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Table of Content
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED December 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    FOR THE TRANSITION PERIOD FROM________________ TO ______________
Commission File number 1-10799
ADDvantage Technologies Group, Inc.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1351610
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1430 Bradley Lane, Suite 196
Carrollton, Texas 75007
(Address of principal executive office)
(918) 251-9121
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes S No £
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes S No £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer £ Accelerated filer £
Non-accelerated filer S Smaller reporting company ☒ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No S
Shares outstanding of the issuer's $.01 par value common stock as of February 10, 2021 were 12,366,593.
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Table of Content
ADDVANTAGE TECHNOLOGIES GROUP, INC.
Form 10-Q
For Period Ended December 31, 2020
Page
4
December 31, 2020 and September 30, 2020
5
Three Months Ended December 31, 2020 and 2019
6
Three Months Ended December 31, 2020 and 2019
7
Three Months Ended December 31, 2020 and 2019
8
16
21
22

2
Table of Content
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements.
3


ADDvantage Technologies Group, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
(Unaudited)
December 31, 2020 September 30, 2020
Assets
Current assets:
Cash and cash equivalents $ 5,401  8,265 
Restricted cash 265  108 
Accounts receivable, net of allowances of $250, respectively
4,810  3,968 
Unbilled revenue 1,151  590 
Promissory note – current —  1,400 
Income tax receivable 1,248  1,283 
Inventories, net of allowances of $3,054, respectively
6,202  5,576 
Prepaid expenses and other assets 1,011  884 
Total current assets 20,088  22,074 
Property and equipment, at cost 4,311  4,220 
Less: Accumulated depreciation (1,785) (1,586)
Net property and equipment 2,525  2,634 
Right-of-use lease assets 3,505  3,758 
Promissory note – non current 2,270  2,375 
Intangibles, net of accumulated amortization 1,346  1,425 
Goodwill 58  58 
Other assets 179  179 
Total assets $ 29,971  $ 32,503 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 3,528  $ 3,472 
Accrued expenses 1,070  1,319 
Deferred revenue 126  113 
Bank line of credit 2,800  2,800 
Note payable, current 2,178  1,709 
Right-of-use lease obligations – current 1,263  1,275 
Financing lease obligations – current 272  285 
Other current liabilities 56  41 
Total current liabilities 11,293  11,014 
Note payable 751  2,440 
Right-of-use lease obligations 3,016  3,310 
Financing lease obligations 737  791 
Other liabilities —  15 
Total liabilities 15,797  17,570 
Shareholders’ equity:
Common stock, $0.01 par value; 30,000,000 shares authorized; 12,366,593 shares issued and outstanding, and 11,822,009 shares issued and outstanding, respectively
124  118 
Paid in capital (1,379) (2,567)
Retained earnings 15,429  17,382 
Total shareholders’ equity 14,174  14,933 
Total liabilities and shareholders’ equity $ 29,971  $ 32,503 
See notes to unaudited consolidated financial statements.
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Table of Contents
ADDvantage Technologies Group, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended December 31,
2020 2019
Sales $ 12,749  $ 13,962 
Cost of sales 9,120  10,370 
Gross profit 3,629  3,592 
Operating expenses 2,047  2,131 
Selling, general and administrative expenses 3,215  2,776 
Depreciation and amortization expense 281  448 
Loss from operations (1,914) (1,763)
Other income (expense):
Interest income 48  89 
Income from equity method investment —  22 
Other expense (19) (57)
Interest expense (68) (24)
Total other income (expense), net (39) 30 
Loss before income taxes (1,953) (1,733)
Benefit for income taxes —  (15)
Net loss $ (1,953) $ (1,718)
Basic and diluted loss per share:
Net loss $ (0.16) $ (0.17)
Shares used in per share calculation:
Basic and diluted 12,149,778  10,361,292 
See notes to unaudited consolidated financial statements.
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Table of Contents
ADDvantage Technologies Group, Inc.
Consolidated Statements of Changes in Shareholders' Equity
(in thousands, except share amounts)
(Unaudited)


Common Stock Paid-in
Capital 		Retained
Earnings 		Treasury
Stock
Shares Amount Total
Balance, September 30, 2020 11,822,009  $ 118  $ (2,567) $ 17,382  $ —  $ 14,933 
Net loss —  —  —  (1,953) —  (1,953)
Issuance of common shares 238,194  3  876  —  —  879 
Restricted stock issuance 306,390  3  (3) —  —  — 
Share based compensation expense —  —  315  —  —  315 
Balance, December 31, 2020 12,366,593  $ 124  $ (1,379) $ 15,429  $ —  $ 14,174 
Common Stock Paid-in
Capital 		Retained
Earnings 		Treasury
Stock
Shares Amount Total
Balance, September 30, 2019 10,861,950  $ 109  $ (4,377) $ 34,715  $ (1,000) $ 29,447 
Net loss —  —  —  (1,718) —  (1,718)
Share based compensation expense —  —  14  —  —  14 
Balance, December 31, 2019 10,861,950  $ 109  $ (4,363) $ 32,997  $ (1,000) $ 27,743 

See notes to unaudited consolidated financial statements.
6
ADDvantage Technologies Group, Inc
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Three Months Ended December 31,
2020 2019
Cash flows from operating activities:
Net loss $ (1,953) $ (1,718)
Adjustments to reconcile net loss from operations to net cash
used in operating activities:
Depreciation 201  183 
Amortization 80  265 
Change in right-of-use assets and liabilities, net (52) — 
Share based compensation expense 315  18 
Gain from disposal of property and equipment (10) — 
Gain from equity method investment —  (22)
Changes in assets and liabilities:
Accounts receivable (842) 49 
Unbilled revenue (562) 12 
Income tax receivable\payable 35  (15)
Inventories (626) (536)
Prepaid expenses and other assets (112) 46 
Accounts payable 56  (542)
Accrued expenses and other liabilities (250) (109)
Deferred revenue 13  193 
Net cash used in operating activities (3,707) (2,176)
Cash flows provided by investing activities:
Proceeds from promissory note receivable 1,505  584 
Loan repayment from equity method investee —  22 
Purchases of property and equipment (74) (100)
Disposals of property and equipment 26  25 
Net cash provided by investing activities 1,457  531 
Cash flows provided by (used in) financing activities:
Change in bank line of credit —  1,700 
Guaranteed payments for acquisition of business —  (667)
Payments on financing lease obligations (86) (78)
Payments on notes payable (1,249) — 
Proceeds from sale of common stock 878  — 
Net cash provided by (used in) financing activities (457) 955 
Net decrease in cash, cash equivalents and restricted cash (2,707) (690)
Cash, cash equivalents and restricted cash at beginning of period 8,373  1,594 
Cash, cash equivalents and restricted cash at end of period $ 5,666  $ 904 
See notes to unaudited consolidated financial statements.
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Table of Contents
ADDvantage Technologies Group, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 1 - Basis of Presentation and Accounting Policies
Basis of presentation
The consolidated financial statements include the accounts of ADDvantage Technologies Group, Inc. and its subsidiaries, all of which are wholly owned (collectively, the “Company”). Intercompany balances and transactions have been eliminated in consolidation. The Company’s reportable segments are Wireless Infrastructure Services (“Wireless”) and Telecommunications (“Telco”).
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. However, the information furnished reflects all adjustments, which are, in the opinion of management, necessary in order to make the unaudited consolidated financial statements not misleading. The Company’s business is subject to seasonal variations due to weather in the geographic areas where services are performed, as well as calendar events and national holidays. Therefore, the results of operations for the three months ended December 31, 2020 and 2019, are not necessarily indicative of the results to be expected for the full fiscal year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020.
Reclassification
Certain prior period amounts have been reclassified to conform to current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.
Recently Issued Accounting Standards
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13: “Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments.”  This ASU requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. Upon adoption, entities will use forward-looking information to better form their credit loss estimates. This ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. On November 15, 2019, the FASB delayed the effective date of the standard for companies that qualify under smaller reporting company reporting rules. As amended, the effective date of ASC Topic 326 was delayed until fiscal years beginning after December 15, 2022 for SEC filers that are eligible to be smaller reporting companies under the Securities and Exchange Commission definition. We are currently in the process of evaluating this new standard update.
Note 2 – Revenue Recognition
The Company’s principal sales are from Wireless services, sales of Telco equipment and Telco recycled equipment, primarily in the United States. Sales to international customers in Central and South America totaled approximately $0.3 million and $0.4 million for the three months ended December 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 15% and 11% of consolidated revenues for the three months ended December 31, 2020 and 2019, respectively.
8
Our sales by type were as follows, in thousands:
Three Months Ended December 31,
2020 2019
Wireless services sales $ 5,246  $ 6,798 
Equipment sales:
Telco 7,275  6,783 
Telco repair sales 6  8 
Telco recycle sales 222  373 
Total sales $ 12,749  $ 13,962 
Contract assets and contract liabilities are included in Unbilled revenue and Deferred revenue, respectively, in the consolidated balance sheets. At December 31, 2020 and September 30, 2020, contract assets were $1.2 million and $0.6 million, respectively, and contract liabilities were $0.1 million and $0.1 million, respectively. The Company recognized the entire $0.1 million of contract revenue during the three months ended December 31, 2020 related to contract liabilities recorded in Deferred revenue at September 30, 2020.

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 December 31, 2020, the third-party financial institution has a reserve against the sold receivables of $0.3 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 $2 million at December 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 December 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 three months ended December 31, 2020 and 2019, the Company received proceeds from the sold receivables under all of the various agreements of $5.0 million and $7.0 million, respectively, and included the proceeds in net cash used in operating activities in the Consolidated Statements of Cash Flows. The fees associated with selling these receivables ranged from 1.0% to 2.3% of the gross receivables sold for the three months ended December 31, 2020 and 2019. The Company recorded costs of $43 thousand and $0.1 million for the three months ended December 31, 2020 and 2019, respectively, in other expense in the Consolidated Statements of Operations.
Note 4 – Promissory Note Receivable
During the fiscal year ended 2019, the Company completed a sale of its former Cable TV reporting segment to Leveling 8, an entity owned by a member of our board and significant shareholder, David Chymiak. Part of the consideration for the sale was a promissory note bearing interest of 6% received from Mr. Chymiak. Mr. Chymiak personally guaranteed the promissory note due to the Company and pledged certain assets to secure the payment of the promissory note, including substantially all of Mr. Chymiak’s Company common stock. During the quarter ended December 31, 2020, the Company received principal payments totaling $1.5 million, of which approximately
9
$1.0 million was a prepayment. At December 31, 2020, there was $2.3 million outstanding on the promissory note. The remaining promissory note becomes due in a final payment on June 29, 2024.
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 receivable. See Note 7 - Debt for disclosures related to the Company's promissory note payable.
Note 5 – Inventories
Inventories, which are all within the Telco segment, at December 31, 2020 and September 30, 2020 are as follows, in thousands:
December 31, 2020 September 30, 2020
New equipment $ 1,397  $ 1,311 
Refurbished and used equipment 7,859  7,319 
Allowance for excess and obsolete inventory (3,054) (3,054)
Total inventories, net $ 6,202  $ 5,576 
New equipment includes products purchased from manufacturers plus “surplus-new,” which are unused products purchased from other distributors or multiple system operators. Refurbished and used equipment include factory refurbished, Company refurbished and used products.
The Telco segment identified certain inventory that more than likely will not be sold or that the cost will not be recovered when it is processed through its recycling program. Therefore, the Company has a $3.1 million allowance at December 31, 2020 and September 30, 2020.
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 groups assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted future cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.
Intangible assets with their associated accumulated amortization and impairment at December 31, 2020 and September 30, 2020 are as follows, in thousands:
December 31, 2020
Intangible assets: Gross Accumulated Amortization Impairment Net
Customer relationships – 10 years
$ 8,396  $ (4,061) $ (3,894) $ 441 
Trade name – 10 years
2,122  (1,217) —  905 
Total intangible assets $ 10,518  $ (5,278) $ (3,894) $ 1,346 
September 30, 2020
Intangible assets: Gross Accumulated
Amortization 		Impairment Net
Customer relationships – 10 years
$ 8,396  $ (4,021) $ (3,894) $ 481 
Trade name – 10 years
2,122  (1,178) —  944 
Non-compete agreements – 3 years
374  (374) —  — 
Total intangible assets $ 10,892  $ (5,573) $ (3,894) $ 1,425 

10
Note 7 – Debt
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 was payable in seven semi-annual installments of principal and interest with the first payment occurring June 30, 2020. In connection with the $1.5 million payment received in the first fiscal quarter of 2021 from the promissory note receivable, the Company fully repaid the remaining $1.2 million of principal outstanding under this loan.
Credit Agreement
The Company has a $4.0 million revolving line of credit agreement with its primary financial lender, which matures on December 17, 2021. The line of credit requires quarterly interest payments based on the prevailing Wall Street Journal Prime Rate, floating (3.25% at December 31, 2020), with the addition of a 4% floor rate and a fixed charge coverage ratio of 1.25 to be tested quarterly beginning June 30, 2021. At December 31, 2020, there was $2.8 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 60% of eligible Telco segment inventory. Under these limitations, the Company’s total line of credit borrowing capacity was $4.0 million at December 31, 2020.
Loan Covenant with Primary Financial Lender
The credit agreement provides 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 to be tested quarterly beginning June 30, 2021. The Company believes that it is probable that it will not be in compliance with this covenant as of the measurement date at June 30, 2021. 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
On April 14, 2020, the Company received a SBA Payroll Protection Program (“PPP”) loan pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), with its primary lender for $2.9 million. The PPP loan bears interest at 1% per annum, with monthly payments of principal and interest in the amount of $164,045 commencing on November 10, 2020, and matures on April 10, 2022. However, the Company has applied for forgiveness in accordance with the terms in the CARES Act, and our lender has not required repayments while under consideration for forgiveness. The Paycheck Protection Program provides that the PPP loan may be partially or fully forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company has applied for forgiveness of the PPP loan in accordance with the requirements and limitations under the CARES Act, the PPP Flexibility Act and SBA regulations and requirements.
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 8 – Equity Distribution Agreement and Sale of Common Stock
On April 24, 2020, the Company entered into an Equity Distribution Agreement with Northland Securities, Inc., as agent (“Northland”), pursuant to which the Company may offer and sell, from time to time, through Northland, shares of the Company’s common stock, par value 0.01 per share, having an aggregate offering price of up to $13,850,000 ("Shares").
The offer and sale of the Shares will be made pursuant to a shelf registration statement on Form S-3 and the related prospectus filed by the Company with the Securities and Exchange Commission (the “SEC”) on March 3, 2020, as amended on March 23, 2020, and declared effective by the SEC on April 1, 2020.
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Pursuant to the Sales Agreement, Northland may sell the Shares by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933 (the “Securities Act”), including sales made by means of ordinary brokers’ transactions, including on The Nasdaq Global Market, at market prices or as otherwise agreed with Northland. Northland will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the Shares from time to time, based upon instructions from the Company, including any price or size limits or other customary parameters or conditions the Company may impose. The Sales Agreement may be terminated without prior notice at any time prior to the fulfillment if additional sales are deemed not warranted.
The Company will pay Northland a commission rate equal to an aggregate of 3.0% of the aggregate gross proceeds from each sale of Shares and have agreed to provide Northland with customary indemnification and contribution rights. The Company will also reimburse Northland for certain specified expenses in connection with entering into the Sales Agreement. The Sales Agreement contains customary representations and warranties and conditions to the placements of the Shares pursuant thereto.
During the three months ended December 31, 2020, 238,194 Shares were sold by Northland on behalf of the Company with gross proceeds of $0.91 million, and net proceeds after commissions and fees of $0.88 million.
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 months ended December 31, 2020 and 2019 are (in thousands, except per share amounts):
Three Months Ended December 31,
2020 2019
Net loss attributable to common shareholders $ (1,953) $ (1,718)
Basic and diluted weighted average shares 12,149,778  10,361,292 
Basic and diluted loss per common share: $ (0.16) $ (0.17)
The table below includes information related to stock options that were outstanding at the end of each respective three-month period ended December 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 either due to the Company incurring a net loss for the periods presented or the exercise price exceeded the average market price per share of our common stock for the three months ended December 31, 2020 and 2019.
Three Months Ended December 31,
2020 2019
Stock options excluded 100,000  770,000 
Weighted average exercise price of stock options $ 1.55  $ 1.73 
Average market price of common stock $ 2.54  $ 2.27 
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Note 10 – Supplemental Cash Flow Information
(in thousands) Three Months Ended December 31,
2020 2019
Supplemental cash flow information:
Cash paid for interest $ 43  $ 102 
Supplemental noncash investing and financing activities:
Assets acquired under financing leases $ 34  $ 240 

Note 11 – Stock-Based Compensation
Plan Information
The 2015 Incentive Stock Plan (the “Plan”) provides for awards of stock options and restricted stock to officers, directors, key employees and consultants. Under the Plan, option prices will be set by the Compensation Committee and may not be less than the fair market value of the stock on the grant date.
At December 31, 2020, 2,100,415 shares of common stock were reserved for stock award grants under the Plan.  Of these reserved shares, 483,240 shares were available for future grants.
All share-based payments to employees, including grants of employee stock options, are recognized in the consolidated financial statements based on their grant date fair value over the requisite service period.  Compensation expense for stock-based awards is included in the operating, selling, general and administrative expense section of the consolidated statements of operations.
Stock Options
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-year 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 December 31, 2020 and changes during the three months then ended is presented below:
Shares Wtd. Avg.
Ex. Price 		Aggregate Intrinsic
Value
Outstanding at September 30, 2020 100,000  $ 1.55 
Granted —  —  — 
Exercised —  —  — 
Expired —  —  — 
Forfeited —  —  — 
Outstanding at December 31, 2020 100,000  $ 1.55  $ — 
Exercisable at December 31, 2020 83,334  $ 1.60  $ — 
No stock options were granted for the three months ended December 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, 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, and the risk-free rate is based 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
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common stock and does not anticipate paying cash dividends in the future. The Company uses an expected dividend yield of zero. 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 quarters ended December 31, 2020 and 2019 was $1 thousand and $13.9 thousand respectively. The Company records compensation expense over the vesting term of the related options. At December 31, 2020, compensation costs related to these unvested stock options not yet recognized in the consolidated statements of operations was $2 thousand.
Restricted stock awards
In fiscal year 2021, the Company granted a total of 306,390 shares to certain employees, which were valued at market value on the date of the grant. The shares ranged in vesting from one to three years. The fair value of the shares upon issuance was $0.6 million.
A summary of the Company's non-vested restricted share awards (RSA) at December 31, 2020 and changes during the quarter ended December 31, 2020 is presented in the following table (in thousands, except shares):
Shares Fair Value
Non-vested at September 30, 2020 475,024  $ 1,058 
Granted 306,390  628 
Vested (66,158) (108)
Forfeited —  — 
Non-vested at December 31, 2020 715,256  $ 1,578 
Compensation expense related to unvested stock grants recorded for the quarters ended December 31, 2020 and 2019, was $0.3 million and $4 thousand respectively. At December 31, 2020, compensation costs related to these unvested restricted share awards not yet recognized in the consolidated statements of operations was approximately $1.0 million.
Note 12 – Leases
Our Wireless segment has an operating lease for a building in Fridley, Minnesota for Fulton Technologies, Inc. As a result of closing down and vacating Fulton Technologies, Inc.’s Minnesota office in May 2019, a third-party telecom company began subleasing this building in June 2019.
Our Telco segment has an operating lease for a building in Jessup, Maryland for Nave Communications.  As a result of moving Nave’s operations to Palco Telecom, a third-party logistics provider in Huntsville, Alabama, in fiscal year 2020, Nave completely vacated the building in May 2020 and was subleasing part of the building during fiscal year 2021. 
Rental payments received related to these subleases was recorded as a reduction of rent expense in our Consolidated Statements of Operations for the periods ending December 31, 2020 and 2019. Rental payments received from subleased right-of-use assets is as follows, (in thousands).
Three Months Ended December 31,
2020 2019
Rent received from subleased right-of-use assets
Wireless $ 46  $ 45 
Telco 57  100 
Total rental received included in rent expense $ 103  $ 145 

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Note 13 – 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, inventories, property and equipment, goodwill and intangible assets.

The Company changed the allocation of corporate general and administrative expenses between our reportable business segments. At September 30, 2020, the Company did not allocate the corporate general and administrative expenses to the reportable segments and listed those expenses separate from the operating results of those reportable segments. During fiscal 2021, the Company reviewed its reportable segments and its corporate general and administrative expenses and allocation methodology, which resulted in the Company allocating its corporate general and administrative expenses to the reportable segments. The prior period allocations have been adjusted to reflect the Company's current allocation.
Three Months Ended
(in thousands) December 31, 2020 December 31, 2019
Sales
Wireless $ 5,247  $ 6,798 
Telco 7,502  7,164 
Total sales $ 12,749  $ 13,962 
Gross profit
Wireless $ 1,609  $ 1,873 
Telco 2,020  1,719 
Total gross profit $ 3,629  $ 3,592 
Loss from operations
Wireless $ (809) $ (782)
Telco (1,105) (981)
Total loss from operations $ (1,914) $ (1,763)
(in thousands) December 31, 2020 September 30, 2020
Segment assets
Wireless $ 5,141  $ 5,324 
Telco 13,799  12,298 
Non-allocated 11,031  14,881 
Total assets $ 29,971  $ 32,503 
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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Special Note on Forward-Looking Statements
Certain statements in Management's Discussion and Analysis (“MD&A”), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements generally are identified by the words “estimates,” “projects,” “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, 2020, which includes our audited consolidated financial statements and the accompanying notes to the consolidated financial statements.
The Company reports its financial performance based on two external reporting segments: Wireless and Telecommunications.  These reportable segments are described below.
Wireless Infrastructure Services (“Wireless”)
The Company’s Wireless segment provides turn-key wireless infrastructure services for the four major U.S. wireless carriers, communication tower companies, national integrators, and original equipment manufacturers that support these wireless carriers. These services primarily consist of the installation and upgrade of technology on cell sites and the construction of new small cells for 5G.
Telecommunications (“Telco”)
The Company’s Telco segment sells new and refurbished telecommunications networking equipment, including both central office and customer premise equipment, to its customer base of telecommunications providers, enterprise customers and resellers located primarily in North America. This segment also offers its customers repair and testing services for telecommunications networking equipment. In addition, this segment offers its customers decommissioning services for surplus and obsolete equipment, which it in turn processes through its recycling program.
Recent Business Developments
COVID-19
On March 11, 2020, the World Health Organization declared the current outbreak of COVID-19 to be a global pandemic, and on March 13, 2020, the United States declared a national emergency. In response to these declarations and the rapid spread of COVID-19, federal, state and local governments have imposed varying degrees of restrictions on business and social activities to contain COVID-19, including quarantine and “stay-at-home” or “shelter-in-place” orders in markets where we operate. Despite these “stay-at-home” or “shelter-in-place” orders, we are classified as an essential business due to the services and products we provide to the
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telecommunications industry.  Therefore, we continue to operate in the markets we serve, but most of our back-office and administrative personnel were working from home through December 31, 2020 while these orders were 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 virus.
Results of Operations
Comparison of Results of Operations for the Three Months Ended December 31, 2020 and December 31, 2019
Consolidated
Consolidated sales decreased $1.21 million, or 9%, to $12.75 million for three months ended December 31, 2020 from $13.96 million for the three months ended December 31, 2019.  The decrease in sales was due to declines in sales in the Wireless segment of $1.55 million partially offset by an increase in Telco sales of $0.34 million.
Consolidated gross profit was essentially flat at $3.6 million for three months ended December 31, 2020 compared to $3.6 million for the same period last year. The changes in gross profit were due to an increase in the Telco segment of $0.3 million, offset by a Wireless segment decrease of $0.3 million.
Consolidated operating expenses include indirect costs associated with operating our business. Indirect costs include indirect personnel costs, facility costs, vehicles, insurance, communication, and business taxes, among other cost categories. Operating expenses remained consistent at $2.0 million for the three months ended December 31, 2020 and $2.1 million the same period last year.
Consolidated selling, general and administrative ("SG&A") expenses include overhead costs, which consist of personnel costs, insurance, professional services, and communication, and other cost categories. SG&A expense increased $0.4 million, or 16%, to $3.2 million for the three months ended December 31, 2020 from $2.8 million for the same period last year. The increase in SG&A relates to increased sales costs and increased non-cash stock compensation.
Depreciation and amortization expenses decreased $0.17 million, or 37%, to $0.28 million for the three months ended December 31, 2020, from $0.45 million for the same period last year. The decrease was due primarily to a decrease in amortization expenses to the Telco segment of $0.18 million, as a result of intangible impairments taken in fiscal 2020.
Interest income primarily consists of interest earned on the promissory note. Interest income was $48 thousand for the three months ended December 31, 2020 and $0.1 million for the same period last year.
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Income from equity method investment, which consists of activity related to our investment in YKTG Solutions, for the three months ended December 31, 2020 was zero and $20 thousand for the three months ended December 31, 2019. The income for the three months ended December 31, 2019 consisted primarily of payments received under a loan to the former YKTG Solutions partners.
Interest expense for the three months ended December 31, 2020 was $0.1 million as compared to $26 thousand for the same period last year. The expense for the three months ended December 31, 2020 was primarily related to interest expense on the revolving bank line of credit and the loan with our primary financial lender. 
Income tax expense during the three months ended December 31, 2020 was zero compared to an income tax benefit of $15 thousand for the same period in 2019. Our effective tax rates during the three months ended December 31, 2020 and 2019 were approximately 0% and 1%, respectively because of an increase in our valuation allowance against our deferred tax assets in the first quarter of fiscal 2020.
Segment Results
Wireless
Revenues for the Wireless segment decreased $1.6 million to $5.2 million for the three months ended December 31, 2020 from $6.8 million for the same period of last year. Revenues continued to be negatively impacted due to delays in infrastructure spending from the major U.S. carriers related to the COVID-19 pandemic. However, we believe that the 5G rollout will gain momentum in 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 an increased share of the 5G construction services work and to improve our operating cost efficiency and gross profit.
Gross profit was $1.6 million, or 31% for the three months ended December 31, 2020 and $1.9 million, or 28%, for the three months ended December 31, 2019. The improvement in the gross profit percentage was driven by the mix of specialty service work.
Operating expenses were $1.2 million for the three months ended December 31, 2020 compared to $1.5 million for the three months ended December 31, 2019 as a result of a range of cost control measures.
Selling, general and administrative expenses increased $0.2 million to $0.7 million for the three months ended December 31, 2020 from $0.5 million for the three months ended December 31, 2019. This increase was due to increased sales-related personnel costs. The corporate overhead allocation increased $0.2 million mainly as a result of the employee stock-based compensation plan and interest expense.
Depreciation and amortization expense was $0.1 million for the three months ended December 31, 2020 and 2019.
Telco
Sales for the Telco segment increased $0.34 million to $7.50 million for the three months ended December 31, 2020 from $7.16 million for the same period last year. The increase in revenues were related to increased sales of used and refurbished equipment, coupled with decreased charges for returns during the quarter compared to the prior quarter.
Gross profit was $2.0 million for the three months ended December 31, 2020 and $1.7 million for the three months ended December 31, 2019. The increased gross profit was due to increased revenues of $0.3 million, while cost of goods sold was flat year-over-year at $5.5 million.
Operating expenses increased to $0.8 million for the three months ended December 31, 2020 from $0.7 million for the three months ended December 31, 2019. The increased operating expense was due fees related to the utilization of a third-party logistics provider.
Selling, general and administrative expenses decreased $0.1 million to $0.8 million for the three months ended December 31, 2020 from $0.9 million for the same period last year. This decrease was due primarily to decreased
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personnel costs and professional fees. The decrease in SG&A was offset by an increase in the corporate allocation of $0.4 million, which related to the employee stock-compensation plan and interest expense.
Depreciation and amortization expense decreased $0.2 million to $0.1 million for the three months ended December 31, 2020 from $0.3 million for the same period last year. This was due to decreased amortization expense resulting from the impairment of intangibles taken in the three months ended March 31, 2020.
Non-GAAP Financial Measure
Adjusted EBITDA is a supplemental, non-GAAP financial measure.  EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA as presented also excludes impairment charges for operating lease right-of-use assets and intangible assets including goodwill, stock compensation expense, other income, other expense, interest income and income from equity method investment. Adjusted EBITDA is presented below because this metric is used by the financial community as a method of measuring our financial performance and of evaluating the market value of companies considered to be in similar businesses.  Since Adjusted EBITDA is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net earnings as an indicator of operating performance. Adjusted EBITDA, as calculated below, may not be comparable to similarly titled measures employed by other companies.  In addition, Adjusted EBITDA is not necessarily a measure of our ability to fund our cash needs.
The following table provides a reconciliation by segment of loss from operations to Adjusted EBITDA for the three months ended December 31, 2020 and December 31, 2019, in thousands:
Three Months Ended
December 31, 2020 		Three Months Ended
December 31, 2019
Wireless Telco Total Wireless Telco Total
Loss from operations $ (1,105) $ (809) $ (1,914) $ (782) $ (981) $ (1,763)
Depreciation and amortization expense 152  129  281  146  301  447 
Stock compensation expense 140  175  315  9  9  18 
Adjusted EBITDA $ (813) $ (505) $ (1,318) $ (627) $ (671) $ (1,298)
Critical Accounting Policies
Our unaudited consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of our significant accounting policies is included in Note 1- Basis of Presentation and Accounting Policies in our Form 10-K.
General
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on historical experience, current market conditions, and various other factors we believe to be reasonable, which form the basis for making judgments about the carrying values of certain assets. Actual results could differ from these estimates under different assumptions or conditions. The most significant estimates and assumptions are discussed below.
Inventory Valuation
For our Telco segment, our position in the telecommunications industry requires us to carry large inventory quantities relative to annual sales, but it also allows us to realize high gross profit margins on our sales.  We market our products primarily to telecommunication providers, resellers, and other users of telecommunication equipment who are seeking products for which manufacturers have discontinued production or cannot ship new equipment on a same-day basis, as well as providing used products as an alternative to new products from the manufacturer.  Carrying these large inventory quantities represents our largest risk for our Telco segment.
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Our inventories are all carried in the Telco segment and consist of new and used electronic components for the telecommunications industry.  Inventory is stated at the lower of cost or net realizable value, with cost determined using the weighted-average method. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  At December 31, 2020, we had total inventory, before the reserve for excess and obsolete inventories, of $9.3 million, consisting of $1.4 million in new products and $7.9 million in used or refurbished products.
We regularly review the value of our inventory in detail with consideration given to rapidly changing technology which can significantly affect future customer demand. For individual inventory items, we may carry inventory quantities that are excessive relative to market potential, or we may not be able to recover our acquisition costs. In order to address the risks associated with our investment in inventory, we review inventory quantities on hand and reduce the carrying value for obsolete and excess inventories, when our analysis indicates that cost will not be recovered when an item is sold.
We identified certain inventory that more than likely will not be sold or that the cost will not be recovered when it is processed through our recycling program. Therefore, we have an obsolete and excess inventory reserve of $3.1 million at December 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.
Intangibles
Intangible assets that have finite useful lives are amortized on a straight-line basis over their estimated useful lives ranging from 3 years to 10 years. Intangible assets are also tested for impairment when events and circumstances indicate that the carrying value may not be recoverable. As of December 31, 2020, there were no indicators of impairment present.
Liquidity and Capital Resources
Cash Flows Used in Operating Activities
During the three months ended December 31, 2020, cash used in operations was $3.7 million. Cash flows from operations were negatively impacted by a net loss of $2.0 million and net cash used by working capital of $2.3 million, which was partially offset by non-cash adjustments of $0.5 million.
Cash Flows Provided by Investing Activities
During the three months ended December 31, 2020, cash provided by investing activities was $1.5 million, consisting of $1.5 million of payments received under the promissory note receivable.
Cash Flows Used in Financing Activities
During the three months ended December 31, 2020, cash used in financing activities was $0.5 million, of which $1.2 million related to repayment of our promissory note payable, partially offset by net proceeds from the sale of our common stock utilizing our shelf registration of $0.9 million. 
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 principal and interest payments correlate to our promissory note receivable with Leveling 8. We monetized $3.5 million of the $5.8 million remaining balance of the promissory note receivable. In connection with the $1.5 million in payments received in the first quarter of 2020, we paid down the remaining outstanding principal under this loan.
The Company has a $4.0 million revolving line of credit agreement with its primary financial lender, which matures on December 17, 2021. The line of credit requires quarterly interest payments based on the prevailing Wall Street Journal Prime Rate, floating (3.25% at December 31, 2020), with the addition of a 4% floor rate and a fixed charge coverage ratio of 1.25 to be tested quarterly beginning June 30, 2021. At December 31, 2020, there was $2.8 million
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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 60% of eligible Telco segment inventory. Under these limitations, the Company’s total line of credit borrowing capacity was $4.0 million at December 31, 2020.
On April 14, 2020, the Company received a SBA Payroll Protection Program (“PPP”) loan pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), with its primary lender for $2.9 million. The PPP loan bears interest at 1% per annum, with monthly payments of principal and interest in the amount of $164,045 commencing on November 10, 2020, and matures on April 10, 2022. However, the Company has applied for forgiveness in accordance with the terms in the CARES Act, and our lender has not required repayments while under consideration for forgiveness. The Paycheck Protection Program provides that the PPP loan may be partially or fully forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company has applied for forgiveness of the PPP loan in accordance with the requirements and limitations under the CARES Act, the PPP Flexibility Act and SBA regulations and requirements.
In the first quarter of 2021, we utilized our recently filed shelf registration statement to raise additional cash by selling common shares utilizing an at the market offering under our equity distribution agreement with Northland Securities, Inc. (“Northland”). Under this program, we sold 238,194 shares for net proceeds of $0.88 million.
We believe that our cash and cash equivalents and restricted cash of $5.7 million at December 31, 2020 and our existing revolving bank line of credit 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 further 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 December 31, 2020, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to accomplish their objectives and to ensure the information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
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PART II.   OTHER INFORMATION

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

During the quarter ended December 31, 2020, the Company sold 238,194 shares of common stock under its registration statement on Form S-3 effective as of April 1, 2020 (333-236859). Gross proceeds from such sales during the quarter were $0.9 million and net proceeds were $0.9 million after the payment of $30 thousand in commissions to Northland Securities, Inc., the underwriter of the offering. Total gross proceeds to the Company from sales under such registration statement since its effective date are $3.1 million and total net proceeds to the Company are $3.0 million after the payment of $0.1 million in commissions to Northland. All sales have been made pursuant to the Prospectus Supplement filed with the Commission on April 24, 2020, under which the Company may sell up to $13,850,000 in common stock. All net proceeds to the Company from such sales have been used in accordance with the “Use of Proceeds” section of such Prospectus Supplement.

Item 6.  Exhibits.
Exhibit No. Description
10.1
31.1
31.2
32.1
32.2
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.

22
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ADDVANTAGE TECHNOLOGIES GROUP, INC.
(Registrant)
Date: February 11, 2021
/s/ Joseph E. Hart
Joseph E. Hart,
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 11, 2021
/s/ Jarrod M. Watson
Jarrod M. Watson,
Chief Financial Officer
(Principal Financial Officer)

23
PROMISSORY NOTE Principal Loan Date Maturity Loan No Call / Coll Account Officer Initials $4,000,000.00 12-17-2020 12-17-2021 18172001 LNS References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations. Borrower: ADDVANTAGE TECHNOLOGIES GROUP INC (TIN: 73-1351610); ADDVANTAGE TRITON, LLC (TIN: 81-3651007); and NAVE COMMUNICATIONS COMPANY (TIN: 52-2182495) 1430 BRADLEY LANE STE 196 CARROLLTON, TX 75007 Lender: Vast Bank, N.A. dba Valley National Bank Elgin 110 N Elgin Ave Tulsa, OK 74120 Principal Amount: $4,000,000.00 Date of Note: December 17, 2020 PROMISE TO PAY. ADDVANTAGE TECHNOLOGIES GROUP INC; ADDVANTAGE TRITON, LLC; and NAVE COMMUNICATIONS COMPANY ("Borrower") jointly and severally promise to pay to Vast Bank, N.A. dba Valley National Bank ("Lender"), or order, in lawful money of the United States of America, the principal amount of Four Million & 00/100 Dollars ($4,000,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on December 17, 2021. In addition, Borrower will pay regular quarterly payments of all accrued unpaid interest due as of each payment date, beginning January 17, 2021, with all subsequent interest payments to be due on the same day of each quarter after that. Unless otherwise agreed or required by applicable law, payments will be applied first to any accrued unpaid interest; then to principal; then to any unpaid collection costs; and then to any late charges. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the Wall Street Journal Prime Rate (the "Index"). The Index is not necessarily the lowest rate charged by Lender on its loans. Lender will tell Borrower the current Index rate upon Borrower's request. The interest rate change will not occur more often than each Day. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 3.250% per annum. Interest on the unpaid principal balance of this Note will be calculated as described in the "INTEREST CALCULATION METHOD" paragraph using a rate equal to the Index, adjusted if necessary for any minimum and maximum rate limitations described below, resulting in an initial rate of 4.000% per annum based on a year of 360 days. If Lender determines, in its sole discretion, that the Index has become unavailable or unreliable, either temporarily, indefinitely, or permanently, during the term of this Note, Lender may amend this Note by designating a substantially similar substitute index. Lender may also amend and add a positive or negative margin (percentage added to or subtracted from the substitute index value) as part of the rate determination. In making these amendments, Lender may take into consideration any then-prevailing market convention for selecting a substitute index and margin for the specific Index that is unavailable or unreliable. Such an amendment to the terms of this Note will become effective and bind Borrower 10 business days after Lender gives written notice to Borrower without any action or consent of the Borrower. NOTICE: Under no circumstances will the interest rate on this Note be less than 4.000% per annum or more than the maximum rate allowed by applicable law. INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding (but not including February 29 in leap years). All interest payable under this Note is computed using this method. PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: Vast Bank, N.A. dba Valley National Bank, 13112 S. Memorial Drive Bixby, OK 74008. LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged 5.000% of the unpaid portion of the regularly scheduled payment or $50.00, whichever is greater. INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the interest rate on this Note shall be increased by adding an additional 5.000 percentage point margin ("Default Rate Margin"). The Default Rate Margin shall also apply to each succeeding interest rate change that would have applied had there been no default. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law. DEFAULT. Each of the following shall constitute an event of default ("Event of Default") under this Note: Payment Default. Borrower fails to make any payment when due under this Note. Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the related documents. False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter. Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute. Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the indebtedness or any guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note. Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired. Insecurity. Lender in good faith believes itself insecure. Cure Provisions. If any default, other than a default in payment, is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured if Borrower, after Lender sends written notice to Borrower demanding cure of such default: (1) cures the default within ten (10) days; or (2) if the cure requires more than ten (10) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount. DocuSign Envelope ID: 1147B95E-ACF0-499D-950C-BF448435D37F

 
PROMISSORY NOTE (Continued)Loan No: 18172001 Page 2 ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including without limitation all attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law. JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Oklahoma without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of Oklahoma. CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of TULSA County, State of Oklahoma. RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts. COLLATERAL. Borrower acknowledges this Note is secured by a Commercial Security Agreement from Borrowers/Grantors to Lender. LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested either orally or in writing by Borrower or as provided in this paragraph. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. The following person or persons are authorized, except as provided in this paragraph, to request advances and authorize payments under the line of credit until Lender receives from Borrower, at Lender's address shown above, written notice of revocation of such authority: JOSEPH E HART, President of ADDVANTAGE TECHNOLOGIES GROUP INC; JARROD M WATSON, Chief Financial Officer of ADDVANTAGE TECHNOLOGIES GROUP INC; JOSEPH E HART, President of ADDVANTAGE TECHNOLOGIES GROUP INC, Manager of ADDVANTAGE TRITON LLC; JARROD M WATSON, Chief Financial Officer of ADDVANTAGE TECHNOLOGIES GROUP INC, Manager of ADDVANTAGE TRITON LLC; JOSEPH E HART, President of NAVE COMMUNICATIONS COMPANY; JARROD M WATSON, Chief Financial Officer of NAVE COMMUNICATIONS COMPANY. along with a monthly Borrowing Base and Loan Officer's approval. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (A) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (B) Borrower or any guarantor ceases doing business or is insolvent; (C) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (D) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (E) Lender in good faith believes itself insecure. COMMERCIAL LOAN LATE CHARGE. If a payment is 15 days or more late, I will be charged $50.00 or 5% of the past due amount. However, Lender may charge the maximum delinquency charge authorized by law as it may be increased during the term of this loan.. NON-USE FEE. Quarterly non-use fee of 25 basis points. PRIOR NOTE. Renewal of Loan #18172001. SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower's heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns. GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Each Borrower understands and agrees that, with or without notice to Borrower, Lender may with respect to any other Borrower (a) make one or more additional secured or unsecured loans or otherwise extend additional credit; (b) alter, compromise, renew, extend, accelerate, or otherwise change one or more times the time for payment or other terms of any indebtedness, including increases and decreases of the rate of interest on the indebtedness; (c) exchange, enforce, waive, subordinate, fail or decide not to perfect, and release any security, with or without the substitution of new collateral; (d) apply such security and direct the order or manner of sale thereof, including without limitation, any non-judicial sale permitted by the terms of the controlling security agreements, as Lender in its discretion may determine; (e) release, substitute, agree not to sue, or deal with any one or more of Borrower's sureties, endorsers, or other guarantors on any terms or in any manner Lender may choose; and (f) determine how, when and what application of payments and credits shall be made on any other indebtedness owing by such other Borrower. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several. PRIOR TO SIGNING THIS NOTE, EACH BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. EACH BORROWER AGREES TO THE TERMS OF THE NOTE. BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE. BORROWER: ADDVANTAGE TECHNOLOGIES GROUP INC By: JOSEPH E HART, President of ADDVANTAGE TECHNOLOGIES GROUP INC ADDVANTAGE TRITON, LLC ADDVANTAGE TECHNOLOGIES GROUP INC, Manager of ADDVANTAGE TRITON, LLC By: JOSEPH E HART, President of ADDVANTAGE TECHNOLOGIES GROUP INC NAVE COMMUNICATIONS COMPANY By: JOSEPH E HART, President of NAVE COMMUNICATIONS COMPANY DocuSign Envelope ID: 1147B95E-ACF0-499D-950C-BF448435D37F

 

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;
4.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:
a.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;
b.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
d.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: February 11, 2021
/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, Jarrod M. Watson, 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;
4.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:
a.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;
b.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
d.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: February 11, 2021
/s/ Jarrod M. Watson
Jarrod M. Watson
Chief Financial 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 December 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: February 11, 2021



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 December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) I, Jarrod M. Watson, Chief Financial 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/ Jarrod M. Watson
Name: Jarrod M. Watson
Title: Chief Financial Officer
Date: February 11, 2021