovered or that the cost will not be recovered when it is processed through recycling. Therefore, we have an obsolete and excess inventory reserve of ~~$3.7~~$4.1 million at ~~June 30, 2022.~~March 31, 2023. 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.~~expenses, since the amounts involved are not considered a material component of cost of sales.

Intangibles

Intangible assets that have finite useful lives are amortized on a straight-line basis over their estimated useful ~~lives.~~lives of 10 years. Intangible assets are also tested for impairment when events and circumstances indicate that the carrying value may not be recoverable. As of ~~June 30, 2022,~~March 31, 2023, there were no indicators of impairment present.

Liquidity and Capital Resources

Cash Flows Provided by Operating Activities

During the ~~nine~~three months ended ~~June 30, 2022,~~March 31, 2023, cash provided by operations was ~~$5.0~~$0.5 million. Cash flows from operations were negatively impacted by a net loss of ~~$2.5~~$2.7 million, offset by net cash provided by working capital of ~~$5.8~~$2.3 million ~~primarily related to the reduction of receivables associated with our new accounts receivable purchase facilities,~~ and non-cash adjustments of ~~$1.7 million, primarily depreciation, amortization, and stock based compensation expenses.~~

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$0.9 million.

Cash Flows Used in Investing Activities

During the ~~nine~~three months ended ~~June 30, 2022,~~March 31, 2023, cash used in investing activities was ~~$0.2 million,~~$1 thousand, consisting ~~primarily~~ of purchases of property and equipment.

Cash Flows Used in Financing Activities

During the ~~nine~~three months ended ~~June 30, 2022,~~March 31, 2023, cash used in financing activities was ~~$1.8~~$0.2 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 million, partially offset by net proceeds from the sale of our common stock utilizing our shelf registration of $0.8 million.~~ leases.

Liquidity and Capital Resources

At ~~June 30, 2022~~March 31, 2023 we had $4.0 million in cash and equivalents and restricted ~~cash on hand of $5.9 million.~~cash.

~~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 per share, having an aggregate offering price of up to $13.9 At March 31, 2023, the Company had $7.0 million ~~("Shares"). The offer and sale of~~utilized under 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 $9.9receivables purchase facilities, leaving $12.0 million available to usthe Company to ~~fund our~~factor additional receivables generated from future sales.

The Company has experienced a number of quarters with negative operating results over the recent history. Should those continue, we would need to obtain other funding arrangements to supplement working capital, ~~needs under~~which could include the ~~Sales Agreement. Based on our availability under our accounts receivable purchase facilities~~filing of a registration statement for the sale of equity, and ~~our Sales Agreement, we believe we have sufficient liquidity~~the issuance of debt, either convertible or non-convertible, which might or might not include the issuance of warrants or shares associated with the transaction.

Subsequent Event: Mast Hill Fund Investments

On April 7 and ~~capital resources~~April 12, 2023, the Company received $2.9 million from Mast Hill Fund, L.P., against the issuance of 13% senior secured promissory notes in the aggregate principal amount of $3.0 million after an original issue

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discount of $0.1 million (collectively the “Notes”). See Item 1 - Note 13 - Subsequent Events in the notes to ~~cover our operating losses and our additional working capital and debt payment needs.~~ the unaudited consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 4. Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure the information we are required to disclose in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based on their evaluation as of ~~June 30, 2022,~~March 31, 2023, 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 1. Legal Proceedings.

From time to time, we are involved in routine litigation that arises in the ordinary course of business. We are not currently involved in any claims outside the ordinary course of business that are material to our financial condition or results of operations.

Item 1A. Risk Factors.

Not Applicable.

I
~~tem~~

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

During the nine months ended June 30, 2022, the Company sold 495,517 shares of common stock under its registration statement on Form S-3 effective as of April 1, 2020 (333-236859). Gross proceeds from such sales during the nine months were $0.9 million and net proceeds were $0.8 million after the payment of $37 thousand in commissions to Northland Securities, Inc., the underwriter of the offering. Total gross proceeds to the Company from sales under such registration statement since its effective date are $4.0 million and total net proceeds to the Company are $3.9 million after the payment of $0.1 million in commissions to Northland. All sales have been made pursuant to the Prospectus Supplement filed with the Commission on April 24, 2020, under which the Company may sell up to $13.9 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.None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

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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.

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: ~~August 11, 2022~~May 15, 2023
			/s/ Joseph E. Hart
			Joseph E. Hart
			President and Chief Executive Officer
			(Principal Executive Officer)

Date: ~~August 11, 2022~~May 15, 2023
			/s/ Michael A. Rutledge
			Michael A. Rutledge
			~~Interim~~ Chief Financial Officer
			(Principal Financial Officer)

2021


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


	Shares	Fair Value
Non-vested at March 31, 2022	596,787	$	1,377
Granted	—	—
Vested	(13,333)	(28)
Forfeited	(51,666)	(121)
Non-vested at June 30, 2022	531,788	$	1,228


	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)


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

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