ADDVANTAGE TECHNOLOGIES GROUP INC (Form: 10-Q, Received: 05/14/2019 11:12:49)

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 March 31, 2019

☐	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.)

1221 E. Houston

Broken Arrow, Oklahoma 74012

(Address of principal executive office)

(918) 251-9121

(Registrant's telephone number, including area code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ (do not check if a smaller reporting company) Smaller reporting company ☒

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 April 30, 2019 were 10,361,292.

ADDVANTAGE TECHNOLOGIES GROUP, INC.

Form 10-Q

For the Period Ended March 31, 2019

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

	Consolidated Condensed Balance Sheets (unaudited)	2
	March 31, 2019 and September 30, 2018

	Consolidated Condensed Statements of Operations (unaudited)	4
	Three and Six Months Ended March 31, 2019 and 2018

	Consolidated Condensed Statements of Changes in Shareholders' Equity (unaudited )	5
	Six Months ended March 31, 2019 and 2018

	Consolidated Condensed Statements of Cash Flows (unaudited )	6
	Six Months Ended March 31, 2019 and 2018

	Notes to Unaudited Consolidated Condensed Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	17

Item 4.	Controls and Procedures .	26

	PART II. OTHER INFORMATION

Item 5.	Other Information.	27

Item 6.	Exhibits.	27

	SIGNATURES

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ADDVANTAGE TECHNOLOGIES GROUP, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)

	March 31, 2019			September 30, 2018
Assets
Current assets:
Cash and cash equivalents	$	1,371,501		$	3,129,280
Restricted cash		106,447		‒
Accounts receivable, net of allowance for doubtful accounts of $150,000		6,727,126			4,400,868
Unbilled revenue		1,414,992		‒
Income tax receivable		108,746			178,766
Inventories, net of allowance for excess and obsolete
inventory of $4,850,000 and $4,965,000, respectively		19,404,567			18,888,042
Prepaid expenses		772,621			264,757
Other current assets		258,209		‒
Assets held for sale	‒				3,666,753
Total current assets		30,164,209			30,528,466

Property and equipment, at cost:
Land and buildings		1,006,163			2,208,676
Machinery and equipment		5,259,708			3,884,859
Leasehold improvements		190,984			200,617
Total property and equipment, at cost		6,456,855			6,294,152
Less: Accumulated depreciation		(3,992,053	)		(4,276,024	)
Net property and equipment		2,464,802			2,018,128

Investment in and loans to equity method investee	‒				49,000
Intangibles, net of accumulated amortization		6,548,748			6,844,398
Goodwill		4,836,472			4,820,185
Other assets		217,461			134,443

Total assets	$	44,231,692		$	44,394,620

See notes to unaudited consolidated condensed financial statements.

ADDVANTAGE TECHNOLOGIES GROUP, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)

	March 31, 2019			September 30, 2018
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	6,612,708		$	4,657,188
Accrued expenses		1,596,386			1,150,010
Notes payable – current portion		750,000			2,594,185
Deferred gain – current portion		194,152		‒
Other current liabilities		739,887			664,374
Total current liabilities		9,893,133			9,065,757

Deferred gain, less current portion		1,701,243		‒
Other liabilities		228,820			801,612
Total liabilities		11,823,196			9,867,369

Shareholders’ equity:
Common stock, $.01 par value; 30,000,000 shares authorized; 10,861,950 and 10,806,803 shares issued, respectively; 10,361,292 and 10,306,145 shares outstanding, respectively		108,620			108,068
Paid in capital		(4,462,806	)		(4,598,343	)
Retained earnings		37,762,696			40,017,540
Total shareholders’ equity before treasury stock		33,408,510			35,527,265

Less: Treasury stock, 500,658 shares, at cost		(1,000,014	)		(1,000,014	)
Total shareholders’ equity		32,408,496			34,527,251

Total liabilities and shareholders’ equity	$	44,231,692		$	44,394,620

See notes to unaudited consolidated condensed financial statements.

ADDVANTAGE TECHNOLOGIES GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31,						Six Months Ended March 31,
	2019			2018			2019			2018
Sales	$	17,273,103		$	11,649,528		$	28,545,389		$	23,934,293
Cost of sales		13,709,089			8,304,463			22,139,813			17,208,073
Gross profit		3,564,014			3,345,065			6,405,576			6,726,220
Operating, selling, general and administrative expenses		4,767,843			3,429,282			8,564,523			7,076,105
Loss from operations		(1,203,829	)		(84,217	)		(2,158,947	)		(349,885	)
Other expense:
Income (loss) from equity method investment		55,000			(258,558	)		55,000			(258,558	)
Other expense		(43,259	)	‒				(43,259	)	‒
Interest expense		(19,775	)		(45,922	)		(44,638	)		(142,016	)
Total other expense, net		(8,034	)		(304,480	)		(32,897	)		(400,574	)

Loss before income taxes		(1,211,863	)		(388,697	)		(2,191,844	)		(750,459	)
Provision (benefit) for income taxes		4,000			(129,000	)		63,000			216,000

Net loss	$	(1,215,863	)	$	(259,697	)	$	(2,254,844	)	$	(966,459	)

Loss per share:
Basic	$	(0.12	)	$	(0.03	)	$	(0.22	)	$	(0.09	)
Diluted	$	(0.12	)	$	(0.03	)	$	(0.22	)	$	(0.09	)
Shares used in per share calculation:
Basic		10,361,292			10,252,712			10,361,292			10,239,353
Diluted		10,361,292			10,252,712			10,361,292			10,239,353

See notes to unaudited consolidated condensed financial statements.

ADDVANTAGE TECHNOLOGIES GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(UNAUDITED)



	Common Stock				Paid-in			Retained			Treasury
	Shares		Amount		Capital			Earnings			Stock			Total
Balance, September 30, 2018		10,806,803	$	108,068	$	(4,598,343	)	$	40,017,540		$	(1,000,014	)	$	34,527,251

Net loss		–		–		–			(1,038,981	)		–			(1,038,981	)
Restricted stock issuance		55,147		552		74,448			–			–			75,000
Share based compensation expense		–		–		28,070			–			–			28,070

Balance, December 31, 2018		10,861,950	$	108,620	$	(4,495,825	)	$	38,978,559		$	(1,000,014	)	$	33,591,340

Net loss		–		–		–			(1,215,863	)		–			(1,215,863	)
Share based compensation expense		–		–		33,019			–			–			33,019

Balance, March 31, 2019		10,861,950	$	108,620	$	(4,462,806	)	$	37,762,696		$	(1,000,014	)	$	32,408,496

	Common Stock				Paid-in			Retained			Treasury
	Shares		Amount		Capital			Earnings			Stock			Total
Balance, September 30, 2017		10,726,653	$	107,267	$	(4,746,466	)	$	47,337,396		$	(1,000,014	)	$	41,698,183

Net loss		–		–		–			(706,762	)		–			(706,762	)
Share based compensation expense		–		–		12,328			–			–			12,328

Balance, December 31, 2017		10,726,653	$	107,267	$	(4,734,138	)	$	46,630,634		$	(1,000,014	)	$	41,003,749

Net loss		–		–		–			(259,697	)		–			(259,697	)
Restricted stock issuance		80,150		801		104,199			–			–			105,000
Share based compensation expense		–		–		10,531			–			–			10,531

Balance, March 31, 2018		10,806,803	$	108,068	$	(4,619,408	)	$	46,370,937		$	(1,000,014	)	$	40,859,583

See notes to unaudited consolidated condensed financial statements.

ADDVANTAGE TECHNOLOGIES GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended March 31,
	2019			2018
Operating Activities
Net loss	$	(2,254,844	)	$	(966,459	)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation		246,026			197,352
Amortization		539,650			626,622
Provision for excess and obsolete inventories		74,958			60,711
Charge for lower of cost or net realizable value for inventories	‒				27,026
Gain on disposal of property and equipment		(46,048	)		(8,762	)
Deferred income tax provision	‒				215,000
Share based compensation expense		106,089			75,360
(Gain) loss from equity method investment		(55,000	)		258,558
Changes in assets and liabilities:
Accounts receivable		(1,498,120	)		328,485
Unbilled revenue		(935,676	)	‒
Income tax receivable\payable		70,020			4,859
Inventories		(682,670	)		(93,792	)
Prepaid expenses		(395,577	)		(54,148	)
Other assets		(48,260	)		2,959
Accounts payable		705,628			982,617
Accrued expenses		(8,674	)		(410,396	)
Other liabilities		(7,923	)		35,679
Net cash provided by (used in) operating activities		(4,190,421	)		1,281,671

Investing Activities
Acquisition of net operating assets		(1,264,058	)		–
Loan repayment from (investment in and loans to) equity method investee		104,000			(259,854	)
Purchases of property and equipment		(139,668	)		(35,138	)
Disposals of property and equipment	‒				23,900
Proceeds from sale of real estate		6,350,000		‒
Net cash provided by (used in) investing activities		5,050,274			(271,092	)

Financing Activities
Change in revolving line of credit		750,000			–
Guaranteed payments for acquisition of business		(667,000	)		(667,000	)
Payments on notes payable		(2,594,185	)		(3,429,935	)
Net cash used in financing activities		(2,511,185	)		(4,096,935	)

Net decrease in cash and cash equivalents and restricted cash		(1,651,332	)		(3,086,356	)
Cash and cash equivalents and restricted cash at beginning of period		3,129,280			3,972,723
Cash and cash equivalents and restricted cash at end of period	$	1,477,948		$	886,367

Supplemental cash flow information:
Cash paid for interest	$	92,939		$	129,655
Cash paid for income taxes	$	‒		$	2,000

See notes to unaudited consolidated condensed financial statements.

ADDVANTAGE TECHNOLOGIES GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

Note 1 - Basis of Presentation and Accounting Policies

Basis of presentation

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

The accompanying unaudited consolidated condensed 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, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the consolidated condensed financial statements not misleading. It is suggested that these consolidated condensed financial statements 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, 2018.

Reclassification

The Company adopted Accounting Standards Update (“ASU”) 2016-15: “Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments.” on October 1, 2018. The $667,000 of guaranteed payments for acquisition of businesses have been reclassified from investing activities and are reported as a financing activity in the Consolidated Condensed Statement of Cash Flows for the six month period ended March 31, 2019. This reclassification had no effect on previously reported results of operations or retained earnings.

Recently Issued Accounting Standards

In February 2016, the FASB issued ASU 2016-02: “Leases (Topic 842)” which is intended to improve financial reporting about leasing transactions. This ASU will require organizations (“lessees”) that lease assets with lease terms of more than twelve months to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Organizations that own the assets leased by lessees (“lessors”) will remain largely unchanged from current GAAP. In addition, this ASU will require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. The guidance is effective for annual periods beginning after December 15, 2018 and early adoption is permitted. Based on management’s initial assessment, ASU 2016-02 will have a material impact on the Company’s consolidated financial statements. Management reviewed its lease obligations and determined that the Company generally does not enter into long-term lease obligations with the exception of its real estate leases for its facilities. The Company is a lessee on certain real estate leases that will need to be reported as right of use assets and liabilities at an estimated amount of $6.7 million on the Company’s consolidated financial statements on the date of adoption.

In June 2016, the FASB issued 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. Entities will now 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. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal periods. Entities may adopt earlier as of the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years. We are currently in the process of evaluating this new standard update.

Note 2 – Revenue Recognition

On October 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), using the modified retrospective transition method. Management determined that there was no cumulative effect adjustment to the consolidated financial statements and the adoption of the standard did not require any adjustments to the consolidated financial statements for prior periods. Under the guidance of the standard, revenue is recognized at the time a good or service is transferred to a customer and the customer obtains control of that good or receives the service performed. Most of the Company’s sales arrangements with customers are short-term in nature involving single performance obligations related to the delivery of goods or repair of equipment and generally provide for transfer of control at the time of shipment to the customer. The Company generally permits returns of product or repaired equipment due to defects; however, returns are historically insignificant.

The Company acquired the net assets of Fulton Technologies, Inc. (“Fulton”) and Mill City Communications, Inc. (“Mill City”), wireless infrastructure services businesses, on January 4, 2019 (See Note 3 – Acquisition). These companies’ services primarily consist of installing and decommissioning equipment on cell towers and small cell sites. The purchase orders for wireless infrastructure services are primarily completed over three to seven business days. Under the guidance of the standard, revenue is recognized over time.

The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for its products, repair services or wireless infrastructure services. The following steps are applied in determining the amount and timing of revenue recognition:

Identification of a contract with a customer is a sales arrangement involving a purchase order issued by the customer stating the goods or services to be transferred. Payment terms are generally due in net 30 days. Discounts on sales arrangements are generally not provided. Credit worthiness is determined by the Company based on payment experience and financial information available on the customer.

2.	Identification of performance obligations in the sales arrangement which is predominantly the promise to transfer goods, repair services, recycled items or wireless infrastructure services to the customer.

Determination of the transaction price which is specified in the purchase order based on product or services pricing negotiated between the Company and the customer. Wireless infrastructure services transaction prices are based on the Master Service Agreement contracts between the Company and the wireless customers.

4.	Allocation of the transaction price to performance obligations. Substantially all the contracts are single performance obligations and the allocated purchase price is the transaction price.

Recognition of revenue occurs upon the satisfaction of the performance obligation and transfer of control. Transfer of control by the Telco and Cable TV segments generally occurs at the point the Company ships the sold or repaired product from its warehouse locations. Transfer of control for the Wireless segment generally occurs over time as the Company installs or decommissions the equipment on the cell towers or performs other services. To measure progress towards completion on performance obligations for which revenue is recognized over time the Company utilizes an input method based upon a ratio of direct labor costs incurred to date to management’s estimate of the total labor costs to be incurred on each contract . The Company has established the systems and procedures to develop the estimates required to account for performance obligations over time. These procedures include monthly review by management of costs incurred, progress towards completion, changes in estimates of costs yet to be incurred and execution by subcontractors.

The Company’s principal revenues are from Wireless services, sales of Telco and Cable TV equipment, Telco recycled equipment, and Cable TV repair services. Sales are primarily to customers in the United States. International sales are made by the Telco and Cable TV segments to customers in Central America, South America and, to a substantially lesser extent, other international regions that utilize the same technology which totaled approximately $1.8 million and $3.7 million in the six months ended March 31, 2019 and 2018, respectively.

The Company’s customers include wireless carriers, wireless equipment providers, multiple system operators, resellers and direct sales to end-user customers. Sales to the Company’s largest customer totaled approximately 7% of consolidated revenues.

Our revenues by type were as follows:

	Three Months Ended March 31,						Six Months Ended March 31,
	2019			2018			2019			2018

Wireless services revenue	$	4,217,924		$	‒		$	4,217,924		$	‒
Equipment sales:
Wireless		‒			‒			‒			‒
Telco		8,282,486			6,845,571			14,892,128			12,536,891
Cable TV		3,949,929			4,130,486			8,002,068			9,244,777
Intersegment		(3,905	)		(2,130	)		(44,147	)		(2,310	)
Telco recycle revenue		393,434			160,989			634,131			928,210
Cable TV repair revenue		433,235			514,612			843,285			1,226,725
Total revenues	$	17,273,103		$	11,649,528		$	28,545,389		$	23,934,293

With the acquisition of Fulton, the timing of revenue recognition results in contract assets and contract liabilities. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in contract liabilities. Contract assets and contract liabilities are included in Unbilled revenue and Accrued expenses, respectively, in the Consolidated Condensed Balance Sheets. At March 31, 2019 contract assets were $1.4 million.

Note 3 – Acquisition

Purchase of Net Assets of Fulton Technologies, Inc. and Mill City Communications, Inc.

On December 27, 2018, the Company entered into a purchase agreement to acquire substantially all of the net assets of Fulton and Mill City. These companies provide turn-key wireless infrastructure services for wireless carriers, contractors supporting the wireless carriers, and equipment manufacturers. These services primarily consist of installing and decommissioning equipment on cell towers and small cell sites. This agreement closed on January 4, 2019. This acquisition is part of the overall growth strategy that will further diversify the Company into the broader telecommunications industry by providing wireless infrastructure services to the wireless telecommunications market.

The purchase price for the net assets of Fulton and Mill City was $1.3 million. The purchase price will be allocated to the major categories of assets and liabilities based on their estimated fair values as of January 4, 2019, the effective date of the acquisition. Any remaining amount will be recorded as goodwill.

The Company has one year from the date of the acquisition to finalize the purchase price allocation, and there may be a material change in the purchase price allocation as presented. The Company is still working with its valuation experts on the valuation of identifiable intangibles for which any change may impact the goodwill amount recorded. If information becomes available which would indicate material adjustments are required to the preliminary purchase price allocation, such adjustments will be included in the purchase price allocation retrospectively.

The following summarizes the preliminary purchase price allocation of the fair value of the assets acquired and the liabilities assumed at January 4, 2019:

Assets acquired:	(in thousands)
Accounts receivable	$	1,307
Prepaid expenses		341
Property and equipment, net		1,201
Intangible assets		244
Goodwill		16
Other assets		35
Total assets acquired		3,144

Liabilities assumed:
Accounts payable		1,250
Accrued expenses		455
Capital lease obligation		175
Total liabilities assumed		1,880
Net purchase price	$	1,264

The acquired intangible asset of approximately $0.2 million consists of customer relationships.

Note 4 – Sale and Leaseback of Assets

In October 2018, the Company entered into an agreement with David Chymiak to sell the Broken Arrow, Oklahoma facility. Mr. Chymiak is the Chief Technology Officer, President of Tulsat LLC (“Tulsat”), director, and substantial shareholder of the Company. The sale agreement provided for a purchase price of $5,000,000 payable in cash at closing. The sale closed on November 29, 2018, which generated a pretax gain of approximately $1.4 million.

In connection with the sale of the Broken Arrow, Oklahoma facility, Tulsat, which is one of the subsidiaries contained in the Cable TV segment, entered into a ten-year lease with Mr. Chymiak for $528,000 per year, paid in equal monthly installments. Tulsat, as tenant, will be responsible for most ongoing expenses related to the facility, including property tax, insurance and maintenance. As a result of the leaseback, the pretax gain of $1.4 million was deferred over the lease period and is reported in Deferred gain in the Consolidated Condensed Balance Sheet.

In March 2019, the Company sold its Sedalia, Missouri building to David Chymiak LLC for a cash purchase price of $1,350,000. In connection with the sale, Comtech, which is one of the subsidiaries contained in the Cable TV segment, entered into a ten-year lease with David Chymiak LLC for $128,250 per year, paid in equal monthly installments. Comtech, as tenant, will be responsible for most ongoing expenses related to the facility, including property tax, insurance and maintenance. As a result of the leaseback, the pretax gain of $0.6 million was deferred over the lease period and is reported in Deferred gain in the Consolidated Condensed Balance Sheet.

Note 5 – Disposition of Assets

In December 2018, the Company entered into an agreement for the sale of our Cable TV segment business to a company controlled by David Chymiak for $10.3 million. This sale is subject to shareholder approval, and in April 2019, we distributed a proxy statement to our stockholders, which announced a special meeting of stockholders on May 29, 2019 to vote on the proposed sale of the Cable TV businesses. The purchase price will consist of $3.9 million of cash at closing (subject to working capital adjustments), less the $1.4 million of cash proceeds from the sale of the Sedalia, Missouri facility already received (see Note 4 – Sale and Leaseback of Assets) and a $6.4 million promissory note to be paid in semi-annual installments over five years with an interest rate of 6.0%. If the sale receives shareholder approval, the Company estimates that this sale will result in a pretax loss of approximately $3.3 million. In addition, if the sale receives shareholder approval, the Company will accelerate the remaining deferred gain of $1.3 million from the sale of the Broken Arrow, Oklahoma facility and deferred gain of $0.6 million from the sale of the Sedalia, Missouri facility (see Note 4 – Sale and Leaseback of Assets).

Note 6 – Accounts Receivable Agreements

The Company’s Wireless segment has entered into various agreements, one agreement with recourse, to sell certain receivables to unrelated third-party financial institutions. For the agreement with recourse, the Company is responsible for collecting payments on the sold receivables from its customers. Under this agreement, the third-party financial institution advances the Company 90% of the sold receivables and establishes a reserve of 10% of the sold receivables until the Company collects the sold receivables. As the Company collects the sold receivables, the third-party financial institution will remit the remaining 10% to the Company. At March 31, 2019, the third-party financial institution has a reserve against the sold receivables of $0.1 million, which is reflected as restricted cash. For the receivables sold under the agreement with recourse, the agreement addresses events and conditions which may obligate the Company to immediately repay the institution the outstanding purchase price of the receivables sold. The total amount of receivables uncollected by the institution was $0.9 million at March 31, 2019. Although the sale of receivables are with recourse, the Company did not record a recourse obligation at March 31, 2019 as the Company determined the sold receivables are collectible.

For the six months ended March 31, 2019, the Company received proceeds from the sold receivables of $2.9 million and included the proceeds in net cash provided by operating activities in the Consolidated Condensed Statements of Cash Flows. The cost of selling these receivables ranges from 1.75% to 2.0% for these programs. The Company recorded costs of $43 thousand for the three and six months ended March 31, 2019 in other expense in the Consolidated Condensed Statements of Operations.

The Company accounts for these transactions in accordance with ASC 860, "Transfers and Servicing" ("ASC 860"). ASC 860 allows for the ownership transfer of accounts receivable to qualify for sale treatment when the appropriate criteria is met, which permits the Company to present the balances sold under the program to be excluded from accounts receivable, net on the Consolidated Condensed Balance Sheet. Receivables are considered sold when they are transferred beyond the reach of the Company and its creditors, the purchaser has the right to pledge or exchange the receivables and the Company has surrendered control over the transferred receivables.

Note 7 – Inventories

Inventories at March 31, 2019 and September 30, 2018 are as follows:

	March 31, 2019			September 30, 2018
New equipment:
Cable TV	$	12,247,466		$	12,594,138
Telco		2,002,539			1,371,545
Refurbished and used equipment:
Cable TV		2,791,141			2,981,413
Telco		7,213,421			6,905,946
Allowance for excess and obsolete inventory:
Cable TV		(4,050,000	)		(4,150,000	)
Telco		(800,000	)		(815,000	)

Total inventories	$	19,404,567		$	18,888,042

New inventory includes products purchased from manufacturers plus “surplus-new”, which are unused products purchased from other distributors or multiple system operators. Refurbished inventory 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.

The Company regularly reviews the Cable TV segment inventory quantities on hand, and an adjustment to cost is recognized when the loss of usefulness of an item or other factors, such as obsolete and excess inventories, indicate that cost will not be recovered when an item is sold. The Company recorded a write-off of inventory of $0.1 million

in the Cable TV segment. The Cable TV segment has an allowance for excess and obsolete inventory of $4.1 million at March 31, 2019.

In the six months ended March 31, 2019 and 2018, the Telco segment identified certain inventory that more than likely will not be sold or that the cost will not be recovered when it is processed through its recycling program. Therefore, the Company has a $0.8 million allowance at March 31, 2019.

Note 8 – Intangible Assets

As a result of the Fulton and Mill City acquisition, the Company has recorded an additional intangible asset for customer relationships of $0.2 million (see Note 3 ‒ Acquisition). The intangible assets with their associated accumulated amortization amounts at March 31 , 2019 and September 30, 2018 are as follows:

	March 31, 2019
	Gross		Accumulated Amortization			Net
Intangible assets:
Customer relationships – 10 years	$	8,396,000	$	(3,127,589	)	$	5,268,411
Trade name – 10 years		2,119,000		(860,330	)		1,258,670
Non-compete agreements – 3 years		374,000		(352,333	)		21,667

Total intangible assets	$	10,889,000	$	(4,340,252	)	$	6,548,748

	September 30, 2018
	Gross		Accumulated Amortization			Net
Intangible assets:
Customer relationships – 10 years	$	8,152,000	$	(2,713,890	)	$	5,438,110
Trade name – 10 years		2,119,000		(754,380	)		1,364,620
Non-compete agreements – 3 years		374,000		(332,332	)		41,668

Total intangible assets	$	10,645,000	$	(3,800,602	)	$	6,844,398

Note 9 – Notes Payable and Line of Credit

New Credit Agreement

In December 2018, the Company entered into a credit agreement with a new lender. This credit agreement contains a $2.5 million revolving line of credit and matures on December 17, 2019. The line of credit requires quarterly interest payments based on the prevailing Wall Street Journal Prime Rate plus 0.75% (6.25% at March 31, 2019), and the interest rate is reset monthly. The credit agreement provides that the Company maintain a fixed charge coverage ratio (net cash flow to total fixed charges) of not less than 1.25 to 1.0 measured annually. At March 31, 2019, $750,000 was outstanding under the line of credit and is reported in Notes payable – current portion on the consolidated balance sheet. Future borrowings under the line of credit are limited to the lesser of $2.5 million or the sum of 80% of eligible accounts receivable and 25% of eligible Telco segment inventory. Under these limitations, the Company’s total line of credit borrowing capacity was $2.5 million at March 31, 2019.

Forbearance Agreement

On May 31, 2018, the Company entered into a forbearance agreement with BOKF, NA dba Bank of Oklahoma (“Lender”) relating to the Company’s Amended and Restated Credit and Term Loan Agreement (“Credit and Term Loan Agreement”).

Under the forbearance agreement, which is Amendment Ten to the Credit and Term Loan Agreement, Lender agreed to delete the fixed charge ratio covenant from the Credit and Term Loan Agreement and to forbear from exercising its

rights and remedies under the Credit and Term Loan Agreement through October 31, 2018 subject to certain requirements and commitments from the Company.

Revolving credit and term loans created under the Credit and Term Loan Agreement were collateralized by inventory, accounts receivable, equipment and fixtures, general intangibles and a mortgage on certain property. Among other financial covenants, the Credit and Term Loan Agreement provided that the Company maintain a leverage ratio (total funded debt to EBITDA) of not more than 2.50 to 1.0.

The Company had two term loans outstanding under the Credit and Term Loan Agreement. The first outstanding term loan had an outstanding balance of $0.6 million and was due on October 31, 2018, with monthly principal payments of $15,334 plus accrued interest. The interest rate was the prevailing 30-day LIBOR rate plus 1.4% (3.66% at October 31, 2018).

The second outstanding term loan had an outstanding balance of $1.5 million and was due October 31, 2018, with monthly principal and interest payments of $118,809. The interest rate on the term loan was a fixed interest rate of 4.40%.

During the first quarter of 2019, the Company extinguished its two outstanding term loans under the forbearance agreement by paying the outstanding balances of $2.1 million, and extinguished its line of credit under the forbearance agreement by paying the outstanding balance of $0.5 million.

Since the Company extinguished all of its outstanding term loans and line of credit outstanding under the forbearance agreement in the first quarter of 2019, the Company is no longer subject to the terms of the forbearance agreement and was released from the Credit and Term Loan Agreement.

Fair Value of Debt

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

Note 10 – Earnings Per Share

Basic earnings per share are based on the sum of the average number of common shares outstanding and issuable, restricted and deferred shares. Diluted earnings per share include any dilutive effect of stock options and restricted stock. In computing the diluted weighted average shares, the average share price for the period is used in determining the number of shares assumed to be reacquired under the treasury stock method from the exercise of options.

Basic and diluted earnings per share for the six months ended March 31, 2019 and 2018 are:

	Three Months Ended March 31,						Six Months Ended March 31,
	2019			2018			2019			2018
Net loss attributable to common shareholders	$	(1,215,863	)	$	(259,697	)	$	(2,254,844	)	$	(966,459	)

Basic weighted average shares		10,361,292			10,252,712			10,361,292			10,239,353
Effect of dilutive securities:
Stock options		–			–			–			–
Diluted weighted average shares		10,361,292			10,252,712			10,361,292			10,239,353
Loss per common share:
Basic	$	(0.12	)	$	(0.03	)	$	(0.22	)	$	(0.09	)
Diluted	$	(0.12	)	$	(0.03	)	$	(0.22	)	$	(0.09	)

The table below includes information related to stock options that were outstanding at the end of each respective three and six month periods ended March 31, but have been excluded from the computation of weighted-average stock

options for dilutive securities because their effect would be anti-dilutive. The stock options were anti-dilutive because the Company had a net loss for the periods presented. Additionally, for certain stock options, the exercise price exceeded the average market price per share of our common stock for the three and six months ended March 31, 2019 and 2018.

	Three Months Ended March 31,				Six Months Ended March 31,
	2019		2018		2019		2018
Stock options excluded		620,000		645,000		620,000		645,000
Weighted average exercise price of
stock options	$	1.83	$	2.59	$	1.83	$	2.59
Average market price of common stock	$	1.40	$	1.39	$	1.37	$	1.43

Note 11 – 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. Under the Plan, option prices will be set by the Compensation Committee and may not be less than the fair market value of the stock on the grant date.

At March 31, 2019, 1,100,415 shares of common stock were reserved for stock award grants under the Plan. Of these reserved shares, 157,154 shares were available for future grants.

Stock Options

All share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based on their grant date fair value over the requisite service period. Compensation expense for share-based awards is included in the operating, selling, general and administrative expense section of the Company’s consolidated condensed statements of operations.

Stock options are valued at the date of the award, which does not precede the approval date, and compensation cost is recognized on a straight-line basis over the vesting period. Stock options granted to employees generally become exercisable over a three, four or five-year period from the date of grant and generally expire ten years after the date of grant. Stock options granted to the Board of Directors generally become exercisable on the date of grant and generally expire ten years after the grant.

A summary of the status of the Company's stock options at March 31, 2019 and changes during the three months then ended is presented below:

	Shares		Wtd. Avg. Ex. Price
Outstanding at September 30, 2018		290,000	$	2.40
Granted		330,000	$	1.33
Exercised		–		–
Expired		–		–
Forfeited	‒		‒
Outstanding at March 31, 2019		620,000	$	1.83

Exercisable at March 31, 2019		426,667	$	2.00

The Company granted 330,000 nonqualified stock options for the six months ended March 31, 2019. The Company estimates the fair value of the options granted using the Black-Scholes option valuation model. The Company estimates the expected term of options granted based on the historical grants and exercises of the Company’s options. The Company estimates the volatility of its common stock at the date of the grant based on both the historical volatility as well as the implied volatility on its common stock. The Company bases the risk-free rate that is used in the Black-Scholes option valuation model on the implied yield in effect at the time of the option grant on U.S. Treasury zero-coupon issues with equivalent expected term. The Company has never paid cash dividends on its common stock and

does not anticipate paying cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes option valuation model. The Company amortizes the resulting fair value of the options ratably over the vesting period of the awards. The Company recognizes forfeitures as they occur.

The estimated fair value at date of grant for stock options utilizing the Black-Scholes option valuation model and the assumptions that were used in the Black-Scholes option valuation model for the six months ended March 31, 2019 are as follows:

	Six Months Ended March 31, 2019
Estimated fair value of options at grant date	$	132,620
Black-Scholes model assumptions:
Average expected life (years)		5
Average expected volatility factor		28	%
Average risk-free interest rate		3.0	%
Average expected dividends yield		–

Compensation expense related to unvested stock options recorded for the six months ended March 31, 2019 is as follows:

	Six Months Ended March 31, 2019
Fiscal year 2017 grants	$	9,188
Fiscal year 2019 grants	$	51,901

The Company records compensation expense over the vesting term of the related options. At March 31, 2019, compensation costs related to these unvested stock options not yet recognized in the consolidated condensed statements of operations was $94,999.

Restricted Stock

The Company granted restricted stock in October 2018 to its Chairman of the Board of Directors totaling 55,147 shares, which were valued at market value on the date of grant. The shares will vest 20% per year with the first installment vesting on the first anniversary of the grant date. The Company granted restricted stock in March 2018 to its Board of Directors and a Company officer totaling 80,150 shares, which were valued at market value on the date of grant. The shares are being held by the Company for 12 months and will be delivered to the directors at the end of the 12 month holding period. The fair value of these shares at issuance totaled $105,000, which is being amortized over the 12 month holding period as compensation expense. The unamortized portion of the restricted stock is included in prepaid expenses on the Company’s consolidated condensed balance sheets.

Note 12 – Segment Reporting

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

Wireless Infrastruture Services (“Wireless”)

On January 4, 2019, the Company purchased substantially all of the net assets of Fulton and Mill City, which comprises the Wireless segment. These companies provide 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 used telecommunications networking equipment, including both central office and customer premise equipment, to its customer base of telecommunications providers, enterprise customers and resellers located primarily in North America. This segment also offers its customers repair and testing services for telecommunications networking equipment. In addition, this segment offers its customers decommissioning services for surplus and obsolete equipment, which it in turn processes through its recycling program.

Cable Television (“Cable TV”)

The Company’s Cable TV segment sells new, surplus and re-manufactured cable television equipment throughout North America, Central America, South America and, to a substantially lesser extent, other international regions that utilize the same technology. In addition, this segment repairs cable television equipment for various cable companies.

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.

	Three Months Ended						Six Months Ended
	March 31, 2019			March 31, 2018			March 31, 2019			March 31, 2018
Sales
Wireless	$	4,217,924		$	‒		$	4,217,924		$	‒
Telco		8,675,921			7,006,561			15,526,260			13,465,101
Cable TV		4,383,163			4,645,097			8,845,352			10,471,502
Intercompany		(3,905	)		(2,130	)		(44,147	)		(2,310	)
Total sales	$	17,273,103		$	11,649,528		$	28,545,389		$	23,934,293

Gross profit
Wireless	$	83,942		$	‒		$	83,942		$	‒
Telco		2,188,094			1,805,683			3,911,483			3,985,711
Cable TV		1,291,978			1,539,382			2,410,151			2,740,509
Total gross profit	$	3,564,014		$	3,345,065		$	6,405,576		$	6,726,220

Income (loss) from operations
Wireless	$	(1,114,326	)	$	‒		$	(1,114,326	)	$	‒
Telco		25,977			(380,370	)		(608,760	)		(457,538	)
Cable TV		(115,480	)		296,153			(435,861	)		107,653
Total loss from operations	$	(1,203,829	)	$	(84,217	)	$	(2,158,947	)	$	(349,885	)

	March 31, 2019		September 30, 2018
Segment assets
Wireless	$	4,411,887	$	‒
Telco		23,885,373		22,173,797
Cable TV		13,191,696		18,371,530
Non-allocated		2,742,736		3,849,293
Total assets	$	44,231,692	$	44,394,620

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,” “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 cable television industry, changes in the trends of the telecommunications industry, changes in our supplier agreements, technological developments, changes in the general economic environment, 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, 2018, which includes our audited consolidated financial statements and the accompanying notes to the consolidated financial statements.

Wireless Services (“Wireless”)

On January 4, 2019, the Company purchased substantially all of the net assets of Fulton Technologies, Inc. (“Fulton”) and Mill City Communications, Inc. (“Mill City”), which comprises the Wireless Services segment. These companies provide 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”)

Cable Television (“Cable TV”)

The Company’s Cable TV segment sells new, surplus and re-manufactured cable television equipment throughout North America, Central America and South America. In addition, this segment also repairs cable television equipment for various cable companies.

Recent Business Developments

Purchase of Net Assets of Fulton Technologies, Inc. and Mill City Communications, Inc.

On December 27, 2018, we entered into a purchase agreement to acquire substantially all of the net assets of Fulton and Mill City. We closed on this transaction on January 4, 2019 for $1.3 million in cash. The purchase allows us to enter into the wireless communication services business, which is poised for significant growth with the advent of 5G technology. This acquisition is part of the overall growth strategy that will further grow and diversify the Company into the broader telecommunications industry by providing wireless infrastructure services, which will continue to experience significant growth.

Fulton operates out of two primary locations. Fulton North, which is based just outside of Chicago in Roselle, Illinois, operates across the northern states including Illinois, Iowa and Minnesota. Fulton Southwest is based in Dallas, Texas and operates throughout Texas and neighboring states. As part of the asset purchase, we also acquired Mill City, which is based in Fridley, Minnesota. Subsequent to March 31, 2019, we decided to market and sell the assets of the Mill City operation and focus the company’s operations on its two large metropolitan locations. Fulton’s coverage of Chicago, Dallas, Houston, San Antonio and Austin allow it to participate in a collection of top wireless markets in the nation.

One of the key attractions of acquiring Fulton is that it had existing contracts and customer relationships. Fulton is an approved vendor with the four major U.S. wireless carriers, leading communication tower companies, national integrators, and major equipment manufacturers. The acquisition allowed us to enter the wireless communication space quickly and cost effectively. The customer contracts that Fulton has eliminated a key barrier for us to enter this industry due to the required experience and safety qualifications necessary to obtain the contracts.

In one of its business lines, Fulton performs equipment installations, upgrades and maintenance services for its customers primarily on communication towers. Having the proper safety record, training capability and quality oversight is paramount in the industry. Fulton has prided itself in performing safe, timely and high-quality services. Demand for tower equipment installation and upgrading services is at an all-time high, and we expect this trend to continue for the foreseeable future as wireless carriers continue to add capacity, expand their networks and upgrade their current technology for high speed connectivity, including 5G.

Fulton’s other primary business line involves the installation and support of temporary tower locations. This niche and growing business includes the erection of temporary towers to allow for the maintenance of permanent locations without causing a degradation of wireless in the area. In addition, Fulton provides temporary tower solutions for special events that require an increase of coverage and capacity for festivals, concerts and sporting events. Fulton has an inventory of temporary poles of different sizes and uses a unique installation process for the quick deployment of a tower location with little to no environmental impact.

As part of the acquisition, we were able to hire and retain the majority of Fulton’s existing employee base. Fulton now has approximately 100 employees. We planned that Fulton would incur operating losses in the first few months as we integrated and began ramping up the operation. Fulton’s operating performance in our second fiscal quarter of 2019 was in line with our expectations. Fulton has undergone continuous improvement since the acquisition, and we are expecting it to contribute positive cash flow for the remainder of the fiscal year.

Nave Communications

At Nave Communications (“Nave”), we are continuing to see positive results from the operational restructuring started in September 2018. The move to Palco Telecom, our third party reverse logistics partner, was completed in the fiscal first quarter of 2019 and has allowed us to operate more efficiently and with reduced operating costs. In addition, the number of customer returns has also been reduced as our product quality has improved due to our inventory certification program recently put in place. Ultimately, this improves our customer loyalty and reduces our operating costs of processing customer returns.

Nave has completed its initial investment in repair and testing equipment at the Palco Telecom facility in order to expand our repair and testing capabilities of our own inventory. In addition, we are now marketing this service to our customers as an additional business line. We plan to enter into repair and service contracts with various telecommunications carriers.

Overall, we have been pleased with the results of the operational restructuring of Nave as it has significantly improved the operational efficiency of the company and reduced our overall operating costs. It has allowed us to improve our inventory quality to our customers. We are excited about the creation of an additional business line for repair and testing services. Therefore, we believe that Nave’s revenues and operating results will continue to improve throughout the remainder of the fiscal year.

Triton Datacom

As a result of our internal operational review in fiscal year 2018, we determined that Triton’s current facility was hindering our ability to perform efficiently and grow the business. Therefore, we made the decision to move to a new facility. We have secured a 21,000 square foot location in Pembroke Park, Florida, which is a few miles from Triton’s current facility. We believe we will be operational in this new facility in July 2019. As part of the move into the new facility, we are partnering with a third party reverse logistics company to help us improve our inventory management processes and overall operations.

This new facility will allow Triton to expand its refurbishment operation and new equipment sales by adding additional products and manufacturers. We are also increasing our focus on the brokerage business and internet sales to include additional online resources for distribution of our products. We believe that once we have moved into the new facility, Triton will be positioned to expand its product offering to its existing customers and will grow its sales and marketing capabilities to capture additional market share and customers. We expect that Triton’s revenues and operating results will improve as the result of these changes.

Cable TV

In March 2019, we sold the Sedalia, Missouri building to David Chymiak LLC for a cash purchase price of $1.35 million. The proceeds from this sale will be a credit to the purchase price and down payment to the proposed Cable TV sale discussed below.

In December 2018, we entered into an agreement for the sale of our Cable TV businesses to a company controlled by David Chymiak for $10.3 million, subject to working capital adjustments. This sale is subject to shareholder approval, and in April 2019, we distributed a proxy statement to our stockholders, which announced a special meeting of stockholders on May 29, 2019 to vote on the proposed sale of the Cable TV businesses to Leveling 8 Inc., which is controlled by Mr. Chymiak. If the sale is approved by the stockholders, we anticipate that we will receive approximately $3.9 million in cash at closing, which includes the funds received from the Sedalia, Missouri building sale of $1.35 million, and a $6.4 million promissory note payable over five years that is personally guaranteed by Mr. Chymiak.

Results of Operations

Comparison of Results of Operations for the Three Months Ended March 31, 2019 and March 31, 2018

Consolidated

Consolidated sales increased $5.7 million before the impact of intercompany sales, or 48%, to $17.3 million for the three months ended March 31, 2019 from $11.6 million for the three months ended March 31, 2018. The increase in sales was in the Wireless segment of $4.25 million and the Telco segment of $1.7 million, partially offset by a decrease in the Cable TV segment of $0.2 million. Consolidated gross profit increased $0.3 million, or 7%, to $3.6 million for the three months ended March 31, 2019 from $3.3 million for the same period last year. The increase in gross profit was in the Wireless segment and Telco segment of $0.1 million and $0.4 million, respectively, partially offset by a decrease in the Cable TV segment of $0.2 million.

Consolidated operating, selling, general and administrative expenses include all personnel costs, which include fringe benefits, insurance and business taxes, as well as occupancy, communication and professional services, among other less significant cost categories. Operating, selling, general and administrative expenses increased $1.4 million, or 39%, to $4.8 million for the three months ended March 31, 2019 from $3.4 million the same period last year. This was due to an increase in the Wireless segment and Cable TV segment of $1.2 million and $0.2 million, respectively.

Other income and expense primarily consists of activity related to our investment in YKTG Solutions, including equity earnings (losses). Equity earnings for the three months ended March 31, 2019 were $0.1 million and equity losses were $0.3 million for the three months ended March 31, 2018. The equity losses for the three months ended March 31, 2018 consisted primarily of a legal settlement with a subcontractor on the YKTG Solutions wireless cell tower decommissioning project and the associated legal expenses.

Other expense of $40 thousand is related to our factoring arrangement with our Wireless segment.

Interest expense decreased $30 thousand, to $20 thousand, for the three months ended March 31, 2019 from $50 thousand for the same period last year primarily related to paying off our two term loans in November 2018.

The provision for income taxes was $4 thousand for the three months ended March 31, 2019 from a benefit for income taxes of $0.1 million for the three months ended March 31, 2018. The increase in the tax provision was due primarily to the valuation allowance netting the deferred tax assets to zero for the three months ended March 31, 2019, offset by income taxes payable to certain tax jurisdictions.

Segment Results

Wireless

Revenues for the Wireless segment were $4.2 million for the three months ended March 31, 2019 and zero for the same period last year as a result of the acquisition of Fulton and Mill City. Substantially all of the revenue for the quarter was derived from wireless services. Gross margin was 2% for the three months ended March 31, 2019.

Operating, selling, general and administrative expenses were $1.2 million for the three months ended March 31, 2019. These expenses included $0.2 million of acquisition costs in connection with the acquisition of Fulton and Mill City as well as integration expenses of $0.3 million.

Telco

Sales for the Telco segment increased $1.7 million to $8.7 million for the three months ended March 31, 2019 from $7.0 million for the same period last year. The increase in sales for the Telco segment was due to an increase in equipment sales and recycling revenue of $1.5 million and $0.2 million, respectively. The increase in Telco equipment sales was due to Nave Communications of $1.0 million and Triton Datacom of $0.5 million. The increase in recycling revenue was due primarily to the timing of recycling shipments.

Gross margin was 26% for both the three months ended March 31, 2019 and for the three months ended March 31, 2018.

Operating, selling, general and administrative expenses remained flat at $2.2 million for the three months ended March 31, 2019 and for the same period last year.

Cable TV

Sales for the Cable TV segment decreased $0.2 million to $4.4 million for the three months ended March 31, 2019 from $4.6 million for the same period last year. The decrease in sales was due to a decrease in equipment sales and repair service revenue of $0.1 million and $0.1 million, respectively. The decrease in the equipment sales was due primarily to an overall decrease in demand for the three months ended March 31, 2019 as compared to last year. The decrease in repair service revenue was due primarily to the closing of a repair facility in April 2018.

Gross margin was 29% for the three months ended March 31, 2019 compared to 33% for the same period last year. The decrease in gross margin was primarily due to lower refurbished equipment sales that tend to have higher gross margins, partially offset by a reduction of expense related to the allowance for obsolete and excess inventory.

Operating, selling, general and administrative expenses increased $0.2 million to $1.4 million for the three months ended March 31, 2019 from $1.2 million for the three months ended March 31, 2018. This increase was due primarily to lease payments for facility rentals (See Note 4 – Sale and Leaseback of Assets) of $0.1 million and professional services expenses of $0.1 million associated with the proposed sale of the Cable TV business.

Comparison of Results of Operations for the Six Months Ended March 31, 2019 and March 31, 2018

Consolidated

Consolidated sales increased $4.6 million before the impact of intercompany sales, or 19%, to $28.5 million for the six months ended March 31, 2019 from $23.9 million for the six months ended March 31, 2018. The increase in sales was in the Wireless segment and Telco segment of $4.2 million and $2.0 million, respectively, partially offset by a decrease in the Cable TV segment of $1.6 million. Consolidated gross profit decreased $0.3 million, or 5%, to $6.4 million for the six months ended March 31, 2019 from $6.7 million for the same period last year. The decrease in gross profit was in the Telco segment and Cable TV segment of $0.1 million and $0.3 million, respectively, partially offset by an increase in the Wireless segment of $0.1 million.

Consolidated operating, selling, general and administrative expenses include all personnel costs, which include fringe benefits, insurance and business taxes, as well as occupancy, communication and professional services, among other less significant cost categories. Operating, selling, general and administrative expenses increased $1.5 million, or 21%, to $8.6 million for the six months ended March 31, 2019 from $7.1 million for the same period last year. This increase in expenses was due to the Wireless segment, Telco segment, and Cable segment of $1.2 million, $0.1 million and $0.2 million, respectively.

Other income and expense primarily consists of activity related to our investment in YKTG Solutions, including equity earnings (losses). Equity earnings for the six months ended March 31, 2019 were $0.1 million and equity losses were $0.3 million for the six months ended March 31, 2018. The equity losses for the six months ended March 31, 2018 consisted primarily of a legal settlement with a subcontractor on the YKTG Solutions wireless cell tower decommissioning project and the associated legal expenses.

Other expense of $40 thousand is related to our factoring arrangement with our Wireless segment.

Interest expense decreased $100 thousand to $40 thousand for the six months ended March 31, 2019 from $140 thousand for the same period last year primarily related lower interest expense from paying off our two term loans in November 2018.

The provision for income taxes was $0.1 million for the six months ended March 31, 2019, from a provision for income taxes of $0.2 million for the six months ended March 31, 2018. The increase in the tax provision was due primarily to the valuation allowance netting the deferred tax assets to zero for the six months ended March 31, 2019, offset by income taxes payable to certain tax jurisdictions.

Segment Results

Wireless

Revenues for the Wireless segment were $4.2 million for the six months ended March 31, 2019 and zero for the same period last year as a result of the acquisition of Fulton and Mill City. Substantially all of the revenue for the quarter was derived from wireless services. Gross margin was 2% for the six months ended March 31, 2019.

Operating, selling, general and administrative expenses were $1.2 million for the six months ended March 31, 2019. These expenses included $0.2 million of acquisition costs in connection with the acquisition of Fulton and Mill City as well as integration expenses of $0.3 million.

Telco

Sales for the Telco segment increased $2.0 million to $15.5 million for the six months ended March 31, 2019 from $13.5 million for the same period last year. The increase in sales for the Telco segment was due to an increase in equipment sales of $2.3 million, partially offset by a decrease in recycling revenue of $0.3 million. The increase in Telco equipment sales was due to increased sales at Nave Communications and Triton Datacom of $1.7 million and $0.6 million, respectively. The decrease in recycling revenue was due primarily to higher revenue in the prior year due to the timing of recycling shipments.

Gross margin was 25% for the six months ended March 31, 2019 and 30% for the six months ended March 31, 2018. The decrease in gross margin was due primarily to lower gross margins from equipment sales primarily resulting from an increase in sales of new equipment which generally yields lower margins than used equipment sales. In addition, our margin was also impacted by lower margins from our recycling program as a result of lower revenues to cover our fixed costs. The lower revenues from the recycling program for the six months ended March 31, 2019 decreased gross profit by $0.4 million due to the fixed costs incurred within this product line.

Operating, selling, general and administrative expenses increased $0.1 million to $4.5 million for the six months ended March 31, 2019 from $4.4 for the same period last year. This increase was due primarily to advertising and promotion expenses.

Cable TV

Sales for the Cable TV segment decreased $1.6 million to $8.9 million for the six months ended March 31, 2019 from $10.5 million for the same period last year. The decrease in sales was due to a decrease in equipment sales and repair service revenue of $1.2 million and $0.4 million, respectively. The decrease in equipment sales was due primarily to an overall decrease in demand for the six months ended March 31, 2019 as compared to last year. The decrease in repair service revenue was due primarily to the closing of a repair facility in April 2018.

Gross margin was 27% for the six months ended March 31, 2019 compared to 26% for the same period last year. The increase in gross margin in 2019 was due primarily to a significant decrease in volume from a new equipment sales customer with low margins.

Operating, selling, general and administrative expenses increased $0.2 million to $2.8 million for the six months ended March 31, 2019 from $2.6 million for the same period last year. This increase was due primarily to lease payments for facility rentals (See Note 4 – Sale and Leaseback of Assets) of $0.2 million and professional services expenses of $0.2 million associated with the proposed sale of the Cable TV business, partially offset by reduced payroll expenses of $0.1 million.

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 excludes other income, other expense, interest income and income from equity method investment. Adjusted EBITDA is presented below because this metric is used by the financial community as a method of measuring our financial performance and of evaluating the market value of companies considered to be in similar businesses. Since Adjusted EBITDA is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net earnings as an indicator of operating performance. Adjusted EBITDA, as calculated below, may not be comparable to similarly titled measures employed by other companies. In addition, Adjusted EBITDA is not necessarily a measure of our ability to fund our cash needs.

A reconciliation by segment of operating income (loss) to Adjusted EBITDA follows:

	Three Months Ended March 31, 2019
	Wireless			Telco		Cable TV			Total
Income (loss) from operations	$	(1,114,326	)	$	25,977	$	(115,480	)	$	(1,203,829	)
Depreciation		84,333			30,253		19,723			134,309
Amortization		6,100			266,775	‒				272,875
Adjusted EBITDA (a)	$	(1,023,893	)	$	323,005	$	(95,757	)	$	(796,645	)

(a)	The Wireless segment includes acquisition expenses of $0.2 million related to the acquisition of Fulton and Mill City.

	Three Months Ended March 31, 2018
	Wireless		Telco			Cable TV		Total
Income (loss) from operations	$	‒	$	(380,370	)	$	296,153	$	(84,217	)
Depreciation		‒		32,549			66,660		99,209
Amortization		‒		313,311		‒			313,311
Adjusted EBITDA (a)	$	‒	$	(34,510	)	$	362,813	$	328,303

	Six Months Ended March 31, 2019
	Wireless			Telco			Cable TV			Total
Loss from operations	$	(1,114,326	)	$	(608,760	)	$	(435,861	)	$	(2,158,947	)
Depreciation		84,333			61,949			99,744			246,026
Amortization		6,100			533,550		‒				539,650
Adjusted EBITDA (a)	$	(1,023,893	)	$	(13,261	)	$	(336,117	)	$	(1,373,271	)

(a)	The Wireless segment includes acquisition expenses of $0.2 million related to the acquisition of Fulton and Mill City.

	Six Months Ended March 31, 2018
	Wireless		Telco			Cable TV		Total
Income (loss) from operations	$	‒	$	(457,538	)	$	107,653	$	(349,885	)
Depreciation		‒		63,745			133,607		197,352
Amortization		‒		626,622		‒			626,622
Adjusted EBITDA (a)	$	‒	$	232,829		$	241,260	$	474,089

Critical Accounting Policies

Note 1 to the Consolidated Financial Statements in Form 10-K for fiscal 2018 includes a summary of the significant accounting policies or methods used in the preparation of our Consolidated Financial Statements. Some of those significant accounting policies or methods require us to make estimates and assumptions that affect the amounts reported by us. We believe the following items require the most significant judgments and often involve complex estimates.

General

The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on historical experience, current market conditions, and various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions. The most significant estimates and assumptions are discussed below.

Inventory Valuation

Our position in the industry requires us to carry large inventory quantities relative to annual sales, but it also allows us to realize high overall gross profit margins on our sales. We market our products primarily to MSOs, telecommunication providers and other users of cable television and 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.

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 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 when the loss of usefulness of an item or other factors, such as obsolete and excess inventories, indicate that cost will not be recovered when an item is sold.

Our inventories consist of new and used electronic components for the cable television and telecommunications industries. 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 March 31, 2019, we had total inventory, before the reserve for excess and obsolete inventories, of $24.3 million, consisting of $14.3 million in new products and $10.0 million in used or refurbished products.

For the Cable TV segment, our reserve at March 31, 2019 for excess and obsolete inventory was $4.1 million. If actual market conditions are less favorable than those projected by management, and our estimates prove to be inaccurate, we could be required to increase our inventory reserve and our gross margins could be materially adversely affected.

The Telco segment identified certain inventory that more than likely will not be sold or that the cost will not be recovered when it is processed through its recycling program. Therefore, we have an obsolete and excess inventory reserve of $0.8 million at March 31, 2019. 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, since the amounts involved are not considered a material component of cost of sales.

Accounts Receivable Valuation

Management judgments and estimates are made in connection with establishing the allowance for doubtful accounts. Specifically, we analyze the aging of accounts receivable balances, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms. Significant changes in customer concentration or payment terms, deterioration of customer credit-worthiness, or weakening in economic trends could have a significant impact on the collectability of receivables and our operating results. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional provision to the allowance for doubtful accounts may be required. The reserve for bad debts was $0.2 million at March 31, 2019 and September 30, 2018. At March 31, 2019, accounts receivable, net of allowance for doubtful accounts, was $6.8 million.

Goodwill

Goodwill represents the excess of purchase price of acquisitions over the acquisition date fair value of the net identifiable tangible and intangible assets acquired. Goodwill is not amortized and is tested at least annually for impairment. We perform our annual analysis during the fourth quarter of each fiscal year and in any other period in

which indicators of impairment warrant additional analysis. Goodwill is evaluated for impairment by first comparing our estimate of the fair value of each reporting unit, with the reporting unit’s carrying value, including goodwill. Our reporting units for purposes of the goodwill impairment calculation are aggregated into the Cable TV operating segment, Telco operating segment and the Wireless operating segment.

Management utilizes a discounted cash flow analysis to determine the estimated fair value of each reporting unit. Significant judgments and assumptions including the discount rate, anticipated revenue growth rate, gross margins and operating expenses are inherent in these fair value estimates. As a result, actual results may differ from the estimates utilized in our discounted cash flow analysis. The use of alternate judgments and/or assumptions could result in the recognition of different levels of impairment charges in the financial statements.

The Cable TV segment does not have a goodwill balance as it was fully impaired in fiscal year 2018. We did not record a goodwill impairment for the Telco segment or the Wireless segment in the three year period ended September 30, 2018. In addition, we are implementing strategic plans as discussed in Recent Business Developments in our fiscal year 2018 Form 10-K to help prevent impairment charges in the future. Although we do not anticipate a future impairment charge, certain events could occur that might adversely affect the reported value of goodwill. Such events could include, but are not limited to, economic or competitive conditions, a significant change in technology, the economic condition of the customers and industries we serve, a significant decline in the real estate markets we operate in, a material negative change in the relationships with one or more of our significant customers or equipment suppliers, failure to successfully implement our plan to restructure and expand the Telco sales organization, and failure to reduce inventory levels within the Telco segment. If our judgments and assumptions change as a result of the occurrence of any of these events or other events that we do not currently anticipate, our expectations as to future results and our estimate of the implied fair value of the Telco segment and Wireless segment also may change.

As a result of the Fulton and Mill City acquisition, the Company recorded additional goodwill of $16 thousand as the purchase price exceeded the acquisition date fair value of the net assets based on the preliminary purchase price allocation. The Company is still working with its valuation experts on the valuation of identifiable intangibles and inventories for which any change may impact the goodwill amount recorded. If information becomes available which would indicate material adjustments are required to the preliminary purchase price allocation, such adjustments will be included in the purchase price allocation retrospectively.

Intangibles

Intangible assets that have finite useful lives are amortized on a straight-line basis over their estimated useful lives ranging from 3 years to 10 years. As a result of the Fulton and Mill City acquisition, the Company has recorded an additional intangible asset for customer relationships of $0.2 million based on the preliminary purchase price allocation.

Liquidity and Capital Resources

Cash Flows Used in Operating Activities

We typically finance our operations primarily through cash flows provided by operations, and our line of credit of up to $2.5 million. During the six months ended March 31, 2019, we used $4.2 million of cash flows for operations. The cash flows from operations was negatively impacted by $1.5 million from a net increase in accounts receivable and $0.9 million from a net increase in unbilled revenue. Also, cash flows from operations was negatively impacted by $0.7 million from a net increase of inventories. The cash flows from operations was favorably impacted by $2.9 million from the accounts receivable programs in the Wireless segment. In addition, the cash flows from operations was favorably impacted by $0.7 million from a net increase in accounts payable.

Cash Flows Provided by Investing Activities

During the six months ended March 31, 2019, cash provided by investing activities was $5.0 million, which primarily related to the sale of our Broken Arrow, Oklahoma facility and the sale of the Sedalia, MO facility to a company controlled by David Chymiak for $5.0 million and $1.4 million in cash, respectively. In addition, in December 2018, we entered into an agreement with a company controlled by David Chymiak to sell our Cable TV Segment. We anticipate that this sale will close in the third quarter and generate approximately $2.5 million in cash at closing.

On January 4, 2019, we purchased substantially all of the net assets of Fulton and Mill City. The net purchase price was $1.3 million.

Cash Flows Used for Financing Activities

In November 2018, we extinguished our two outstanding term loans under the forbearance agreement by paying the outstanding balances of $2.1 million.

In October 2018, we also extinguished our line of credit under the forbearance agreement by paying the outstanding balance of $0.5 million.

In December 2018, the Company entered into a credit agreement with a different lender. This credit agreement contains a $2.5 million revolving line of credit and matures on December 17, 2019. The Line of Credit requires quarterly interest payments based on the prevailing Wall Street Journal Prime Rate plus 0.75% (6.25% at March 31, 2019), and the interest rate is reset monthly. Future borrowings under the Line of Credit are limited to the lesser of $2.5 million or the sum of 80% of eligible accounts receivable and 25% of eligible inventory. Under these limitations, the Company’s total line of credit borrowing capacity was $2.5 million at March 31, 2019. At March 31, 2019, the amount outstanding under the line of credit was $750,000.

We believe that our cash and cash equivalents and restricted cash of $1.5 million at March 31, 2019, our existing line of credit, and our accounts receivable programs for our Wireless segment as well as the anticipated third quarter 2019 closing of the sale of the Cable TV segment will provide 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 March 31, 2019, 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.

PART II. OTHER INFORMATION

Item 5. Other Information.

(a) The 2019 annual meeting will be held on or around September 17, 2019. If you want to include a shareholder proposal in the proxy statement for the 2019 annual meeting, it must be delivered to our executive offices, 1221 East Houston, Broken Arrow, Oklahoma, 74012, on or before June 1, 2019. In addition, if you wish to present a proposal at the 2019 annual meeting that will not be included in our proxy statement and you fail to notify us by August 1, 2019, then the proxies solicited by our Board for the 2019 annual meeting will include discretionary authority to vote on your proposal in the event that it is properly brought before the meeting.

Item 6. Exhibits.

Exhibit No.	Description

10.1	Employment Agreement dated April 1, 2019 between the Company and Don Kinison.

10.2	Employment Agreement dated April 1, 2019 between the Company and Kevin Brown.

10.3	Employment Agreement dated April 1, 2019 between the Company and Colby Empey.

10.4	Employment Agreement dated April 1, 2019 between the Company and Scott Francis .

10.5	Asset Purchase Agreement by and between Sellers Fulton Technologies Inc. and Mill City Communications, Inc. with Aero Communications, Inc. and Buyer ADDvantage Acquisition Corp., dated as of December 27, 2018.

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

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

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

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

101.INS	XBRL Instance Document.

101.SCH	XBRL Taxonomy Extension Schema.

101.CAL	XBRL Taxonomy Extension Calculation Linkbase.

101.DEF	XBRL Taxonomy Extension Definition Linkbase.

101.LAB	XBRL Taxonomy Extension Label Linkbase.

101.PRE	XBRL Taxonomy Extension Presentation Linkbase.

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: May 14, 2019 /s/ Joseph E. Hart

Joseph E. Hart,

President and Chief Executive Officer

(Principal Executive Officer)

Date: May 14, 2019 /s/ Kevin Brown

Kevin Brown,

Chief Financial Officer

(Principal Financial Officer)

Exhibit Index

The following documents are included as exhibits to this Form 10-Q:

Exhibit No.	Description

10.1	Employment Agreement dated April 1, 2019 between the Company and Don Kinison.

10.2	Employment Agreement dated April 1, 2019 between the Company and Kevin Brown .

10.3	Employment Agreement dated April 1, 2019 between the Company and Colby Empey.

10.4	Employment Agreement dated April 1, 2019 between the Company and Scott Francis .

10.5	Asset Purchase Agreement by and between Sellers Fulton Technologies Inc. and Mill City Communications, Inc. with Aero Communications, Inc. and Buyer ADDvantage Acquisition Corp., dated as of December 27, 2018.

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

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

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

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

101.INS	XBRL Instance Document.

101.SCH	XBRL Taxonomy Extension Schema.

101.CAL	XBRL Taxonomy Extension Calculation Linkbase.

101.DEF	XBRL Taxonomy Extension Definition Linkbase.

101.LAB	XBRL Taxonomy Extension Label Linkbase.

101.PRE	XBRL Taxonomy Extension Presentation Linkbase.

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT (the “ Agreement ”) is made the 1st day of April, 2019 (the “ Effective Date ”), between ADDvantage Technologies Group, Inc. (“ Company ”) and Don Kinison (“ Executive ”).

WHEREAS , the Company and Executive desire to memorialize the terms and conditions under which Executive will be employed by the Company in the position set forth on Exhibit A , which is attached hereto and made a part hereof;

NOW, THEREFORE , intending to be legally bound, the Company agrees to employ Executive, and Executive hereby agrees to be employed by the Company, upon the following terms and conditions:

1. Term of Agreement . The Company hereby employs Executive and Executive accepts such employment, subject to all of the terms and conditions of this Agreement. Except as otherwise expressly provided herein, the term of this Agreement and of Executive’s employment under this Agreement will commence on the Effective Date and continue in effect until Executive ceases to be employed by the Company pursuant to Section 4 (the “ Term ”).

3. Compensation, Benefits and Expenses .

3.1. Base Salary . Commencing on the Effective Date, the Company shall pay to Executive an annual base salary (“ Annual Base Salary ”) in the amount set forth on Exhibit A for all services to be rendered by Executive hereunder. The Annual Base Salary shall be payable in accordance with the Company’s normal payroll practices for employees, and the Company shall deduct or cause to be deducted from the Annual Base Salary all taxes and amounts required by law to be withheld. Executive’s performance and base salary will be reviewed annually by the compensation committee of the Board of Directors. Future increases of the Annual Base Salary, if any, shall be determined by the Board of Directors of the Company in their sole and absolute discretion.

3.2. Performance Bonus . The Executive shall be eligible to receive an annual bonus with a target level at a percentage set forth in Exhibit A , based on meeting certain performance metrics and stock performance as determined in the sole and absolute discretion of the Board of Directors of the Company. The Board of Directors may, in its sole and absolute discretion, establish a bonus plan. There is no guarantee of a bonus in any year and under no circumstances shall a bonus be considered a required part of Executive’s annual compensation.

3.3. Benefits . During the Term of this Agreement, Executive shall be entitled to participate in all savings and retirement plans, health, dental, life, accident and short and long term disability, and policies and other programs maintained by the Company for the benefit of its full-time employees.

3.4. Reimbursement of Expenses . Executive shall be reimbursed for all reasonable out-of-pocket expenses paid to third parties incurred by Executive in connection with the performance of his duties hereunder within thirty (30) days of presentation of expense statements and vouchers and other supporting documentation and such other information as the Company may reasonably require.

3.5. Personal Leave . During the Term, Executive shall be entitled to a certain amount, as set forth on Exhibit A , of paid personal time off (“ PTO ”) during each calendar year (pro rated for partial years) in accordance with the Company’s policies in effect from time to time.

3.6 Car Expenses . The Company shall pay Executive a monthly allowance in an amount as set forth on Exhibit A for gas expense and mileage. Executive shall not be entitled to receive any other amounts related to car usage.

3.7 Phone Expenses . The Company shall pay Executive a monthly allowance in an amount as set forth on Exhibit A for a cellular phone plan. Executive shall not be entitled to receive any other amounts related to his cellular phone or monthly cellular phone bill.

4. Termination of Employment .

4.1. Events of Termination . Executive’s employment with the Company shall cease upon:

(i) Executive’s death.

(ii) Executive’s disability, which means his incapacity due to physical or mental illness such that he is unable to perform his previously assigned duties where (1) such incapacity has been determined to exist by either (x) the Company’s disability insurance carrier or (y) by the concurring opinions of two licensed physicians (one selected by the Company and one by Executive), and (2) the Company has determined, that such incapacity will continue for such period of time of at least ninety (90) days, whether or not consecutive, in any twelve (12) month period.

(iii) Termination by the Company. Such termination will require delivery to Executive of a written notice that Executive has been terminated with or without Cause.

(iv) Executive’s voluntary resignation or retirement upon not less than thirty (30) days’ prior written notice to the Company that Executive has resigned or retired.

(v) By mutual written consent of the Company and Executive.

(vi) Termination by the Company or the Executive within ninety (90) days of the occurrence of a Change in Control.

4.2. Benefits Payable Upon Termination .

(i) Within thirty (30) days following the termination of Executive’s employment with the Company pursuant to any manner described in Section 4.1 hereof, the Company shall pay to Executive: (a) any Annual Base Salary earned, but unpaid, for services rendered to the Company on or prior to the date of termination, (b) any unreimbursed expenses reimbursable to Executive pursuant to Section 3.4 hereof for expenses incurred on or prior to the date of termination, and (c) any accrued and unpaid PTO pursuant to Section 3.5 hereof.

(ii) In the event that Executive’s employment is terminated by the Company without Cause or is terminated by the Company or the Executive under Section 4.1(vi) above, contingent upon Executive’s execution and delivery of a Release Agreement substantially in the form attached hereto as Exhibit B with such changes to such form as the Company shall reasonably request (the “ Release Agreement ”), the Company will pay to Executive an amount described on Exhibit A , payable in a lump sum within 30 days of termination under Section 4.1(vi) and payable over a six (6) month period in equal installments at such times as the Company routinely pays its employees in the case of termination without Cause (the “ Severance Payments ”); provided, however, that in the event of Executive’s breach of Sections 5, 6 or 7 of this Agreement then if Severance Payments are being paid through installments, the Company’s obligation to pay additional Severance Payments after the breach occurs shall terminate and be of no further force or effect and if Severance Payments have been made in a lump sum, the Executive shall be obligated to pay to the Company upon written demand that portion of the Severance Payments equal to the portion of the Non-Solicitation Period remaining at the time of the breach. The Company shall deduct, or cause to be deducted, from the Severance Payments all taxes and amounts required by law to be withheld. If Employee fails to execute the Release Agreement, or revokes his acceptance of such release following its execution, Executive shall not be entitled to any Severance Payments.

(iii) If Executive’s employment with the Company ends for any reason set forth in Section 4.1 hereof other than termination by the Company without Cause or termination by the Company or the Executive under Section 4.1(vi) , the Company’s obligations to pay any compensation or benefits under this Agreement will cease effective on the date of termination and Executive will receive no Severance Payments. Executive’s right to receive any other benefits will be determined under the provisions of applicable plans, programs or other coverages.

5. Non-solicitation and Non-disparagement .

solicitation Period he shall not, singly, jointly, or as a partner, member, employee, agent, officer, director, stockholder, equity holder, lender, consultant, independent contractor, or joint venturer of any other person, or in any other capacity, directly or indirectly (i) employ, retain, engage, induce or attempt to employ, retain, engage or induce any employee, consultant or independent contractor of the Company or any Affiliated Companies to leave the employ of the Company or such Affiliated Companies, or in any way interfere with the relationship between the Company or any Affiliated Companies and any employee thereof, or (ii) induce or attempt to induce any Customer, dealer, supplier, licensee or other business relation of the Company or any Affiliated Companies to cease doing business with, or modify its business relationship with, the Company or such Affiliated Companies, or in any way interfere with the relationship or understanding between any such Customer, dealer, supplier, licensee or business relation and the Company or any Affiliated Companies. The Company shall have the right to assign the benefits of this Section 5 to any entity that acquires the Company’s business while the Executive is still employed by the Company and assumes the Company’s obligations to Executive, which assumption shall not release the Company.

5.2. Non-disparagement by Executive . Following termination, Executive and the Company agree not to make to any person, including but not limited to customers, dealers, suppliers or licensees of the Company or its Affiliated Companies, any statement that disparages the other or which reflects negatively upon the other, including but not limited to statements regarding the Company’s financial condition, the financial condition of its Affiliated Companies, its officers, directors, stockholders, employees and Affiliates, but excepting any statement required by law, or made in response to an order or subpoena of a court or government agency of competent jurisdiction.

5.3. Enforcement . If, at the time of enforcement of Section 5 of this Agreement, a court holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum duration and scope reasonable under such circumstances shall be substituted for the stated period or scope and that the court shall be allowed to revise the restrictions contained herein to cover the maximum duration and scope permitted by law.

6. Confidential Information . Executive acknowledges that the information, observations and data obtained by him during the course of his performance under this Agreement concerning the business and affairs of the Company and its Affiliate Companies are the property of the Company and Affiliated Companies, including information concerning acquisition opportunities in or reasonably related to the Company’s or its Affiliate Companies’ business or industry of which Executive becomes aware during the Term and any Severance Period. Therefore, Executive agrees that he will not disclose to any unauthorized person or use for his own account any of such information, observations or data without the Company’s written consent unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of Executive’s acts or omissions. Executive agrees to deliver to the Company on the date of termination, or at any other time the Company may request in writing, all memoranda, notes, plans, records, reports and other documents (and copies thereof) relating to the business of the Company and its Affiliated Companies (including, without limitation, all acquisition prospects, lists and contact information) which he may then possess or have under his control. This Section 6 does not apply

to personal contacts Executive had prior to his employment with the Company, provided that no Company confidential information is disclosed to those contacts.

7. Executive’s Representations and Warranties . Executive represents and warrants that Executive is not a party to any other employment, non-competition, or other agreement or restriction which could interfere with Executive’s employment with the Company or Executive’s or the Company’s rights and obligations hereunder and that Executive’s acceptance of employment with the Company and the performance of Executive’s duties hereunder will not breach the provisions of any contract, agreement, or understanding to which Executive is party or any duty owed by Executive to any other person or organization.

8. Definitions .

(i) “ Affiliated Companies ” shall mean any subsidiary of the Company.

(ii) “ Cause ” shall mean Executive’s: (1) conviction of a felony or pleading guilty to a felony charge; (2) participation as an employee, officer or principal owner/organizer in any business engaged in activities in direct competition with Company without the consent of Company; (3) gross and willful neglect of responsibilities; (4) other offenses against Company, including without limitation theft, embezzlement, dishonesty, gross and willful violation of Company policy, or the willful release of proprietary or confidential information in a manner that would be detrimental to Company's best interest; or (5) willful material breach of this Agreement or material breach of Executive’s fiduciary duties to the Company or any of its Affiliated Companies.

(iii) “ Change in Control ” shall mean any one of the following events or transactions:

(1) Any “person” (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act ) after the Effective Date becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of securities representing 50% or more of the combined voting power for election of directors of the then outstanding securities of the Company or any successor to the Company; provided, however, the following transactions shall not constitute a Change in Control hereunder (A) any acquisition of such securities by the Company, (B) any acquisition of such securities by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (C) any acquisition of such securities by any person who, immediately before such acquisition, had beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of 20% or more of (i) the fair market value of then then outstanding securities of the Company or (ii) the combined voting power of the outstanding voting securities of the Company entitled to vote generally in the election of directors to the Board or (D) any acquisition by any person or entity, including without limitation, any corporation pursuant to a transaction which satisfies the requirements of clauses (A), (B) or (C) of this paragraph;

nomination for election of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors as of the beginning of the period;

(3) Shareholders of the Company approve any dissolution or liquidation of the Company; or

(4) Shareholders of the Company approve any reorganization, merger, consolidation or share exchange unless (A) the persons who were the beneficial owners of the outstanding shares of the common stock of the Company immediately before the consummation of such transaction beneficially own more than 60% of the outstanding shares of the common stock of the successor or survivor corporation in such transaction immediately following the consummation of such transaction and (B) the number of shares of the common stock of such successor or survivor corporation beneficially owned by the persons described in clause (A) immediately following the consummation of such transaction is beneficially owned by each such person in substantially the same proportion that each such person had beneficially owned shares of the Company common stock immediately before the consummation of such transaction, provided (C) the percentage described in clause (A) of this paragraph of the beneficially owned shares of the successor or survivor corporation and the number described in clause (B) of this paragraph of the beneficially owned shares of the successor or survivor corporation shall be determined exclusively by reference to the shares of the successor or survivor corporation which result from the beneficial ownership of shares of common stock of the Company by the persons described in clause (A) of this paragraph immediately before the consummation of such transaction.

(iv) “ Customer ” shall mean any and all persons, business, or other legal entities that received goods or services provided by the Company, or that the Company marketed to for goods or services provided by the Company, within two (2) years prior to the termination of his employment with the Company.

(v) “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.

(vi) “ Non-solicitation Period ” shall mean twelve (12) months following termination of Executive’s employment with the Company.

(vii) “ Prorated Bonus ” shall mean a prorated portion of the cash bonus Executive earned in the fiscal year preceding the fiscal year in which Termination of Executive's Employment occurs (based on the number of days Executive was employed by the Company during the year of such Termination).

(viii) “ Severance Period ” shall mean the time period when Executive is receiving Severance Payments from the Company under Section 4.2(ii) and Exhibit A hereof.

Express and U.S. Postal Service overnight delivery service) or, deposited with the U.S. Postal Service mailed first class, registered or certified mail, postage prepaid, as set forth below:

If to the Company, addressed to:

ADDvantage Technologies Group, Inc.

1221 East Houston

Broken Arrow, OK 74012

Facsimile: (918) 251-0792

If to Executive, addressed to:

Executive’s notice address

as set forth on Exhibit A .

or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

11. Assignment . This Agreement, being for the personal services of Executive, shall not be assignable by him. The provisions hereof shall inure to the benefit of, and be binding upon, the Company’s successors and assigns. The Company may assign this Agreement and its rights, together with its obligations hereunder, in connection with any sale, transfer or other disposition of all or substantially all o fits assets or business, whether by merger, consolidation or otherwise.

12. Waivers and Amendments . The respective rights and obligations of the Company and Executive under this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively, and either for a specified period of time or indefinitely) or amended only with the written consent of a duly authorized representative of the Company and Executive.

13. Controlling Law and Consent to Jurisdiction . This Agreement will be governed by and construed in accordance with the laws of the State of Oklahoma without giving effect to any choice of law or conflicting provision or rule.

parties hereto shall be entitled to an injunction or injunctions or other equitable relief to restrain, enjoin and prevent breaches of this Agreement by the other parties and to enforce specifically such terms and provisions of this Agreement (without posting a bond or other security), such remedy being in addition to and not in lieu of, any other rights and remedies to which the other parties are entitled to at law or in equity. The Company and Executive agree that the covenants set forth in this Agreement shall be enforced to the fullest extent permitted by law. Accordingly, if, in any judicial proceedings, a court shall determine that such covenant is unenforceable for any reason, including without limitation because it survives too long, then the parties intend that such covenant shall be deemed to cover only the maximum period of time, if applicable, and/or shall otherwise be deemed to be limited in such manner as will permit enforceability by such court. In the event that any one or more of such covenants shall, either by itself or together with other covenants be adjudged to go beyond what is reasonable in all the circumstances for the protection of the interests of the Company, but would be adjudged reasonable if any particular covenant or covenants or parts thereof were deleted, restricted, or limited in a particular manner, then the said covenants shall apply with such deletions, restrictions, or limitations, as the case may be. The Company and Executive further agree that the covenants set forth in this Agreement are reasonable in all circumstances for the protection of the legitimate interests of the Company.

15. Survival . Sections 4-16 of this Agreement shall survive termination of this Agreement for the period of duration specified in such Section, and if no period of duration is specified, then the provision shall survive termination indefinitely.

16. Severability; Titles and Subtitles; Gender; Singular and Plural; Counterparts; Facsimile .

(i) In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby.

(ii) The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

(iii) The use of any gender in this Agreement shall be deemed to include the other genders, and the use of the singular in this Agreement shall be deemed to include the plural (and vice versa), wherever appropriate.

(iv) This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together constitute one instrument.

(v) Counterparts of this Agreement (or applicable signature pages hereof) that are manually signed and delivered by facsimile transmission shall be deemed to constitute signed original counterparts hereof and shall bind the parties signing and delivering in such manner.

17. Section 409A Compliance .

(i) Compliance . This Agreement shall be construed to avoid the imposition of additional taxes, interest and penalties pursuant to Section 409A of the Internal Revenue Code (“ Section 409A ”). The parties acknowledge and agree that the interpretation of Section 409A and its application to the terms of this Agreement is uncertain and may be subject to change as additional guidance and interpretations become available. In no event whatsoever shall the Company be liable for any tax, interest or penalties that may be imposed on the Executive by Section 409A or any damages for failing to comply with Section 409A; provided, however, that if the failure to comply results from the Company’s negligence or willful acts, the Company will reimburse the Executive so that, on an after-tax basis, he is in the same position he would have been in had the failure to comply not occurred.

(ii) Termination as a Separation From Service . A termination of employment shall not be deemed to have occurred for purposes of this Agreement providing for the payment of any amounts or benefits that are considered nonqualified deferred compensation under Section 409A upon or following a termination of employment, unless such termination is also a “separation from service” within the meaning of Section 409A and the payment thereof prior to a “separation from service” would violate Section 409A. For purposes of such provision in this Agreement relating to any such payments or benefits, references to “termination,” “termination of employment” or like terms shall mean “separation from service.”

(iii) Six Month Delay for Specified Employees . If any payment, compensation or other benefit provided to the Executive in connection with a termination of employment is determined, in whole or in part, to constitute “nonqualified deferred compensation” within the meaning of Section 409A and the Executive is a specified employee as defined in Section 409A(2)(B)(i), no part of such payments shall be paid before the earlier of (i) the day that is six months plus one day after the Executive’s date of termination and (ii) the date of Executive’s death (the “ New Payment Date ”). The aggregate of any payments that otherwise would have been paid to the Executive during the period between the date of termination and the New Payment Date shall be paid to the Executive in a lump sum on such New Payment Date. Thereafter, any payments that remain outstanding as of the day immediately following the New Payment Date shall be paid without delay over the time period originally scheduled, in accordance with the terms of this Agreement.

(iv) Reimbursements and In-Kind Benefits . All reimbursements for costs and expenses under this Agreement shall be paid in no event later than the end of the calendar year following the calendar year in which the Executive incurs such expense . With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Section 409A, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (ii) the amount of expenses eligible for reimbursements or in-kind benefits provided during any taxable year shall not affect the expenses eligible for reimbursement or in-kind benefits to be provided in any other taxable year.

(v) Payments within Specified Number of Days. W henever a payment under this Agreement specifies a payment period with reference to a number of days, the actual date of payment within such period shall be within the sole discretion of the Company.

(vi) Installments as Separate Payment . I f under this Agreement, an amount is paid in two or more installments, for purposes of Section 409A, each installment shall be treated as a separate payment.

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WITNESS THE DUE EXECUTION AND DELIVERY HEREOF on the date first above written.

COMPANY:

ADDvantage Technologies Group, Inc.

By: /s/ Joseph E. Hart

EXECUTIVE:

/s/ Don Kinison

Don Kinison

EXHIBIT A

TERMS

Position	President of the Telecommunications Division
Officer to whom Executive Directly Reports	Chief Executive Officer
Annual Base Salary	$220,000.00
Performance Target Level	50% of Annual Base Salary
PTO	4 weeks per year
Car Allowance	$1,000.00 per month
Cell Phone Allowance	$150.00 per month
Severance Payment	6 Months of Base Salary at the time of Termination plus the Executive’s Prorated Bonus
Executive’s Notice Address	1010 Twin Oaks Drive Prosper, TX 75078

EXHIBIT B

CONFIDENTIAL SEVERANCE AND RELEASE AGREEMENT

This Confidential Severance and Release Agreement (the “ Agreement ”) is made and entered into by and between Don Kinison (“ Executive ”) and ADDvantage Technologies Group, Inc. (the “ Company ”) (collectively referred to as the “ Parties ”).

WITNESSETH :

WHEREAS , Executive has been employed by the Company as the President of the Telecommunications Division;

WHEREAS, the Executive’s employment has been terminated; and

WHEREAS, in accordance with and subject to Section 4.2(ii) of the Executive Employment Agreement between the Parties, in exchange for a release of claims, the Company will pay Executive severance payments in the amount and at the times specified in the Executive Employment Agreement (the “ Severance Payments ”).

NOW, THEREFORE , in consideration of the premises, the mutual promises herein, and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, it is agreed as follows:

1. Release . Executive, for himself, his spouse, heirs, executors, administrators and assigns, hereby unconditionally releases and forever discharges the Company and its related entities, successors, assigns, agents, directors, officers, employees, representatives, and all persons acting by, through, under or in concert with any of them from any and all causes of action whether known or unknown, with respect to or arising out of all those claims asserted or which could have been asserted by Executive and/or arising out of, or alleged to have been suffered by him in or as a consequence of his employment, contact or relationship to date with the Company, including rights or claims arising under any agreement with the Company or under any federal, state or local laws, including, but not limited to Title VII of the Civil Rights Act of 1964, as amended by the Civil Rights Act of 1991, the Equal Pay Act, the Age Discrimination in Employment Act of 1967 and the Older Worker’s Benefit Protection Act of 1990, the Civil Rights Act of 1866, as amended, the Family Medical Leave Act, the Employee Retirement Income Security Act of 1974, the Oklahoma Workers’ Compensation Act, the Fair Labor Standards Act, the Americans With Disabilities Act, as amended, the Rehabilitation Act of 1973, the Vietnam Era Veterans’ Readjustment Assistance Act, the Genetic Information Nondiscrimination Act, the Oklahoma Anti-Discrimination Act, Oklahoma public policy, and all other federal, state or local laws. This release also applies to any claims or rights Executive may have arising out of any legal or equitable restrictions on Executive’s right not to continue an employment (or other) relationship with the Company, including any express or implied employment contracts, and to any claims Executive may have against the Company for fraudulent inducement or misrepresentation, tortious interference with business/contractual relations, defamation, wrongful termination, public policy tort, or other retaliation claims in connection with workers’ compensation or alleged “whistleblower” status or on any other basis

whatsoever. Executive does not, however, waive any rights or claims that may arise and accrue after the date this Agreement is executed by him. Further, Executive understands and agrees that this Agreement does not cover, affect, or alter any rights that cannot, by law, be released by private agreement.

2. Consideration . In consideration for Executive agreeing to the terms of this Agreement, the Company shall pay or provide to Executive the Severance Payments as set forth in the Executive Employment Agreement between the Parties. Executive agrees that he will be responsible for satisfying any tax obligation that he may have or incur with regard to the Severance Payments received from the Company.

3. Compliance with ADEA and OWBPA . To comply with the Age Discrimination in Employment Act (“ ADEA ”) and the Older Worker’s Benefit Protection Act (“ OWBPA ”), the Company has advised Executive of the legal requirements of the OWBPA and fully incorporates the legal requirements by reference into this Agreement as follows:

This Agreement is written in layman’s terms, and Executive understands and comprehends its terms;

Executive has been advised of his right to consult an attorney to review this Agreement;

Executive does not waive any rights or claims that may arise after this Agreement is executed;

Executive is receiving consideration beyond anything of value to which he is already entitled; and

Executive acknowledges that he has had a reasonable period of time within which to consider this Agreement.

Executive acknowledges that he has been given a period of twenty-one (21) calendar days during which to consider whether to enter into this Agreement. Executive further acknowledges that he will have seven (7) calendar days from the date he signs and delivers a copy of the Agreement to the Company, during which time Executive may revoke the Agreement as to his release of claims under the ADEA and OWBPA only, by delivering a signed and dated notice of revocation to the Company. This Agreement becomes immediately effective and enforceable as to all claims, except those arising under the ADEA and OWBPA. This Agreement becomes effective and enforceable as to claims under the ADEA and OWBPA when the seven (7) day revocation period has expired if Executive has not delivered a written revocation to the Company before that time. Executive acknowledges that he is giving up any rights to receive any benefits or remedial relief (such as reinstatement, back pay or front pay) as a consequence of any charge or complaint filed with the courts or any other governmental entity. If Executive does file a charge or complaint with the court or any other governmental entity, then Executive agrees to forfeit any future benefits or payments that he may receive as enhanced severance pay and that Executive must repay the Company for any benefits or payments that he has already received as enhanced severance pay.

4. Confidentiality . Executive will not, unless required by law, disclose to others the terms of this Agreement, the benefits being paid under it or the fact of its payment, except that Executive may disclose this information to his attorney, accountant or other professional advisor

to whom he must make the disclosure in order for them to render professional services to him. Executive will instruct them, however, to maintain the confidentiality of this information just as he must.

5. Voluntary Nature of Agreement . Executive represents and agrees that he fully understands his right to discuss all aspects of this Agreement with an attorney and that he has had adequate opportunity to seek counsel regarding the legal and binding effect of this Agreement. Executive acknowledges that he has carefully read and fully understands all the provisions of this Agreement. Executive further acknowledges that he is voluntarily entering into this Agreement and is not under any duress or coercion whatsoever. Executive agrees that the Company and its counsel have not made any additional promises to him, and he does not expect to receive anything more than what is reflected in this Agreement and the Executive Employment Agreement, pursuant to the conditions outlined within.

6. Agreement Not to be Used as Evidence . This Agreement shall not be admissible as evidence in any proceeding except one in which a party to this Agreement seeks to enforce this Agreement or alleges this Agreement has been breached, or one in which a court or administrative agency of competent jurisdiction orders Executive or the Company to produce this Agreement. If a court or administrative agency orders production of this Agreement or disclosure of the terms of this Agreement is sought, Executive or the Company shall immediately notify the other party of same and shall cooperate with any efforts to obtain a protective order from that court or agency preventing such production or requiring that this Agreement be produced or filed only under seal and that other parties to any such proceedings and their counsel shall not disclose the existence or terms of this Agreement for purposes not related to the proceeding in which this Agreement was ordered to be produced.

7. Assignment; Binding Effect . This Agreement may not be assigned by Executive. This Agreement is binding upon and shall inure to the benefit of the Parties hereto and their respective successors, assigns, personal representatives, officers, directors, agents, attorneys, parents, subsidiaries, partners, principals, and affiliates.

8. Controlling Law and Consent to Jurisdiction . This Agreement will be governed by and construed in accordance with the laws of the State of Oklahoma without giving effect to any choice of law or conflicting provision or rule.

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PLEASE READ CAREFULLY. THIS CONFIDENTIAL SEVERANCE AND RELEASE AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.

/s/ Don Kinison 4/22/19

Don Kinison Date

ADDvantage Technologies Group, Inc.

By: /s/ Joseph E. Hart 4/22/19

Name: Joseph E. Hart Date

Title: President and Chief Executive Officer

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT (the “ Agreement ”) is made the 1 ^st day of April, 2019 (the “ Effective Date ”), between ADDvantage Technologies Group, Inc. (“ Company ”) and Kevin Brown (“ Executive ”).

NOW, THEREFORE , intending to be legally bound, the Company agrees to employ Executive, and Executive hereby agrees to be employed by the Company, upon the following terms and conditions:

2. Duties . Executive will hold the office and title set forth on Exhibit A and will have such duties assigned to Executive under the Bylaws of the Company, by the Board of Directors of the Company, by the chief executive officer of the Company or by the officer to whom Executive directly reports as described on Exhibit A . Executive agrees to use his best efforts to promote the interests of the Company, and to devote his full productive time and working attention to the business and affairs of the Company. The Company acknowledges that Executive currently serves on the board of directors of 4M HR Logistics LP, a privately-held business in the staffing and defense contracting business, and that Executive may in the future serve on the boards of directors of businesses which do not compete with the business, present or future, conducted by the Company; provided, that, such board service by Executive does not affect or impair his obligation to devote his full productive time and working attention to the business and affairs of the Company.

3. Compensation, Benefits and Expenses .

3.2. Performance Bonus . The Executive shall be eligible to receive an annual bonus with a target level at a percentage set forth in Exhibit A , based on meeting certain

performance metrics and stock performance as determined in the sole and absolute discretion of the Board of Directors of the Company. The Board of Directors may, in its sole and absolute discretion, establish a bonus plan. There is no guarantee of a bonus in any year and under no circumstances shall a bonus be considered a required part of Executive’s annual compensation.

4. Termination of Employment .

4.1. Events of Termination . Executive’s employment with the Company shall cease upon:

(i) Executive’s death.

(iii) Termination by the Company. Such termination will require delivery to Executive of a written notice that Executive has been terminated with or without Cause.

(iv) Executive’s voluntary resignation or retirement upon not less than thirty (30) days’ prior written notice to the Company that Executive has resigned or retired.

(v) By mutual written consent of the Company and Executive.

(vi) Termination by the Company or the Executive within ninety (90) days of the occurrence of a Change in Control.

4.2. Benefits Payable Upon Termination .

5. Non-solicitation and Non-disparagement .

5.1. Non-solicitation . Executive acknowledges that in the course of his employment with the Company he will become familiar with the Company’s and Affiliated Companies’ trade secrets and with other confidential information concerning the Company and its Affiliated Companies and that his services will be of special, unique and extraordinary value to the Company and its Affiliated Companies. Therefore, Executive agrees that during the Non-solicitation Period he shall not, singly, jointly, or as a partner, member, employee, agent, officer, director, stockholder, equity holder, lender, consultant, independent contractor, or joint venturer of any other person, or in any other capacity, directly or indirectly (i) employ, retain, engage, induce or attempt to employ, retain, engage or induce any employee, consultant or independent contractor of the Company or any Affiliated Companies to leave the employ of the Company or such Affiliated Companies, or in any way interfere with the relationship between the Company or any Affiliated Companies and any employee thereof, or (ii) induce or attempt to induce any Customer, dealer, supplier, licensee or other business relation of the Company or any Affiliated Companies to cease doing business with, or modify its business relationship with, the Company or such Affiliated Companies, or in any way interfere with the relationship or understanding between any such Customer, dealer, supplier, licensee or business relation and the Company or any Affiliated Companies. The Company shall have the right to assign the benefits of this Section 5 to any entity that acquires the Company’s business while the Executive is still employed by the Company and assumes the Company’s obligations to Executive, which assumption shall not release the Company.

omissions. Executive agrees to deliver to the Company on the date of termination, or at any other time the Company may request in writing, all memoranda, notes, plans, records, reports and other documents (and copies thereof) relating to the business of the Company and its Affiliated Companies (including, without limitation, all acquisition prospects, lists and contact information) which he may then possess or have under his control. This Section 6 does not apply to personal contacts Executive had prior to his employment with the Company, provided that no Company confidential information is disclosed to those contacts.

8. Definitions .

(i) “ Affiliated Companies ” shall mean any subsidiary of the Company.

(iii) “ Change in Control ” shall mean any one of the following events or transactions:

without limitation, any corporation pursuant to a transaction which satisfies the requirements of clauses (A), (B) or (C) of this paragraph;

(2) During any period of two consecutive years or less, individuals who at the beginning of such period constitute the Board cease for any reason (whether beginning on or after the Effective Date) to constitute at least a majority of the Board, unless the election or nomination for election of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors as of the beginning of the period;

(3) Shareholders of the Company approve any dissolution or liquidation of the Company; or

(v) “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.

(vi) “ Non-solicitation Period ” shall mean twelve (12) months following termination of Executive’s employment with the Company.

(viii) “ Severance Period ” shall mean the time period when Executive is receiving Severance Payments from the Company under Section 4.2(ii) and Exhibit A hereof.

9. Notices . All demands, notices, requests, consents and other communications required or permitted under this Agreement shall be in writing and shall be personally delivered or sent by facsimile machine (with a confirmation copy sent by one of the other methods authorized in this Section), reputable commercial overnight delivery service (including Federal Express and U.S. Postal Service overnight delivery service) or, deposited with the U.S. Postal Service mailed first class, registered or certified mail, postage prepaid, as set forth below:

If to the Company, addressed to:

ADDvantage Technologies Group, Inc.

1221 East Houston

Broken Arrow, OK 74012

Facsimile: (918) 251-0792

If to Executive, addressed to:

Executive’s notice address

as set forth on Exhibit A .

or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

14. Equitable Remedies . The parties hereto agree that irreparable harm would occur in the event that any of the agreements and provisions of this Agreement were not performed fully by the parties hereto in accordance with their specific terms or conditions or were otherwise breached, and that money damages are an inadequate remedy for breach of this Agreement because of the difficulty of ascertaining and quantifying the amount of damage that will be suffered by the parties hereto in the event that this Agreement is not performed in accordance with its terms or conditions or is otherwise breached. It is accordingly hereby agreed that the parties hereto shall be entitled to an injunction or injunctions or other equitable relief to restrain, enjoin and prevent breaches of this Agreement by the other parties and to enforce specifically such terms and provisions of this Agreement (without posting a bond or other security), such remedy being in addition to and not in lieu of, any other rights and remedies to which the other parties are entitled to at law or in equity. The Company and Executive agree that the covenants set forth in this Agreement shall be enforced to the fullest extent permitted by law. Accordingly, if, in any judicial proceedings, a court shall determine that such covenant is unenforceable for any reason, including without limitation because it survives too long, then the parties intend that such covenant shall be deemed to cover only the maximum period of time, if applicable, and/or shall otherwise be deemed to be limited in such manner as will permit enforceability by such court. In the event that any one or more of such covenants shall, either by itself or together with other covenants be adjudged to go beyond what is reasonable in all the circumstances for the protection of the interests of the Company, but would be adjudged reasonable if any particular covenant or covenants or parts thereof were deleted, restricted, or limited in a particular manner, then the said covenants shall apply with such deletions, restrictions, or limitations, as the case may be. The Company and Executive further agree that the covenants set forth in this Agreement are reasonable in all circumstances for the protection of the legitimate interests of the Company.

16. Severability; Titles and Subtitles; Gender; Singular and Plural; Counterparts; Facsimile .

(ii) The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

(iv) This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together constitute one instrument.

17. Section 409A Compliance .

reimbursement or in-kind benefits to be provided in any other taxable year.

(vi) Installments as Separate Payment . I f under this Agreement, an amount is paid in two or more installments, for purposes of Section 409A, each installment shall be treated as a separate payment.

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WITNESS THE DUE EXECUTION AND DELIVERY HEREOF on the date first above written.

COMPANY:

ADDvantage Technologies Group, Inc.

By: /s/ Joseph E. Hart

EXECUTIVE:

/s/ Kevin Brown

Kevin Brown

EXHIBIT A

TERMS

Position	Chief Financial Officer
Officer to whom Executive Directly Reports	Chief Executive Officer
Annual Base Salary	$220,000.00
Performance Target Level	50% of Annual Base Salary
PTO	4 weeks per year
Car Allowance	$1,000.00 per month
Cell Phone Allowance	$150.00 per month
Severance Payment	6 Months of Base Salary at the time of Termination plus the Executive’s Prorated Bonus
Executive’s Notice Address	4403 Upper Oxbow Trace Fulshear, TX 77441

EXHIBIT B

CONFIDENTIAL SEVERANCE AND RELEASE AGREEMENT

This Confidential Severance and Release Agreement (the “ Agreement ”) is made and entered into by and between Kevin Brown (“ Executive ”) and ADDvantage Technologies Group, Inc. (the “ Company ”) (collectively referred to as the “ Parties ”).

WITNESSETH :

WHEREAS , Executive has been employed by the Company as its Chief Financial Officer;

WHEREAS, the Executive’s employment has been terminated; and

This Agreement is written in layman’s terms, and Executive understands and comprehends its terms;

Executive has been advised of his right to consult an attorney to review this Agreement;

Executive does not waive any rights or claims that may arise after this Agreement is executed;

Executive is receiving consideration beyond anything of value to which he is already entitled; and

Executive acknowledges that he has had a reasonable period of time within which to consider this Agreement.

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PLEASE READ CAREFULLY. THIS CONFIDENTIAL SEVERANCE AND RELEASE AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.

/s/ Kevin Brown 4/22/19

Kevin Brown Date

ADDvantage Technologies Group, Inc.

By: /s/ Joseph E. Hart 4/22/19

Name: Joseph E. Hart Date

Title: President and Chief Executive Officer

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT (the “ Agreement ”) is made the 1st day of April, 2019 (the “ Effective Date ”), between ADDvantage Technologies Group, Inc. (“ Company ”) and Colby Empey (“ Executive ”).