ADDVANTAGE TECHNOLOGIES GROUP INC (Form: 10-Q, Received: 05/14/2020 16:35:43)

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, 2020

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

FOR THE TRANSITION PERIOD FROM________________ TO ______________

Commission File number 1‑10799

ADDvantage Technologies Group, Inc.

(Exact name of registrant as specified in its charter)

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

1430 Bradley Lane

Carrollton, Texas 75007

(Address of principal executive office)

(918) 251-9121

(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer □Accelerated filer □ Non-accelerated filer ⌧ Smaller reporting company ⌧ Emerging growth company □

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

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

Shares outstanding of the issuer's $.01 par value common stock as of April 30, 2020 were 10,471,292.

ADDVANTAGE TECHNOLOGIES GROUP, INC.

Form 10-Q

For the Period Ended March 31, 2020

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

	Consolidated Condensed Balance Sheets (unaudited)	2
	March 31, 2020 and September 30, 2019

	Consolidated Condensed Statements of Operations (unaudited)	4
	Three and Six Months Ended March 31, 2020 and 2019

	Consolidated Condensed Statements of Changes in Shareholders’ Equity (unaudited)	5
	Three and Six Months ended March 31, 2020 and 2019

	Consolidated Condensed Statements of Cash Flows (unaudited)	6
	Six Months Ended March 31, 2020 and 2019

	Notes to Unaudited Consolidated Condensed Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	19

Item 4.	Controls and Procedures.	28

	PART II. OTHER INFORMATION

Item 6.	Exhibits.	29

	SIGNATURES

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ADDVANTAGE TECHNOLOGIES GROUP, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)

	March 31, 2020			September 30, 2019
Assets
Current assets:
Cash and cash equivalents	$	4,156,068		$	1,242,143
Restricted cash		104,300			351,909
Accounts receivable, net of allowance for doubtful accounts of $250,000 and $150,000, respectively		4,893,779			4,826,716
Unbilled revenue		1,660,710			2,691,232
Promissory note – current		1,400,000			1,400,000
Income tax receivable		34,915			21,350
Inventories, net of allowance for excess and obsolete inventory of $3,400,000 and $1,275,000, respectively		5,406,181			7,625,573
Prepaid expenses		1,124,087			543,762
Other assets		163,727			262,462
Total current assets		18,943,767			18,965,147

Property and equipment, at cost:
Machinery and equipment		3,422,299			2,475,545
Leasehold improvements		483,928			190,984
Total property and equipment, at cost		3,906,227			2,666,529
Less: Accumulated depreciation		(1,126,489	)		(835,424	)
Net property and equipment		2,779,738			1,831,105

Right-of-use operating lease assets		5,178,084			‒
Promissory note – noncurrent		4,390,738			4,975,000
Intangibles, net of accumulated amortization		1,584,349			6,002,998
Goodwill		57,554			4,877,739
Other assets		180,452			176,355

Total assets	$	33,114,682		$	36,828,344

See notes to unaudited consolidated condensed financial statements.

ADDVANTAGE TECHNOLOGIES GROUP, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)

	March 31, 2020			September 30, 2019
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	4,375,148		$	4,730,537
Accrued expenses		1,363,364			1,617,911
Deferred revenue		260,420			97,478
Bank line of credit		3,500,000			‒
Note payable – current		1,244,289			‒
Operating lease obligations – current		1,219,301			‒
Financing lease obligations – current		317,023			‒
Other current liabilities		‒			757,867
Total current liabilities		12,279,545			7,203,793

Note payable		2,213,104			‒
Operating lease obligations		4,174,774			‒
Financing lease obligations		708,825			‒
Other liabilities		14,530			177,951
Total liabilities		19,390,778			7,381,744

Shareholders’ equity:
Common stock, $.01 par value; 30,000,000 shares authorized; 10,971,950 and 10,861,950 shares issued, respectively; 10,471,292 and 10,361,292 shares outstanding, respectively		109,720			108,620
Paid in capital		(3,722,126	)		(4,377,103	)
Retained earnings		18,336,324			34,715,097
Total shareholders’ equity before treasury stock		14,723,918			30,446,614

Less: Treasury stock, 500,658 shares, at cost		(1,000,014	)		(1,000,014	)
Total shareholders’ equity		13,723,904			29,446,600

Total liabilities and shareholders’ equity	$	33,114,682		$	36,828,344

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,
	2020			2019			2020			2019
Sales	$	11,959,125		$	12,889,940		$	25,921,483		$	19,700,037
Cost of sales		12,397,762			9,413,424			22,768,138			14,500,132
Gross profit		(438,637	)		3,476,516			3,153,345			5,199,905
Operating expenses		1,967,134			1,838,452			3,854,860			2,331,274
Selling, general and administrative expenses		3,079,181			2,599,236			6,098,584			4,538,841
Impairment of intangibles including goodwill		8,714,306		‒				8,714,306		‒
Depreciation and amortization expense		507,785			387,703			955,359			687,088
Loss from operations		(14,707,043	)		(1,348,875	)		(16,469,764	)		(2,357,298	)
Other income (expense):
Interest income		86,672		‒				175,303			‒
Income from equity method investment		18,500			55,000			40,500			55,000
Other expense		(92	)		(40,509	)		(57,134	)		(40,420	)
Interest expense		(59,118	)		(19,775	)		(82,678	)		(42,752	)
Total other income (expense), net		45,962			(5,284	)		75,991			(28,172	)

Loss before income taxes		(14,661,081	)		(1,354,159	)		(16,393,773	)		(2,385,470	)
Provision (benefit) for income taxes	‒				(143,000	)		(15,000	)		29,000
Loss from continuing operations		(14,661,081	)		(1,211,159	)		(16,378,773	)		(2,414,470	)

Income (loss) from discontinued operations, net of tax	‒				(4,704	)	‒				159,626

Net loss	$	(14,661,081	)	$	(1,215,863	)	$	(16,378,773	)	$	(2,254,844	)

Income (loss) per share:
Basic
Continuing operations	$	(1.41	)	$	(0.12	)	$	(1.58	)	$	(0.24	)
Discontinued operations		‒			(0.00	)		‒			0.02
Net loss	$	(1.41	)	$	(0.12	)	$	(1.58	)	$	(0.22	)
Diluted
Continuing operations	$	(1.41	)	$	(0.12	)	$	(1.58	)	$	(0.24	)
Discontinued operations		‒			(0.00	)		‒			0.02
Net loss	$	(1.41	)	$	(0.12	)	$	(1.58	)	$	(0.22	)
Shares used in per share calculation:
Basic		10,423,514			10,361,292			10,392,404			10,361,292
Diluted		10,423,514			10,361,292			10,392,404			10,361,292

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, 2019		10,861,950	$	108,620	$	(4,377,103	)	$	34,715,097		$	(1,000,014	)	$	29,446,600

Net loss		–		–		–			(1,717,692	)		–			(1,717,692	)
Share based compensation expense		–		–		13,890			–			–			13,890

Balance, December 31, 2019		10,861,950	$	108,620	$	(4,363,213	)	$	32,997,405		$	(1,000,014	)	$	27,742,798

Net loss		–		–		–			(14,661,081	)		–			(14,661,081	)
Restricted stock issuance		–		–		475,618			–			–			475,618
Stock option exercise		110,000		1,100		171,833			–			–			172,933
Share based compensation expense		–		–		(6,364	)		–			–			(6,364	)

Balance, March 31, 2020		10,971,950	$	109,720	$	(3,722,126	)	$	18,336,324		$	(1,000,014	)	$	13,723,904

	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

See notes to unaudited consolidated condensed financial statements.

ADDVANTAGE TECHNOLOGIES GROUP, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended March 31,
	2020			2019
Operating Activities
Net loss	$	(16,378,773	)	$	(2,254,844	)
Net income from discontinued operations		‒			159,626
Net loss from continuing operations		(16,378,773	)		(2,414,470	)
Adjustments to reconcile net loss from continuing operations to net cash
used in operating activities:
Depreciation		427,942			147,438
Amortization		527,417			539,650
Impairment of intangibles including goodwill		8,714,306			‒
Provision for excess and obsolete inventories		2,125,000			77,889
Share based compensation expense		106,059			106,089
Loss from disposal of property and equipment		‒			19,377
Gain from equity method investment		(40,500	)		(55,000	)
Changes in assets and liabilities:
Accounts receivable		(67,064	)		(1,537,168	)
Unbilled revenue		1,030,522			(935,676	)
Income tax receivable\payable		(13,565	)		90,702
Inventories		94,392			(1,122,543	)
Prepaid expenses and other assets		(108,605	)		(397,793	)
Accounts payable		(355,389	)		1,088,667
Accrued expenses and other liabilities		(401,003	)		43,055
Deferred revenue		162,942			‒
Net cash used in operating activities – continuing operations		(4,176,319	)		(4,349,783	)
Net cash provided by operating activities – discontinued operations		‒			159,362
Net cash used in operating activities		(4,176,319	)		(4,190,421	)

Investing Activities
Proceeds from promissory note receivable		584,262			‒
Acquisition of net operating assets of a business		‒			(1,264,058	)
Loan repayment from equity method investee		40,500			104,000
Purchases of property and equipment		(155,250	)		(139,668	)
Disposals of property and equipment		82,933			‒
Net cash provided by (used in) investing activities – continuing operations		552,445			(1,299,726	)
Net cash provided by investing activities – discontinued operations		‒			6,350,000
Net cash provided by investing activities		552,445			5,050,274

Financing Activities
Change in bank line of credit		3,500,000			‒
Proceeds from note payable		3,457,393			‒
Guaranteed payments for acquisition of business		(667,000	)		(667,000	)
Payments on financing lease obligations		(173,136	)		‒
Payments on notes payable		‒			(1,246,279	)
Proceeds from stock options exercised		172,933			‒
Net cash provided by (used in) financing activities – continuing operations		6,290,190			(1,913,279	)
Net cash used in financing activities – discontinued operations		‒			(597,906	)
Net cash provided by (used in) financing activities		6,290,190			(2,511,185	)

Net increase (decrease) in cash and cash equivalents and restricted cash		2,666,316			(1,651,332	)
Cash and cash equivalents and restricted cash at beginning of period		1,594,052			3,129,280
Cash and cash equivalents and restricted cash at end of period	$	4,260,368		$	1,477,948

Supplemental cash flow information:
Cash paid for interest	$	143,668		$	92,939
Cash paid for income taxes	$	‒		$	‒

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 unaudited 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”) and Telecommunications (“Telco”).

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, which are, in the opinion of management, necessary in order to make the unaudited consolidated condensed financial statements not misleading. The Company’s business is subject to certain seasonal variations due to weather in the geographic areas that services are performed, and to a certain extent due to calendar events and national holidays. Therefore, the results of operations for the six months ended March 31, 2020 and 2019, are not necessarily indicative of the results to be expected for the full fiscal year. It is suggested that these unaudited 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, 2019.

Reclassification

The Company changed its presentation of cost of sales and operating, selling, general and administrative expenses on the unaudited consolidated condensed statements of operations. During fiscal year 2020, the Company reviewed its financial reporting of expenses in connection with its current operating segments in order to enhance the usefulness of the presentation of the Company’s expenses. Based on that review, the Company reclassified certain expenses into operating expenses for presentation purposes. Operating expenses include the indirect costs associated with operating our businesses. Indirect costs are costs that are not directly attributable to projects or products, which would include indirect personnel costs, facility costs, vehicles, insurance, communication, and business taxes, among other less significant cost categories. These costs were previously recorded in either costs of sales or operating, selling, general and administrative expenses in prior periods. Additionally, the Company reclassified depreciation and amortization from operating, selling, general and administrative expenses into its own financial statement line item in the unaudited consolidated condensed statements of operations. Selling, general and administrative expenses include overhead costs, which primarily consist of personnel costs, insurance, professional services, and communication, among other less significant cost categories. The prior period has been reclassified to conform with the current period’s presentation of costs of sales, operating expenses, selling, general and administrative expenses, and depreciation and amortization. These reclassifications had no effect on previously reported results of operations or retained earnings.

Recently Issued Accounting Standards

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

The Company’s principal sales are from Wireless services, sales of Telco equipment and Telco recycled equipment. Sales are primarily to customers in the United States. International sales are made by the Telco segment to customers in Central America, South America and, to a substantially lesser extent, other international regions that utilize the same technology which totaled approximately $0.4 million and $0.5 million for the three months ended March 31, 2020 and 2019, respectively, and $0.8 million and $1.0 million for the six months ended March 31, 2020 and 2019, 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 10% of consolidated revenues for the six months ended March 31, 2020.

Our sales by type were as follows:

	Three Months Ended March 31,					Six Months Ended March 31,
	2020		2019			2020		2019

Wireless services sales	$	4,671,850	$	4,217,924		$	11,469,731	$	4,217,924
Equipment sales:
Telco		6,981,478		8,258,719			13,764,461		14,878,129
Intersegment		‒		(3,905	)		‒		(44,147	)
Telco repair sales		7,792		10,400			16,202		14,000
Telco recycle sales		298,005		406,802			671,089		634,131
Total sales	$	11,959,125	$	12,889,940		$	25,921,483	$	19,700,037

The timing of revenue recognition from the wireless segment results in contract assets and contract liabilities. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, the Company sometimes receives advances or deposits from customers before revenue is recognized, resulting in contract liabilities. Contract assets and contract liabilities are included in Unbilled revenue and Deferred revenue, respectively, in the consolidated condensed balance sheets. At March 31, 2020 and September 30, 2019, contract assets were $1.7 million and $2.7 million, respectively, and contract liabilities were $1.0 million and $0.1 million, respectively. The Company recognized the entire $0.1 million of contract revenue during the six months ended March 31, 2020 related to contract liabilities recorded in Deferred revenue at September 30, 2019.

Note 3 – 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, 2020, 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 $0.8 million at March 31, 2020 for which there is a limit of $4.0 million. Although the sale of receivables is with recourse, the Company did not record a recourse obligation at March 31, 2020 as the Company concluded that the sold receivables are collectible. The other agreements without recourse are under programs offered by certain customers in the Wireless segment.

For the six months ended March 31, 2020 and 2019, the Company received proceeds from the sold receivables under all of the various agreements of $11.4 million and $2.9 million, respectively, and included the proceeds in net cash provided by operating activities in the Consolidated Condensed Statements of Cash Flows. The fees associated with

selling these receivables ranged from 1.0% to 1.8% of the gross receivables sold for the six months ended March 31, 2020 and 1.7% to 1.9% of the gross receivables sold for the six months ended March 31, 2019. The Company recorded costs of $0.1 million and $0.2 million for the three and six months ended March 31, 2020, respectively, and $0.1 million for both 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 sheets. 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 4 – Promissory Note

The Company completed a sale of its former Cable TV reporting segment on June 30, 2019. In the first quarter of 2020, Leveling 8 Inc. (“Leveling 8”) paid the Company the first installment of $0.7 million, including interest of $0.1 million, under the promissory note as part of the sale of the Cable TV segment to Leveling 8. David Chymiak, a director and substantial shareholder of the Company, personally guaranteed the promissory note due to the Company and pledged certain assets (directly and indirectly owned) to secure the payment of the promissory note, including substantially all of David Chymiak’s Company common stock. On March 10, 2020, the Company entered into a loan agreement with its primary financial lender for $3.5 million to monetize a portion of this promissory note (see Note 8).

The remaining promissory note will be paid in semi-annual installments over five years including interest of 6% as follows:

Fiscal year 2020	$	700,000
Fiscal year 2021		1,400,000
Fiscal year 2022		940,000
Fiscal year 2023		940,000
Fiscal year 2024		2,970,000
Total proceeds		6,950,000
Less: interest to be paid		(1,159,262	)
Promissory note principal balance	$	5,790,738

Note 5 – Inventories

Inventories, which are all within the Telco segment, at March 31, 2020 and September 30, 2019 are as follows:

	March 31, 2020			September 30, 2019

New equipment	$	946,878		$	1,496,145
Refurbished and used equipment		7,859,303			7,404,428
Allowance for excess and obsolete inventory		(3,400,000	)		(1,275,000	)

Total inventories, net	$	5,406,181		$	7,625,573

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

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 and recorded a $2.1 million expense in Cost of sales to increase the allowance for excess and obsolete inventory. Therefore, the Company has a $3.4 million and a $1.3 million allowance at March 31, 2020 and September 30, 2019, respectively.

Note 6 – Intangible Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance with ASC 360-10-15, “Impairment or Disposal of Long-Lived Assets.” ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted future cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.

As of March 31, 2020, the Company determined that changes in the economy related to the COVID-19 pandemic and the continued losses experienced in the Telco segment may cause the carrying amounts of its intangible assets to exceed their fair values. The Company performed an assessment of its intangible assets and determined that the carrying value of its customer relationships were in fact impaired based on valuation appraisals performed by the Company using a multi-period excess earnings model. Therefore, the Company recorded a $3.9 million impairment charge in the Telco segment.

Intangible assets with their associated accumulated amortization and impairment at March 31, 2020 and September 30, 2019 are as follows:

	March 31, 2020
	Gross		Accumulated Amortization			Impairment			Net
Intangible assets:
Customer relationships – 10 years	$	8,396,000	$	(3,964,306	)	$	(3,894,121	)	$	537,573
Trade name – 10 years		2,119,000		(1,072,224	)		‒			1,046,776
Non-compete agreements – 3 years		374,000		(374,000	)		‒			‒

Total intangible assets	$	10,889,000	$	(5,410,530	)	$	(3,894,121	)	$	1,584,349

	September 30, 2019
	Gross		Accumulated Amortization			Net
Intangible assets:
Customer relationships – 10 years	$	8,396,000	$	(3,547,389	)	$	4,848,611
Trade name – 10 years		2,119,000		(966,280	)		1,152,720
Non-compete agreements – 3 years		374,000		(372,333	)		1,667

Total intangible assets	$	10,889,000	$	(4,886,002	)	$	6,002,998

Note 7 – Goodwill

The Company tests goodwill at least annually for impairment. The Company tests more frequently if indicators are present or changes in circumstances suggest that impairment may exist. These indicators include, among others, declines in sales, earnings or cash flows, or the development of a material adverse change in the business climate. The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment. The reporting units for the Company are its two operating segments.

As of March 31, 2020, indicators were present, which indicated that the Company should test for impairment of goodwill. These indicators included reduced revenues in the current fiscal year and the overall impact of the business climate as a result of the COVID-19 pandemic. While the Company is deemed an essential service during the COVID-19 pandemic and has remained in operation, it has seen a reduced revenue stream in the current year. Therefore, the Company performed a goodwill impairment analysis as of March 31, 2020. This analysis forecasted the debt free cash flows of the segment, on a discounted basis, to estimate the fair value of the segment compared to the carrying value of the segment. For the Telco segment, the carrying value exceeded the estimated fair value of the segment by more than the carrying amount of goodwill recorded in the segment. Therefore, the Company fully impaired the goodwill balance in the Telco segment and recorded an impairment charge of $4.8 million.

Note 8 – Notes Payable and Line of Credit

Loan Agreement

On March 10, 2020, the Company entered into a loan agreement with its primary financial lender for $3.5 million, bearing interest at 6% per annum. The loan is payable in seven semi-annual installments of principal and interest with the first payment due June 30, 2020, and the final payment due June 30, 2023. Payment of the loan may be accelerated in the event of a default. The principal and interest payments correlate to the promissory note with Leveling 8 (see Note 4). The loan is secured by substantially all of the assets of the Company, including, without limitation, the promissory note that the Company received in connection with the sale of its cable segment in 2019 to Leveling 8, Inc. (see Note 4).

Credit Agreement

The Company has a $4.0 million revolving line of credit agreement with its primary financial lender, which matures on December 17, 2020. The line of credit requires quarterly interest payments based on the prevailing Wall Street Journal Prime Rate (4.25% at March 31, 2020), and the interest rate is reset monthly. At March 31, 2020, there was $3.5 million outstanding under the line of credit. Future borrowings under the line of credit are limited to the lesser of $4.0 million or the sum of 80% of eligible accounts receivable and 25% of eligible Telco segment inventory. Under these limitations, the Company’s total line of credit borrowing capacity was $3.6 million at March 31, 2020.

Loan Covenant with Primary Financial Lender

Both the March 10, 2020 loan agreement and line of credit agreement provide that the Company maintain a fixed charge coverage ratio (net cash flow to total fixed charge) of not less than 1.25 to 1.0 measured annually. The Company believes that it is probable that it will not be in compliance with this covenant as of the measurement date of September 30, 2020. The noncompliance with this covenant would result in an event of default, which if not cured or waived, could result in the lender accelerating the maturity of the Company’s indebtedness or preventing access to additional funds under the line of credit agreement, or requiring prepayment of outstanding indebtedness under the loan agreement or the line of credit agreement.

Paycheck Protection Program Loan

Subsequent to March 31, 2020, the Company applied and received a SBA Payroll Protection Program (“PPP”) loan with its primary lender for $2.9 million, bearing interest at 1% per annum, with monthly payments of principal and interest in the amount of $164,045 commencing on November 10, 2020. The loan matures on April 10, 2022. In the event certain conditions of the PPP loan, which are still being finalized by the SBA and Congress, are satisfied by the Company, the loan, or a portion thereof, will be forgiven.

Fair Value of Debt

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

Note 9 – Earnings Per Share

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

Basic and diluted earnings per share for the three and six months ended March 31, 2020 and 2019 are:

	Three Months Ended March 31,						Six Months Ended March 31,
	2020			2019			2020			2019
Loss from continuing operations	$	(14,661,081	)	$	(1,211,159	)	$	(16,378,773	)	$	(2,414,470	)
Discontinued operations, net of tax		−			(4,704	)		−			159,626
Net loss attributable to common shareholders	$	(14,661,081	)	$	(1,215,863	)	$	(16,378,773	)	$	(2,254,844	)

Basic weighted average shares		10,423,514			10,361,292			10,392,404			10,361,292
Effect of dilutive securities:
Stock options		−			−			−			−
Diluted weighted average shares		10,423,514			10,361,292			10,392,404			10,361,292

Earnings (loss) per common share:
Basic:
Continuing operations	$	(1.41	)	$	(0.12	)	$	(1.58	)	$	(0.24	)
Discontinued operations		−			(0.00	)		−			0.02
Net loss	$	(1.41	)	$	(0.12	)	$	(1.58	)	$	(0.22	)
Diluted:
Continuing operations	$	(1.41	)	$	(0.12	)	$	(1.58	)	$	(0.24	)
Discontinued operations		−			(0.00	)		−			0.02
Net loss	$	(1.41	)	$	(0.12	)	$	(1.58	)	$	(0.22	)

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, 2020 and 2019.

	Three Months Ended March 31,				Six Months Ended March 31,
	2020		2019		2020		2019
Stock options excluded		543,000		620,000		543,000		620,000
Weighted average exercise price of
stock options	$	1.75	$	1.83	$	1.75	$	1.83
Average market price of common stock	$	2.79	$	1.40	$	2.52	$	1.37

Note 10 – Stock-Based Compensation

Plan Information

The 2015 Incentive Stock Plan (the “Plan”) provides for awards of stock options and restricted stock to officers, directors, key employees and consultants. 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.

In March 2020, at the Company’s annual meeting of shareholders, the shareholders authorized an additional 1,000,000 shares of common stock be added to the Plan. At March 31, 2020, 2,100,415 shares of common stock were reserved for stock award grants under the Plan. Of these reserved shares, 894,053 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, 2020 and changes during the six months then ended is presented below:

	Shares			Wtd. Avg. Exercise Price		Aggregate Intrinsic Value
Outstanding at September 30, 2019		770,000		$	1.73	$	352,700
Granted		−			−		−
Exercised		(110,000	)	$	1.57	$	282,833
Expired		–			–		–
Forfeited		(116,667	)	$	1.31	$	130,667
Outstanding at March 31, 2020		543,333		$	1.85	$	394,266

Exercisable at March 31, 2020		410,001		$	1.98	$	265,334

No nonqualified stock options were granted for the six months ended March 31, 2020. 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.

Compensation expense related to unvested stock options recorded for the six months ended March 31, 2020 is as follows:

	Six Months Ended March 31, 2020
Fiscal year 2017 grant	$	4,784
Fiscal year 2019 grants	$	2,744

The Company records compensation expense over the vesting term of the related options. At March 31, 2020, compensation costs related to these unvested stock options not yet recognized in the consolidated condensed statements of operations was $16,066.

Restricted Stock

As a result of the shareholders authorizing the additional shares being added to the Plan in March 2020, the Company granted restricted stock awards to its eligible board members for both the prior fiscal year and current fiscal year awards due to eligible board members. The shares granted totaled 229,768, which were valued at market value on the date of grant. The shares have varying vesting periods ranging from immediate to three years. The unamortized portion of the restricted stock is included in prepaid expenses on the Company’s consolidated condensed balance sheets.

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 unamortized portion of the restricted stock is included in prepaid expenses on the Company’s consolidated condensed balance sheets.

Note 11 – Leases

Effective October 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), utilizing the modified-retrospective transition approach. which is intended to improve financial reporting about leasing transactions. The standard requires the recognition of right-of-use assets and lease liabilities on the consolidated balance sheet and disclosure of key information about leasing arrangements. The Company elected to use the transition option that allows the Company to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment, if any, to the opening balance of retained earnings in the year of adoption. The adoption of ASC 842 did not result in any adjustments to retained earnings.

In accordance with ASC 842, the Company has made accounting policy elections (1) to not apply the new standard to lessee arrangements with a term of twelve months or less and (2) to combine lease and non-lease components. The non-lease components are not material and do not result in significant timing differences in the recognition of lease expense. As a result of adopting ASC 842, the Company recognized net operating lease right-of-use assets of $4.7 million and operating lease liabilities of $4.7 million on the effective date. In addition, as a result of adopting ASC 842, the Company recognized net financing lease assets of $0.6 million and financing lease liabilities of $0.6 million on the effective date that were previously accounted for as operating leases.

The Company categorizes leases at their inception as either operating or finance leases. The Company has operating and financing leases in place for various office and warehouse properties, vehicles and certain wireless services equipment. The leases have remaining lease terms of one year to ten years, some of which include the option to extend the lease terms. Operating leases are included in right-of-use operating lease assets, operating lease liabilities - current, and operating lease liabilities in the consolidated condensed balance sheets. Finance leases are included in net property and equipment, financing lease liabilities – current, and financing lease liabilities in the consolidated condensed balance sheets.

Leased assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company uses a discount rate that approximates the rate of interest for a collateralized loan over a similar term as the discount rate for present value of lease payments when the rate implicit in the contract is not readily determinable. Leases that have a term of twelve months or less upon commencement date are considered short-term in nature. Accordingly, short-term leases are not included in the consolidated condensed balance sheets and are expensed on a straight-line basis over the lease term, which commences on the date the Company has the right to control the property.

The components of lease expense were as follows:

	Three Months ended March 31, 2020		Six Months ended March 31, 2020

Operating lease cost	$	444,642	$	736,764

Finance lease cost:
Amortization of right-of-use assets	$	66,134	$	126,364
Interest on lease liabilities		12,793		24,962
Total finance lease cost	$	78,927	$	151,326

Supplemental cash flow information related to leases are as follows for the six months ended:

	March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	736,764
Operating cash flows from finance leases	$	24,962
Financing cash flows from finance leases	$	173,136

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	1,146,700
Finance leases	$	454,066

Supplemental balance sheet information related to leases are as follows:

	March 31, 2020
Operating leases
Operating lease right-of-use assets	$	5,178,084

Operating lease obligations - current	$	1,219,301
Operating lease obligations		4,174,774
Total operating lease liabilities	$	5,394,075

Finance leases
Property and equipment, gross	$	1,198,985
Accumulated depreciation		(126,364	)
Property and equipment, net	$	1,072,621

Financing lease obligations - current	$	317,023
Financing lease obligations		708,825
Total finance lease liabilities	$	1,025,848

Weighted Average Remaining Lease Term
Operating leases	4.22 years
Finance leases	3.92 years
Weighted Average Discount Rate
Operating leases		5.05	%
Finance leases		5.15	%

Maturities of lease liabilities are as follows for the years ending September 30:

	Operating Leases		Finance Leases
2020	$	718,464	$	211,198
2021		1,457,535		266,178
2022		1,485,072		233,461
2023		1,386,873		219,396
2024		819,018		181,237
Thereafter		151,895		21,936
Total lease payments		6,018,857		1,133,406
Less imputed interest		624,782		107,558
Total	$	5,394,075	$	1,025,848

Note 12 – Segment Reporting

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

Wireless Infrastructure Services (“Wireless”)

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

Telecommunications (“Telco”)

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

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, 2020			March 31, 2019			March 31, 2020			March 31, 2019
Sales
Wireless	$	4,671,850		$	4,217,924		$	11,469,731		$	4,217,924
Telco		7,287,275			8,672,016			14,451,752			15,482,113
Total sales	$	11,959,125		$	12,889,940		$	25,921,483		$	19,700,037

Gross profit (loss)
Wireless	$	175,206		$	1,288,758		$	2,047,762		$	1,288,758
Telco		(613,843	)		2,187,758			1,105,583			3,911,147
Total gross profit (loss)	$	(438,637	)	$	3,476,516		$	3,153,345		$	5,199,905

Loss from operations
Wireless	$	(2,795,785	)	$	(1,113,584	)	$	(3,883,229	)	$	(1,113,584	)
Telco		(11,911,258	)		(235,291	)		(12,586,535	)		(1,243,714	)
Total loss from operations	$	(14,707,043	)	$	(1,348,875	)	$	(16,469,764	)	$	(2,357,298	)

	March 31, 2020		September 30, 2019
Segment assets
Wireless	$	7,174,283	$	5,515,793
Telco		14,079,104		22,619,565
Non-allocated		11,861,295		8,692,986
Total assets	$	33,114,682	$	36,828,344

Note 13 – Subsequent Events

On March 11, 2020, the World Health Organization declared the current outbreak of COVID-19 to be a global pandemic, and on March 13, 2020, the United States declared a national emergency. In response to these declarations and the rapid spread of COVID-19, federal, state and local governments have imposed varying degrees of restrictions on business and social activities to contain COVID-19, including quarantine and “stay-at-home” or “shelter-in-place” orders in markets where we operate. Despite these “stay-at-home” or “shelter-in-place” orders, the Company is classified as an essential business due to the services and products it provides to the telecommunications industry. Therefore, the Company continues to operate in the markets it serves, although most of its back-office and

administrative personnel are working from home while these orders are in place. Although the Company can continue to operate its businesses, its revenues have slowed, especially in the Wireless segment, due to the carriers slowing down various wireless tower projects. The Company has not experienced a material disruption in is supply chain to date; however, the Company expects COVID-19 could materially negatively affect the supply chain, customer demand for its telecommunications products or further delay wireless carriers’ infrastructure build plans in the coming months as a result of the disruption and uncertainty it is causing. There is considerable uncertainty regarding the extent to which COVID-19 will continue to spread and the extent and duration of governmental and other measures implemented to try to slow the spread of COVID-19, such as large-scale travel bans and restrictions, border closures, quarantines, shelter-in-place orders and business and government shutdowns. Restrictions of this nature have caused, and may continue to cause, the Company, its subcontractors, suppliers and other business counterparties to experience operational delays. While the Company continues to assess the COVID-19 situation, the extent to which the COVID-19 pandemic may impact the business, operating results, financial condition, or liquidity in the future will depend on future developments, including the duration of the outbreak, travel restrictions, business and workforce disruptions, and the effectiveness of actions taken to contain and treat the disease.

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 wireless infrastructure services industry, changes in the trends of the telecommunications industry, changes in our supplier agreements, technological developments, changes in the general economic environment, the potential impact of the novel strain of coronavirus (“COVID-19”) pandemic, the growth or formation of competitors, changes in governmental regulation or taxation, changes in our personnel and other such factors. Our actual results, performance or achievements may differ significantly from the results, performance or achievements expressed or implied in the forward-looking statements. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

Overview

The following MD&A is intended to help the reader understand the results of operations, financial condition, and cash flows of the Company. MD&A is provided as a supplement to, and should be read in conjunction with the information presented elsewhere in this quarterly report on Form 10-Q and with the information presented in our annual report on Form 10-K for the year ended September 30, 2019, which includes our audited consolidated financial statements and the accompanying notes to the consolidated financial statements.

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

Wireless Infrastructure Services (“Wireless”)

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

Telecommunications (“Telco”)

Recent Business Developments

COVID-19

on business and social activities to contain COVID-19, including quarantine and “stay-at-home” or “shelter-in-place” orders in markets where we operate. Despite these “stay-at-home” or “shelter-in-place” orders, we are classified as an essential business due to the services and products we provide to the telecommunications industry. Therefore, we continue to operate in the markets we serve, although most of our back-office and administrative personnel are working from home while these orders are in place. Although we can continue to operate our businesses, our revenues have slowed, especially in our Wireless segment, due to the carriers slowing down various wireless tower projects. We have not experienced a material disruption in our supply chain to date; however, we expect COVID-19 could materially negatively affect the supply chain, customer demand for our telecommunications products or further delay wireless carriers’ infrastructure build plans in the coming months as a result of the disruption and uncertainty it is causing. There is considerable uncertainty regarding the extent to which COVID-19 will continue to spread and the extent and duration of governmental and other measures implemented to try to slow the spread of COVID-19, such as large-scale travel bans and restrictions, border closures, quarantines, shelter-in-place orders and business and government shutdowns. Restrictions of this nature have caused, and may continue to cause, us, our subcontractors, suppliers and other business counterparties to experience operational delays.

In response to COVID-19, we have taken a variety of measures to ensure the availability of our critical infrastructure, promote the health and safety of our employees, and support the communities in which we operate. These measures include providing support for our customers as reflected in the FCC's "Keep Americans Connected" pledge, requiring work-from-home arrangements for a large portion of our workforce and imposing travel restrictions for our employees where practicable, canceling physical participation in meetings, events and conferences, and other modifications to our business practices. We will continue to actively monitor the situation and may take further actions as may be required by governmental authorities or that we determine are in the best interests of our employees, customers, business partners and stockholders.

While we continue to assess the COVID-19 situation, the extent to which the COVID-19 pandemic may impact our business, operating results, financial condition, or liquidity in the future will depend on future developments, including the duration of the outbreak, travel restrictions, business and workforce disruptions, and the effectiveness of actions taken to contain and treat the disease.

Management Changes

In the second fiscal quarter of 2020, two of our executives, our President of Wireless Segment and Chief Financial Officer, left the Company. We have replaced the President of Wireless Segment with interim President, Jimmy Taylor. Mr. Taylor is tasked with improving the overall operations and financial results of the Wireless Segment as well as increasing our customer base in order to grow our top line revenue for this segment as we prepare for the deployment of 5G technology on existing towers, new raw-land builds, and small cell networks. We are still conducting our search to fill the Chief Financial Officer position. In the meantime, Scott Francis, our Company’s Chief Accounting Officer and former Chief Financial Officer, is serving as the interim Chief Financial Officer.

Intangible Asset and Goodwill Impairment

Due to our continued operating losses and the uncertainties surrounding the COVID-19 pandemic on the overall economy and the resulting impact on our Company, we determined that there were indicators to warrant us to assess our intangible assets and goodwill for impairment at March 31, 2020. As a result of these assessments, we recorded impairment charges in the Telco segment of $3.9 million and $4.8 million for customer relationship intangibles and goodwill, respectively.

Results of Operations

Comparison of Results of Operations for the Three Months Ended March 31, 2020 and March 31, 2019

Consolidated

Consolidated sales decreased $0.9 million, or 7%, to $12.0 million for the three months ended March 31, 2020 from $12.9 million for the three months ended March 31, 2019. The decrease in sales was primarily due to declines in sales

in the Telco segment, which decreased $1.4 million, partially offset by an increase in the Wireless segment of $0.5 million.

Consolidated gross profit decreased $3.9 million to a loss of $0.4 million for the three months ended March 31, 2020 from a profit of $3.5 million for the same period last year. The decrease in gross profit was due to the Wireless segment and Telco segment of $1.1 million and $2.8 million, respectively.

Consolidated operating expenses include indirect costs associated with operating our business. Indirect costs are costs that are not directly attributable to projects or products, which would include indirect personnel costs, facility costs, vehicles, insurance, communication, and business taxes, among other less significant cost categories. Operating expenses increased $0.2 million, or 7%, to $2.0 million for the three months ended March 31, 2020 from $1.8 million the same period last year. The increase in operating expenses was due to the Wireless segment of $0.2 million. Operating expenses for the Telco segment were consistent with the previous year’s quarter.

Consolidated selling, general and administrative expenses include overhead costs, which primarily consist of personnel costs, insurance, professional services, and communication, among other less significant cost categories. Selling, general and administrative expenses increased $0.5 million, or 19%, to $3.1 million for the three months ended March 31, 2020 from $2.6 million for the same period last year. The increase in expenses was due to the Wireless segment and Telco segment of $0.4 million and $0.1 million, respectively.

Impairment of intangibles including goodwill for the three months ended March 31, 2020 was $8.7 million related to the write-off of goodwill and certain intangibles in the Telco segment.

Depreciation and amortization expenses increased $0.1 million, or 31%, to $0.5 million for the three months ended March 31, 2020 from $0.4 million for the same period last year. The increase was due primarily to increased depreciation expense from the Wireless segment.

Interest income primarily consists of interest earned on the promissory note from the sale of the cable business in June 2019. Interest income was $0.1 million for the three months ended March 31, 2020 and zero for the same period last year.

Income from equity method investment, which consists of activity related to our investment in YKTG Solutions, for the three months ended March 31, 2020 was $19 thousand and $55 thousand for the three months ended March 31, 2019. The income for the three months ended March 31, 2020 and 2019 consisted primarily of payments received under a loan to the former YKTG Solutions partners.

Other expense for the three months ended March 31, 2020 was essentially zero as compared to $41 thousand for the same period last year. The expense for the both the three months ended March 31, 2020 and March 31, 2019 is primarily related to our factoring arrangements with our Wireless segment. In addition, for the three months ended March 31, 2020 there were gains on sales of assets of $25 thousand.

Interest expense for the three months ended March 31, 2020 was $59 thousand as compared to $20 thousand for the same period last year. The expense for the three months ended March 31, 2020 was primarily related to interest expense on the revolving bank line of credit. The expense for the three months ended March 31, 2019 was primarily related to interest expense from our outstanding term loans that were extinguished in November 2018.

The provision (benefit) for income taxes was zero for the three months ended March 31, 2020 compared to a benefit for income taxes of $0.1 million for the three months ended March 31, 2019.

Segment Results

Wireless

Revenues for the Wireless segment increased $0.5 million to $4.7 million for the three months ended March 31, 2020, when compared to the same period last year. Substantially all of the revenue for the year was derived from wireless infrastructure services. Even though revenue did increase compared to the prior year, revenue for the three months

ended March 31, 2020 continued to be negatively impacted due to a large carrier completing its work in the Southern United States until they start the deployment of 5G technology in this region, and delays regarding the T-Mobile/Sprint merger decision, which has now been finalized. In addition, the Wireless segment was also impacted by the COVID-19 pandemic in that certain infrastructure services work was delayed or cancelled. However, management repositioned much of its Southern workforce to the Northern states to support the infrastructure work that was ongoing in this region to offset the lack of work in the South and the general decline due to the COVID-19 pandemic.

Over the past several months, we have seen a slow-down industry wide in wireless infrastructure services work due primarily to, among other things, a delay in the approval of the T-Mobile/Sprint merger, which has now been finalized, and more recently the impact of the COVID-19 pandemic. Since the T-Mobile/Sprint merger is now approved, we believe that the 5G rollout will gain momentum in the second half of the calendar year and that there is substantial and growing pent-up demand for 5G-related work on existing towers, new raw-land builds, and small cell networks. In addition, we have made and are continuing to make the necessary operational changes in order to be well positioned to secure a significant share of the 5G construction services work and to improve our operating cost efficiency and gross profit.

Gross profit was $0.2 million, or 4% for the three months ended March 31, 2020 and $1.3 million, or 31%, for the three months ended March 31, 2019. The decrease in gross profit was due primarily to increased personnel and subcontractor costs in the current year resulting from operational inefficiencies we experienced in the current year due to repositioning our Southern workforce in the North.

Operating expenses increased $0.2 million to $1.3 million for the three months ended March 31, 2020 from $1.1 million for the three months ended March 31, 2019.

Selling, general and administrative expenses increased $0.4 million to $1.6 million for the three months ended March 31, 2020 from $1.2 million for the three months ended March 31, 2019. This increase was due primarily to increased payroll-related expenses for the three months ended March 31, 2020 compared to the prior year as we were ramping up the back-office support for this segment in the prior year.

Depreciation and amortization expense increased $63 thousand to $0.2 million for the three months ended March 31, 20120 from $0.1 million for the same period last year.

Telco

Sales for the Telco segment decreased $1.4 million to $7.3 million for the three months ended March 31, 2020 from $8.7 million for the same period last year. The decrease in sales for the Telco segment was due to a decrease in equipment sales of $1.3 million and recycling revenue of $0.1 million. The decrease in Telco equipment sales was due to Nave Communications of $1.1 million and Triton Datacom of $0.2 million.

Gross profit was a loss of $0.6 million for the three months ended March 31, 2020 and $2.2 million for the three months ended March 31, 2019. Gross profit for the three months ended March 31, 2020 was impacted by an increase in inventory obsolescence expense of $2.1 million and an increase in lower of cost or net realizable value expense of $0.2 million. The decrease in gross margin percentage was due primarily to the impact of these inventory adjustments in the three months ended March 31, 2020.

Operating expenses remained consistent at $0.7 million for the three months ended March 31, 2020 and March 31, 2019.

Selling, general and administrative expenses increased $0.1 million to $1.5 million for the three months ended March 31, 2020 from $1.4 million for the same period last year. This increase was due primarily to increased personnel costs.

Impairment of intangibles including goodwill for the three months ended March 31, 2020 was $8.7 million related to the write-off of goodwill and certain intangibles in the Telco segment.

Depreciation and amortization expense increased $57 thousand to $0.4 million for the three months ended March 31, 2020 from $0.3 million for the same period last year.

Comparison of Results of Operations for the Six Months Ended March 31, 2020 and March 31, 2019

Consolidated

Consolidated sales increased $6.2 million, or 32%, to $25.9 million for the six months ended March 31, 2020 from $19.7 million for the six months ended March 31, 2019. The increase in sales was primarily in the Wireless segment, which increased $7.2 million, partially offset by a decrease in sales from the Telco segment of $1.0 million.

Consolidated gross profit decreased $2.0 million, or 39%, to $3.2 million for the six months ended March 31, 2020 from $5.2 million for the same period last year. The decrease in gross profit was due to the Telco segment of $2.8 million, partially offset by an increase in the Wireless segment of $0.8 million.

Consolidated operating expenses include indirect costs associated with operating our business. Indirect costs are costs that are not directly attributable to projects or products, which would include indirect personnel costs, facility costs, vehicles, insurance, communication, and business taxes, among other less significant cost categories. Operating expenses increased $1.6 million, or 65%, to $3.9 million for the six months ended March 31, 2020 from $2.3 million the same period last year. The increase in operating expenses was due to an increase in the Wireless segment and Telco segment of $1.4 million and $0.2 million, respectively.

Consolidated selling, general and administrative expenses include overhead costs, which primarily consist of personnel costs, insurance, professional services, and communication, among other less significant cost categories. Selling, general and administrative expenses increased $1.6 million, or 34%, to $6.1 million for the six months ended March 31, 2020 from $4.5 million for the same period last year. This was due to an increase in the Wireless segment of $2.0 million, partially offset by a decrease in the Telco segment of $0.4 million, respectively.

Depreciation and amortization expenses increased $0.3 million, or 39%, to $1.0 million for the six months ended March 31, 2020 from $0.7 million for the same period last year. The increase was due primarily to increased depreciation expense resulting from the acquisition of Fulton in January 2019.

Interest income primarily consists of interest earned on the promissory note from the sale of the cable business in June 2019. Interest income was $0.2 million for the six months ended March 31, 2020 and zero for the same period last year.

Income from equity method investment, which consists of activity related to our investment in YKTG Solutions, for the six months ended March 31, 2020 was $41 thousand and $55 thousand for the six months ended March 31, 2019. The income for the six months ended March 31, 2020 consisted primarily of payments received under a loan to the former YKTG Solutions partners.

Other expense for the six months ended March 31, 2020 was $57 thousand as compared to $40 thousand for the same period last year. The expense for the both the six months ended March 31, 2020 and March 31, 2019 is primarily related to our factoring arrangements with our Wireless segment. In addition, for the six months ended March 31, 2020 there were gains on sales of assets of $28 thousand.

Interest expense for the six months ended March 31, 2020 was $83 thousand as compared to $43 thousand for the same period last year. The expense for the six months ended March 31, 2020 was primarily related to interest expense related to our factoring arrangements with our Wireless segment and our revolving bank line of credit. The expense for the six months ended March 31, 2019 was primarily related to interest expense from our outstanding term loans that were extinguished in November 2018.

The provision (benefit) for income taxes was a benefit of $15 thousand for the six months ended March 31, 2020 compared to a provision for income taxes of $29 thousand for the six months ended March 31, 2019.

Segment Results

Wireless

Revenues for the Wireless segment were $11.5 million for the six months ended March 31, 2020 and $4.2 million for the same period last year. The increase in revenue was due primarily to us acquiring Fulton Technologies, Inc. and its affiliate (“Fulton”) in January 2019. Substantially all of the revenue for the year was derived from wireless infrastructure services.

Gross profit was $2.0 million, or 18% for the six months ended March 31, 2020 and $1.3 million, or 31%, for the six months ended March 31, 2019. This increase is due primarily to the acquisition of Fulton in January 2019, partially offset by increased expenses of repositioning our Southern workforce to the North during the six months ended March 31, 2020.

Operating expenses increased $1.4 million to $2.5 million for the six months ended March 31, 2020 from $1.1 million for the same period last year due primarily to the acquisition of Fulton in January 2019.

Selling, general and administrative expenses increased $1.9 million to $3.1 million for the six months ended March 31, 2020 from $1.2 million for the six months ended March 31, 2019 due primarily to the acquisition of Fulton in January 2019.

Depreciation and amortization expense was $0.3 million and $0.1 million for the six months ended March 31, 2020 and March 31, 2019, respectively.

Telco

Sales for the Telco segment decreased $1.0 million to $14.5 million for the six months ended March 31, 2020 from $15.5 million for the same period last year. The decrease in sales for the Telco segment was due to an decrease in equipment sales of $1.0 million. The decrease in Telco equipment sales was due to Nave Communications of $1.4 million, partially offset by Triton Datacom of $0.4 million.

Gross profit was $1.1 million for the six months ended March 31, 2020 and $3.9 million for the six months ended March 31, 2019. Gross profit for the six months ended March 31, 2020 was impacted by an increase in inventory obsolescence expense of $2.1 million and an increase in lower of cost or net realizable value expense of $0.2 million. The decrease in gross margin percentage was due primarily to the impact of these inventory adjustments in the six months ended March 31, 2020.

Operating expenses increased $0.2 million to $1.4 million for the six months ended March 31, 2020 from $1.2 million for the same period last year. This increase was due primarily to additional facility costs as a result of moving into Triton’s new facility in the first fiscal quarter of 2020 and additional personnel costs.

Selling, general and administrative expenses decreased $0.3 million to $3.0 million for the six months ended March 31, 2020 from $3.3 million for the same period last year. This decrease was due primarily to decreased personnel costs.

Depreciation and amortization expense slightly increased $0.1 million to $0.7 million from $0.6 million for the six months ended March 31, 2020 and 2019, respectively.

Non-GAAP Financial Measure

Adjusted EBITDA is a supplemental, non-GAAP financial measure. EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA as presented also excludes impairment charges for intangible assets including goodwill, stock compensation expense, other income, other expense, interest income and income from equity method investment. Adjusted EBITDA is presented below because this metric is used by the financial community as a method of measuring our financial performance and of evaluating the market

value of companies considered to be in similar businesses. Since Adjusted EBITDA is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net earnings as an indicator of operating performance. Adjusted EBITDA, as calculated below, may not be comparable to similarly titled measures employed by other companies. In addition, Adjusted EBITDA is not necessarily a measure of our ability to fund our cash needs.

A reconciliation by segment of loss from operations to Adjusted EBITDA for the three and six months ended March 31, follows:

	Three Months Ended March 31, 2020									Three Months Ended March 31, 2019
	Wireless			Telco			Total			Wireless			Telco			Total
Loss from operations	$	(2,795,785	)	$	(11,911,258	)	$	(14,707,043	)	$	(1,113,584	)	$	(235,291	)	$	(1,348,875	)
Impairment of intangibles including goodwill					8,714,306			8,714,306			−			−			−
Depreciation and amortization expense		153,374			354,411			507,785			90,003			297,700			387,703
Stock compensation expense		29,962			58,457			88,419			21,113			30,656			51,769
Adjusted EBITDA (a)	$	(2,612,449	)	$	(2,784,084	)	$	(5,396,533	)	$	(1,002,468	)	$	93,065		$	(909,403	)

	Six Months Ended March 31, 2020									Six Months Ended March 31, 2019
	Wireless			Telco			Total			Wireless			Telco			Total
Loss from operations	$	(3,883,229	)	$	(12,586,535	)	$	(16,469,764	)	$	(1,113,584	)	$	(1,243,714	)	$	(2,357,298	)
Impairment of intangibles including goodwill		−			8,714,306			8,714,306			−			−			−
Depreciation and amortization expense		300,070			655,289			955,359			90,003			597,085			687,088
Stock compensation expense		38,767			67,292			106,059			21,113			84,976			106,089
Adjusted EBITDA (a)	$	(3,544,392	)	$	(3,149,648	)	$	(6,694,040	)	$	(1,002,468	)	$	(561,653	)	$	(1,564,121	)

(a)	The Telco segment includes inventory-related non-cash adjustments of $2.3 million for both the three and six months ended March 31, 2020.

Critical Accounting Policies

Note 1 to the Consolidated Financial Statements in Form 10-K for fiscal 2019 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

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

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 are all carried in the Telco segment and consist of new and used electronic components for the telecommunications industry. Inventory is stated at the lower of cost or net realizable value, with cost determined using the weighted-average method. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. At March 31, 2020, we had total inventory, before the reserve for excess and obsolete inventories, of $8.8 million, consisting of $0.9 million in new products and $7.9 million in used or refurbished products.

We identified certain inventory that more than likely will not be sold or that the cost will not be recovered when it is processed through its recycling program. Therefore, we have an obsolete and excess inventory reserve of $3.4 million at March 31, 2020. 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 creditworthiness, current economic trends and changes in our customer payment terms. Significant changes in customer concentration or payment terms, deterioration of customer creditworthiness, 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 $0.3 million at March 31, 2020 and $0.2 million at September 30, 2019. At March 31, 2020, accounts receivable, net of allowance for doubtful accounts, was $4.9 million.

Intangibles

Intangible assets that have finite useful lives are amortized on a straight-line basis over their estimated useful lives ranging from 3 years to 10 years. Intangible assets are also tested for impairment when events and circumstances indicate that the carrying value may not be recoverable. Due to our continued operating losses and the uncertainties surrounding the COVID-19 pandemic on the overall economy and the resulting impact on our Company, we determined that there were indicators for us to test our intangible assets for impairment at March 31, 2020. It was determined that we needed to perform a specific fair value assessment for each of the intangible assets at both Nave and Triton as their individual undiscounted forecasted cash flows did not exceed their respective carrying values. We then performed a fair value assessment of each of the intangible assets and compared them to the individual carrying

value amounts at March 31, 2020. As a result of this assessment, we recorded an impairment charge of $3.9 million related to the customer relationship intangibles in the Telco segment.

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 the Wireless segment, Nave and Triton.

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.

Due to our continued operating losses and the uncertainties surrounding the COVID-19 pandemic on the overall economy and the resulting impact on our Company, we determined that there were indicators to warrant us to test goodwill for impairment at March 31, 2020. We calculated a fair value using the income approach of both Nave and Triton to determine if the fair value exceeded their respective carrying values. For both Nave and Triton, the fair value for each was less than their respective carrying values after considering the intangible asset impairment. Therefore, we recorded an impairment charge of $4.8 million in the Telco segment. Although we do not anticipate a future impairment charge, certain events could occur that might adversely affect the reported value of the remaining 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, and a material negative change in the relationships with one or more of our significant customers or equipment suppliers. 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 Wireless segment also may change.

Liquidity and Capital Resources

Cash Flows Used in Operating Activities

In fiscal year 2020, we have financed our operations primarily through financing activities by utilizing our line of credit and entering into an additional $3.5 million term loan from our primary financial lender. During the six months ended March 31, 2020, we used $4.2 million of cash flows for operations. The cash flows from operations was negatively impacted by a net loss of $16.4 million, which was partially offset by non-cash adjustments of $11.9 million and net cash provided by working capital of $0.3 million to reconcile net loss to net cash used in operating activities.

Cash Flows Used for Investing Activities

During the six months ended March 31, 2020, cash provided by investing activities was $0.6 million, consisting primarily of payments received under the promissory note related to the sale of the cable business in fiscal year 2019.

Cash Flows Used for Financing Activities

During the six months ended March 31, 2020, cash provided by financing activities was $6.3 million, which primarily related to net borrowings of $3.5 million under our revolving credit agreement, and proceeds from our note payable of $3.5 million, both of which were partially offset by the final guaranteed payment of $0.7 million to the Triton Miami, Inc. partners.

In March 2020, we entered into a loan agreement with our primary financial lender for $3.5 million, bearing interest at 6% per annum. The loan is payable in seven semi-annual installments of principal and interest with the first payment

due June 30, 2020, and the final payment due June 30, 2023. The principal and interest payments correlate to the promissory note with Leveling 8. We effectively monetized $3.5 million of the $5.8 million remaining balance of the promissory note resulting from the sale of our cable businesses in 2019 to Leveling 8 to assist us with working capital needs.

Our credit agreement contains a $4.0 million revolving line of credit, which matures on December 17, 2020. The revolving line of credit requires quarterly interest payments based on the prevailing Wall Street Journal Prime Rate (4.25% at March 31, 2020), 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. Future borrowings under the revolving line of credit are limited to the lesser of $4.0 million or the sum of 80% of eligible accounts receivable and 25% of eligible inventory. Under these limitations, our total available revolving line of credit borrowing base was $3.6 million at March 31, 2020.

We believe that it is probable that we will not be in compliance with our fixed charge coverage ratio loan covenant with our primary financial lender as of September 30, 2020. We would therefore need to seek a waiver of this covenant violation. If our primary financial lender does not grant the waiver, this could result in our lender accelerating the maturity of our indebtedness or preventing access to additional funds under our line of credit agreement, or requiring prepayment of our outstanding indebtedness under our March 10, 2020 loan agreement or the line of credit agreement.

Subsequent to March 31, 2020, we applied and received a SBA Payroll Protection Program (“PPP”) loan with our primary lender for $2.9 million, bearing interest at 1% per annum, with monthly payments of principal and interest in the amount of $164,045 commencing on November 10, 2020. The loan matures on April 10, 2022. We plan to use the proceeds from the PPP loan for payroll-related expenses, rent, and utility expenses in accordance with the guidelines for the loan. We believe that most of this loan will be forgiven in accordance with certain conditions of the PPP loan, which still need to be finalized by the SBA and Congress.

Of the $6.4 million in proceeds received from the March 2020 loan and the PPP loan, we believe that most of the payments for these loans will not have to be repaid using funds generated from our operations. The March 2020 loan will be paid by payments received from our promissory note with Leveling 8, and we anticipate that the PPP loan will mostly be forgiven.

We also recently filed a shelf registration statement and could raise additional cash by selling common shares utilizing an at the market offering.

We believe that our cash and cash equivalents and restricted cash of $4.3 million at March 31, 2020, our existing revolving bank line of credit and the receipt of the PPP loan in April 2020 will provide sufficient liquidity and capital resources to cover our operating losses and our additional working capital and debt payment needs. However, we will likely need to seek a waiver for our probable covenant violation under our loan agreements with our primary financial lender. In addition, there is still significant uncertainty surrounding the timing of the overall recovery of the economy and the timing of wireless infrastructure service opportunities for the upgrade to 5G. Therefore, depending on the timing of these factors and our primary financial lender granting us a waiver of the probable covenant violation, there is still risk that we may not have sufficient cash and cash equivalents available for us to sustain our operations at our current level. If that were to occur, we would need to seek additional funding and possibly utilize our shelf registration that we have available to us in order to enhance our cash position and assist in our working capital 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, 2020, our Chief Executive Officer and Chief Accounting 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 Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.

PART II. OTHER INFORMATION

Item 6. Exhibits.

Exhibit No.	Description

10.1	Business Bank Loan Agreement dated March 10, 2020.

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

31.2	Certification of Chief Accounting 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 Accounting 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, 2020

/s/ Joseph E. Hart

Joseph E. Hart,

President and Chief Executive Officer

(Principal Executive Officer)

Date: May 14, 2020

/s/ Scott A. Francis

Scott A. Francis,

Chief Accounting Officer

(Principal Financial Officer)

Exhibit Index

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

Exhibit No.	Description

10.1	Business Bank Loan Agreement dated March 10, 2020.

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

31.2	Certification of Chief Accounting 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 Accounting 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.

LOAN AGREEMENT
THIS LOAN AGREEMENT is made and entered into this 10th day of March, 2020, by and
between ADDVANTAGE TECHNOLOGIES GROUP, INC., an Oklahoma corporation (the
"Borrower"), and VAST BANK, N.A. (the "Lender").
RECITALS
A. The Borrower has requested that the Lender make a term loan to the Borrower in
the principal amount of $3,474,600.
B. The Lender is willing to make the requested loan, but only upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the above recitals and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Certain Terms. Unless the context otherwise requires, the following terms used
herein shall be construed and controlled by the following definitions:
"Affiliate" means, with respect to any Person, any other Person who has a relationship with
such Person whereby either such other Person directly or indirectly controls, is controlled by or is
under common control with the other, or holds or beneficially owns 10% or more of the equity
interest in the other or 10% or more of any class of voting securities of the other. For purposes of
this definition, a Person has "control" over another Person if such Person has the ability to exercise
a controlling influence over the management and policies of the other Person.
"Agreement" (and such terms as "herein," "hereof," "hereto," "hereby," "hereunder" and
the like) means this Loan Agreement, together with all exhibits and schedules attached hereto.
"Anti-Corruption Laws" means all Laws of any jurisdiction applicable to the Borrower or
any of its Affiliates from time to time concerning or relating to bribery or corruption, including
the United States Foreign Corrupt Practices Act of 1977, as amended, or any similar Law in any
applicable jurisdiction.
"Borrower" is defined in the introductory paragraph of this Agreement.
"Business Day" means any day, other than a Saturday, Sunday or legal holiday for
commercial banks under the laws of the State of Oklahoma, on which the Lender is open for
substantially all of its normal banking functions.
"Capitalized Lease Obligations" of a Person means the amount of the obligations of such
Person under capital leases which should be recorded as a liability of such Person in accordance
with GAAP.

1

"Charter Documents" means (i) the certificate of incorporation of the Borrower filed with
the Oklahoma secretary of state on September 19, 1989 (ii) the bylaws of the Borrower dated as
of September 19, 1989 and (iii) any other internal governance documents of the Borrower, as any
of the foregoing may be amended, modified or restated from time to time (subject, however, to the
provisions of Section 5.11).
"Chymiak" means David E. Chymiak.
"Chymiak Guaranty" means that certain Guaranty and Covenant Agreement dated as of
June 30, 2019, made by Chymiak in favor of the Borrower.
"Chymiak Pledge" means that certain [Pledge Agreement] dated as of June 30, 2019, made
by Chymiak in favor of the Borrower.
"Closing" means the date and time, as specified in Section 7.1, on which the Loan
Documents are delivered by the parties and the Loan is advanced to the Borrower.
"Collateral" means (i) the Personal Property Collateral, (iii) all of the Borrower's rights in
and to the Leveling 8 Mortgages and the Leveling 8 Note, (iv) all of the Borrower's rights in and
to the Chymiak Guaranty and the Chymiak Pledge, and (v) any other Property in which the Lender
is granted a Lien to secure repayment of the Indebtedness (or any portion thereof) pursuant to the
terms of any of the Loan Documents.
"Collateral Documents" is defined in Section 2.11.
"Debt" means any liability, indebtedness or obligation which, in accordance with GAAP,
should be recorded as a liability of such Person.
"Default" means the existence or occurrence of any event or circumstance which, but for
the giving of notice or the passage of time, or both, would constitute an Event of Default.
"Default Rate" means, for any period following the occurrence of a Default, a per annum
rate of interest that is 4% higher than the interest rate that would otherwise be in effect if such
Default had not occurred.
"Distribution" means, as to any Person, any dividend or other distribution (whether in cash,
securities or other property) with respect to any shares of common stock or other equity interests
in such Person, or any payment (whether in cash, securities or other property), including any
sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition,
cancellation or termination of any such equity interest in such Person or any option, warrant or
other right to acquire any equity interest in such Person.
"EBITDA" means, with reference to any period of time, net income (or loss) of a Person
for such period, plus, to the extent deducted from revenues in determining net income, (i) interest
expense, (ii) expense for income taxes paid or accrued, (iii) depreciation and (iv) amortization.
"Environmental Laws" means any and all Federal, state, local, foreign and other applicable
statutes, Laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions,

2

grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the
protection of the environment or the release of any materials into the environment, including those
related to hazardous substances or wastes, air emissions and discharges to waste or public systems.
"Environmental Liability" means any liability, contingent or otherwise (including any
liability for damages, costs of environmental remediation, fines, penalties or indemnities) of the
Borrower directly or indirectly resulting from or based upon (a) violation of any Environmental
Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any
Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release of any Hazardous
Materials into the environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended and
as in effect from time to time.
"Event of Default" means the occurrence or existence of any of the events or circumstances
specified in Article VIII of this Agreement.
"Fixed Charge Coverage Ratio" means for any period of determination, the ratio of
(i) EBITDA of the Borrower for the then most recently ended four fiscal quarters, to (ii) the current
maturities of all Funded Debt of the Borrower (other than current maturities of the Loan) for the
next ensuing four fiscal quarters, plus interest expense of the Borrower (other than interest on the
Loan) during the then most recently ended four fiscal quarters.
"Funded Debt" means, as to any Person, without duplication, (i) Debt of such Person for
money borrowed, (ii) Debt of such Person which represents seller financing of the unpaid purchase
price of goods or services (if incurred for such purpose in lieu of borrowing money or using
available funds to pay such amount) and which is payable over a term of more than six months (or
which permits such Person, at its option, to defer payment for more than six months), (iii) Debt of
such Person evidenced by a promissory note, bond, debenture or other like obligation to pay
money, and (iv) Capitalized Lease Obligations of such Person.
"GAAP" means generally accepted accounting principles in the United States applicable to
commercial entities as set forth in the U.S. GAAP Accounting Standards Codification issued by
the Financial Accounting Standards Board or such other principles as may be approved by a
significant segment of the accounting profession in the United States, that are applicable to the
circumstances as of the date of determination, consistently applied.
"Governmental Authority" means any court or any administrative or governmental
department, commission, board, bureau, authority, agency or body of any governmental entity,
whether national, federal, state, county, city, municipal or otherwise.
"Governmental Requirements" means all laws, orders, decrees, ordinances, rules and
regulations of any Governmental Authority.
"Guarantee Obligation" means, as to any Person (the "guaranteeing person"), any
obligation, including a reimbursement, counterindemnity or similar obligation, of the guaranteeing

3

Person that guarantees or in effect guarantees, or which is given to induce the creation of a separate
obligation by another Person (including any bank under any letter of credit) that guarantees or in
effect guarantees, any indebtedness, leases, dividends or other obligations (the "primary
obligations") of any other third Person (the "primary obligor") in any manner, whether directly or
indirectly, including any obligation of the guaranteeing person, whether or not contingent, (i) to
purchase any such primary obligation or any property constituting direct or indirect security
therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary
obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities
or services primarily for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to
assure or hold harmless the owner of any such primary obligation against loss in respect thereof;
provided, however, that the term Guarantee Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of business.
"Hazardous Materials" means all explosive or radioactive substances or wastes and all
hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum
distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas,
infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to
any Environmental Law.
"Indebtedness" means and includes all liabilities, obligations or indebtedness of the
Borrower to the Lender of every kind and description, now existing or hereafter incurred, direct or
indirect, absolute or contingent, due or to become due, matured or unmatured, and whether or not
of the same or a similar class or character as the Loan and whether or not contemplated by the
Lender or the Borrower, together with future advances and all extensions and renewals, and
including (i) all liabilities, obligations and indebtedness of the Borrower to the Lender arising out
of or related to this Agreement, the Loan, the Note or any other of the Loan Documents, and (ii)
all liabilities, obligations and indebtedness of the Borrower to the Lender or any of its Affiliates in
respect of any Treasury Management Agreement.
"Laws" means and includes laws, statutes, rules, regulations, ordinances and codes of any
Governmental Authority.
"Lender" is defined in the introductory paragraph of this Agreement.
"Leveling 8" means Leveling 8 Inc., an Oklahoma corporation.
"Leveling 8 Mortgages" means (i) that certain Mortgage with Power of Sale, Assignment
of Leases and Rents, Security Agreement and Fixture Filing filed on July 8, 2019 in the Pettis
County, Missouri Recorder of Deeds, between David Chymiak, LLC, as Mortgagor, and the
Borrower, as Mortgagee, (ii) that certain Mortgage with Power of Sale, Assignment of Leases and
Rents, Security Agreement and Fixture Filing filed on July 9, 2019 in the Bucks County,
Pennsylvania Recorder of Deeds, between David Chymiak, LLC, as Mortgagor, and the Borrower,
as Mortgagee and (iii) that certain Mortgage with Power of Sale, Assignment of Leases and Rents,
Security Agreement and Fixture Filing filed on July 8, 2019 in the Tulsa County, Oklahoma

County Clerk Office, between David Chymiak, LLC, as Mortgagor, and the Borrower, as
Mortgagee.
"Leveling 8 Note" means that certain $6,375,000 Promissory Note dated as of June 30,
2019, made by Leveling 8 in favor of the Borrower.
"Leveling 8 Obligations" means all liabilities, obligations and indebtedness, of every kind
and description and howsoever created, arising or evidenced, whether direct or indirect, absolute
or contingent, now existing or hereafter arising, and whether joint, several, or joint and several, of
Leveling 8 to the Borrower, including the liabilities, obligations and indebtedness of Leveling 8
arising under or evidenced by the Leveling 8 Note.
"Lien" means any mortgage, pledge, lien, tax lien, security interest, assignment, charge,
restriction, claim or other encumbrance, whether statutory, consensual or otherwise, which is
granted, created or suffered to exist by the Borrower on any of its Properties.
"Loan" is defined in Section 2.1.
"Loan Documents" means this Agreement, the Note, the Collateral Documents, and all
other security agreements, pledge agreements, deeds of trust, assignments, financing statements,
stock powers, agreements and documents executed or issued or to be executed or issued pursuant
to this Agreement or in connection with the Loan or the grant, creation, perfection or continuation
of the Liens to be granted to the Lender in and to the Collateral pursuant to this Agreement.
"Material Adverse Effect" means (a) a material adverse change in, or a material adverse
effect upon, the operations, business, properties, liabilities (actual or contingent), condition
(financial or otherwise) or prospects of the Borrower; (b) a material impairment of the ability of
the Borrower to perform its obligations under any of the Loan Documents to which it is a party;
or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against
the Borrower of any Loan Document.
"Note" means the promissory note to be made, executed and delivered by the Borrower
pursuant to Section 2.4 in order to evidence the Loan.
"PATRIOT Act" means the USA PATRIOT Act of 2001, 31 U.S.C. Section 5318.
"Permit" means any permit, certificate, consent, franchise, concession, license,
authorization, approval, filing, registration or notification from or with any Governmental
Authority or other Person.
"Permitted Liens" is defined in Section 5.1.
"Person" means and includes any individual, sole proprietorship, corporation, partnership
(whether general, limited, limited liability or special), joint venture, limited liability company,
institution, trust, association, organization (whether or not a legal entity), or Governmental
Authority.

5

"Personal Property Collateral" means all inventory, accounts, cash and accounts
receivable, whether now owned and existing or hereafter acquired or arising, together with all
accessions thereto, substitutions and replacements therefor, and all proceeds of any of the
foregoing.
"Property" means any asset or property, whether real, personal or mixed, tangible or
intangible, which is now or at any time hereafter owned, operated or leased by the Borrower.
"Related Parties" means, with respect to any Person, such Person's Affiliates and the
shareholders, members, partners, directors, officers, employees, agents and advisors of such
Person and of such Person's Affiliates.
"Sanctioned Country" means, at any time, a country, region or territory which is itself the
subject or target of any Sanctions.
"Sanctioned Person" means, at any time, (a) any Person listed in any Sanctions-related list
of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department
of the Treasury, the U.S. Department of State, or by the United Nations Security Council, the
European Union or any European Union member state, (b) any Person operating, organized or
resident in a Sanctioned Country, or (c) any Person owned or controlled by any such Person or
Persons described in the foregoing clauses (a) or (b).
"Sanctions" means all economic or financial sanctions or trade embargoes imposed,
administered or enforced from time to time by (a) the U.S. government, including those
administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or
the U.S. Department of State, or (b) the United Nations Security Council, the European Union,
any European Union member state or Her Majesty’s Treasury of the United Kingdom.
"Security Agreement" means the Security Agreement to be executed and delivered by the
Borrower pursuant to Section 2.11(a).
"Solvent" or "Solvency" means, with respect to any Person as of a particular date, that on
such date (a) such Person is able to pay its debts and other liabilities, contingent obligations and
other commitments as they mature in the ordinary course of business, (b) such Person does not
intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature in their ordinary course, (c) such Person is not engaged in
a business or a transaction, and is not about to engage in a business or a transaction, for which such
Person's property would constitute unreasonably small capital after giving due consideration to the
prevailing practice in the industry in which such Person is engaged or is to engage, (d) the fair
value of the property of such Person is greater than the total amount of liabilities, including,
without limitation, contingent liabilities, of such Person and (e) the present fair salable value of
the assets of such Person is not less than the amount that will be required to pay the probable
liability of such Person on its debts as they become absolute and matured. In computing the
amount of contingent liabilities at any time, it is intended that such liabilities will be computed at
the amount which, in light of all the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured liability.

6

"Transfer" means and includes any form of sale, transfer, conveyance, lease or other
disposition of a Property, whether through a single transaction or a series of related transactions.
"Treasury Management Agreement" means any agreement governing the provision of
treasury or cash management services, including deposit accounts, funds transfer, automated
clearinghouse, zero balance accounts, returned check concentration, controlled disbursement,
lockbox, account reconciliation and reporting and trade finance services.
"UCC" means the Uniform Commercial Code as adopted and in effect in the State of
Oklahoma or any other applicable jurisdiction.
1.2 Accounting Terms and Calculations. Accounting and financial terms used herein
and not otherwise defined with respect to the Borrower's financial statements and financial position
have the meanings assigned to them pursuant to GAAP. All financial calculations required to be
made hereunder with respect to the Borrower shall be made in accordance with GAAP (except as
otherwise expressly provided herein).
1.3 Terms Defined in UCC. Unless the context otherwise requires, terms used herein
that are defined in the UCC (such as the terms "accounts," "equipment," "fixtures," "general
intangibles," "inventory" and "proceeds") have the respective meanings set forth therein.
1.4 Construction. The following rules of construction shall apply, unless the context
otherwise requires: (i) all terms defined herein in the singular shall include the plural, as the context
requires, and vice-versa; (ii) the descriptive headings of the Articles and Sections of this
Agreement are inserted for convenience only and shall not be used in the construction of the
content of this Agreement; (iii) the term "or" is not exclusive; (iv) the term "including" (or any
form thereof) shall not be limiting or exclusive; and (v) all references to any of the Loan
Documents include any and all modifications, amendments or supplements thereto and any and all
renewals and extensions thereof.

ARTICLE II
TERMS OF THE LOAN
2.1 Amount of Loan. Subject to the terms and conditions of this Agreement and the
other Loan Documents, and in reliance upon the representations and warranties contained herein
and therein, the Lender agrees to make a $3,474,600 term loan to the Borrower (the "Loan") at
Closing.
2.2 Use of Proceeds. The proceeds of the Loan shall be used by the Borrower for
general working capital purposes.
2.3 Disbursement. Subject to the Borrower's satisfaction of all applicable conditions
precedent as set forth in this Agreement, the Loan will be made to the Borrower at Closing.
2.4 Note. To evidence the Loan, the Borrower will make, execute and deliver the Note
to the Lender at the Closing. Notwithstanding the principal amount stated on the face of the Note,
the actual principal amount due from the Borrower on account of the Note will be the sum of all
advances actually made pursuant to the Loan, less all principal payments actually received by the

7

Lender in collected funds. The advances made by the Lender and the principal payments received
from the Borrower under the Loan will be recorded by the Lender in its books and records, and
the unpaid principal balance so recorded will be considered presumptive evidence of the principal
amount owing on the Note, absent manifest error.
2.5 Interest.
2.5.1. Contract Rate. The unpaid principal amount from time to time outstanding
under the Note shall bear interest at a fixed rate equal to 6.00% per annum.
2.5.2. Post-Default Interest. Upon the occurrence of any Event of Default and
continuing thereafter until cured to the satisfaction of the Lender, the unpaid principal
amount outstanding under the Note will bear interest at the Default Rate.
2.5.3. Computation of Interest. Interest on the Note shall be computed on the basis
of a year consisting of 360 days and for the actual number of days elapsed.
2.6 Required Payments.
2.6.1. Semi-Annual Payments. The Note will be payable as to principal and
interest as follows:
Due Date Amount
June 30, 2020 $700,000
December 31, 2020 $700,000
June 30, 2021 $700,000
December 31, 2021 $470,000
June 30, 2022 $470,000
December 31, 2022 $434,000
2.6.2. Maturity. The entire unpaid principal balance of the Note (which the
Borrower acknowledges will be a balloon payment), together with all unpaid interest
accrued thereon, will be due and payable on December 31, 2022.
2.7 Optional Prepayment. At any time and from time to time, the Borrower may prepay
the outstanding principal balance of the Note, in whole or in part; provided, however, that any such
prepayment must be accompanied by payment of all unpaid interest accrued on the principal
amount being prepaid. Amounts prepaid on the Note may not be re-borrowed.
2.8 Making of Payments. All payments, including prepayments, of principal of, or
interest on, the Note shall be made to the Lender by wire transfer on or before 2:00 p.m. on the
date due, in immediately available funds. Whenever a payment is due on a day other than a

8

Business Day, the due date shall be extended to the next succeeding Business Day and interest (if
any) shall accrue during such extension.
2.9 Maximum Lawful Interest Rate. It is not the intention of the Lender or the
Borrower to violate the laws of any applicable jurisdiction relating to usury or other restrictions
on the maximum lawful interest rate. The Loan Documents and all other agreements between the
Borrower and the Lender, whether now existing or hereafter arising and whether written or oral,
are hereby limited so that in no event shall the interest paid or agreed to be paid to the Lender for
the use, forbearance or detention of money loaned, or for the payment or performance of any
covenant or obligation contained herein or in any other Loan Document, exceed the maximum
amount permissible under applicable law. If from any such circumstances the Lender should ever
receive anything of value deemed interest under applicable law which would exceed interest at the
highest lawful rate, such excessive interest shall be applied to the reduction of the principal amount
owing hereunder, and not to the payment of interest, or if such excessive interest exceeds any
unpaid balance of principal, such excess shall be refunded to the Borrower. All sums paid or
agreed to be paid to the Lender for the use, forbearance or detention of monies advanced under the
Loan shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of the Indebtedness until payment in full so that the rate of interest on
account of the Indebtedness is uniform throughout the term thereof. This Section 2.9 shall control
every other provision of the Loan Documents and all other agreements between the Lender and
the Borrower.
2.10 Collateral. To secure the prompt payment of the Indebtedness and the performance
of all the covenants and agreements contained in this Agreement and the other Loan Documents,
the Borrower will grant and maintain in favor of the Lender a valid and perfected first priority lien
and security interest in and to the Collateral, subject only to Permitted Liens.
2.11 Collateral Documents. In order to provide the Lender with perfected liens, security
interests and assignments in, to and of the Collateral, the Borrower will execute and deliver the
following collateral documents (collectively, the "Collateral Documents") to the Lender (or cause
to be executed and delivered to the Lender), on or before the Closing Date, each in form and
substance satisfactory to the Lender:
(a) the Security Agreement; and

(b)
2.14.4).

the Leveling 8 Mortgage Assignments (as defined in Section

2.12 Late Fee. To the extent any principal and interest due under any Loan Document
is not paid within 15 calendar days of the due date therefore, and, to the extent that the following
described fee is deemed to constitute interest, subject to Section 2.9, in addition to any interest or
other fees and charges due hereunder or under the applicable Loan Document, the Borrower shall
pay a late fee equal to 5% of the amount of the payment that was to have been made. The Borrower
agrees that the charges set forth herein are reasonable compensation to Lender for the acceptance
and handling of such late payments.

9

2.13 Additional Documentation. The Borrower, at its expense, will promptly and
diligently take all action necessary to maintain and preserve the security interests and mortgage
liens granted in the Collateral and either will cause to be timely filed, together with the payment
of all necessary filing fees and taxes, such UCC financing and continuation statements in such
offices of public record, or will cause to be promptly delivered to the Lender such statements,
instruments, assignments, documents or papers, as may be necessary, to keep the security interest
granted to the Lender continuously perfected in the Collateral.
2.14 Leveling 8 Mortgage and Leveling 8 Note.
2.14.1. The Leveling 8 Obligations shall be postponed and subordinated in right of
payment, lien and enforcement to the prior payment in full, of all amounts included in or
payable under the Indebtedness. Until such time as the Indebtedness has been irrevocably
repaid in full, no payments shall be made by or on behalf of Leveling 8 or accepted by the
Borrower upon or in respect of any Leveling 8 Obligations (whether for principal, interest
or otherwise), unless such payment is specifically authorized to be made by the terms of
Section 2.14.2.
2.14.2. Notwithstanding the provisions of subsection 2.14.1 above, the following
payments may be made by Leveling 8 and accepted by the Borrower as long as, in each
instance, no Default or Event of Default has occurred and is continuing at the time any
such payment is proposed to be made:
(1) Payments of semiannual interest accrued on the Leveling 8 Note at the rate
of interest stated in the Leveling 8 Note; and
(2) Payments of semiannual principal on the Leveling 8 Note as scheduled in
the Leveling 8 Note.
In the event that, notwithstanding the foregoing, any payment shall be received by the
Borrower contrary to the provisions of this Section 2.14.2, such payment shall be held by
the Borrower in trust for the benefit of the Lender and shall immediately be paid over or
delivered to the Lender.
The Borrower shall direct Leveling 8 to make each semiannual payment required by
Section 2.6.1 directly to the Lender, and the Borrower agrees that the amount of each
semiannual payment required to be paid by Leveling 8 to the Borrower under the Leveling
8 Note shall be reduced by the amount of each direct payment made by Leveling 8 to the
Lender pursuant to this sentence. The Lender shall apply such funds upon receipt to the
amounts owed under Section 2.6.1.
2.14.3. Until such time as the Indebtedness has been irrevocably repaid in full, the
Borrower agrees to not accelerate the Leveling 8 Note or foreclose or enforce the Leveling
8 Mortgage. In the event that, notwithstanding the foregoing provisions, any proceeds or
distribution of assets or securities of Leveling 8, of any kind or character, whether in cash,
property or securities, shall be received by the Borrower before the Indebtedness has been
paid in full, such proceeds or distribution shall be received and held in trust for the benefit

10

of the Lender and shall immediately be paid over or delivered to the Lender for application
to the payment of the Indebtedness remaining unpaid until all such Indebtedness has been
paid in full, after giving effect to any concurrent payment, distribution or provision therefor
to or for the Lender.
2.14.4. The Borrower shall execute and deliver to the Lender assignments to the
Lender of the Leveling 8 Mortgages at Closing (the "Leveling 8 Mortgage Assignments").
The Lender agrees that it will not file the Leveling 8 Mortgage Assignments in the real

property records unless and until the occurrence of an Event of Default.

ARTICLE III
REPRESENTATIONS AND WARRANTIES
In addition to all other representations and warranties in this Agreement, the Borrower
represents and warrants to the Lender as follows:
3.1 Existence; Compliance with Law. The Borrower (i) is duly organized or formed, as
applicable, validly existing and (if relevant) in good standing under the laws of the jurisdiction of
its incorporation, (ii) has the corporate power and authority and the legal right, to own and operate
its property and assets, to lease the property and assets it leases and causes to be operated by lessee,
and to conduct the business in which it is currently engaged under the Governmental Requirements
of each jurisdiction in which it owns, leases and/or operates its property or assets, (iii) (if relevant)
is duly qualified as a foreign corporation and is in good standing under the laws of each jurisdiction
where its ownership, lease or operation of property or assets or the conduct of its business requires
such qualification, (iv) is in material compliance with its applicable Charter Documents, and (v)
is in compliance with all Governmental Requirements, except to the extent that the failure to
comply therewith could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
3.2 Entity Power; Authorization; Enforceable Obligations. The Borrower has the
power and authority, and the legal right, to make, deliver and perform the Loan Documents and to
borrow hereunder, and has taken all necessary corporate or other action to authorize the execution,
delivery and performance of the Loan Documents and to authorize the borrowings on the terms
and conditions of this Agreement and the other Loan Documents. No consent or authorization of,
filing with, notice to or other act by or in respect of, any Governmental Authority or any other
Person is required in connection with the borrowings hereunder or the execution, delivery,
performance, validity or enforceability of this Agreement or any of the other Loan Documents,
except consents, authorizations, filings and notices which have been obtained or made and are in
full force and effect. Each Loan Document has been duly executed and delivered on behalf of the
Borrower. This Agreement constitutes, and each other Loan Document upon execution will
constitute, a legal, valid and binding obligation of the Borrower, enforceable against the Borrower
in accordance with its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’
rights generally and by general equitable principles (whether enforcement is sought by proceedings
in equity or at law).

11

3.3 No Legal Bar. The execution, delivery and performance of this Agreement, the
other Loan Documents, the borrowings hereunder and the use of the proceeds thereof will not
violate any Governmental Requirement or any contractual or other obligation of the Borrower and
will not result in, or require, the creation or imposition of any Lien on the Borrower’s assets,
properties or revenues pursuant to any Governmental Requirement or any such contractual or other
obligation (other than the Liens created by the Loan Documents). No Governmental Requirement
or contractual or other obligation applicable to the Borrower or the Borrower’s properties or assets
could reasonably be expected to have a Material Adverse Effect. No performance of a contractual
or other obligation by the Borrower, either unconditionally or upon the happening of an event,
would result in the creation of a Lien (other than a Permitted Lien) on the property, assets or
revenues of the Borrower.
3.4 Licenses, Permits, Etc. The Borrower possesses all licenses, permits, consents,
approvals, franchises and intellectual property (or otherwise possesses the right to use such
intellectual property without violation of the rights of any other Person) which are necessary for
the Borrower to own its assets and properties, except for those licenses, permits, consents,
approvals, franchises and intellectual property the failure of which to possess could not reasonably
be expected to have a Material Adverse Effect. The Borrower is not in violation in any material
respect of the terms under which it possesses any licenses, permits, consents, approvals, franchises
and intellectual property owned by the Borrower or the right to use such licenses, permits,
consents, approvals, franchises and intellectual property.
3.5 Compliance. No consent or approval of any Governmental Authority or any other
Person is required as a condition to the validity or performance of any Loan Document, and the
Borrower is in compliance with all Governmental Requirements to which the Borrower is subject.
3.6 Contractual Default. The Borrower is not in default under or with respect to any of
its contractual obligations in any respect that could reasonably be expected to have a Material
Adverse Effect.
3.7 Litigation. There is no litigation, investigation or proceeding of or before any
arbitrator, mediator or any Governmental Authority or, to the Borrower’s knowledge, threatened
by or against the Borrower or against any of the Borrower’s assets, properties or revenues (a) with
respect to any of the Loan Documents or any of the transactions contemplated hereby, or (b) that
could reasonably be expected to have a Material Adverse Effect.
3.8 No Conflicting Agreements. There is no provision of any existing agreement,
mortgage, indenture, instrument, document or contract binding on the Borrower or affecting any
property or asset of the Borrower, which would conflict with or in any way prevent the execution,
delivery or carrying out of the terms of this Agreement and the other Loan Documents.
3.9 Insurance. All policies of insurance of any kind or nature of the Borrower,
including policies of fire, theft, product liability, public liability, property damage, other casualty,
employee fidelity, workers’ compensation and employee health and welfare insurance, if and as
applicable, are in full force and effect as of the date of this Agreement and are of a nature and
provide such coverage as is customarily carried by businesses of the size and character of the

12

Borrower. The Borrower has not been refused insurance for any material coverage for which it has
applied or has had any policy of insurance terminated (other than at the Borrower’s request).
3.10 Taxes. The Borrower has timely filed (or caused to be timely filed) all federal, state
and other tax returns, reports and statements (collectively, “Tax Returns”) that are required to be
filed by the Borrower with the appropriate Governmental Authorities in all jurisdictions in which
such Tax Returns are required to be filed; all such Tax Returns are true and correct in all material
respects; the Borrower has timely paid, prior to the date on which any fine, penalty, interest, late
charge or loss may be added thereto for non-payment thereof, all taxes shown to be due and payable
on said Tax Returns or on any assessments made against the Borrower or any of the Borrower’s
properties or assets, and all other taxes, fees or other charges imposed on the Borrower or any of
the Borrower’s properties or assets by or otherwise due and payable to any Governmental
Authority (other than any for which the amount or validity of which are currently being contested
in good faith by appropriate proceedings); and no tax Lien has been filed against the property or
assets of the Borrower, and, to the Borrower’s knowledge, no claim is being asserted, with respect
to any such tax, fee or other charge. No Tax Return is under audit or examination by any
Governmental Authority and no notice of such an audit or examination or any assertion of any
claim for taxes has been given or made by any Governmental Authority. Proper and accurate
amounts have been withheld by the Borrower (if and to the extent any such withholdings are so
required) for all periods in full and complete compliance with the tax, social security, health care
and unemployment withholding provisions of applicable Governmental Requirements, and such
withholdings (if any) have been timely paid to the respective Governmental Authorities. The
Borrower (i) does not intend to treat the Loan or any other transaction contemplated hereby as
being a “reportable transaction” (within the meaning of Treasury Regulation 1.6011-4), and (ii) is
not aware of any facts or events that would result in such treatment.
3.11 No Default. No Default or Event of Default has occurred and is continuing.
3.12 Adverse Circumstances. Neither the business nor any property or asset of the
Borrower is presently affected by any fire, explosion, accident, strike, lockout, or other dispute,
embargo, act of God, act of public enemy or terrorism, or similar event or circumstance, nor has
any other event or circumstance relating to the Borrower's business, affairs, properties or assets
occurred, any of which could have a Material Adverse Effect.
3.13 Accuracy of Information. To the Borrower's knowledge, after due inquiry, all
factual information furnished to Lender in connection with this Agreement and the other Loan
Documents is and will be true, accurate and complete in all material respects on the date as of
which such information is delivered to Lender and is not and will not be incomplete by the
omission of any material fact necessary to make such information not misleading, provided that,
with respect to projected financial information, the Borrower only represents that such information
was prepared in good faith based upon assumptions believed to be reasonable at the time.
3.14 Environmental. To the Borrower’s knowledge, after due inquiry, the conduct of
the Borrower's business operations and the condition of the Borrower's properties or assets owned,
operated or managed by the Borrower does not, and the condition of the Borrower's properties or
assets which are operated or managed by others does not, violate any Environmental Law or any
other Governmental Requirement relating primarily to the environment, Hazardous Materials, or

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health and safety. The Borrower has not received notice of, nor are there presently existing, any
judicial, administrative, arbitral or other proceeding (including any notice of violation or alleged
violation) under or relating to any Environmental Law or any environmental permit to which the
Borrower is, or to the Borrower’s knowledge, will be, named as a party that is pending or, to the
Borrower’s knowledge, threatened. The Borrower has not received any written request for
information, or been notified that the Borrower is a potentially responsible party under or relating
to any Environmental Law, or with respect to any Hazardous Materials or matters of environmental
concern. The Borrower has not entered into or agreed to any consent decree, order, or settlement
or other agreement or undertaking, and the Borrower is not subject to any judgment, decree, or
order or other agreement, in any judicial, administrative, arbitral or other forum for dispute
resolution, relating to compliance with or liability under any Environmental Law or any other
Governmental Requirement relating primarily to the environment or Hazardous Materials. The
Borrower has not assumed or retained, by contract, operation of law or otherwise, any liabilities
of any kind, fixed or contingent, known or unknown, under any Environmental Law or with respect
to any Hazardous Materials or matters of environmental concern.
3.15 Compliance With Laws. The Borrower is presently in compliance in all material
respects with all applicable Governmental Requirements to which the Borrower, or any of the
Borrower's assets or properties, is subject (except where the failure to so comply could not
reasonably be expected to have a Material Adverse Effect), provided that this warranty is made to
the Borrower's knowledge with respect to the Borrower's assets or properties which are operated
or managed by other Persons.
3.16 Solvency; Compliance with Financial Covenants. The Borrower is, and after giving
effect to the incurrence of all Indebtedness being incurred in connection herewith will be and will
continue to be, Solvent.
3.17 Margin Regulations; Investment Company Act.
3.17.1. No part of the proceeds of any Loan will be used for buying or “carrying”
any “margin stock” within the respective meanings of each of the quoted terms under
Regulation U (as defined within the applicable Governmental Requirements promulgated
by the applicable Governmental Authorities from time to time) as now and from time to
time hereafter in effect or for any purpose that violates the provisions of any Governmental
Authority. If requested by Lender, the Borrower will furnish to Lender a statement to the
foregoing effect in conformity with the requirements of FR Form G-3 or FR Form U-1, as
applicable, referred to in Regulation U.
3.17.2. The Borrower is not an “investment company”, or a company “controlled”
by an “investment company”, within the meaning of the Investment Company Act of 1940,
as amended. The Borrower is not subject to regulation under any Governmental
Requirement which limits its ability to incur Indebtedness, other than Regulation X (as
defined within the applicable Governmental Requirements promulgated by the applicable
Governmental Authorities from time to time).
3.17.3. The Borrower and each of its respective Affiliates are in compliance, in all
material respects, with the Patriot Act. None of the proceeds of the Loan will be used,

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directly or indirectly, (a) for the purpose of making any payments to any governmental
official or employee, political party, official of a political party, candidate for political
office, or anyone else acting in an official capacity, or otherwise in furtherance of an offer,
payment, promise to pay, or authorization of the payment or giving of money, or anything
else of value, to any Person, in any instance in violation of any Anti-Corruption Laws, (b)
for the purpose of funding, financing or facilitating any activities, business or transaction
of or with any Sanctioned Person or in any Sanctioned Country, or (c) in any manner that
would result in the violation of any Sanctions applicable to the Borrower. Neither the
Borrower, nor any Affiliate of the Borrower: (a) is a Sanctioned Person; (b) owns assets in
a Sanctioned Person; or (c) derives any of its operating income from investments in, or
transactions with Sanctioned Persons.
3.18 Financial Condition. The Borrower does not have any Guarantee Obligations,
unusual or long-term commitments, or other liabilities as of the date of this Agreement.
3.19 ERISA. The Borrower does not maintain any employee pension or other defined
benefit plan or trust for the benefit of its employees which is subject to Title IV of ERISA.
3.20 Continuation of Representations and Warranties. All representations and
warranties made under this Agreement shall be deemed to be made at and as of the date of Closing
and each date of funding of a Loan, and in all instances shall be true and correct in all material
respects and not misleading.

ARTICLE IV
AFFIRMATIVE COVENANTS
Until the Indebtedness has been paid and satisfied in full, and unless Lender shall otherwise
consent in writing, the Borrower agrees to perform or cause to be performed the following:
4.1 Financial Statements.
4.1.1. Annual Borrower Statements. Within 90 days after the close of each fiscal
year, the Borrower will furnish to the Lender a copy of the Borrower’s audited annual
financial statements for such fiscal year, containing at least a balance sheet as of the close
of such fiscal year and statement of income for such fiscal year, setting forth in each case
in comparative form the figures for the previous fiscal year, all in reasonable detail,
prepared in accordance with GAAP.
4.1.2. Quarterly Borrower Statements. Within 45 days after the close of each
quarter of each fiscal year (except with respect to the fourth quarter of each fiscal year),
the Borrower will furnish to the Lender copies of the Borrower's unaudited company
prepared quarterly financial statements, each prepared in the same manner as the financial
statements referred to in Section 4.1.1, and containing at least a balance sheet as of the
close of such quarter and statement of income for such quarter and for the period from the
beginning of such fiscal year to the close of such quarter.
4.1.3. Compliance Certificates. Each set of annual or quarterly financial
statements furnished by the Borrower to the Lender pursuant to Sections 4.1.1 and 4.1.2

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shall be accompanied by a completed Compliance Certificate, signed by the chief executive
officer or chief financial officer of the Borrower, (i) stating that such officer, after due
inquiry, has no knowledge of the occurrence of a Default or an Event of Default and that,
to the knowledge of such officer, after due inquiry, the Borrower have complied with the
terms of the Loan Documents to which each is a party in all material respects, or, in the
event such officer has knowledge of a Default or an Event of Default or that any of the
terms of the Loan Documents has not been complied with in all material respects, the nature
of such Default or Event of Default or non-compliance will be specified in such
Compliance Certificate together with any steps being taken by the Borrower to correct such
Default or Event of Default or non-compliance, and (ii) demonstrating the Borrower's
compliance with the financial covenant set forth in Article VI.
4.2 Notifications.
4.2.1. Litigation. The Borrower will promptly furnish the Lender with notice of
any litigation involving the Borrower where the amount sued for or the value of the
Property involved (after taking into account any amount which is fully covered by
insurance) is in excess of $200,000, or which, if the outcome were adverse to the Borrower,
could reasonably be expected to materially adversely affect the financial condition,
business or operations of the Borrower.
4.2.2. Liens. The Borrower will notify the Lender of the existence or asserted
existence of any Liens (other than Permitted Liens) on any Properties of the Borrower,
promptly upon the Borrower's obtaining knowledge thereof.
4.2.3. Default. The Borrower will notify the Lender as soon as practicable, but in
any event within ten (10) days after the Borrower knows or has reason to know that any of
the following has occurred: (i) any Default or Event of Default, or (ii) any material change
in the accounting practices and procedures of the Borrower, including a change in the fiscal
year of the Borrower.
4.3 Accounting Procedures. The Borrower will maintain adequate and accurate books
and records of account in accordance with GAAP. The Lender will, upon reasonable request, have
the right to examine and copy the books and records of the Borrower and to meet with the Borrower
to discuss its business affairs, finances and accounts.
4.4 Permits. The Borrower will obtain and maintain in effect all Permits which are (i)
material to its business, Properties, operations or condition, financial or otherwise, and/or (ii)
necessary for it to carry on its business as contemplated to be conducted.
4.5 Existence. The Borrower will maintain its existence as a corporation and will
remain in good standing under the laws of the State of Oklahoma.
4.6 Maintenance of Properties. The Borrower will maintain (or cause to be maintained)
all of its Properties in good and workable condition, repair and appearance and will protect the
same from deterioration, other than normal wear and tear, at all times.

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4.7 Compliance with Laws. The Borrower will comply in all material respects with all
Laws to which it is subject or by which its Properties are bound or affected, including all Laws
pertaining to its business and operations, except to the extent that any of the foregoing are being
diligently contested in good faith by appropriate legal proceedings and against which there are
established reserves in accordance with sound business practices and GAAP.
4.8 Taxes; Other Liens. The Borrower will pay (or cause to be paid) prior to
delinquency all taxes, assessments, governmental charges or levies, and all claims for labor,
materials, supplies, rent and other obligations which, if unpaid, might become a Lien against any
of its Property, excluding only liabilities being diligently contested in good faith by appropriate
legal proceedings and against which there are established reserves in accordance with sound
business practices and GAAP.
4.9 Further Assurances. The Borrower will, from time to time, promptly cure any
defects or omissions in the execution and delivery of this Agreement or any of the other Loan
Documents signed pursuant to this Agreement, including the execution and delivery of additional
documents reasonably requested by the Lender in order to carry out and give effect to the
provisions of this Agreement and the other Loan Documents.
4.10 Performance of Obligations. The Borrower (i) will pay the Note according to the
reading, tenor and effect thereof, and (ii) will do and perform every act and discharge all of the
obligations provided to be performed and discharged under this Agreement and all other Loan
Documents to which it is a party at the time or times and in the manner therein specified.
4.11 Maintenance of Insurance.
4.11.1. Required Insurance. The Borrower will maintain, or cause to be maintained
in full force and effect (i) casualty insurance on all real and personal property on an allrisks basis (including the perils of flood and quake) covering the lesser of the amount of
the Loan or the repair and replacement cost of all such Property, (ii) insurance coverage
for public liability insurance in amounts and with deductibles acceptable to the Lender, and
(iii) such other insurance coverage in such amounts and with respect to such risks as the
Lender may reasonably request. All such insurance shall be provided by financially sound
and reputable insurance companies not Affiliates of the Borrower and having a minimum
A.M. Best rating of A, size category VII. On or prior to the Closing Date, and at all times
thereafter, the Borrower will cause the Lender to be named as an additional insured,
assignee and loss payee (which shall include, as applicable, identification as mortgagee),
as applicable, on each insurance policy required to be maintained pursuant to this Section
4.11.1 pursuant to endorsements in form and content acceptable to the Lender. The
Borrower will deliver to the Lender (i) on or before the Closing Date, a certificate from the
Borrower’s insurance broker dated such date showing the amount of coverage as of such
date, and that such policies will include effective waivers (whether under the terms of any
such policy or otherwise) by the insurer of all claims for insurance premiums against all
loss payees and additional insureds and all rights of subrogation against all loss payees and
additional insureds, and that if all or any part of such policy is canceled, terminated or
expires, the insurer will forthwith give notice thereof to each additional insured, assignee
and loss payee and that no cancellation, reduction in amount or material change in coverage

17

thereof shall be effective until at least thirty (30) days after receipt by each additional
insured, assignee and loss payee of written notice thereof, (ii) on an annual basis, and upon
the request of the Lender from time to time full information as to the insurance carried, (iii)
within five days of receipt of notice from any insurer, a copy of any notice of cancellation,
nonrenewal or material change in coverage from that existing on the date of this
Agreement, and (iv) immediately, notice of any cancellation or nonrenewal of coverage by
the Borrower. In the event the Borrower fails to provide the Lender with evidence of the
insurance coverage required by this Agreement, the Lender may purchase insurance at the
Borrower’s expense. The coverage purchased by the Lender may, but need not, protect the
Borrower’s interests. The Borrower may later cancel any insurance purchased by the
Lender, but only after providing the Lender with evidence that Borrower has obtained
insurance as required by this Agreement. If Lender purchases insurance, to the fullest
extent provided by law, the Borrower will be responsible for the costs of that insurance,
including interest and other charges imposed by the Lender in connection with the
placement of the insurance, until the effective date of the cancellation or expiration of the
insurance. The costs of the insurance may be added to the Indebtedness. The Borrower
acknowledges that the costs of insurance purchased by the Lender may be more than the
cost of insurance that the Borrower would be able to obtain on their own.
4.11.2. Compliance With Insurance Conditions. The Borrower shall not bring or
keep any article on its properties, or cause or knowingly allow any condition to exist, if the
presence of such article or the occurrence of such condition could reasonably cause the
invalidation of any insurance required by Section 4.11.1 or would otherwise be prohibited

by the terms thereof.

ARTICLE V
NEGATIVE COVENANTS
Until the Indebtedness has been paid and satisfied in full, and unless the Lender shall
otherwise consent in writing, the Borrower will not perform or permit to be performed any of the
following acts:
5.1 Creation of Liens. The Borrower will not create, assume or suffer to exist any Lien
on any portion of the Collateral or on any of its other Properties, whether now owned or hereafter
acquired, except for the following (collectively, "Permitted Liens"):
(a) deposits to secure payment of worker's compensation,
unemployment insurance and other similar benefits;
(b) Liens for property taxes not yet delinquent or are being diligently
contested in good faith by appropriate legal proceedings and against which there
are established reserves in accordance with sound business practices and GAAP;
(c) statutory Liens against which there are established adequate reserves
and which (i) are being contested in good faith by appropriate legal proceedings or
(ii) arise in the ordinary course of business and secure obligations which are not yet
due and not in default;

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(d) Liens of judgments, execution, attachment or similar process which
will not result or have not yet resulted in the occurrence of an Event of Default as
set forth in Article VIII of this Agreement;
(e) other encumbrances approved in advance in writing by the Lender;
and
(f) Liens in favor of the Lender.
5.2 Restrictions on Debt. The Borrower will not create, incur, assume or suffer to exist
any Debt, other than:
(a) Indebtedness under the Loan Documents;
(b) trade accounts payable incurred in the ordinary course of business
which are not past due or in default;
(c) other Debt owing to the Lender; and
(d) Debt arising after the Closing in the event the Borrower elects to pay
annual insurance premiums on a deferred basis.
5.3 Restrictions on Guarantee Obligations. The Borrower will not create, incur or suffer
to exist any Guarantee Obligations.
5.4 Sale of Assets. The Borrower will not Transfer, whether pursuant to a single
transaction or a series of transactions, all or any portion of its Property (or any interest therein) or
any other material Property owned by it. Notwithstanding the foregoing, the Borrower may (i) sell
inventory and collect its accounts receivable in the ordinary course of business, (ii) Transfer
personal property or fixtures which, in the reasonable judgment of the Borrower, have become
obsolete or unfit for use or which are no longer useful in the Borrower’s operations, on the
condition that the Borrower shall replace such personal property or fixtures by, or substitute for
the same, other personal property or fixtures (not necessarily of the same character) owned by the
Borrower, which shall (A) be of at least equal value to the personal property or fixtures disposed
of, and (B) perform a function or serve a purpose the same as, similar to or related to that of the
personal property or fixtures disposed of; and (iii) grant Permitted Liens.
5.5 Changes in Structure. The Borrower will not: (i) merge or consolidate with any
Person (or enter into any merger or consolidation agreement or plan), or permit any such merger
or consolidation with it; or (ii) liquidate, wind-up or dissolve (or take or permit any action to
liquidate, wind-up or dissolve).
5.6 Limitations on Distributions. Except as otherwise provided herein, and if no Default
or Event of Default has occurred and is continuing, the Borrower may make Distributions,
provided, however, that no such Distribution would cause the Borrower to be in default of any
covenant contained herein or in the Loan Documents.

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5.7 Restrictions on Loans. The Borrower will not make any loan, advance or other
extension of credit, directly or indirectly, to or for the benefit of any other Person.
5.8 Transactions With Affiliates. Except as contemplated by this Agreement, the
Borrower will not (i) enter into any other transaction, including the purchase, sale or exchange of
property, with any Affiliate, or (ii) make any payments to any Affiliate for services performed or
equipment or materials provided, except to reimburse such Affiliate for its actual cost of
performing such services or providing such equipment or materials, which actual cost shall not, in
any event, exceed the amount that would be charged by a non-Affiliate under a bona fide, arm'slength contract for performance of such services or provision of such equipment and materials.
5.9 Creation of Plans Under ERISA. The Borrower will not establish or become
obligated to make contributions with respect to any employee pension plan or other defined benefit
plan or trust for the benefit of its employees which is subject to Title IV of ERISA.
5.10 Sale-Leaseback Transactions. The Borrower will not make or permit the
occurrence of any sale, transfer or disposition of any of its real or personal Property followed by
its leasing or rental of such Property, or any portion thereof, as lessee.
5.11 Modification of Documents. The Borrower will not participate in, enter into, suffer
or permit any material amendment, modification, restatement, cancellation or termination of any
of its Charter Documents.

ARTICLE VI
FINANCIAL COVENANT
Until the Indebtedness has been paid and satisfied in full, and unless the Lender shall
otherwise consent in writing, the Borrower will not:
6.1 Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio calculated
as of each September 30, beginning September 30, 2020, to be less than 1.25 to one (1.25:1.00).

ARTICLE VII
CONDITIONS PRECEDENT; ADMINISTRATION OF LOAN
7.1 Closing. The Closing will take place at the offices of the Lender in Tulsa
Oklahoma, on March __, 2020, or at such other place or date as the parties shall mutually agree,
provided that all conditions to the Closing set forth in Section 7.2 have been satisfied.
7.2 Conditions to Closing. The commitment of the Lender to establish the Loan is
subject to the Borrower's satisfaction of the following conditions precedent at or as of the Closing:
7.2.1. Loan Documents. This Agreement and all other Loan Documents shall have
been duly and validly authorized, executed, acknowledged (where appropriate) and
delivered to the Lender by the appropriate parties thereto, all in form and substance
satisfactory to the Lender.

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7.2.2. Perfection. All actions and filings shall have been made or taken as are
necessary to create and perfect the liens, security interests and assignments contemplated
by Section 2.11, including the filing and recording of appropriate UCC financing
statements and fixture filings.
7.2.3. Existence and Authority. The Borrower shall have provided or caused to be
provided to the Lender the following documents, each in form and substance satisfactory
to the Lender and its counsel:
(a) a true and correct copy of the certificate of formation of the
Borrower, including all amendments thereto, certified by the Oklahoma Secretary
of State;
(b) true and correct copy of the operating agreement of the Borrower,
including all amendments thereto, certified by the secretary or other authorized
officer of the Borrower;
(c) a good standing certificate issued by the Oklahoma Secretary of
State not more than thirty (30) days prior to the Closing, certifying as to the due
formation, valid existence and good standing of the Borrower;
(d) true and correct copies of the resolutions or approvals adopted by
the Borrower, duly authorizing the borrowings contemplated hereunder and the
execution, delivery and performance of the Loan Documents to which the Borrower
is a party;
(e) a certificate executed by a manager, or by the president or the
secretary, of the Borrower stating the names of the officers authorized to execute
and deliver the Loan Documents on behalf of the Borrower and containing
specimen signatures of such officers; and
(f) any other information requested by the Lender at least three days
prior to the Closing in order to verify the identity of the Borrower, as required by
Section 326 of the PATRIOT Act.
7.2.4. Insurance. The Lender shall have received copies of insurance policies, or
binders or certificates of insurance, in form and substance satisfactory to the Lender,
evidencing that the Borrower has obtained and is maintaining the minimum insurance
coverages required by this Agreement and the Loan Documents, together with all required
endorsements of such policies.
7.2.5. UCC Searches. The Lender shall have received certified responses to UCC
lien search requests reflecting that there are no effective UCC financing statements on file
in any filing offices in the State of Oklahoma naming the Borrower as debtor, other than
financing statements relating to Permitted Liens.
7.2.6. Loan Fee. The Lender shall have received a loan fee from the Borrower
equal to $17,373.

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7.2.7. Closing Certificate. The Lender shall have received a certificate signed by
a manager of the Borrower, certifying that, to the best of his or her knowledge, after due
investigation, all representations and warranties of the Borrower contained in this
Agreement and the other Loan Documents are true and correct as in all material respects
as of the Closing, that no Default or Event of Default exists as of the Closing, and that all
of the conditions specified in this Section 7.2 have been satisfied.

ARTICLE VIII
EVENTS OF DEFAULT
8.1 Events of Default. The occurrence of any of the following events or existence of
any of the following circumstances, unless waived in writing by the Lender, shall constitute a
"Default" and if not remedied within any applicable cure period shall constitute an "Event of
Default":
8.1.1. Nonpayment. If the Borrower shall fail to pay any installment of principal
or interest on the Loan when due (whether at the stated due date, upon maturity, upon
acceleration or otherwise).
8.1.2. Other Nonpayment. If the Borrower shall fail to pay or reimburse when due
any other amount payable by the Borrower to the Lender under this Agreement or any other
Loan Document and such failure shall continue for a period of 10 days after the Lender
gives notice of such failure to the Borrower.
8.1.3. Representations and Warranties. If any representation, statement,
certificate, schedule or report made or furnished to the Lender by or on behalf of the
Borrower shall prove to have been false or erroneous in any material respect as of the date
on which such warranty or representation was made.
8.1.4. Breach of Covenants. If the Borrower fails to perform or observe any term,
covenant or agreement contained in (a) Article IV and such failure continues unremedied
for more than twenty (20) days after the Lender gives notice of such failure to the Borrower,
provided, however, that if such default cannot be fully remedied within such 20-day period,
but can reasonably be expected to be fully remedied, such default shall not constitute an
Event of Default if the Borrower shall promptly upon receipt of such notice commence the
curing of such default and shall thereafter diligently prosecute and complete the same
within ninety (90) days of receipt of written notice from the Lender or such longer period
of time as the Lender in its sole discretion may agree, or (b) Article V or Article VI.
8.1.5. Default Under Loan Documents. If a material default shall be made in the
due observance or performance by the Borrower of any of the covenants or agreements
contained in any other Loan Document to which it is a party, and such default shall continue
unremedied beyond the expiration of any grace period expressly provided in the applicable
Loan Document, or if any "event of default" shall occur under the Note or any of the other
Loan Documents pursuant to the terms thereof and such event of default shall continue
beyond the expiration of any applicable cure period.

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8.1.6. Insolvency. If the Borrower shall (i) apply for or consent to the appointment
of a custodian, receiver, trustee or liquidator for itself or its Property, (ii) admit in writing
the inability to pay, or generally fail to pay, its debts as they become due, (iii) make a
general assignment for the benefit of creditors, (iv) commence any proceeding relating to
the bankruptcy, reorganization, liquidation, receivership, conservatorship, insolvency,
readjustment of debt, dissolution or liquidation, or if company action is taken for the
purpose of effecting any of the foregoing, (v) suffer any such appointment or
commencement of a proceeding as described in clause (i) or (iv) of this Section 8.1.6,
which appointment or proceeding is not terminated or discharged within ninety (90) days,
or (vi) become insolvent.
8.1.7. Judgments. If Borrower shall have entered against it by any court a final
judgment or judgments for the payment of money in an aggregate amount (exclusive of
any portion covered by insurance) in excess of $200,000 and such judgment(s) shall remain
undischarged for a period of 45 consecutive days (unless stayed on appeal), or if any legal
action shall be taken by a judgment creditor to attach or levy upon any Properties of the
Borrower to enforce any such judgment.
8.1.8. Default on Other Funded Debt. If Borrower shall fail to pay any principal
or interest on any Funded Debt in excess of $100,000 as and when the same shall become
due and payable and such default shall continue beyond the expiration of any applicable
grace period expressly provided, or if any default or event of default shall occur under the
terms of any agreement or other document which would entitle the holder or holders thereof
to accelerate the maturity thereof.
8.1.9. Material Contracts. If the Borrower shall default in the payment or
performance of its obligations, duties, covenants or agreements under the terms of any
agreement or contract that is material to its affairs, financial or otherwise, and such default
shall continue beyond the expiration of any applicable grace period expressly provided
(unless such default is being disputed by appropriate legal proceedings and adequate
reserves therefor have been established on the Borrower's books and records).
8.1.10. Unenforceability. If this Agreement or any other Loan Document shall for
any reason cease to be a valid, binding and enforceable obligation of the Borrower or any
other party thereto, or if any of the Loan Documents shall cease to create a valid and
perfected, first priority Lien (subject only to Permitted Liens) on the Collateral covered
thereby.
8.1.11. Leveling 8 Mortgage; Leveling 8 Note. If a default or event of default
occurs under a Leveling 8 Mortgage or the Leveling 8 Note.
8.2 Acceleration of Indebtedness. If any Event of Default specified in Section 8.1.6
shall occur, all obligations of the Lender hereunder, including any obligation to make further
advances under the Loan, will automatically terminate, and the Loan and all other outstanding
Indebtedness will become immediately due and payable, without notice or demand. If any other
Event of Default shall occur and be continuing, the Lender may, at its option, without notice or
demand, terminate its obligations hereunder, including any obligation to make further advances

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under the Loan, and declare the Loan and all other outstanding Indebtedness to be immediately
due and payable, whereupon the same shall become forthwith due and payable.
8.3 Exercise of Remedies. Upon the occurrence and during the continuation of any
Event of Default, the Lender shall be entitled to exercise all rights and remedies available to it
under the Loan Documents and applicable Law, through judicial action or otherwise, including:
(i) commencing one or more actions against the Borrower and reducing the claims of the Lender
to judgment; and (ii) foreclosing, realizing upon or otherwise enforcing the Lender's rights in and
Liens on the Collateral.
8.4 Selective Enforcement. In the event Lender elects to selectively and successively
enforce its rights under this Agreement or any one or more of the other Loan Documents, or against
any portion of the Collateral, such action shall not be deemed a waiver or discharge of any other
right, lien or encumbrance until such time as the Lender shall have been paid in full all
Indebtedness of the Borrower to the Lender.
8.5 Waiver of Default. The Lender may, by an instrument in writing signed by the
Lender, waive any Event of Default and any of the consequences of such Event of Default, and, in
such event, the Lender and all other parties hereto shall be restored to their respective former
positions, rights and obligations hereunder. Any Event of Default so waived shall for all purposes
of this Agreement be deemed to have been cured and not to be continuing; but no such waiver
shall extend to any subsequent or other Event of Default or impair any consequence of such
subsequent or other Event of Default.
8.6 Deposits; Setoff. Regardless of the adequacy of any other collateral held by Lender,
any deposits or other sums credited by or due from the Lender to the Borrower shall at all times
constitute collateral security for the Indebtedness, and may be set off against the Loan in any
manner the Lender shall choose and any and all liabilities, direct or indirect, absolute or contingent,
due or to become due, now existing or hereafter arising to the Lender. The rights granted by this
section shall be in addition to the rights of the Lender under any statutory banker's lien or the
common law right of set-off.
8.7 Application of Payments. From and during the continuation of any Event of
Default, any monies or property received by the Lender pursuant to this Agreement or any other
Loan Document or the exercise of any rights or remedies under any Loan Document or other
agreement which secures any of the Indebtedness, shall be applied in the following order:
First, to payment of that portion of the Indebtedness constituting fees, indemnities,
expenses and other amounts (including fees, charges and disbursements of counsel to the
Lender) payable to the Lender in its capacity as such;
Second, to payment of that portion of the Indebtedness constituting accrued and
unpaid interest on the Loan;
Third, to payment of that portion of the Indebtedness constituting unpaid principal
of the Loan and to payment of amounts due under any Treasury Management Agreement
between the Borrower and the Lender, or any Affiliate of the Lender; and

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Last, the balance, if any, after all of the Indebtedness has been indefeasibly paid in
full, to the Borrower or to such other Persons who may be lawfully entitled to receive such
excess.

ARTICLE IX
EXPENSES AND INDEMNITY
9.1 Costs and Expenses. The Borrower shall pay (i) all reasonable out-of-pocket
expenses incurred by the Lender (including the reasonable fees, charges and disbursements of
counsel for the Lender), in connection with the preparation, negotiation, execution, delivery and
administration of this Agreement and the other Loan Documents or any amendments,
modifications or waivers of the provisions hereof or thereof (whether or not the transactions
contemplated hereby or thereby shall be consummated), and including without limitation all
recording and filing fees, recording costs, examinations of and certifications as to public records,
title insurance premiums, survey costs, expenses to clear title, appraisal fees and costs of required
environmental assessments, and (ii) all out-of-pocket expenses incurred by the Lender (including
the fees, charges and disbursements of any counsel for the Lender) in connection with the
enforcement or protection of its rights (A) in connection with this Agreement and the other Loan
Documents, including its rights under this Section 9.1, or (B) in connection with the Loan,
including all such out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of the Loan.
9.2 Indemnification by Borrower. The Borrower shall indemnify the Lender and the
Lender's Related Parties of any of the foregoing Persons (each such Person being called an
"Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses (including the fees, charges and disbursements of any
counsel for any Indemnitee), incurred by any Indemnitee or asserted against any Indemnitee by
any third party or by the Borrower arising out of, in connection with, or as a result of (i) the
execution or delivery of this Agreement, any other Loan Document or any agreement or instrument
contemplated hereby or thereby, the performance by the parties hereto of their respective
obligations hereunder or thereunder, the administration of this Agreement and the other Loan
Documents or the consummation of the transactions contemplated hereby or thereby, (ii) the Loan
or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or release
of Hazardous Materials on or from any property owned or operated by the Borrower, or any
Environmental Liability related in any way to the Borrower, or (iv) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing, whether based on contract,
tort or any other theory, whether brought by a third party or by the Borrower, and regardless of
whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related
expenses (x) are determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or
(y) result from a claim brought by the Borrower against an Indemnitee for breach in bad faith of
such Indemnitee's obligations hereunder or under any other Loan Document, if the Borrower has
obtained a final and nonappealable judgment in its favor on such claim as determined by a court
of competent jurisdiction.
9.3 Waiver of Consequential Damages, Etc. To the fullest extent permitted by

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applicable Law, the Borrower shall not assert, and the Borrower hereby waives, any claim against
any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages
(as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this
Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the
transactions contemplated hereby or thereby, or the use of the proceeds of the Loan. No Indemnitee
referred to in Section 9.2 above shall be liable for any damages arising from the use by unintended
recipients of any information or other materials distributed by it through telecommunications,
electronic or other information transmission systems in connection with this Agreement or the
other Loan Documents or the transactions contemplated hereby or thereby.
9.4 Expenses Following Default. Upon the occurrence of an Event of Default, the
Borrower will from time to time, within thirty (30) days after a request made by the Lender,
reimburse the Lender for all amounts expended, advanced or incurred by the Lender to satisfy any
obligation of the Borrower under this Agreement or any other Loan Documents, or to collect upon
the Note or any of the Indebtedness, or to enforce the rights of Lender under this Agreement and
any other Loan Documents, which amounts will include all court costs, bonds, reasonable
attorneys' fees and expenses, reasonable fees of auditors and accountants, and investigation
expenses reasonably incurred by the Lender in connection with any such matters, together with
interest at the applicable Default Rate on each such amount from the date the same is due and
payable to the Lender until the date it is repaid to the Lender. All amounts advanced in connection
herewith shall be secured by the Collateral.
9.5 Payments. All amounts due under Article IX shall be payable not later than thirty
(30) days after demand therefor.
9.6 Survival. The agreements in Article IX shall survive the replacement of the Lender,
and the repayment, satisfaction or discharge of all of the other Obligations.

ARTICLE X
MISCELLANEOUS PROVISIONS
The parties further agree as follows:
10.1 Participating Lender. In the event the Lender shall determine at any time or from
time to time to sell one or more participation interests in the Loan to one or more other financial
institutions or other lenders, the Borrower agrees that, subject to the terms of the agreements of
participation, each participating lender will be entitled to rely on the terms of this Agreement and
the other Loan Documents as fully as if such participating lender had been named as the holder of
the Note and a party to this Agreement and the other Loan Documents. Any costs or expenses
incurred by the Lender in negotiating, preparing or entering into any such participation agreement
shall be paid by the Lender.
10.2 Cumulative Remedies. No failure on the part of the Lender to exercise and no delay
in exercising any right or remedy under this Agreement and the documents signed pursuant to this
Agreement shall operate as a waiver thereof, nor shall any single or partial exercise by Lender of
any right thereunder preclude any other or further right of exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not alternative.

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10.3 [Reserved.]
10.4 Notices. All notices, requests and demands required or authorized hereunder shall
be given in writing and served in person, delivered by certified mail, return receipt requested,
delivered by nationally recognized overnight courier, or transmitted by telefacsimile (fax),

addressed as follows:

Borrower:

Addvantage Technologies Group, Inc.
Attn: Scott Francis

1221 E Houston
Broken Arrow, OK 74012

With a copy to:

Leveling 8, Inc.
Attn: David E Chymiak

21553 E Apache St
Catoosa, OK 74015

Lender:

Vast Bank, N.A.
Attn: Lauren Smith

110 N Elgin STE 500
Tulsa, OK 74120
Lauren.Smith@Vast.Bank

With a copy to:

Jason B. Coutant
Conner & Winters, LLP

4000 One Williams Center
Tulsa, Oklahoma 74172-0148
Fax: (918) 586-8682
or at such other address as either party hereto shall designate for such purpose in a notice to the
other party hereto. Notices served in person or via overnight courier shall be effective and deemed
given when delivered, notices sent by certified mail shall be effective and deemed given five
Business Days after being deposited in the U.S. mail, postage prepaid, and notices transmitted by
telefacsimile will be deemed given when sent if between the hours of 8 a.m. and 5 p.m. of the
recipient’s time zone (and if not, it shall be deemed given on the next Business Day), as indicated
by the sender's written confirmation of transmission.
10.1 APPLICABLE LAW. THE OBLIGATIONS EVIDENCED BY THE TERM
NOTE WAS NEGOTIATED, EXECUTED, DELIVERED AND CONTRACTED IN TULSA,
OKLAHOMA, AND THIS AGREEMENT AND ALL LOAN DOCUMENTS SIGNED
PURSUANT TO THIS AGREEMENT SHALL BE DEEMED TO BE CONTRACTS MADE
UNDER THE LAWS OF THE STATE OF OKLAHOMA AND SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA.
10.2 Not A Joint Venture. Nothing in this Agreement shall be construed to constitute
the Lender as a joint venturer with the Borrower or to constitute a partnership.

27

10.3 Binding Effect. This Agreement and the Loan Documents shall be binding on, and
shall inure to the benefit of, the parties hereto and their respective successors and assigns; provided,
however, that without the prior, written consent of the Lender, the Borrower shall not assign or
transfer any of its interest, rights or obligations arising out of or relating to this Agreement or any
other Loan Documents.
10.4 Survival of Representations and Warranties. All representations and warranties
made herein will survive the delivery of this Agreement and the making of any advances under the
Loan.
10.5 Exhibits and Schedules. All exhibits and schedules attached to this Agreement are
incorporated herein for all purposes, and shall be considered a part of this Agreement.
10.6 Severability. In the event any one or more of the provisions contained in this
Agreement or any other Loan Document shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect and in any jurisdiction, (i) such invalidity, illegality or
unenforceability shall not affect any other provision thereof, (ii) the remaining provisions shall
remain in full force and effect, (iii) such invalid, illegal or unenforceable provision shall not be
affected in any other jurisdiction, and (iv) there shall be added to the affected document a
provision, to be prepared by the Lender and its counsel, as similar as possible to the invalid, illegal
or unenforceable provision but so as to be valid, legal and enforceable.
10.7 Entire Agreement; Conflicting Provisions. This Agreement and the Loan
Documents referred to herein constitute the entire agreement of the parties hereto with respect to
the Loan and all matters arising out of or related thereto. In the event of any conflict between or
among the provisions of this Agreement and the provisions of any other Loan Documents, the
provisions of this Agreement shall control.
10.8 Waivers. No act, delay, omission or course of dealing between or among the parties
hereto will constitute a waiver of their respective rights or remedies under this Agreement or the
documents signed pursuant to this Agreement. No waiver, change, modification or discharge of
any of the rights and duties of the parties hereto will be effective unless contained in a written
instrument signed by the party sought to be bound.
10.9 SUBMISSION TO JURISDICTION. ALL ACTIONS OR PROCEEDINGS WITH
RESPECT TO THIS AGREEMENT MAY BE INSTITUTED IN ANY STATE OR FEDERAL
COURT SITTING IN TULSA, OKLAHOMA, AS THE LENDER MAY ELECT, AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER
IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION (BOTH SUBJECT MATTER AND PERSON) OF EACH SUCH COURT.
10.10 PATRIOT Act Notification. The Lender hereby notifies the Borrower that pursuant
to the requirements of the PATRIOT Act, it is required to obtain, verify and record information
that identifies the Borrower, which information includes the name and address of the Borrower
and other information that will allow the Lender to identify the Borrower in accordance with the
PATRIOT Act.

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10.11 WAIVER OF JURY TRIAL. EACH OF BORROWER AND LENDER
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE
LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY AND
AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE
A COURT AND NOT BEFORE A JURY. EACH OF BORROWER AND LENDER
ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER
INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE WAIVER IN
ENTERING INTO THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS,
AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR
RELATED FUTURE DEALINGS. EACH OF BORROWER AND LENDER WARRANTS
AND REPRESENTS THAT EACH HAS HAD THE OPPORTUNITY OF REVIEWING
THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACH KNOWINGLY
AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.
10.12 Counterparts. This Agreement may be executed in counterparts (and by different
parties hereto in different counterparts), each of which shall constitute an original, but all of which
when taken together shall constitute a single contract. Delivery of an executed counterpart of a
signature page of this Agreement by telecopy or electronic (pdf) means shall be effective as
delivery of a manually executed counterpart of this Agreement.

[signatures on following page]

IN WITNESS WHEREOF, the Lender and the Borrower have caused this Agreement to
be duly executed, effective as of the date first above written.
"Borrower": ADDVANTAGE TECHNOLOGIES GROUP,
INC.
By: /s/ Joseph E. Hart
Name: Joseph E. Hart
Title: CEO
"Lender": VAST BANK, N.A.
By: /s/ Lauren N. Smith
Name: Lauren N. Smith
Title: Vice President

Acknowledgement
The undersigned, David E. Chymiak, Leveling 8 Inc. and David Chymiak LLC, each (i)
acknowledge receipt of drafts of the Loan Agreement between Vast Bank, N.A. and Addvantage
Technologies, Inc. and the other Loan Documents, (ii) agree to the conditions of Section 2.14 of
such Loan Agreement, including without limitation the condition that payments on the Leveling 8
Note be made directly to Vast Bank, N.A. until and through the December 31, 2022 payment, and
(iii) that a part of the Collateral securing the Loan from Vast Bank, N.A. to Addvantage
Technologies, Inc. is all of Addvantage Technologies, Inc.'s rights in and to the Leveling 8
Mortgages, the Leveling 8 Note, the Chymiak Guaranty and the Chymiak Pledge. Capitalized
terms not defined in this acknowledgement are hereby assigned the meanings ascribed to them in

the Loan Agreement.

/s/ David E. Chymiak
David E. Chymiak
LEVELING 8 INC.
By: /s/ David E. Chymiak
Name: David E. Chymiak
Title: President
DAVID CHYMIAK LLC
By: /s/ David E. Chymiak
Name: David E. Chymiak
Title: Sole Member

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph E. Hart, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of ADDvantage Technologies Group, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 14, 2020

/s/ Joseph E. Hart

Joseph E. Hart

President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott A. Francis, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of ADDvantage Technologies Group, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 14, 2020

/s/ Scott A. Francis

Scott A. Francis

Chief Accounting Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of ADDvantage Technologies Group, Inc. (the “Company”) for the fiscal quarter ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) I, Joseph E. Hart, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Joseph E. Hart

Name: Joseph E. Hart

Title: President and Chief Executive Officer

Date: May 14, 2020

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of ADDvantage Technologies Group, Inc. (the “Company”) for the fiscal quarter ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) I, Scott A. Francis, Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Scott A. Francis

Name: Scott A. Francis

Title: Chief Accounting Officer

Date: May 14, 2020