EDGAR 10-K Filing

Company CIK: 874292
Filing Year: 2023
Filename: 874292_10-K_2023_0001628280-23-008742.json

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ITEM 1. BUSINESS
Item 1. Business.
Forward-Looking Statements
Certain matters discussed in this report constitute forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, including statements which relate to, among other things, expectations of the business environment in which ADDvantage Technologies Group, Inc. (the “Company”, “We”, “Our” or “ADDvantage”) operates, projections of future performance, perceived opportunities in the market and statements regarding our goals and objectives and other similar matters. The words “estimates”, “projects”, “intends”, “expects”, “anticipates”, “believes”, “plans”, “goals”, “strategy”, “likely”, “may”, “should” and similar expressions often identify forward-looking statements. These forward-looking statements are found at various places throughout this report and the documents incorporated into it by reference. These and other statements, which are not historical facts, are hereby identified as “forward-looking statements” for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. These statements are subject to a number of risks, uncertainties and developments beyond our control or foresight, including changes in the wireless telecommunications industry, changes in customer and supplier relationships, technological developments, changes in the economic environment generally, the growth or formation of competitors, changes in governmental regulation or taxation, changes in our personnel, our ability to identify, complete and integrate acquisitions on favorable terms and other such factors. Our actual results, performance or achievements may differ significantly from the results, performance or achievements expressed or implied in the forward-looking statements. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
Background
The Company (through its subsidiaries) provides turn-key wireless infrastructure services for wireless carriers, tower companies and equipment manufacturers, and distributes and services a comprehensive line of electronics and hardware for the telecommunications industry. The Company was incorporated under the laws of Oklahoma in September 1989 as “ADDvantage Media Group, Inc.” In December 1999, its name was changed to ADDvantage Technologies Group, Inc. In 2019, the Company moved its headquarters from Broken Arrow, Oklahoma to Carrollton, Texas and acquired Fulton Technologies, Inc. (“Fulton”) on January 4, 2019, which established the Company’s Wireless Infrastructure Services segment. The Company’s Telecommunications segment operates through its subsidiaries, Nave Communications Company (“Nave”) and ADDvantage Triton, LLC (“Triton”).
Our wireless infrastructure subsidiary provides services such as wireless macro site development, distributed antenna systems, small cells and project management expertise with national and regional scalability. Fulton's expertise includes site modifications, tower retrofits, including 5G, civil construction, tower erection, utility installation and testing, site acquisition including leasing, zoning and permitting, design and architect-engineering services.
For our telecommunications subsidiaries, we sell new, surplus-new and refurbished equipment that we purchase in the market as a result of telecommunications system upgrades or overstock supplies. We maintain one of the industry's largest inventories of new and used equipment, which allows us to expedite delivery of system-critical products to our customers. In addition, we offer our customers decommissioning services for surplus and obsolete equipment, which we in turn process through our recycling program. We continually evaluate new product offerings in the broader telecommunications industry as technology evolves and upgrade our product offerings to stay current with our customer’s technology platforms.
Website Access to Reports
Our public website is www.addvantagetechnologies.com. We make available, free of charge through the “Investor Relations” section of our website, our annual reports to stockholders, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). Any material we file with or furnish to the SEC is also maintained on the SEC website (www.sec.gov).
The information contained on our website, or available by hyperlink from our website, is not incorporated into this Form 10-K or other documents we file with, or furnish to, the SEC. We intend to use our website as a means of
disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included on our website in the “Investor Relations” section. Accordingly, investors should monitor such portions of our website, in addition to following our press releases, SEC filings and public conference calls and webcasts.
Change in year end
In September 2022, the Company's Board of Directors approved a change in the Company's fiscal year end from September 30 to December 31, effective for the fiscal year beginning January 1, 2022. As a result of the change in year end, the Company filed a Transition Report on Form 10-Q for the period from October 1, 2021 through December 31, 2021.
Operating Segments
The Company’s current reportable segments are Wireless Infrastructure Services (“Wireless”) and Telecommunications (“Telco”).
Products and Services
Wireless Segment
We provide turn-key wireless infrastructure services for the four major U.S. wireless carriers, communication tower companies, national integrators, and original equipment manufacturers that support these wireless carriers. These services primarily consist of the installation and upgrade of technology on cell sites and the construction of new small cells for 5G.
Fulton has 90 employees. Fulton performs equipment installations, upgrades and maintenance services for its customers primarily on communication towers. Having the proper safety record, training capability and quality oversight is paramount in the industry. Fulton has prided itself in performing work in a safe and timely manner and delivering high-quality services to its clients. Demand for tower equipment installation and upgrade services has notably increased as observed. We expect this trend to continue for the foreseeable future as wireless carriers continue to add capacity, expand their networks and upgrade their current technology for high speed connectivity to 5G.
Fulton also supports the installation and support of temporary tower locations. This niche and growing business includes the erection of temporary towers to allow for the maintenance of permanent locations without causing a degradation of wireless coverage in the area. In addition, Fulton provides temporary tower solutions for special events that require an increase of coverage and capacity for festivals, concerts and sporting events. Fulton has an inventory of temporary poles of different sizes and uses a unique installation process for the quick deployment of a tower location with little to no environmental impact.
Telco Segment
The Telco segment provides quality new and used telecommunication networking equipment, including both central office and customer premise equipment, to its customer base of telecommunications providers, enterprise customers and resellers by utilizing its inventory from a broad range of manufacturers as well as other supply channels. 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 partner.
Central Office Equipment - Central office equipment includes optical transport, switching, and data center equipment on a customer’s communication network. Optical equipment products aggregate and transport internet traffic; switching equipment products originate, terminate and route voice traffic; and data equipment products transport internet and voice over internet protocol traffic via routers.
Customer Premise Equipment - Consumer premise equipment includes integrated access devices, channel banks, internet protocol private branch exchange or IP PBX phones, and routers that are placed inside the customer site that will receive the communication signal from the communication services provider.
In addition, we offer our customers decommissioning services for surplus and obsolete telecom equipment, which we then process through a Responsible Recycling certified recycling partner.
Revenues by Geographic Areas
Our revenues by geographic areas were as follows for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021, in thousands:
Year Ended Three Months Ended Year Ended
December 31, December 31, September 30,
2022 2021 2021
United States
Wireless $ 30,813 $ 7,119 $ 20,708
Telco 60,021 10,480 36,799
International
Telco 6,194 1,091 4,653
$ 97,028 $ 18,690 $ 62,160
Revenues attributed to geographic areas are based on the location of the customer. All of our long-lived assets are located within the United States.
Sales and Marketing
Wireless Segment
The Wireless segment accounted for 32%, 38%, and 33% of consolidated revenues for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021, respectively. In 2022, wireless tower and temporary tower services, including the procurement of the requisite materials, represented substantially all of the Wireless segment’s revenues. In this segment, we market and sell our services to wireless carriers, wireless equipment providers and tower companies.
Telco Segment
The Telco segment accounted for 68%, 62%, and 67% of consolidated revenues for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021, respectively. Sales of new products in 2022 represented 16% of revenues and refurbished products represented 83%. Repair services, recycle sales and other services contributed the remaining 1% of Telco segment revenues. In this segment, we market and sell our products to franchise and private multiple-system operators,, telecommunication companies, system contractors, other industry resellers, enterprise customers and directly to consumers via online sales. Our sales and marketing are predominantly performed by our experienced internal sales and customer service staff, outside sales representatives located in various geographic and strategic areas of the country, and many online sales channel platforms such as our own website, Amazon, Walmart, eBay and Newegg. The majority of our sales activity is generated through customer relationships developed by our sales personnel and executives, referrals from manufacturers we represent, and online advertising.
We maintain a wide breadth of new and used products and many times can offer our customers same day shipments. We believe we carry one of the most diverse inventories of any telecommunication product reseller in the country, and we have access to additional inventory via our various supply channels. We believe our investment in on-hand inventory, our product supply channels, and our experienced sales and customer service team create a competitive advantage for us.
Suppliers
The Telco segment primarily purchases its used inventory from telecommunication companies and wholesale suppliers that have excess equipment on hand or have upgraded their systems or from other resellers in this industry.
Seasonality
In the Wireless segment, the services that we provide on our customers’ wireless towers are outdoors and can be damaged by storms and power surges. Consequently, we can experience increased demand on certain product offerings during the months between late spring and early fall when severe weather or consistent rain tends to be more prominent than at other times during the year. Winter months are generally slower due to the cold weather conditions, and the inability to access wireless towers during periods of heavy snow and ice.
In the Telco segment, we do not anticipate that quarterly operating results will generally be impacted by seasonal fluctuations, other than normal business fluctuations during the winter holiday season.
Competition
Wireless Segment
The wireless infrastructure services business competes with other wireless service companies on a local, regional or national basis. In some areas, Fulton provides services that its customers can also provide utilizing their in-house personnel. However, most of the direct competition in the Wireless segment is regionally based from companies of a similar size. In niche areas of service, like our Special Events and Temporary Pole business in the Midwest and in certain markets, the Wireless segment has few competitors due to its expertise and the required investment in equipment and assets. The level of competition can vary based on demand characteristics in certain markets.
For the Wireless segment, we believe our differentiation from other service providers in the marketplace is primarily the following:
•Past performance and experience developed over 30 years;
•Robust safety organization;
•Ability to recruit and retain personnel and a Midwest workforce of long-tenured personnel of 20 to 30-plus years of service;
•Broad range of multi-year master service agreements in place with carriers, original equipment manufacturers (OEM’s), tower owners and integrators;
•Industry relationships; and
•Having a diversified offering of services based on know-how and equipment.
Telco Segment
The overall telecommunications equipment industry is highly competitive. We compete with numerous resellers in the marketplace that sell both direct and online.
For the Telco segment, we believe our differentiation from other resellers includes:
•Broad range of new, refurbished and used inventory, which allows us to meet our customers’ timing needs;
•Ability to source unique and sometimes rare, high demand inventory;
•Offer a range of repair and testing capabilities to help improve the quality of our inventory as well as offering repair and testing of equipment as a service to our customers and vendors;
•Experienced sales support staff that maintain strong and longstanding relationships with our customers;
•Sales force that has a strong technical knowledge of the products we offer;
•Provide multiple services for our customers including deinstallation and decommission of products, storage and management of spare inventory and recycling.
Working Capital Practices
In the Wireless segment, we utilize quick payment accounts receivable programs with our major customers and our bank to decrease the amount of time between project completion and payment. The majority of working capital needs result from the payment of project related costs before invoicing the customer. This includes personnel, subcontractors, equipment rentals and materials. Although the quick payment programs are in place to accelerate receivable payments, working capital is necessary to complete the jobs and provide the necessary closeout packages required for customer approval.
In the Telco segment, we utilize quick payment accounts receivable programs with our bank to decrease the time between sale of inventory and collection. We choose to carry a relatively large volume of inventory due to our on-hand, on-demand business model. We typically utilize excess cash flows to reinvest in inventory to maintain or
expand our product offerings. The greatest need for working capital occurs when we make bulk purchases of surplus-new and used inventory, or when our OEM suppliers offer additional discounts on large purchases.
On March 17, 2022, the Company replaced its $3.0 million credit facility for its Nave and Triton subsidiaries with its primary financial lender with new accounts receivable purchase facilities. The Company also restructured its accounts receivable purchase facilities secured by the Company’s Fulton subsidiary’s receivables. With the new and restructured receivables purchase facilities, the Company has an overall capacity to factor its accounts receivable of $19.0 million for working capital needs.
Significant Customers
During the year ended December 31, 2022, one wireless customer accounted for 17% of consolidated revenues, and 52% of our Wireless segment revenues. Our top five Wireless customers accounted for 29% of consolidated revenues and 92% of Wireless segment revenues during fiscal year 2022. One Telco customer accounted for 11% of consolidated revenues, and 17% of Telco segment revenues. Our top five Telco customers accounted for 32% of consolidated revenues and 47% of Telco segment revenues during fiscal year 2022.
During the transition period of three months ended December 31, 2021, one wireless customer accounted for 26% of consolidated revenues, and 68% of our Wireless segment revenues. Our top five Wireless customers accounted for 36% of consolidated revenues and 95% of Wireless segment revenues during fiscal year 2022. One Telco customer accounted for 11% of consolidated revenues, and 17% of Telco segment revenues. Our top five Telco customers accounted for 26% of consolidated revenues and 43% of Telco segment revenues during the transition period of three months ended December 31, 2021.
During the year ended September 30, 2021, though we were not dependent upon a single or few customers to support our consolidated revenues, one wireless customer accounted for 10% of consolidated revenues, and 31% of our Wireless segment revenues. Our top five Wireless customers accounted for 28% of consolidated revenues and 84% of Wireless segment revenues during fiscal year 2021. One Telco customer accounted for 18% of consolidated revenues, and 27% of Telco segment revenues. Our top five Telco customers accounted for 30% of consolidated revenues and 45% of Telco segment revenues during fiscal year 2021.
Impact of Inflation on Operations
Inflation in the United States did not have a material impact on our results of operations for the fiscal year ended December 31, 2022. For the fiscal year ended September 30, 2021, component price increases were observed in the fiscal fourth quarter, which negatively impacted our gross margins in the Wireless segment.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Personnel
At December 31, 2022, we had 147 employees, including 145 full-time employees. Management considers its relationships with its employees to be excellent. Our employees are not unionized, and we are not subject to any collective bargaining agreements.

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ITEM 1A. RISK FACTORS

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ITEM 1B. UNRESOLVED STAFF COMMENTS

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ITEM 2. PROPERTIES
Item 2. Properties.
Each subsidiary leases property for office, warehouse and service center facilities. Our corporate headquarters is located in Carrollton, Texas. Our Wireless Segment leases additional space in Chicago, Illinois, and our Telco Segment has operations in Miami, Florida. We believe that our current facilities are adequate to meet our needs.
The Company has a right-of-use for a building in Jessup, Maryland which was no longer being used in operations. The Maryland property was subleased as of December 31, 2022 and will end in November, 2023.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
From time to time in the ordinary course of business, we are a party to various types of legal proceedings. We do not believe that these proceedings, individually or in the aggregate, will have a material adverse effect on our financial position, results of operations or cash flows.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mining Safety Disclosures.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
The table sets forth the high and low sales prices on the NASDAQ Capital Market under the symbol “AEY” for the quarterly periods indicated.
High Low
Year Ended December 31, 2022
First Quarter $1.75 $1.09
Second Quarter $1.49 $1.05
Third Quarter $2.28 $1.23
Fourth Quarter $2.30 $1.27
Three Months Ended December 31, 2021 $2.45 $1.64
Year Ended September 30, 2021
First Quarter $4.24 $1.80
Second Quarter $3.59 $2.50
Third Quarter $2.92 $1.90
Fourth Quarter $2.82 $2.18
Holders
At March 15, 2023, we had approximately 80 shareholders of record and, based on information received from brokers, there were approximately 4,600 beneficial owners of our common stock.
Dividend policy
We have not declared or paid any cash dividends on our common stock, and we do not currently anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all future earnings to fund the development and growth of our business. Any future determination relating to our dividend policy will be at the discretion of our board of directors and will depend on our results of operations, financial condition, capital requirements and other factors deemed relevant by our board.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated historical financial statements and the notes to those statements that appear elsewhere in this report. Certain statements in the discussion contain forward-looking statements based upon current expectations that involve risks and uncertainties, such as plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors.
General
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, which consists entirely of the assets of Fulton, 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 a recycling partner.
Recent Business Developments
Change in year end
In September 2022, the Company's Board of Directors approved a change in the Company's fiscal year end from September 30 to December 31, effective for the fiscal year beginning January 1, 2022. As a result of the change in year end, the Company filed a Transition Report on Form 10-Q for the period from October 1, 2021 through December 31, 2021.
Wireless Segment Operating Results
During 2022, Fulton achieved revenues of $30.8 million. Fulton has maintained a strong employee base, and we continue to successfully recruit strong industry talent throughout the business to help us implement operational improvements with a focus on improving our quality and project margins. We also have a large part of our workforce made up of reliable, high quality subcontractors that give us the ability to flex up and down with the changes in workload and to ramp up quickly for new programs. We are expecting increased activity in the industry as wireless carriers roll out 5G and the required densification of their networks. Our goal is to solidify our processes and project oversight to successfully and profitably take advantage of new growth opportunities as the 5G expansion becomes essential.
Telco Segment
The Telco segment achieved revenues of $66.2 million during 2022. We continue to focus our core team on sales and procurement. Both Nave and Triton grew over 40% year-over-year in 2022.
At Triton, our facility is designed to streamline our processes, including inventory management, shipping and receiving and the refurbishment operations. We have developed the internal systems necessary to expand our refurbishment capabilities and new equipment sales by adding additional product lines and manufacturers. We have also increased our focus on the brokerage business and internet sales by expanding our sales channels. We believe that Triton is poised to expand, capturing additional market share and developing new customers.
Our Nave business experienced significant upside during the year related to the global chip shortage along with expansion of our offerings to both wireless and optical network carriers to support both wireless and broadband connectivity for optical and IP transport.
Results of Operations
Comparison of Operating Results for the Years Ended December 31, 2022 and September 30, 2021
Consolidated
Consolidated sales increased $34.8 million, or 56%, to $97.0 million for 2022 from $62.2 million for 2021. The increase in sales was related to an increase of $24.7 million in the Telco segment mainly attributable to increased demand for refurbished network equipment resulting from the global chip shortage. Sales for the Wireless segment increased $10.1 million as a result of the 5G network rollout.
Consolidated gross profit increased $11.6 million, or 72%, to $27.8 million for 2022 from $16.1 million for 2021. Telco gross profit increased $9.3 million and our Wireless segment gross profit increased $2.3 million. The improvement in gross profit was due to strong demand in our Telco segment fueled by global supply issues, along
with expansion of our offerings to both wireless and optical network carriers to support both wireless and broadband connectivity for optical and IP transport.
Consolidated operating expenses include indirect costs associated with operating our business. Indirect costs include indirect personnel costs, facility costs, vehicles, fuel, insurance, communication, and business taxes, among other cost categories. Operating expenses increased $0.5 million to $9.8 million for the twelve months ended December 31, 2022 compared with $9.3 million for the prior year. The increase in operating expenses was due primarily to our investment in our regional growth strategy to meet the demand of our customers in the Wireless segment, partially offset by cost control measures instituted by the Company during the latter part of the first quarter and continuing throughout 2022.
Consolidated selling, general and administrative ("SG&A") expenses include overhead costs, which consist of personnel costs, insurance, professional services, and communication, among other less significant cost categories. SG&A expense increased $0.7 million or 5% to $15.6 million in 2022 compared to $14.9 million in 2021. The increase in SG&A relates primarily to increased selling and commissions expenses to support higher revenues.
The income tax provision (benefit) was $8 thousand for 2022 and $(0.1) million for 2021, or an effective tax rate of 1.7% and (0.8)%, respectively. The income tax provision in fiscal 2022 was the result of State income taxes which were not offset by losses from other subsidiaries. The income tax benefit in fiscal 2021 was the result of an increase in the valuation allowance against our deferred tax assets, offset by certain refundable credits generated in the current fiscal year. The Company continues to provide a valuation allowance of $9.1 million for net deferred assets where the Company believes it is more likely than not that those deferred taxes will not be realized.
Segment results
Wireless
Revenues for the Wireless segment were $30.8 million and $20.7 million for the years ended December 31, 2022 and September 30, 2021, respectively, an increase of 49%. The growth in revenues over the prior year relates to the pace of the 5G services activity undertaken on behalf of our expanded customer base.
Gross profit was $8.6 million, or 28% for the year ended December 31, 2022 and $6.3 million, or 30%, for the year ended September 30, 2021. The decrease in the gross profit percentage was the result of new business with a major customer at a lower margin level caused by deploying to new markets and related startup costs, and as a result of a couple of non-profitable markets, due to lower volume commitments from some customers, which we have exited.
Loss from operations was $4.8 million and $6.9 million for the years ended December 31, 2022 and September 30, 2021, respectively. The decrease is mainly attributable to the increase in revenues and improvements in operating efficiencies.
Telco
Revenues for the Telco segment were $66.2 million and $41.5 million for the years ended December 31, 2022 and September 30, 2021, respectively, an increase of $24.7 million, or 59%. The increase was related to increased sales of used and refurbished equipment as a result of global supply chain constraints along with expansion of our offerings to both wireless and optical network carriers to support both wireless and broadband connectivity for optical and IP transport.
Gross profit increased $9.3 million, or 95%, to $19.2 million for the year ended December 31, 2022 compared to $9.9 million for the year ended September 30, 2021. Gross margin was 29% and 24% for the years ended December 31, 2022 and September 30, 2021, respectively. Gross margin increased primarily as a result of the segment's increase in revenues coupled with an increase in gross profit percent by 5% due to price elasticity associated with global supply chain issues.
Income from operations was $6.3 million for the year ended December 31, 2022 compared to a loss of $2.4 million for the year ended September 30, 2021. The increase was attributable to the increase in revenue and the aforementioned improvements.
Comparison of Operating Results for the Three Months Ended December 31, 2021 and December 31, 2020
Consolidated
Consolidated sales increased $6.0 million, or 47%, to $18.7 million for the three months ended December 31, 2021 from $12.7 million for the three months ended December 31, 2020. The increase was primarily due to a $1.9 million increase in Wireless revenue related to 5G tower work, and an increase of $4.1 million in Telco revenue due to increased demand for refurbished telecommunications equipment sold by the Telco segment.
Consolidated gross profit was $4.6 million, or 25% gross margin, compared to gross profit of $3.6 million, or 28% gross margin, for the same period last year. The net changes in gross profit were due to higher overall sales in both the Wireless and Telco segments, and the decrease in gross margin as a percent of sales was due to investments made with a new wireless customer and the impact of the Company onboarding new crews in anticipation of near-term wireless revenue increases.
Consolidated operating expenses increased $0.5 million to $2.5 million for the three months ended December 31, 2021 compared to $2.0 million the same period last year. The increase reflects the Company's investment in its regional growth strategy related to expected 5G infrastructure growth.
Consolidated SG&A expense increased $0.5 million, or 15%, to $3.7 million for the three months ended December 31, 2021 from $3.2 million for the same period last year. The increase in SG&A relates primarily to increased selling and commissions expenses to support higher revenues.
Segment Results
Wireless
Revenues for the Wireless segment increased $1.9 million to $7.1 million for the three months ended December 31, 2021 from $5.2 million for the same period of 2020. The growth in revenues over the prior year relates to the pace of the 5G services activity in 2021.
Gross profit was $1.5 million, or 21% for the three months ended December 31, 2021 and $1.6 million, or 31%, for the three months ended December 31, 2020. The decrease in the gross profit percentage was the result of new business with a major customer at a lower margin level, along with continuing investment in our regional growth strategy associated with anticipated 5G infrastructure build outs, which includes the expansion and training of new wireless service crews.
Loss from operations was $2.3 million and $1.1 million for three months ended December 31, 2021 and 2020, respectively. The increase is mainly attributable to investment in our regional growth strategy associated with anticipated 5G infrastructure build outs.
Telco
Revenues for the Telco segment increased $4.1 million to $11.6 million for the three months ended December 31, 2021 from $7.5 million for the same period of 2020. The increase in revenues was related to increased sales of used and refurbished equipment as a result of global supply chain constraints along with expansion of our offerings to both wireless and optical network carriers to support both wireless and broadband connectivity for optical and IP transport..
Gross profit was $3.1 million, or 27% for the three months ended December 31, 2021 and $2.0 million, or 27% for the three months ended December 31, 2020. The increased gross profit was due primarily to increased revenues of $4.1 million.
Income from operations was $0.4 million for the three months ended December 31, 2021 compared to a loss of $0.8 million for the same period last year, primarily due to the reasons discussed above.
Non-GAAP Financial Measure
Adjusted EBITDA is a supplemental, non-GAAP financial measure. EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA as presented also excludes stock compensation expense, gain on extinguishment of debt, impairment of intangibles and right of use assets, 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 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 follows, in thousands:
For the year ended December 31, 2022 For the year ended September 30, 2021
Wireless Telco Total Wireless Telco Total
Income (loss) from operations $ (4,792) $ 6,269 $ 1,477 $ (6,864) $ (2,433) $ (9,297)
Depreciation and amortization expense 749 485 1,234 715 513 1,228
Stock compensation expense 274 296 570 516 493 1,009
Adjusted EBITDA (a) (b)
$ (3,769) $ 7,050 $ 3,281 $ (5,633) $ (1,427) $ (7,060)
Three Months Ended December 31, 2021 Three Months Ended December 31, 2020
Wireless Telco Total Wireless Telco Total
Income (loss) from operations $ (2,326) $ 424 $ (1,902) $ (1,105) $ (809) $ (1,914)
Depreciation and amortization expense 220 125 345 152 129 281
Stock compensation expense 144 137 281 140 175 315
Adjusted EBITDA $ (1,962) $ 686 $ (1,276) $ (813) $ (505) $ (1,318)
(a)The Telco segment includes an inventory obsolescence charge of $0.3 million and $0.4 million for the years ended December 31, 2022 and September 30, 2021, respectively. In addition, the Telco segment includes a lower of cost or net realizable value charge of $0.2 million and $0.1 million for the years ended December 31, 2022 and September 30, 2021, respectively.
(b)The Company allocates its corporate general and administrative expenses to the reportable segments. See Note 14 - Segment Reporting in the Consolidated Financial Statements for further discussion of segments.
Liquidity and Capital Resources
Liquidity and Capital Resources
At December 31, 2022 we had $3.7 million in cash and equivalents and restricted cash.
During fiscal 2022, the Company replaced its $3.0 million credit facility for its Nave and Triton subsidiaries with its primary financial lender with new accounts receivable purchase facilities. The Company also restructured its accounts receivable purchase facilities secured by the Company’s Fulton subsidiary’s receivables. With the new and restructured receivables purchase facilities, the Company has an overall capacity to factor its accounts receivable of $19.0 million for working capital needs. At December 31, 2022, the Company had $7.0 million utilized under the receivables purchase facilities, leaving $12.0 million available to the Company to purchase new receivables generated in 2023. The Company is evaluating various funding arrangements to supplement working capital, which could include the filing of a registration statement for the sale of equity, and the issuance of debt, either convertible or non-convertible, which might or might not include the issuance of warrants or shares associated with the transaction.
Cash Flows Provided by (Used in) Operating Activities
Cash provided by (used in) operating activities was $2.2 million, $(0.9) million and $(7.5) million for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021, respectively. Cash flows from operations in 2022 were positively impacted by net income of $0.5 million, net cash provided by working capital of $30 thousand primarily related to the reduction of receivables associated with our new accounts receivable purchase facilities, an increase in inventory,, and non-cash adjustments of $1.7 million, primarily depreciation, amortization, provision for excess and obsolete inventories, charge for lower of cost or net realizable value inventories, and stock based compensation expenses.
Cash Flows Provided by (Used in) Investing Activities
Capital expenditures and proceeds from asset sales are the main components of our investing activities. Cash provided by (used in) investing activities was $0.3 million, $(0.1) million and $3.5 million for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021, respectively. Cash flows from investing in 2022 consisted primarily of disposals of property and equipment, partially offset by purchases of property and equipment.
Cash Flows Provided by (Used in) Financing Activities
Cash (used in) financing activities consist primarily of repayments on our bank line of credit and payments on financing lease obligations, partially offset by net proceeds from the sale of our common stock using our shelf registration and proceeds from stock options exercised. Cash provided by (used in) financing activities was $(1.3) million, $0.5 million and $(1.4) million for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021, respectively.
Critical Accounting Policies and Estimates
Note 1 to the Consolidated Financial Statements in this Form 10-K for fiscal year 2022 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 price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. At December 31, 2022, we had total inventory, before the reserve for excess and obsolete inventories, of $13.4 million, consisting of $2.3 million in new products and $11.1 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 recycling. Therefore, we have an obsolete and excess inventory reserve of $3.9 million at December 31, 2022. In 2022, we increased the reserve by $0.3 million. We also reviewed the cost of inventories against estimated market value and recorded a lower of cost or net realizable value write-off of $0.2 million for inventories that have a cost in excess of estimated net realizable value. If actual market conditions differ from those projected by management, this could have a material impact on our gross margin and inventory balances based on additional write-downs to net realizable value or a benefit from inventories previously written down.
Inbound freight charges are included in cost of sales. Purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs and other inventory expenditures are included in operating expenses, since the amounts involved are not considered a material component of cost of sales.
Accounts Receivable Valuation
Management judgments and estimates are made in connection with establishing the allowance for doubtful accounts. Specifically, we analyze the aging of accounts receivable balances, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms. Significant changes in customer concentration or payment terms, deterioration of customer credit-worthiness, or weakening in economic trends could have a significant impact on the collectability of receivables and our operating results. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional provision to the allowance for doubtful accounts may be required. The reserve for bad debts was $0.3 million as of December 31, 2022, 2021, and September 30, 2021. At December 31, 2022, 2021, and September 30, 2021, accounts receivable, net of allowance for doubtful accounts, were $1.7 million, $6.5 million and $7.0 million, respectively.
Intangibles
Intangible assets that have finite useful lives are amortized on a straight-line basis over their estimated useful lives ranging from 3 to 10 years. Intangible assets are also tested for impairment when events and circumstances indicate that the carrying value may not be recoverable.
Impairment of Long-Lived 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 Accounting Standards Codification (“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 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.
Recently Issued Accounting Standards
Our consideration of recent accounting pronouncements is included in Note 1 - Summary of Significant Accounting Policies to the Consolidated Financial Statements included in this annual report.
Off-Balance Sheet Arrangements
None.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 483)
Consolidated Balance Sheets, December 31, 2022, 2021 and September 30, 2021
Consolidated Statements of Operations, Year Ended December 31, 2022, the Transition Period of Three Months Ended December 31, 2021, and the Year Ended September 30, 2021 20
Consolidated Statements of Changes in Shareholders’ Equity, Year Ended December 31, 2022, the Transition Period of Three Months Ended December 31, 2021, and the Year Ended September 30, 2021
Consolidated Statements of Cash Flows, Year Ended December 31, 2022, the Transition Period of Three Months Ended December 31, 2021, and the Year Ended September 30, 2021
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
ADDvantage Technologies Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ADDvantage Technologies Group, Inc. and its subsidiaries (the Company) as of December 31, 2022, December 31, 2021, and September 30, 2021, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for the year ended December 31, 2022, the three months ended December 31, 2021, and the fiscal year ended September 30, 2021, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, December 31, 2021, and September 30, 2021, and the results of its operations and its cash flows for the year ended December 31, 2022, the three months ended December 31, 2021, and the fiscal year ended September 30, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purposes of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Inventory valuation
As discussed in Note 1 to the financial statements, the Company assesses the recoverability of its inventory based on judgments and assumptions about future demand and market conditions. Future demand is determined based on historical sales and expected future sales. The Company reduces its inventory to its lower of cost or net realizable value on a part-by-part basis to account for its obsolescence or lack of marketability. Reductions are calculated as the difference between the cost of inventory and its net realizable value based upon the assumptions about future demand, market conditions, and costs.
We identified inventory valuation as a critical audit matter. The principal consideration for our determination that inventory valuation is a critical audit matter is that management's estimates of future demand and market conditions are subject to a high level of estimation uncertainty. Therefore, subjective and complex auditor judgment is necessary to evaluate the reasonableness of management's judgments and assumptions since historical results
may not be indicative of the future due to uncertainties arising from technological advances, industry consolidation and economic factors.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. Our audit procedures related to the inventory valuation reserve included the following, among others:
•We evaluated the appropriateness and consistency of management's methods and assumptions used in developing their estimate of the inventory valuation reserve, which included consideration of recent changes in the Company's strategy and technology in the market.
•We evaluated the appropriateness of specific inputs supporting management's estimate, including the age of on-hand inventory levels, historic inventory trends, salvage values, and projected sales used in the forecasted periods.
•We tested the accuracy, completeness, and relevance of the reports and inputs used in the Company's analysis.
•We evaluated management's calculation of the inventory valuation reserve by testing the mathematical accuracy of the Company's reserve calculation.
Revenue Recognition
For the year ended December 31, 2022, contract revenues recognized by the Company were $30.8 million for wireless service sales. As described in Note 1 of the financial statements, the Company generally recognizes revenues for these contracts over time as performance obligations are satisfied. The Company generally measures its progress towards completion using an input measure of total costs incurred divided by total costs expected to be incurred. In addition, the Company's estimate of transaction price includes variable consideration associated with claims only to the extent that a significant reversal would not be probable.
Recognition of revenue over time as performance obligations are satisfied for fixed price contracts is highly judgmental as it requires the Company to prepare estimates of total contract revenue and total contract costs, including costs to complete in-process contracts. These estimates are dependent upon a number of factors, including the accuracy of estimates made at the balance sheet date, such as progress, material quantities, labor productivity and cost estimates.
We identified revenue recognition as a critical audit matter. The principal consideration for our determination is contract revenue recognition is complex and highly judgmental due to the variability and uncertainty associated with estimating the costs to complete and amounts expected to be recovered from variable consideration. Changes in these estimates would have a significant effect on the amount of contract revenue recognized. Our audit procedures related to contract revenue recognition included the following, among others:
•We obtained an understanding, evaluated the design effectiveness of controls that address the risk of material misstatement of contract revenue including those associated with cost to complete estimates for fixed price contracts and estimates of amounts expected to be recovered from variable consideration.
•To evaluate the Company's determination of estimated costs to complete, we selected a sample of contracts and, among other things, inspected the executed contracts including any significant amendments; tested key components of the cost to complete estimates, including materials, labor, and subcontractors costs; compared actual project margins to historical and expected results; and recalculated revenues recognized.
•We tested management's estimation process by performing a lookback analysis to evaluate projects completed in the current year compared to management's prior year estimates. We also performed a look forward analysis to evaluate projects completed subsequent to year end and compared to management's current year estimates.
/s/ Hogan Taylor LLP
We have served as the Company's auditor since 2006.
Tulsa, Oklahoma
March 21, 2023
ADDvantage Technologies Group, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
December 31, December 31, September 30,
2022 2021 2021
Assets
Current assets:
Cash and cash equivalents $ 2,552 $ 1,837 $ 2,608
Restricted cash 1,101 581 334
Accounts receivable, net of allowances of $262, $250 and $250, respectively
1,682 6,469 7,013
Unbilled revenue 5,005 2,219 2,488
Income tax receivable 102 - -
Inventories, net of allowance of $3,871, $3,567 and $3,476, respectively
9,563 5,653 5,922
Prepaid expenses and other current assets 1,399 1,371 1,431
Total current assets 21,404 18,130 19,796
Property and equipment, at cost:
Machinery and equipment 5,542 5,354 4,973
Leasehold improvements 899 821 813
Total property and equipment, at cost 6,441 6,175 5,786
Less: Accumulated depreciation (3,057) (2,558) (2,293)
Net property and equipment 3,384 3,617 3,493
Right-of-use lease assets 1,540 2,466 2,730
Intangibles, net of accumulated amortization 709 1,027 1,107
Goodwill 58 58 58
Other assets 123 128 128
Total assets $ 27,218 $ 25,426 $ 27,312
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 9,407 $ 6,812 $ 7,044
Accrued expenses 1,445 1,184 1,581
Deferred revenue 148 207 168
Bank line of credit - 2,050 2,050
Right-of-use lease obligations, current 1,204 1,177 1,198
Finance lease obligations, current 636 652 582
Other current liabilities 442 706 692
Total current liabilities 13,282 12,788 13,315
Right-of-use lease obligations, long-term 635 1,839 2,141
Finance lease obligations, long-term 1,254 1,484 1,429
Total liabilities 15,171 16,111 16,885
Shareholders’ equity:
Common stock, $.01 par value; 30,000,000 shares authorized; 14,132,033, 13,041,127, and 12,610,229 shares issued and outstanding, respectively
141 130 126
Paid in capital 2,585 335 (578)
Retained earnings 9,321 8,850 10,879
Total shareholders’ equity $ 12,047 $ 9,315 $ 10,427
Total liabilities and shareholders’ equity $ 27,218 $ 25,426 $ 27,312
See notes to consolidated financial statements.
ADDvantage Technologies Group, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share amounts)
Year Ended Three Months Ended Year Ended
December 31, December 31, September 30,
2022 2021 2021
Sales $ 97,028 $ 18,690 $ 62,160
Cost of sales 69,239 14,059 46,033
Gross profit 27,789 4,631 16,127
Operating expenses 9,845 2,500 9,329
Selling, general and administrative expense 15,571 3,688 14,890
Depreciation and amortization expense 1,234 345 1,228
Gain on disposal of assets 338 - 23
Income (loss) from operations 1,477 (1,902) (9,297)
Other income (expense):
Gain on extinguishment of debt - - 2,955
Interest income - - 135
Interest expense (176) (55) (238)
Other expense (822) (72) (110)
Other income (expense), net (998) (127) 2,742
Income (loss) before income taxes 479 (2,029) (6,555)
Income tax provision (benefit)
8 - (53)
Net income (loss) $ 471 $ (2,029) $ (6,502)
Income (loss) per share:
Basic and diluted $ 0.03 $ (0.16) $ (0.52)
Shares used in per share calculation:
Basic and diluted 13,484,271 12,683,312 12,401,043
See notes to consolidated financial statements.
ADDvantage Technologies Group, Inc.
Consolidated Statements of Changes in Shareholders' Equity
(in thousands, except share amounts)
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
Balance, September 30, 2020 11,822,009 $ 118 $ (2,567) $ 17,382 $ 14,933
Net loss - - - (6,502) (6,502)
Common stock issuance 245,973 2 897 - 899
Stock option exercise 49,000 1 88 - 89
Restricted stock issuance 493,247 5 (5) - -
Amortization of stock-based compensation - - 1,009 - 1,009
Balance, September 30, 2021 12,610,229 $ 126 $ (578) $ 10,879 $ 10,427
Net loss - - - (2,029) (2,029)
Common stock issuance 320,787 3 633 - 636
Restricted stock issuance 110,111 1 (1) - -
Amortization of stock-based compensation - - 281 - 281
Balance, December 31, 2021 13,041,127 $ 130 $ 335 $ 8,850 $ 9,315
Net income - - - 471 471
Common stock issuance 892,181 9 1,618 - 1,627
Stock option exercise 50,000 1 63 - 64
Restricted stock issuance 148,725 1 (1) - -
Amortization of stock-based compensation - - 570 - 570
Balance, December 31, 2022 14,132,033 $ 141 $ 2,585 $ 9,321 $ 12,047
Due to rounding, numbers presented may not foot to the totals provided.
See notes to consolidated financial statements.
ADDvantage Technologies Group, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended Three Months Ended Year Ended
December 31, December 31, September 30,
2022 2021 2021
Operating Activities:
Net income (loss) $ 471 $ (2,029) $ (6,502)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation 915 265 910
Amortization 319 80 318
Non cash amortization of right-of-use asset and liability (252) (51) (288)
Provision for excess and obsolete inventories 304 91 422
Charge for lower of cost or net realizable value inventories 165 - 105
Gain on disposal of property and equipment (338) - (23)
Share based compensation expense 570 281 1,009
Gain on extinguishment of debt - - (2,955)
Changes in operating assets and liabilities:
Accounts receivable 4,787 544 (3,045)
Unbilled revenue (2,786) 269 (1,899)
Income tax refund receivable\payable (74) - 1,284
Inventories (4,379) 179 (875)
Prepaid expenses and other current assets (23) 59 (547)
Other assets - - 51
Accounts payable 2,595 (232) 3,572
Accrued expenses (31) (384) 898
Deferred revenue (59) 39 55
Net cash provided by (used in) operating activities 2,184 (889) (7,510)
Investing Activities:
Proceeds from promissory note receivable - - 3,775
Purchases of property and equipment (240) (116) (300)
Disposals of property and equipment 549 - 44
Net cash provided by (used in) investing activities 309 (116) 3,519
Financing Activities:
Change in bank line of credit (2,050) - (750)
Payments on financing lease obligations (899) (155) (484)
Payments on notes payable - - (1,194)
Proceeds from sale of common stock 1,627 636 899
Proceeds from stock options exercised 64 - 89
Net cash (used in) provided by financing activities (1,258) 481 (1,440)
Net increase (decrease) in cash, cash equivalents and restricted cash 1,235 (524) (5,431)
Cash, cash equivalents and restricted cash at beginning of year 2,418 2,942 8,373
Cash, cash equivalents and restricted cash at end of year $ 3,653 $ 2,418 $ 2,942
See notes to consolidated financial statements.
ADDvantage Technologies Group, Inc.
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Organization and 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”).
Change in year end
In September 2022, the Company's Board of Directors approved a change in the Company's fiscal year end from September 30 to December 31. The Company's current fiscal year runs from January 1, 2022 through December 31, 2022 (fiscal 2022). As a result of the change in year end, the Company filed a Transition Report on Form 10-Q for the period from October 1, 2021 through December 31, 2021.
Cash, cash equivalents and restricted cash
Cash and cash equivalents include demand and time deposits, money market funds and other marketable securities with maturities of three months or less when acquired. Restricted cash consists of cash held by a third-party financial institution as a reserve in connection with an agreement to sell certain receivables with recourse, see Note 3 - Accounts Receivable Agreements.
Revenue recognition
The Company recognizes revenue at the time a good or service is transferred to the customer and the customer, obtains control of that good or receives the service performed. Most of the Company’s sales arrangements with customers are short-term in nature involving single performance obligations related to the delivery of goods or repair of equipment and generally provide for transfer of control at the time of shipment to the customer. The Company generally permits returns of product or repaired equipment due to defects, historically, returns have not been significant.
Additionally, the Company provides services related to the installation and upgrade of technology on cell sites and the construction of new small cells for 5G technology. The work under the purchase orders for wireless infrastructure services are generally completed in less than a month. These services generally consist of a single performance obligation which the Company recognizes as revenue over time. The Company uses an input method based upon a ratio of direct costs incurred to date compared to management’s estimate of the total direct costs to be incurred on each contract, since it best depicts the transfer of control to the customer. The Company’s principal sales are from Wireless services, sales of Telco new and refurbished equipment and Telco recycled equipment. The Company’s customers include wireless carriers, wireless equipment providers, multiple system operators, resellers and direct sales to end-user customers.
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, on the consolidated balance sheets.
Accounts receivable
Trade receivables are carried at original invoice amount less an estimate made for doubtful accounts. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions. Trade receivables are written off against the allowance when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. The Company generally does not charge interest on past due accounts.
For both the Company’s Wireless and Telco segments, the Company has entered into various agreements with recourse, to sell certain receivables to unrelated third-party financial institutions. The other agreements without
recourse are under programs offered by certain customers of the Wireless segment. The Company accounts for these transactions in accordance with Accounting Standards Codification (“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 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. The Company records a recourse obligation if it determines that any portion of the sold receivables with recourse are uncollectible.
Inventories
For the Telco segment, inventories consist of new, refurbished and used telecommunications equipment. Inventory is stated at the lower of cost or net realizable value. Cost is 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. For the Telco segment, the Company records an inventory reserve provision to reflect inventory at its estimated net realizable value based on a review of inventory quantities on hand, historical sales volumes and technology changes. These reserves are to provide for items that are potentially slow-moving, excess or obsolete.
Leases
The Company determines if an arrangement is a lease at inception of the arrangement. To the extent that we determine an arrangement represents a lease, we classify that lease as either a right-of-use ("ROU") lease or a finance lease. We capitalize ROU leases on our consolidated balance sheets through a ROU asset and a corresponding ROU lease liability. ROU assets represent our right to use an underlying asset for the lease term and ROU lease liabilities represent our obligation to make lease payments arising from the lease.
ROU 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.
ROU leases are included in long-term assets and ROU lease liabilities are classified as either current or long-term liabilities in our consolidated balance sheets. Finance leases are included in net property and equipment, and current or long-term finance lease obligations in the consolidated balance sheets. ROU assets and liabilities are recognized at the commencement date of an arrangement based on the present value of lease payments over the lease term. Lease expense for ROU lease payments is recognized on a straight-line basis over the lease term, except for certain variable expenses that are recognized when the variability is resolved, typically during the period in which they are paid. Variable ROU lease payments typically include charges for property taxes and insurance, and some leases contain variable payments related to non-lease components, including common area maintenance and usage of facilities or office equipment (for example, copiers).
Property and equipment
Property and equipment consist of software, office equipment, wireless services equipment and warehouse and service equipment with estimated useful lives generally of 3 years, 5 years, 7 years, and 10 years, respectively. The wireless services equipment includes mobile wireless temporary towers, equipment trailers and construction equipment. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the useful lives or the remainder of the lease agreement. Gains or losses from the ordinary sale or retirement of property and equipment are recorded and included in operating expense. Repairs and maintenance costs are generally expensed as incurred, whereas major improvements are capitalized. Depreciation expense was $0.9 million, $0.3 million and $0.9 million for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021, respectively.
Intangible assets
Intangible assets consist of customer relationships, trade names, and intellectual property. Intangibles 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.
Impairment of long-lived 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 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.
Income taxes
The Company provides for income taxes in accordance with the liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and tax carryforward amounts. Management provides a valuation allowance against deferred tax assets for amounts which are not considered “more likely than not” to be realized.
Advertising costs
Advertising costs are expensed as incurred. Advertising expense was $0.3 million, $0.1 million and $0.4 million for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021, respectively.
Management estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.
Any significant, unanticipated changes in product demand, technological developments or economic trends affecting the wireless infrastructure or telecommunications industries could have a significant impact on the value of the Company's inventory and operating results.
Concentrations of risk
The Company holds cash with one major financial institution, which at times exceeds FDIC insured limits. Historically, the Company has not experienced any losses due to such concentration of credit risk.
Other financial instruments that potentially subject the Company to concentration of credit risk consist principally of trade receivables. Concentrations of credit risk with respect to trade receivables are limited because a large number of geographically diverse customers make up the Company’s customer base, thus spreading the trade credit risk. As of December 31, 2022, two Telco customers accounted for 24% and 11% of trade accounts receivable, respectively. The Company controls credit risk through credit approvals, credit limits and monitoring procedures. The Company performs credit evaluations for all new customers but does not require collateral to support customer receivables.
Share-based compensation
ADDvantage compensates our directors and executives using time-based stock options and restricted shares awards (RSA's). ADDvantage accounts for share-based payment awards under ASC 718 - Compensation - Stock Compensation (ASC 718), which requires that the value of the award is established at the date of the grant and is expensed over the vesting period of the grant. The method of determining the fair value of share-based payments depends on the type of award. Share-based awards that vest over a certain service period with no market
conditions are valued at the closing market price on the grant date. Option grants are valued using the Black-Scholes-Merton model using model inputs that are determined on the date of the grant. Once the per-share fair value on the grant date is established, the aggregate expense of the grant is recognized on a graded vesting basis over the vesting period of the grant.
Fair value of financial instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximate fair value due to their short maturities.
Retirement Plan
The Company sponsors a 401(k) plan that allows participation by all employees who are at least 21 years of age and have completed over 60 days of service. The Company's contributions to the plan consist of a matching contribution as determined by the plan document. Costs recognized under the 401(k) plan were $0.1 million, $34 thousand and $0.2 million for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021, respectively.
Recently issued accounting standards
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13: “Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments.” This ASU requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. Upon adoption, entities will use forward-looking information to better form their credit loss estimates. This ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. On November 15, 2019, the FASB delayed the effective date of the standard for companies that qualify under smaller reporting company reporting rules. As amended, the effective date of ASC Topic 326 was delayed until fiscal years beginning after December 15, 2022 for SEC filers that are eligible to be smaller reporting companies under the Securities and Exchange Commission definition. We are currently in the process of evaluating this new standard update, however we do not anticipate the adoption will have a material impact on our results.
Note 2 - Revenue Recognition
The Company’s principal sales are from Wireless services, sales of Telco equipment and Telco recycled equipment, primarily in the United States. Sales to international customers totaled approximately $6.2 million, $1.1 million, and $4.7 million for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021, respectively.
The Company’s customers include wireless carriers, wireless equipment providers, multiple system operators, resellers and direct sales to end-user customers. Sales, which individually amounted to 10% or greater of the Company's revenue, to two customers totaled approximately 28%, 37%, and 28% of consolidated sales for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021, respectively.
Sales by type for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021 were as follows, in thousands:
Year Ended Three Months Ended Year Ended
December 31, December 31, September 30,
2022 2021 2021
Wireless services sales $ 30,813 $ 7,119 $ 20,708
Equipment sales:
Telco 66,016 11,424 40,663
Inter-segment (5) - (101)
Telco repair sales 12 11 27
Telco recycle sales 192 136 863
Total sales $ 97,028 $ 18,690 $ 62,160
Contract assets and contract liabilities are included in unbilled revenue and deferred revenue, respectively, in the consolidated balance sheets. Contract assets were $5.0 million, $2.2 million and $2.5 million at December 31, 2022, 2021, and September 30, 2021, respectively. Contract liabilities were were $0.1 million, $0.2 million and $0.2 million at December 31, 2022, 2021, and September 30, 2021, respectively. During the year ended December 31, 2022, the Company recognized $0.2 million as revenue from amounts classified as deferred revenue on our consolidated balance sheet at December 31, 2021. During the three months ended ended December 31, 2021, the Company recognized $0.2 million as revenue from amounts classified as deferred revenue on our consolidated balance sheet at September 30, 2021.
Note 3 - Accounts Receivable Agreements
On March 17, 2022, the Company replaced its $3.0 million credit facility for its Nave and Triton subsidiaries with its primary financial lender with new accounts receivable purchase facilities with capacities of $13.0 million for Nave and $3.0 million for Triton. The lender charges a fee of 1.3% of sold receivables.
On March 17, 2022, the Company also restructured its accounts receivable purchase facilities secured by the Company’s Fulton subsidiary’s receivables. Effective December 17, 2022, the modified Fulton facilities provide a credit capacity excluding a major customer of $1.5 million, with a fee of 2.0% of sold receivables, and credit capacity secured by receivables of a major customer of $1.5 million, with a fee of 1.6% of sold receivables.
For all four facilities, the lender advances 90% of sold receivables and establishes a reserve of 10% of the sold receivables at initial sale, which increases to 100% over time after 120 days, until the Company collects the sold receivables. All four facilities mature on December 17, 2023.
The Company has a total capacity under all four facilities of $19.0 million. As of December 31, 2022, the lender has a reserve against the sold receivables of $1.1 million, which is reflected as restricted cash on the consolidated balance sheets. The facilities agreements address events and conditions which may obligate the Company to immediately repay the institution the outstanding purchase price of the receivables sold. The total amount of receivables uncollected by the institution was $7.0 million at December 31, 2022. Although the sale of receivables is with recourse, the Company did not record a recourse obligation at December 31, 2022 as the Company concluded that the sold receivables are collectible.
For the year ended December 31, 2022, the Company received proceeds from the sold receivables under all of their various agreements of $71.6 million and included the proceeds in net cash provided by operating activities in the consolidated statements of cash flows. The Company recorded related costs of $1.0 million for the year ended December 31, 2022, in other expense in the consolidated statements of operations.
Note 4 - Inventories
Inventories, which are all within the Telco segment, at December 31, 2022, 2021, and September 30, 2021 are as follows, in thousands:
December 31, December 31, September 30,
2022 2021 2021
New equipment $ 2,286 $ 1,396 $ 1,295
Refurbished and used equipment 11,148 7,824 8,103
Allowance for excess and obsolete inventory: (3,871) (3,567) (3,476)
Total inventories, net $ 9,563 $ 5,653 $ 5,922
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. Generally, the Company does not refurbish its used inventory until there is a sale of that product or to keep a certain quantity on hand.
In the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021, 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. The Telco segment recorded inventory obsolescence charges of $0.3 million, $0.1 million and $0.4 million for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021, respectively and the Company has a $3.9 million allowance at December 31, 2022. The Company also reviewed the cost of inventories against estimated net realizable value and for the years ended December 31, 2022 and September 30, 2021, recorded a lower of cost or net realizable value charge of $0.2 million and $0.1 million, respectively. There were no adjustments for lower of cost or net realizable value recorded for the transition period of three months ended December 31, 2021.
Note 5 - Intangible Assets
The intangible assets with their associated accumulated amortization amounts at December 31, 2022, 2021, and September 30, 2021 are as follows, in thousands:
December 31, 2022
Intangible assets: Gross Accumulated Amortization Net
Customer relationships - 10 years
$ 3,155 $ (2,913) $ 242
Trade name - 10 years
2,122 (1,655) 467
Total intangible assets $ 5,277 $ (4,568) $ 709
December 31, 2021
Intangible assets: Gross Accumulated Amortization Net
Customer relationships - 10 years
$ 3,155 $ (2,807) $ 348
Trade name - 10 years
2,122 (1,443) 679
Total intangible assets $ 5,277 $ (4,250) $ 1,027
September 30, 2021
Intangible assets: Gross Accumulated
Amortization Net
Customer relationships - 10 years
$ 3,155 $ (2,780) $ 375
Trade name - 10 years
2,122 (1,390) 732
Total intangible assets $ 5,277 $ (4,170) $ 1,107
Amortization expense was $0.3 million, $0.1 million and $0.3 million for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021, respectively.
The estimated aggregate amortization expense for each of the next five fiscal years is as follows, in thousands:
2023 $ 319
2024 142
2025 107
2026 90
2027 25
Thereafter 26
Total $ 709
Note 6 - Accrued Expenses
Accrued expenses at December 31, 2022, 2021, and September 30, 2021 are as follows, in thousands:
December 31, December 31, September 30,
2022 2021 2021
Employee costs $ 915 $ 945 $ 1,255
Taxes other than income tax 54 3 (13)
Other, net 476 236 339
Total accrued expenses $ 1,445 $ 1,184 $ 1,581
Note 7 - Debt
Credit Agreement
On December 28, 2021, the Company renewed its credit facility for its Nave and Triton subsidiaries with its primary financial lender by entering into a Business Loan Agreement and various ancillary debt and collateral agreements. The renewed Nave and Triton credit facility was for a maximum of $3.0 million and was secured by the Company’s Nave and Triton Subsidiaries’ accounts receivable and inventory. As renewed, the previous Nave and Triton credit facility was reduced by $1.0 million and required quarterly interest payments based on the Wall Street Journal Prime Rate floating rate (3.25% at December 31, 2021) plus 0.75%. At December 31, 2021, there was $2.1 million outstanding under the line of credit.
On March 17, 2022, the Company closed its $3.0 million credit facility for its Nave and Triton subsidiaries with its primary financial lender. See Note 3 - Accounts Receivable Agreements for more information about the Company's receivables purchase facilities.
Note 8 - Leases
As a lessee, ADDvantage leases its corporate office headquarters in Carrollton, Texas, and conducts its business operations through various regional offices located throughout the United States. These operating locations typically
include regional offices, storage and maintenance facilities sufficient to support its operations in the area. ADDvantage leases these properties under either non-cancelable term leases many of which contain renewal options that can extend the lease term from one to five years and some of which contain escalation clauses, or month-to-month operating leases. Options to renew these leases are generally not considered reasonably certain to be exercised. Therefore, the periods covered by such optional periods are not included in the determination of the term of the lease. ADDvantage may lease equipment under cancellable short-term or contracts which are less than 30 days. Due to the nature of the Company's business, any option to renew these short-term leases is generally not considered reasonably certain to be exercised. Therefore, the periods covered by such optional periods are not included in the determination of the term of the lease, and the lease payments during these periods are similarly excluded from the calculation of ROU lease asset and lease liability balances.
The components of lease expense for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021 are as follows, in thousands:
Year Ended Three Months Ended Year Ended
December 31, December 31, September 30,
2022 2021 2021
Right-of-use lease cost
Right-of-use lease cost
$ 1,087 $ 319 $ 1,160
Finance lease costs
Amortization assets under finance leases
$ 604 $ 139 $ 412
Interest on finance lease liabilities
155 37 75
Total finance lease cost
$ 759 $ 176 $ 487
Supplemental cash flow information related to leases for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021 are as follows, in thousands:
Year Ended Three Months Ended Year Ended
December 31, December 31, September 30,
2022 2021 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from right-of-use leases
$ 1,087 $ 319 $ 1,160
Operating cash flows from finance leases
$ 155 $ 37 $ 75
Financing cash flows from finance leases
$ 899 $ 155 $ 484
Supplemental balance sheet information related to leases at December 31, 2022, 2021, and September 30, 2021 are as follows, in thousands:
December 31, December 31, September 30,
2022 2021 2021
Right-of-use leases
Right-of-use lease assets $ 1,540 $ 2,466 $ 2,730
Right-of-use lease obligations - current $ 1,204 $ 1,177 $ 1,198
Right-of-use lease obligations 635 1,839 2,141
Total right-of-use lease liabilities $ 1,839 $ 3,016 $ 3,339
Finance leases
Property and equipment, gross $ 3,409 $ 3,115 $ 2,843
Accumulated depreciation (1,244) (846) (707)
Property and equipment, net $ 2,165 $ 2,269 $ 2,136
Financing lease obligations - current $ 636 $ 652 $ 582
Financing lease obligations 1,254 1,484 1,429
Total finance lease liabilities $ 1,890 $ 2,136 $ 2,011
Weighted Average Remaining Lease Term
Right-of-use leases 1.64 years 2.63 years 2.78 years
Finance leases 3.25 years 3.47 years 3.75 years
Weighted Average Discount Rate
Right-of-use leases 5.00 % 5.00 % 5.00 %
Finance leases 7.77 % 6.76 % 6.72 %
Maturities of lease liabilities are as follows for the year ending December 31, 2022, in thousands:
Right-of-use Leases
Finance Leases
2023 $ 1,316 $ 760
2024 621 675
2025 65 415
2026 - 223
2027 - 78
Thereafter - -
Total lease payments 2,002 2,151
Less: imputed interest 163 261
Total lease obligations $ 1,839 $ 1,890
Note 9 - Stock-Based Compensation
Plan Information
The 2015 Incentive Stock Plan (the “Plan”) provides for awards of stock options and restricted stock to officers, directors, key employees and consultants. In September 2022, at the Company's annual meeting of shareholders, the shareholders authorized an additional 1,000,000 shares of common stock be added to the Plan.
At December 31, 2022, 3,100,415 shares of common stock were reserved for stock award grants under the Plan. Of these reserved shares, 1,072,304 shares were available for future grants.
Stock Options
As of September 30, 2021 there were 50,000 stock options with a weighted average exercise price of $1.28 per share and an aggregate intrinsic value of $54 thousand outstanding under the Plan. As of December 31, 2021, there were 50,000 stock options with a weighted average exercise price of $1.28 per share and an aggregate intrinsic value of $22 thousand outstanding under the Plan. There were 50,000 stock options exercised during the year ended December 31, 2022 with a weighted average exercise price of $1.28 per share and an aggregate intrinsic value of $47 thousand. As of December 31, 2022, no stock options remained outstanding.
Restricted stock awards
A summary of the Company's non-vested restricted share awards at December 31, 2022 and changes during the transition period of three months ended December 31, 2021 and the year ended December 31, 2022 is presented in the following table ($ in thousands):
Shares Fair Value
Non-vested at September 30, 2021 739,913 $ 1,706
Granted 130,111 $ 333
Vested (112,390) $ (230)
Forfeited (20,000) $ (41)
Non-vested at December 31, 2021 737,634 $ 1,768
Granted 260,391 361
Vested (354,634) (857)
Forfeited (111,666) (256)
Non-vested at December 31, 2022 531,725 $ 1,016
Compensation expense related to restricted stock recorded for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021 is as follows, in thousands:
Year Ended Three Months Ended Year Ended
December 31, December 31, September 30,
2022 2021 2021
Fiscal year 2020 grant $ 36 $ 37 $ 450
Fiscal year 2021 grant 252 125 556
2021 Transition period grant 87 119 -
Fiscal year 2022 grant 195 - -
Total restricted stock compensation expense $ 570 $ 281 $ 1,006
Valuation of time vesting restricted stock awards for all periods presented is equal to the quoted market price for the shares on the date of the grant. The Company amortizes the fair value of the restricted share awards, graded, over the vesting period of the awards.
The Company did not recognize a tax benefit for compensation expense recognized during the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021.
At December 31, 2022, unrecognized compensation expense related to non-vested stock-based compensation awards not yet recognized in the consolidated statements of operations was $0.4 million. That cost is expected to be recognized over a period of 2.50 years.
Note 10 - Equity Distribution Agreement and Sale of Common Stock
On April 24, 2020, the Company entered into an Equity Distribution Agreement (the “Sales Agreement”) with Northland Securities, Inc., as agent (“Northland”), pursuant to which the Company may offer and sell, from time to time, through Northland, shares of the Company’s common stock, par value $0.01 per share, having an aggregate offering price of up to $13.9 million ("Shares").
The offer and sale of the Shares were made pursuant to a shelf registration statement on Form S-3 and the related prospectus filed by the Company with the Securities and Exchange Commission (the "SEC") on March 3, 2020, as amended on March 23, 2020, and declared effective by the SEC on April 1, 2020.
Pursuant to the Sales Agreement, Northland sold the Shares by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933 (the “Securities Act”), including sales made by means of ordinary brokers’ transactions, including on The Nasdaq Capital Market, at market prices or as otherwise agreed with Northland. Northland used commercially reasonable efforts consistent with its normal trading and sales practices to sell the Shares from time to time, based upon instructions from the Company, including any price or size limits or other customary parameters or conditions the Company may have imposed.
The Company paid Northland a commission rate equal to an aggregate of 3.0% of the aggregate gross proceeds from each sale of Shares and agreed to provide Northland with customary indemnification and contribution rights. The Company also reimbursed Northland for certain specified expenses in connection with entering into the Sales Agreement. The Sales Agreement contained customary representations and warranties and conditions to the placements of the Shares pursuant thereto.
During the three months ended December 31, 2021, 320,787 Shares were sold by Northland on behalf of the Company with gross proceeds of $0.7 million, and net proceeds after commissions and fees of $0.6 million. During the year ended December 31, 2022, 892,181 shares were sold by Northland on behalf of the Company with gross proceeds of $1.7 million, and net proceeds after commissions and fees of $1.6 million.
On November 28, 2022, the Company terminated the Sales Agreement with Northland. There were no penalties associated with the termination of the Sales Agreement.
Note 11 - Supplemental Cash Flow Information
(in thousands) Year Ended Three Months Ended Year Ended
December 31, December 31, September 30,
2022 2021 2021
Supplemental cash flow information:
Cash paid for interest $ 176 $ 59 $ 257
Supplemental noncash investing activities:
Assets acquired under financing leases $ 653 $ 272 $ 1,623
Note 12 - Earnings per Share
Basic and diluted earnings per share for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021, in thousands:
Year Ended Three Months Ended Year Ended
December 31, December 31, September 30,
2022 2021 2021
Net loss attributable to common shareholders $ 471 $ (2,029) $ (6,502)
Basic weighted average shares 13,484 12,683 12,401
Effect of dilutive securities:
Stock options - - -
Diluted weighted average shares 13,484 12,683 12,401
Loss per common share:
Basic $ 0.03 $ (0.16) $ (0.52)
Diluted $ 0.03 $ (0.16) $ (0.52)
The table below includes information related to stock options that were outstanding at the end of each respective year but have been excluded from the computation of weighted-average stock options for dilutive securities because their effect would be anti-dilutive.
December 31, December 31, September 30,
2022 2021 2021
Stock options excluded - 50,000 50,000
Weighted average exercise price of stock options $ 1.28 $ 1.28
Average market price of common stock $ 2.05 $ 2.57
Note 13 - Income Taxes
The provision (benefit) for income taxes for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021 consists of, in thousands:
Year Ended Three Months Ended Year Ended
December 31, December 31, September 30,
2022 2021 2021
Current $ 8 $ - $ (53)
Deferred - - -
Total provision (benefit) for income taxes $ 8 $ - $ (53)
The following table summarizes the differences between the U.S. federal statutory rate and the Company’s effective tax rate for continuing operations financial statement purposes for the year ended December 31, 2022, the transition period of three months ended December 31, 2021, and the year ended September 30, 2021:
Year Ended Three Months Ended Year Ended
December 31, December 31, September 30,
2022 2021 2021
Statutory tax rate 21.0 % 21.0 % 21.0 %
State income taxes, net of U.S. federal tax benefit (3.2) % 1.9 % 5.4 %
Return to accrual adjustment - % - % 5.8 %
Change in rate (4.1 %) - % - %
Permanent differences (14.5) % - % - %
Valuation allowance 20.5 % (21.4 %) (32.7 %)
Other exclusions (18.0) % (1.5) % 1.3 %
Company’s effective tax rate 1.7 % 0.0% 0.8 %
The Company continues to provide a valuation allowance of $9.1 million for all net deferred tax assets where the Company believes it is more likely than not that those deferred taxes will not be realized.
The tax effects of temporary differences related to deferred taxes at December 31, 2022, 2021, and September 30, 2021 consist of the following, in thousands:
December 31, December 31, September 30,
2022 2021 2021
Deferred tax assets:
Net operating loss carryforwards $ 6,376 $ 6,382 $ 5,895
Accounts receivable 72 69 69
Inventory 1,071 994 966
Intangibles 2,079 2,320 2,370
Accrued expenses 312 271 334
Stock options - 5 5
Other 64 64 64
Total deferred tax assets 9,974 10,105 9,703
Deferred tax liabilities:
Financial basis in excess of tax basis of certain assets 803 855 815
Other 120 294 365
Total deferred tax liabilities 923 1,149 1180
Less valuation allowance 9,051 8,956 8,523
Net deferred taxes $ - $ - $ -
The Company’s U.S. Federal net operating loss (“NOL”) carryforwards consist of the following, in thousands:
NOL carryforward Year Expires
Year ended December 31, 2022 -
Transition period ended December 31, 2021 2,100 No expiry
Year ended September 30, 2021 9,500 No expiry
Year ended September 30, 2020 9,270 No expiry
Year ended September 30, 2019 1,495 No expiry
The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial performance. The Company has concluded, based on its recent cumulative losses, that it is more likely than not that the Company will not be able to realize the full effect of the deferred tax assets and a valuation allowance of $9.1 million is needed.
Based upon a review of its income tax positions, the Company believes that its positions would be sustained upon an examination by the Internal Revenue Service and does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded. Generally, the Company is no longer subject to examinations by the U.S. federal, state or local tax authorities for tax years before 2019.
Note 14 - Segment Reporting
The Company is reporting its financial performance based on its external reporting segments: Wireless Infrastructure Services and Telecommunications. These reportable segments are described below.
Wireless Infrastructure Services (“Wireless”) The Company's Wireless segment provides turn-key wireless infrastructure services for the 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.
The Company evaluates performance and allocates its resources based on operating income. The accounting policies of its reportable segments are the same as those described in the summary of significant accounting policies. Segment assets consist primarily of cash and cash equivalents, accounts receivable, inventory, property and equipment, goodwill and intangible assets. The Company allocates its corporate general and administrative expenses to the reportable segments.
(in thousands) Year Ended Three Months Ended Year Ended
December 31, December 31, September 30,
2022 2021 2021
Sales
Wireless $ 30,813 $ 7,119 $ 20,708
Telco 66,220 11,571 41,553
Intersegment (5) - (101)
Total sales $ 97,028 $ 18,690 $ 62,160
Gross profit
Wireless $ 8,611 $ 1,507 $ 6,277
Telco 19,178 3,124 9,850
Total gross profit $ 27,789 $ 4,631 $ 16,127
Income (loss) from operations
Wireless $ (4,792) $ (2,326) $ (6,864)
Telco 6,269 424 (2,433)
Total operating income ( loss) $ 1,477 $ (1,902) $ (9,297)
(in thousands) December 31, December 31, September 30,
2022 2021 2021
Segment assets
Wireless $ 9,790 $ 7,640 $ 7,867
Telco 13,217 14,545 14,472
Non-allocated 4,211 3,241 4,973
Total assets $ 27,218 $ 25,426 $ 27,312
Note 15 - Subsequent events
The Company has evaluated subsequent events through the filing of this Form 10-K, and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
Changes in Internal Control Over Financial Reporting
During the year ended December 31, 2022, there have been no changes, including the impact of COVID-19, in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures.
We maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Commission’s rules and forms, and that information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer evaluated our disclosure controls and procedures as of December 31, 2022. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.
Management’s Annual Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) and for the assessment of the effectiveness of internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of financial statements in accordance with accounting principles generally accepted in the United States. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and board of directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework (2013).
Based on our assessment, we believe that, as of December 31, 2022, our internal control over financial reporting is effective.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public
accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting.
None.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
Identification of Directors
Our bylaws provide that our Board shall consist of not less than one nor more than nine directors, as determined from time to time by board resolution. The Board is presently comprised of six directors, each of whom serves for a term of one year. The Directors are as follows:
David E. Chymiak Director since 1999
Mr. Chymiak, 77, served as ADDvantage's Chief Technology Officer from April 2, 2012 through June 30, 2019, which was the effective date of the sale of the Cable Television segment to Mr. Chymiak’s affiliated company, Leveling 8 Inc. (see Certain Relationships and Related Transactions section). Mr. Chymiak oversaw the operations of the Cable Television segment which he co-founded as Tulsat in 1985. Upon the sale of the Cable Television segment to Leveling 8, Mr. Chymiak is no longer an employee of the Company, but remains on the Company’s Board of Directors. Mr. Chymiak served as our Company’s Chairman of the Board from during the years 1999 to 2012 and 2014 to 2018.
Joseph E. Hart Director since 2015
Mr. Hart, 72, has served as our President and Chief Executive Officer since October 2018. Prior to joining the Company, Mr. Hart was the CEO of Aero Communications, Inc., a company specializing in installation, maintenance, and network design and construction for the telecommunications industry (2015 to 2018). From 2006 to 2014, Mr. Hart served as the Executive Vice President of Network Infrastructure Services and Operations for Goodman Networks, Inc., a provider of end-to-end network infrastructure, professional services and field deployment to the wireless telecommunications and satellite television industry. For the previous 20 years, Mr. Hart served in various executive leadership positions for AT&T and other various telecommunication and wireless companies. Mr. Hart holds a Master of Science degree in systems management from the University of Southern California and Bachelor of Business Administration degree from Baldwin-Wallace College.
Timothy S. Harden Independent Director since 2019
Mr. Harden, 69, has broad Communication Industry experience in various positions of leadership. He currently sits on a number of advisory boards focused on providing products and services in the Communication space. Mr. Harden spent 33 years with AT&T in various operating executive positions, the last of which was President of AT&T’s Worldwide Supply Chain. A few of his previous areas of responsibility included President and CEO of AT&T West, President of network services for AT&T Southwest, and President of Data and Network Services for SBC Operations. Mr. Harden also gained broad telecommunications experience from a series of executive assignments within AT&T’s predecessor companies SBC and Pacific Telesis, including President of SBC Telecom, Inc., President and Chief Executive Officer of Pacific Telesis Business Systems, Chief Operating Officer of Pacific Bell’s Advanced Communications Network, and Senior VP - Network Engineering and Planning of SBC Data Services. Mr. Harden has served as Chairman of the QuEST/TIA Forum Executive Board, managing the quality standard TL 9000 through 200+ companies worldwide. He is a former member of Supply Chain 50 representing the top Supply Chains in the U.S., and a member of Supply Chain World representing the top 200 Supply Chains worldwide.
Mr. Harden is an inductee in the National Football Foundation and College Hall of Fame as a scholar athlete. He currently serves on the board of directors for the San Francisco Chapter of this national organization. In 2007 he was named as a Distinguished American by this group for his efforts in support of their mission to promote and develop the qualities of leadership, sportsmanship, competitive zeal and the drive for academic excellence in America’s young people. This was only the 9th time this honor has been awarded in the 70 year history of the organization. Mr. Harden is a retired Captain in the USN Reserve and a past Associate Professor at the University of Utah. Mr. Harden started his career as an officer in the US Navy after his graduation from the US Naval Academy.
James C. McGill Independent Director since 2007
Mr. McGill, 79, has served as our Company’s Chairman of the Board since October 2018. Mr. McGill is currently the President of McGill Resources, a venture capital investment company, a position he has held since 1987. In 2015, Mr. McGill formed and owns Ediche, LLC, a clothing importer. He also served in various executive leadership roles and as Chairman of the Board of Directors of MacroSolve, Inc., a technology company focused on wireless data
collection, from 2002 to 2013. Mr. McGill serves on boards of organizations in the Tulsa, Oklahoma area, and has served on public company boards with many years serving as audit committee or board chair.
During his career, Mr. McGill has received 25 U.S. and foreign patents in the field of pollution control and has extensive experience in helping to develop early-stage and emerging companies. Mr. McGill is a registered professional engineer with a Bachelor of Science degree in chemical engineering from The University of Tulsa where he graduated cum laude. He is a member of the University’s College of Engineering and Applied Sciences Hall of Fame and was named a Distinguished Alumni in 2005. In 2013, he was named to the Collins College Business Hall of Fame.
John M. Shelnutt Independent Director since 2019
Mr. Shelnutt, 60, is the Vice President of Blue Danube Systems, a company that designs intelligent wireless access solutions using cloud-based analytics and machine learning to deliver high-definition active antenna systems technology to the wireless industry. Prior to 2017 when he joined Blue Danube Systems, Mr. Shelnutt served in executive capacities at Cisco from 2011 to 2016, leading their mobility division with global responsibility for all of the mobile product offerings of the company and managing one of their largest global customers. Prior to that, Mr. Shelnutt spent 12 years in executive leadership roles at Alcatel including the startup of their global DSL division and managing their United States mobility division. Mr. Shelnutt is also currently a partner since March 2021 in NASH21, a company that invests in real estate and rental properties primarily in Florida. Mr. Shelnutt has also served on various boards within the telecommunications industry including the QuEST Forum, ATIS, Broadband Forum and was an advisor to Tech Titans of Dallas, Texas and the City of New York Public Schools Technology group.
David W. Sparkman Independent Director since 2015
Mr. Sparkman, 65, recently retired as the Chief Financial Officer of Oklahoma Capital Bank. Prior to that, he was the President of the financial consulting firm, Ulysses Enterprises, in which he also served in 2009-2010. Until the sale of the companies in October 2016, he was the Chief Financial Officer for a group of oil field service companies: Acid Specialists, LLC; Frac Specialists, LLC; and Cement Specialists, LLC. Mr. Sparkman served in that capacity beginning in September 2014, and prior to joining this group full-time in this capacity, he provided accounting and financial consulting services to these companies starting in April 2014. From 2010 to 2011, Mr. Sparkman was the CFO for Great White Energy Services until this company was acquired by Archer Well Company in 2011, and then served as the North America Director of Finance for Archer Well Company until 2013. Mr. Sparkman also spent 12 years with Dollar Thrifty Automotive Group serving in various accounting and finance-related senior management positions. Mr. Sparkman is a certified public accountant (inactive) and holds a bachelor of business administration degree in accounting from the University of Arkansas where he graduated cum laude.
Identification of Executive Officers
We have two executive officers. Our officers are elected by our Board of Directors and serve at the pleasure of the Board of Directors.
Joseph E. Hart
Biographical information for Mr. Hart, President and Chief Executive Officer, is set forth above.
Michael A. Rutledge
Mr. Rutledge, 52, Chief Financial Officer, began his career with ADDVantage Technologies in September 2021. Mr. Rutledge served as Vice President, Finance at SomnoMed Group for the past five years. Previously, he spent two years as the Chief Financial Officer at BG Staffing, where he played a key role in taking the company public and raising $16 million. Prior to that, he spent three years as Vice President of Finance with Cantel Medical Corporation, a publicly owned manufacturer of medical products, which acquired Byrne Medical, Inc., where he was the Chief Financial Officer. He joined Byrne Medical from N.F. Smith & Associates, a privately owned distributor of electronic components, where he spent four years as the Chief Financial Officer. He began his career at Ernst & Young, where he spent 12 years ultimately as Senior Audit Manager and was involved in several IPOs. He is a CPA in the State of Texas and holds a Bachelor of Business Administration in Accounting from Texas A&M University.
Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of our common stock to report their initial ownership of our common stock and any subsequent changes in that ownership to the SEC and to furnish us with a copy of each of these reports. SEC regulations impose specific due dates for these reports and we are required to disclose in this proxy statement any failure to file by these dates during fiscal year 2022.
Based solely on the review of the copies of these reports furnished to us and written representations that no other reports were required, during and with respect to the fiscal year ended December 31, 2022, we believe that these persons have complied with all applicable filing requirements.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics which is applicable to all of our directors, officers and employees. A copy of our Code of Business Conduct and Ethics is posted on our website at www.addvantagetechnologies.com. We intend to satisfy the disclosure requirements, including those of Item 406 of Regulation S-K, regarding certain amendments to, or waivers from, provisions of our Code of Business Conduct and Ethics by posting such information on our website.
Audit Committee
The functions and members of our Audit Committee are set forth below. The members of the Audit Committee are David W. Sparkman (Chairman), John M. Shelnutt, and James C. McGill. Each of the committee members is independent as defined under the rules and listing standards of the NASDAQ Stock Market (“NASDAQ”) and the rules of the Securities and Exchange Commission implemented pursuant to the Sarbanes-Oxley Act of 2002. The Audit Committee met four times during 2022. All of the meetings were held prior to the reporting of our quarterly financial results.
Functions
•Selects the firm that will serve as our independent registered public accounting firm;
•Reviews scope and results of audits with our independent registered public accounting firm, compliance with any of our accounting policies and procedures and the adequacy of our system of internal controls;
•Oversees quarterly reporting; and
•Performs the other functions listed in the Charter of the Audit Committee, a current copy of which may be found on our website at www.addvantagetechnologies.com.
Audit Committee Financial Expert
The SEC has adopted rules pursuant to the provisions of the Sarbanes-Oxley Act requiring audit committees to include an “audit committee financial expert,” defined as a person who has the following attributes:
1) an understanding of generally accepted accounting principles and financial statements;
2) the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves;
3) experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant’s financial statements, or experience actively supervising one or more persons engaged in such activities;
4) an understanding of internal control over financial reporting; and
5) an understanding of audit committee functions.
The financial expert will have to possess all of the attributes listed above to qualify as an audit committee financial expert.
Our Board of Directors has determined that each of David W. Sparkman, John M. Shelnutt, and James C. McGill meets the definitions of an audit committee financial expert.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The following information relates to compensation paid by the Company for the fiscal years ended December 31, 2022 and September 30, 2021 to the Company’s Chief Executive Officer, Chief Financial Officer and the next most highly compensated executive officer of the Company:
Non-Equity
Stock Option Incentive Plan All Other Total
Name and Principal Position Year Salary Bonus Awards Awards Compensation Compensation Compensation
($) ($)(1) ($) (2) ($) ($) ($)(3) ($)
Joseph E. Hart 2022 $ 300,000 - $ - $ - $ - $ 32,505 $ 332,505
Principal Executive Officer 2021 $ 300,000 - $ 446,450 $ - $ - $ 26,419 $ 772,869
Michael A. Rutledge 2022 250,000 - 106,839 - - 24,662 381,501
Chief Financial Officer (4) 2021 15,050 - - - - - 15,050
Scott A. Francis
Chief Accounting Officer (5) 2021 108,632 - 222,858 - - 94,660 426,150
Jimmy Taylor 2022 128,041 - 43,875 - - 8,017 179,933
President, Wireless Segment (6) 2021 235,383 - 78,325 - - 14,116 327,824
(1) There were no executive bonuses awarded in 2022 or 2021.
(2) The amounts shown are Company officer compensation and represent the total fair value of the stock awards shares on the date of the grant to officers for fiscal years 2022 and 2021. The fair value of the stock awards is amortized over the vesting period to compensation expense in the Consolidated Statements of Operations contained in this Annual Report on Form 10-K. The fair value of the stock awards was based on the closing market prices of the stock on the dates of the grants. The actual value that an executive officer will realize upon vesting of performance or time-based awards will depend upon the market price of the Company’s stock on the vesting date, so there is no assurance that the value realized by an executive officer will be at or near the value of the market price of the Company’s stock on the grant date. Mr. Hart's amount for fiscal year 2021 was inadvertently omitted from the 10-K/A and the Proxy statement filed on January 27, 2022 and August 12, 2022, respectively.
(3) Represents amounts paid by the Company on behalf of an officer for matching contributions to the Company’s qualified 401(k) plan, group term life, and auto allowance received during the year. Mr. Francis's other compensation includes severance payments.
(4) Mr. Rutledge's salary for 2021 represents his prorated annual salary of $250,000 as per the terms of his employment agreement from his September 2021 start date.
(5) Mr. Francis was the Vice President and Chief Accounting Officer of the Company until his departure in March 2021. Mr. Francis served as the interim Chief Accounting Officer through August 2021 as an independent contractor.
(6) Mr. Taylor retired in July, 2022.
Potential Payments Upon Termination or Change of Control
We have entered into employment/severance agreements with Mr. Hart and Mr. Rutledge. These agreements are designed to promote stability, continuity and focus for key members of leadership during periods of uncertainty that may be created by change of control situations. Additionally, the use of such agreements is a competitive practice that enhances our ability to attract and retain leadership talent.
These agreements have no stated term but provide for the payment of severance benefits in most situations where the employee is terminated without cause or is terminated or resigns in connection with a Change in Control of the Company. Mr. Hart, in this event, will be paid the amount of his annual base salary immediately preceding the termination without cause or Change of Control. Mr. Rutledge will be paid the amount of 50% of his annual base salary immediately preceding the termination without cause or Change of Control. Most executive equity awards which are subject to vesting provide for accelerated vesting upon the occurrence of a change in control.
“Change of Control” as used in these agreements has a fairly customary definition designed to reflect that a fundamental change in beneficial ownership or control of the Company has occurred. Specifically, the agreements incorporate the term a “change of control event”, as defined in United States Treasury Regulations (“Regulations”) promulgated under section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) that results from an event in which a person comes to be the owner, directly or indirectly, of 50% or more of outstanding voting securities of the Company or its parent company or the transfer or disposition of all or substantially all of the assets of the Company, its parent or their successor or a person, acquires, directly or indirectly, the voting power to elect a majority of the members of the Board of the Company or its parent (other than in the normal course) or any other similar transaction or series of related transactions.
Outstanding Equity Awards at December 31, 2022
The named executive officers of the Company did not have any unvested stock option awards as of December 31, 2022.
The following table reflects the number of shares of unvested restricted stock awards of our named executive officers of the Company as of December 31, 2022:
Unvested Restricted Stock
Joseph E. Hart -
Michael A. Rutledge 37,500
Compensation of Directors
The director compensation plan compensates each director, with the exception of Mr. McGill, $20,000 per year and the Chairman of the Audit Committee $30,000. Mr. McGill receives $25,000 annually in cash paid in monthly installments per his agreement with the Company.
All directors are eligible to receive awards of restricted shares, which are subject to a 12-month holding period, after the annual shareholders meeting. Each director, with the exception of Messrs. McGill and Chymiak, is to be awarded $50,000 of restricted stock upon each election to the board, which would be subject to a holding period equal to their board term. Mr. McGill is to receive $50,000 of restricted stock each October, subject to a twelve month holding period, per his agreement with the Company. Mr. Chymiak is to receive $15,000 of restricted stock upon his election to the board, which would be subject to a holding period equal to his board term.
We reimburse all directors for out-of-pocket expenses incurred by them in connection with their service on our Board and any Board committee. The following table reflects the total compensation earned by each non-employee director during the last fiscal year:
Fiscal Year 2022 Director Compensation Fees Earned or Paid in Cash Restricted Stock Awards (5) (6)
Total Compensation
James C. McGill (1) (2) (3) (4) (7) $ 25,000 $ 50,000 $ 75,000
David E. Chymiak (4) 20,000 15,000 35,000
Timothy S. Harden (2) (3) (4) 20,000 50,000 70,000
John M. Shelnutt (1) (2) (3) (4) 20,000 50,000 70,000
David W. Sparkman (1) (4) 30,000 50,000 80,000
(1) Member of the Audit Committee.
(2) Member of the Corporate Governance and Nominating Committee.
(3) Member of the Compensation Committee.
(4) Member of the Strategy and Corporate Planning Committee.
(5) The fair value of the stock awards are amortized over the estimated period until the next annual shareholders meeting to compensation expense in the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K. The fair value of the stock award was based on the closing market price of the stock on the date of grant.
(6) The directors received their fiscal 2022 awards in December, 2022, with a total fair value of $215,000 as of the original dates of the awards.
(7) James C. McGill and the Company entered into an amended Letter Agreement on July 16, 2020, which amended his previous agreement dated October 8, 2018. This amended agreement provides that, for serving as Chairman of the Board, Mr. McGill will receive annual compensation in the form of $25,000 in cash and $50,000 in shares of stock, which will vest vest over a 12-month period.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table shows the number of shares of common stock beneficially owned (as of December 31, 2022) by:
• each person known by us who beneficially owns more than 5% of any class of our voting stock;
• each director and nominee for director;
• each executive officer named in the Summary Compensation Table; and
• our directors and executive officers as a group.
Except as otherwise indicated, the beneficial owners listed in the table have sole voting and investment powers of their shares.
Name of Beneficial Owner Number of Shares of Common Stock Beneficially Owned (1)
Percent of Class (1)
Directors and Officers:
David Chymiak 2,715,428 19.2%
Joseph Hart 196,122 1.4%
James McGill 203,774 1.4%
John Shelnutt 132,515 *
Timothy Harden 124,228 *
Michael Rutledge 92,857 *
David Sparkman 114,567 *
All Executive Officers and Directors as a group (7 persons) 3,579,491 25.3%
Others > 5% ownership:
Ken Chymiak 1,085,738 (2) 7.7%
* Less than one percent
(1) Shares which an individual has the right to acquire within 60 days pursuant to the exercise of options are deemed to be outstanding for the purpose of computing the percentage ownership of such individual, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Includes shares for which the person has sole voting and investment power, or has shared voting and investment power with his/her spouse.
(2) Based on a Form 4, filed on January 26, 2021, of the shares beneficially owned by Mr. Chymiak, 1,085,738 are held of record by his spouse, Susan C. Chymiak as trustee of the Susan Chymiak Revocable Trust. Mr. Chymiak has sole voting and investment power over those shares held of record by him. Mr. Chymiak disclaims beneficial ownership of the shares held by his wife
Securities authorized for issuance under equity compensation plans
The information in the following table is as of December 31, 2022:
Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a) Weighted-average exercise price of outstanding options, warrants and rights
(b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
Equity compensation plans approved by security holders - - 1,072,304
Equity compensation plans not approved by security holders - - -
Total - - 1,072,304

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Review, Approval or Ratification of Transactions with Related Persons. The Company is not aware of any transaction that was required to be reported in its filings with the SEC where such policies and procedures either did not require review or were not followed. The Company's Audit Committee Charter, which is available on the Corporate Governance page of our website, www.addvantagetechnologies.com, provide that the Company shall conduct an appropriate review of all transactions with related persons for potential conflict of interest situations on
an ongoing basis, and all such transactions shall be approved by the Audit Committee or another independent body of the Board.
In addition, the Company also requires each of its directors and executive officers to complete a Director and Officer Questionnaire on an annual basis, and to update such information when the questionnaire responses become incomplete or inaccurate. The Director and Officer Questionnaire requires disclosure of any transactions with the Company in which the director or executive officer, or any member of his or her immediate family, has a direct or indirect material interest.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services.
HoganTaylor LLP audited our consolidated financial statements for the fiscal years ended December 31, 2022 and September 30, 2021.
Fees Incurred by the Company for Services Performed by Audit Firms
The following table shows the fees incurred for the years ended December 31, 2022 and September 30, 2021 for professional services provided by HoganTaylor for the audits of our annual financial statements as well as other professional services. Included within the year ended 2022 are the fees associated with the transition period of three months ended December 31, 2021.
2022 2021
Audit Fees(1)
$ 227,800 $ 129,000
Audit-Related Fees(2)
23,500 7,500
Tax Fees(3)
- 25,006
All Other Fees - -
Total $ 251,300 $ 161,506
(1) Audit Fees represent fees for professional services provided in connection with the audit of our annual financial statements and review of our quarterly financial statements and audit services provided in connection with the issuance of comfort letters, consents, and assistance with review of documents filed with the SEC.
(2) Audit-Related Fees represent services in connection with special reports, accounting consultations, and due diligence procedures.
(3) Tax Fees represent fees for annual tax return preparation and research of tax related matters.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules.
Financial Statements, Schedules and Exhibits
Financial Statements - ADDvantage Technologies Group, Inc. and Subsidiaries:
The Financial Statements listed in the Index to Consolidated Financial Statements are filed as part of this report on Form 10-K (see Part II, Item 8, Financial Statements and Supplementary Data).
Financial Statement Schedules
All consolidated financial statement schedules have been omitted because they are not required, are not applicable, or the required information has been included elsewhere within this Form 10-K.
Exhibits
The information required by this Section (a)(3) of Item 15 is set forth on the exhibit index following this page.