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 cable television and telecommunications industries, 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. OurIn 2019, the Company moved its headquarters are located infrom Broken Arrow, Oklahoma.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.
We (through our subsidiaries) distribute and service a comprehensive line of electronics and hardware for the cable television and telecommunications industries. We also provide equipment repair services to cable operators. In addition, we offerFor our telecommunications customers decommissioning services for surplus and obsolete equipment, whichsubsidiaries, we in turn process through our recycling services.
Several of our subsidiaries, through their long-standing relationships with the original equipment manufacturers (“OEMs”) and specialty repair facilities, have established themselves as value-added resellers (“VARs”). ADDvantage has a reseller agreement with Arris Solutions to sell cable television equipment in the United States. We are one of only three distributors of Arris broadband products. We are a distributor of Cisco video products as a Cisco Premier Partner, which allows us to sell Cisco’s IT related products. In addition, we are designated as an authorized third party Cisco repair center for select video products. Our subsidiaries also sell products from other OEMs including Alpha, Blonder-Tongue, RL Drake, Corning-Gilbert, Promax, Quintech, Standard and Triveni Digital.
In addition to offering a broad range of new, products, we sell surplus-new and refurbished equipment that we purchase in the market as a result of cable or telecommunications operator system upgrades or an overstock in their warehouses.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 in this industry evolves rapidly and will upgrade our product offerings for our customers in order to stay current with theirour customer’s technology platforms.
Most of our subsidiaries operate technical service centers that service/repair most brands of cable television equipment.
Website Access to Reports
Our public website is addvantagetechnologies.comwww.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 (sec.govwww.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.
Operating Segments
The Company reports its financial performance based on two reporting segments: Cable TelevisionCompany’s current reportable segments are Wireless Infrastructure Services (“Cable TV”Wireless”) and Telecommunications (“Telco”).
Products and Services
The Cable TV segment sellsWireless 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 surplussmall cells for 5G.
Fulton has 120 employees. Fulton performs equipment installations, upgrades and refurbished cable televisionmaintenance 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 andtimely manner and delivering high-quality services to its clients. Demand for tower equipment installation and upgrade services has notably increased as observed, particularly in the fourth quarter of fiscal 2021. We expect this trend to cable television operators (called multiple system operators or “MSOs”) or other resellers that sellcontinue for the foreseeable future as wireless carriers continue to these customers throughout North America, Central America, South Americaadd 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 substantially lesser extent, other international regions that utilizedegradation of wireless coverage in the same technology.area. In addition, this segment repairs cable television equipmentFulton provides temporary tower solutions for various companies.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. Our Special Event tower business was impacted severely during fiscal year 2020 due to COVID-19 and the government restrictions on large crowds and meetings for safety reasons. However, we observed a strong recovery in fiscal year 2021 as summer festivals, concerts, and sporting events resumed across our service area.
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 program.
Products and Services
Cable TV Segment
We offer our customers a wide range of new, surplus-new and refurbished products across the leading OEM suppliers in the industry that are used in connection with video, telephone and internet data signals.
Headend Products – Headend products are used by a system operator for signal acquisition, processing and manipulation for further transmission. Among the products we offer in this category are satellite receivers, integrated receiver/decoders, demodulators, modulators, antennas and antenna mounts, amplifiers, equalizers and processors. The headend of a television signal distribution system is the “brain” of the system; the central location where the multi-channel signal is initially received, converted and allocated to specific channels for distribution. In some cases, where the signal is transmitted in encrypted form or digitized and compressed, the receiver will also be required to decode the signal.
Fiber Products – Fiber products are used to transmit the output of cable system headend to multiple locations using fiber-optic cable. In this category, we currently offer products including optical transmitters, fiber-optic cable, receivers, couplers, splitters and compatible accessories. These products convert radio frequencies to light frequencies and launch them on optical fiber. At each receiver site, an optical receiver is used to convert the signals back to radio frequencies for distribution to subscribers.
Access and Transport Products – Access and transport products are used to permit signals to travel from the headend to their ultimate destination in a home, apartment, hotel room, office or other terminal location along a distribution network of fiber-optic or coaxial cable. Among the products we offer in this category are transmitters, receivers, line extenders, broadband amplifiers, directional taps and splitters.
Test Equipment – Test equipment is used in the set-up, signal testing and maintenance of electronic equipment and the overall support of the cable television system. Test equipment is vital in maintaining the proper function and efficiency of this electronic equipment, which helps to provide high quality video, telephone and high speed data to the end user.
Hardware Equipment – We inventory and sell to our customers other hardware such as connector and cable products.
We offer repair services for most brands of cable equipment at each of our locations.
Telco Segment
We offer our customers a wide range of new and used telecommunication equipment across most major manufacturers consisting primarily of component parts to expand capacity, provide spares or replace non-working components.
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,traffic; switching equipment products originate, terminate and route voice traffic,traffic; and data equipment products transport internet and voice over internet protocol (“VOIP”) traffic via routers.
Customer Premise Equipment – CPEConsumer premise equipment includes integrated access devices, channel banks, internet protocol private branch exchange (“or IP PBX”)PBX phones, and routers that are placed inside the customer site that will receive the communication signal from the communication services provider.
This piece of our Telco business was severely impacted by the closing of all major office complexes throughout the US in 2020 but showed strong recovery in 2021.
In addition, we offer our customers decommissioning services for surplus and obsolete telecom equipment, which we then process through our Responsible Recycling (“R2”)-certified certified recycling program.
Revenues by Geographic Area
Areas
Our revenues by geographic areas were as follows:
| | | 2017 | | | 2016 | | | 2015 | |
| United States | | | | | | | | | |
| Cable TV | | $ | 21,566,082 | | | $ | 21,936,344 | | | $ | 23,975,197 | |
| Telco (a) | | | 22,822,538 | | | | 13,693,837 | | | | 16,031,293 | |
| Canada, Central America, Asia, Europe, Mexico, South America and Other | | | | | | | | | | | | |
| Cable TV | | | 1,240,093 | | | | 1,055,682 | | | | 1,418,488 | |
| Telco (a) | | | 3,085,033 | | | | 1,977,401 | | | | 2,308,642 | |
| | | $ | 48,713,746 | | | $ | 38,663,264 | | | $ | 43,733,620 | |
(a) The Telco segment revenuesfollows for fiscal year 2017 include Triton Datacom revenues from October 14, 2016 throughthe years ended September 30, 2017.2021 and 2020, in thousands:
| | | | | | | | | | | |
| 2021 | | 2020 |
| United States | | | |
| Wireless | $ | 20,708 | | | $ | 21,354 | |
| Telco | 36,799 | | | 26,880 | |
| International | | | |
| Telco | 4,653 | | | 1,948 | |
| $ | 62,160 | | | $ | 50,182 | |
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 33% and 43% of consolidated revenues for the years ended September 30, 2021 and 2020, respectively. In 2017, Cable TV2021, 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, saleswe market and sell our products to wireless carriers, wireless equipment providers and tower companies.
Telco Segment
The Telco segment accounted for 67% and 57% of consolidated revenues for the years ended September 30, 2021 and 2020, respectively. Sales of new products represented 61%25% of Cable TV segment revenues and refurbished product sales represented 18%. Repair and other services contributed the remaining 21% of Cable TV segment revenues. Telco segment sales of new products represented 5% of Telco segment revenues and refurbished products represented 87%73%. RecycleRepair services, recycle sales and other services contributed the remaining 8%2% of Telco segment revenues.
We In this segment, we market and sell our products to franchise and private MSOs, telecommunication companies, system contractors, other industry resellers, enterprise customers and other resellers.directly to consumers via online sales. Our sales and marketing are predominantly performed by our experienced internal sales and customer service staff, as well as our outside sales representatives located in various geographic and strategic areas of
the country.country, and many online sales channel platforms such as our own website, Amazon 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, trade shows and advertising in trade journals.
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 cable television or 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, our network of regional repair centers and our experienced sales and customer service team create a competitive advantage for us.
Suppliers
In fiscal year 2017, the Cable TV segment purchased approximately 24% of its total inventory purchases directly from Arris Solutions and approximately 16% of its total inventory purchases either directly from Cisco or indirectly through Cisco’s primary stocking distributor. In addition to purchasing inventory from OEMs, this segment purchases used or surplus-new inventory from MSOs, who have upgraded or are in the process of upgrading their systems, and from other resellers in this industry.
In fiscal year 2017, theThe Telco segment did not purchase over 10% of its total inventory purchases from any one supplier. This segment of our business 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 Cable TVWireless segment, many of the productsservices that we sellprovide on our customers’ wireless towers are installed 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, exceptother 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 event thatWireless segment is regionally based from companies of a major catastrophic event impactssimilar size. In niche areas of service, like our Special Events and Temporary Pole business in the telecommunications infrastructureMidwest and in an area.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:
Competition•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 declines in the economy have reduced the amount of capital expenditures in our industry, which heightens the competition.
Cable TV Segment
We believe we have differentiated ourselves from the OEMs, other resellers and repair operations in the marketplace in the following ways:
· | we sell both new and refurbished Cable TV equipment as well as repair what we sell, while most of our competition does not offer all of these services; |
· | we stock both new and refurbished inventory; |
· | we stock a wide breadth of inventory, which many of our competitors do not, due to working capital constraints; |
· | we can reconfigure new and refurbished equipment to meet the different needs of our customers; |
· | we can meet our customers’ timing needs for product due to our inventory on hand; and |
· | we have experienced sales support staff that have the technical know-how to assist our customers regarding solutions for various products and configurations. |
In terms of sales and inventory on hand or available via our supply channels, we believe we are one of the largest resellers in this industry, providing both sales and service of new and refurbished Cable TV equipment.
We also compete with our OEM suppliers as they can sell directly to our customers. Our OEM suppliers have a competitive advantage over us as they can sell products at lower prices than we offer. As a result, we are often considered a secondary supplier by large MSOs and telephone companies when they are making large equipment
purchases or upgrades. However, for smaller orders or items that are needed to be delivered quickly, we often hold an advantage over our OEM suppliers as we carry most inventory in stock and can have it delivered in a shorter time frame than the OEM.
Telco Segment
online.
For the Telco segment, we believe our differentiation from other resellers inincludes:
•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 marketplace is primarilyquality 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 following:products we offer;
· | we stock a broad range of used inventory, which allows us to meet our customers’ timing needs; |
•Quality certifications: TL9000 (telecommunications quality certification), ISO 14001 (environmental management certification), OHSAS18000 (occupational safety and health management certification), and R2 (EPA responsible recycling practices for electronics); and· | our ability to source unique and sometimes very limited quantities of products in the industry; |
· | we have experienced sales support staff that have strong relationships with our customers and technical knowledge of the products we offer; |
· | we have the following quality certifications: TL9000 (telecommunications quality certification), ISO 14001 (environmental management certification), OHSAS18000 (occupational safety and health management certification), and R2 (EPA responsible recycling practices for electronics); and |
· | we provide multiple services for our customers including deinstallation and decommission of products, storage and management of spares inventory and recycling. |
•Provide multiple services for our customers including deinstallation and decommission of products, storage and management of spare inventory and recycling.
Working Capital Practices
Working capital practices in our business centerdiffer by segment. 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 addition, we also have access to our revolving bank line of credit to meet our working capital needs.
In the Telco segment, working capital centers on inventory and accounts receivable. 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. In 2018, we will be working on reducing our inventory in both the Cable TV and Telco segments inventory, which should provide further liquidity for our Company. Our working capital requirements are generally met by cash flows from operations. In addition, we haveoperations and our revolving bank line of credit.
The Company has a $4.0 million revolving line of credit agreement with its primary financial lender. The revolving bank line of credit that cancapacity is $4.0 million, or the sum of 80% of eligible accounts receivable and 60% of eligible inventory, as defined by the loan agreement, with quarterly interest payments based on the Wall Street Journal Prime Rate ("WSJP") floating rate with a 4% minimum, and a fixed charge coverage ratio of 1.25x to be utilized for working capital requirements.tested quarterly beginning June 30, 2021. The bankCompany was not in compliance with this covenant at September 30, 2021. The Company notified its primary financial lender of the covenant violation, and on December 22, 2021 the primary lender granted a waiver of the covenant violation. On December 14, 2021, the Company signed an agreement with its primary financial lender to extend the expiration date of its revolving line of credit to January 17, 2022. The Company is limited toin the lesserprocess of $7.0 million orcompleting an annual extension which we expect will be completed by the net balance of 80% of qualified accounts receivable plus 50% of qualified inventory.new expiration date. We expect to have sufficient funds available from our cash on hand, future excess cash flows, quick payment accounts receivable programs and the bank revolving line of credit to meet our working capital needs for the foreseeable future.
Significant Customers
We areDuring the year ended September 30, 2021, though we were not dependent on oneupon a single or a few customers to support our business on an on-going basis. Salesconsolidated revenues, AT&T Mobility 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, Zayo Group LLC, 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.
During the year ended September 30, 2020, though we were not dependent upon a single or few customers to support our consolidated revenues, our Wireless segment realized increased concentration in revenues from our largest customers. A single customer, AT&T Mobility, accounted for approximately 6%14% of consolidated revenues, and 32% of our Wireless segment revenues. Our top five Wireless customers accounted for 33% of consolidated sales inrevenues and 77% of Wireless segment revenues during fiscal year 2017, while our sales to our largest five customers were 21%2020.
Impact of our consolidated sales in fiscal year 2017, three of which wereInflation on Operations
Inflation in the Cable TV segmentUnited States has been relatively low in recent years and twodid not have a material impact on our results of operations for the fiscal years ended September 30, 2021 and 2020. However, component price increases were observed in the Telcofiscal fourth quarter of 2021, 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 September 30, 2017,2021, we had 176170 employees, including 173169 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.
Each subsidiary owns or leases property for office, warehouse and service center facilities.
Cable TV Our corporate headquarters is located in Carrollton, Texas. Our Wireless Segment
· | Broken Arrow, Oklahoma – We own a facility in a suburb of Tulsa consisting of leases additional space in Chicago, Illinois, and our headquarters, additional offices, warehouse and service center of approximately 162,500 square feet on ten acres, with an investment of $4.9 million, financed by a loan with a remaining balance of $0.8 million, due in monthly payments through 2021 at an interest rate of LIBOR plus 1.4%. |
· | Deshler, Nebraska – We own a facility near Lincoln consisting of land and an office, warehouse and service center of approximately 8,000 square feet. |
· | Warminster, Pennsylvania – We own a facility in a suburb of Philadelphia consisting of an office, warehouse and service center of approximately 12,000 square feet, with an investment of $0.6 million. We also lease property of approximately 2,000 square feet, with monthly rental payments of $1,467 through December 31, 2018. We also rent on a month-to-month basis another property of approximately 2,000 square feet, with monthly rental payments of $1,325. |
· | Sedalia, Missouri – We own a facility near Kansas City consisting of land, an office, warehouse and service center of approximately 60,300 square feet. |
· | New Boston, Texas – We own a facility near Texarkana consisting of land, an office, warehouse and service center of approximately 13,000 square feet. |
· | Suwanee, Georgia – We rent, on a month-to-month basis, a facility in a suburb of Atlanta consisting of an office and service center of approximately 5,000 square feet, with monthly rental payments of $3,060. |
· | Kingsport, Tennessee – We lease a facility in Kingsport, Tennessee consisting of office space, warehouse, and service center of approximately 14,000 square feet with monthly rental payments to a Company employee of $4,000 per month through December 31, 2018. |
Telco Segment
· | Jessup, Maryland – We lease a facility in a suburb of Baltimore consisting of an office, warehouse, and service center of approximately 88,000 square feet, with monthly rental payments of $43,076 increasing each year by 2.5% through November 30, 2023. |
· | Miami, Florida – We lease four different adjoining properties in Miami, Florida consisting of office space, warehouse, and service center totaling approximately 9,000 square feet with monthly rental payments to a Company owned by two employees of $12,626 per month through December 31, 2019 for three of the properties. We pay an unrelated third party lease payments of $2,461 per month through August 31, 2018 for the remaining property. |
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 buildings in Minneapolis, Minnesota and Jessup, Maryland which were no longer being used in operations. The Minnesota and Maryland properties were subleased as of September 30, 2021.
Item 3.Legal Proceedings.
From time to time in the ordinary course of business, we have becomeare 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.
8
Item 4. Mining Safety Disclosures.
Not applicable.
PART II
Item 5. | 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 Global Market under the symbol “AEY” for the quarterly periods indicated.
| | | | | | | | |
| Year Ended September 30, 2021 | High | Low |
| First Quarter | $4.24 | $1.80 |
| Second Quarter | $3.59 | $2.50 |
| Third Quarter | $2.92 | $1.90 |
| Fourth Quarter | $2.82 | $2.18 |
| Year Ended September 30, 2020 | High | Low |
| First Quarter | $2.85 | $1.85 |
| Second Quarter | $6.49 | $1.80 |
| Third Quarter | $4.40 | $1.50 |
| Fourth Quarter | $3.47 | $1.87 |
| Year Ended September 30, 2017 | | High | | | Low | |
| | | | | | | |
| First Quarter | | $ | 1.94 | | | $ | 1.60 | |
| Second Quarter | | $ | 2.08 | | | $ | 1.70 | |
| Third Quarter | | $ | 1.92 | | | $ | 1.58 | |
| Fourth Quarter | | $ | 1.70 | | | $ | 1.32 | |
| | | | | | | | | |
| Year Ended September 30, 2016 | | High | | | Low | |
| | | | | | | | | |
| First Quarter | | $ | 2.38 | | | $ | 1.30 | |
| Second Quarter | | $ | 2.07 | | | $ | 1.57 | |
| Third Quarter | | $ | 2.04 | | | $ | 1.67 | |
| Fourth Quarter | | $ | 2.31 | | | $ | 1.70 | |
| | | | | | | | | |
Holders
At November 30, 2017,December 27, 2021, we had approximately 6080 shareholders of record and, based on information received from brokers, there were approximately 1,5005,800 beneficial owners of our common stock.
Dividend policy
We have nevernot declared or paid aany cash dividenddividends on our common stock. It has beenstock, and we do not currently anticipate paying any cash dividends on our common stock in the policy of our Board of Directorsforeseeable future. We currently intend to useretain all available fundsfuture earnings to financefund the development and growth of our business. The payment of cash dividends in theAny future determination relating to our dividend policy will be dependent uponat the discretion of our earnings,board of directors and will depend on our results of operations, financial condition, capital requirements and other factors deemed relevant by our Board of Directors.board.
Securities authorized for issuance under equity compensation plans
The information in the following table is as of September 30, 2017:
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 | | | 700,000 | | | $ | 2.54 | | | | 212,451 | |
| Equity compensation plans not approved by security holders | | | 0 | | | | 0 | | | | 0 | |
| Total | | | 700,000 | | | $ | 2.54 | | | | 212,451 | |
Item 6.Selected Financial Data. [Reserved]
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Fiscal Year Ended September 30,
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| | | | | | | | | | | | | | | | |
| Sales | | $ | 48,714 | | | $ | 38,663 | | | $ | 43,734 | | | $ | 35,889 | | | $ | 28,677 | |
| | | | | | | | | | | | | | | | | | | | | |
| Income from operations | | $ | 146 | | | $ | 344 | | | $ | 2,576 | | | $ | 1,097 | | | $ | 2,896 | |
| | | | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations | | $ | (98 | ) | | $ | 294 | | | $ | 1,498 | | | $ | 659 | | | $ | 1,772 | |
| | | | | | | | | | | | | | | | | | | | | |
| Continuing operations earnings (loss) per share | | | | | | | | | | | | | | | | | | | | |
| Basic | | $ | (0.01 | ) | | $ | 0.03 | | | $ | 0.15 | | | $ | 0.07 | | | $ | 0.18 | |
| Diluted | | $ | (0.01 | ) | | $ | 0.03 | | | $ | 0.15 | | | $ | 0.07 | | | $ | 0.18 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total assets | | $ | 54,848 | | | $ | 50,268 | | | $ | 51,687 | | | $ | 53,139 | | | $ | 42,923 | |
| | | | | | | | | | | | | | | | | | | | | |
Long-term obligations inclusive of current maturities | | $ | 6,284 | | | $ | 4,366 | | | $ | 5,240 | | | $ | 6,086 | | | $ | 1,503 | |
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: Cable TelevisionWireless and Telecommunications. These reportable segments are described below.
Cable TelevisionWireless Infrastructure Services (“Cable TV”Wireless”)
The Company’s Cable TV segment sells new, surplus and refurbished cable television equipment to cable MSOs throughout North America, Central America and South America as well as other resellers who sell to these typesCompany's Wireless Segment, which consists entirely of customers. Our Cable TV segment is a Premier Partner for Cisco’s products, which allows them to sell both video-related and IT-related products in the United States and a leading distributorassets of Arris broadband products. The Cable Television segment distributes products from other OEMs including Alpha, Blonder-Tongue, RL Drake, Corning-Gilbert, Promax, Quintech, Standard and Triveni Digital. In addition, we operate technical service centers that offer repairFulton, provides turn-key wireless infrastructure services for our cable MSO customersthe 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 most products that we sell.
cell sites and the construction of new small cells for 5G.
Telecommunications (“Telco”)
The Company’s Telco segment primarily sells certified usednew and refurbished telecommunications networking equipment, from a broad rangeincluding both central office and customer premise equipment, to its customer base of manufacturers totelecommunications 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 is a reseller of new telecommunications equipment from certain manufacturers. Also, this segment offers its customers decommissioning services for surplus and obsolete equipment, which it in turn processes through its recycling services. As a result of the Triton Miami, Inc. (“Triton Miami”) acquisition , this segment includes the Company’s newly formed Triton Datacom subsidiary, a provider of new and refurbished enterprise networking products, including IP desktop phones,program.
enterprise switches and wireless routers.
Recent Business Developments
COVID-19
Business StrategyOn March 11, 2020, the World Health Organization declared the current outbreak of COVID-19 to be a global pandemic, and on March 13, 2020, the United States declared a national emergency. In response to these declarations and the rapid spread of COVID-19, federal, state and local governments have imposed varying degrees of restrictions on business and social activities to contain COVID-19, including quarantine and “stay-at-home” or “shelter-in-place” orders in markets where we operate. Despite these “stay-at-home” or “shelter-in-place” orders, we are classified as an essential business due to the services and products we provide to the telecommunications industry. Therefore, we continue to operate in the markets we serve while these orders were in place. Most of our back-office and administrative personnel worked from home while these orders were in place, these personnel began working in the office as restrictions were relaxed or lifted. Although we can continue to operate our businesses, our revenues have slowed, especially in our Wireless segment, due to the carriers slowing down various wireless tower projects. We have not experienced a material disruption in our supply chain to date.
With the partial reopening of the economy the economic effects of the pandemic and resulting societal changes remain unpredictable. Although we experienced increased revenues in the last two quarters compared to recent quarters since the pandemic began last year, there are a number of uncertainties that could impact our future results of operations, including the efficacy and widespread distribution of a vaccine, the return of major outdoor events during the summer and fall months, and the impact of COVID-19 on the operating results and capital budgets of our customers.
Wireless Segment Operating Results
During 2021, Fulton achieved revenues of $20.7 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 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 Company continuesTelco segment achieved revenues of $41.5 million during 2021. We continue to focus our core team on sales and procurement. Our Triton team has strong experience in online marketing.
At Triton, our facility is designed to streamline our processes, including inventory management, shipping and receiving and the refurbishment operations. We have a growth strategy consisting both of organic growthdeveloped the internal systems necessary to expand our refurbishment capabilities and strategic acquisitions within the broader telecommunications industry. To date, wenew equipment sales by adding additional product lines and manufacturers. We have completed two acquisitions under this strategy, Nave Communications Company (“Nave Communications”) and Triton Miami, which make upalso increased our Telco segment. Due primarily to these two acquisitions, in May of 2017, the Company hired a VP of Sales to manage the overall sales force of the Company. In 2017, Nave Communications experienced lower sales volumes due primarily to attrition in its sales force, and therefore its operating results were lower than expected. Since joining the Company in May, the VP of Sales has been focusedfocus on the developmentbrokerage business and implementation of an improvedinternet sales strategyby expanding our sales channels. We believe that Triton is poised to expand, capture additional market share and organization fordevelop new customers.
Our Nave Communications withbusiness experienced significant upside during the goal to increase the sales volume and improve profitability of the overall Telco segment.
Primarily as a result of the lower operating results from the Telco segment, the Company was out of compliance with its fixed charge coverage ratio debt covenant with its primary financial lender at September 30, 2017. The Company has obtained a waiver from its primary financial lender for the covenant violation.
Dueyear related to the lower than expected operating resultsglobal chip shortage as well as growth from the Telco segment, the Company has temporarily suspended its strategic acquisition plan. As the sales strategy is implemented within the Telco segment and their operating results improve on a sustainable basis, we plan to resume our strategic acquisitions strategy within the broader telecommunications industry in order to further expand our Company within the industry. It should be noted, however, that the identification and completion of acquisitions on terms favorable to the Company and the successful integration of acquired businesses into our existing business subjects the company to additional risks and we can give no assurance to the ultimate outcomes of such transactions.enterprise fiber network customers as they experienced significant network growth.
Results of Operations
Year Ended September 30, 2017,2021, compared to Year Ended September 30, 20162020 (all references are to fiscal years)
Consolidated
Consolidated sales increased $10.0$12.0 million, before the impact of intersegment sales, or 26%24%, to $48.7$62.2 million for 20172021 from $38.7$50.2 million for 2016.2020. The increase in sales was duerelated to an increase of $12.7 million in the Telco segment, of $10.2 million, partially offset by a decrease inmainly attributable to increased demand for refurbished network equipment resulting from the Cable TVglobal chip shortage. Sales for the Wireless segment of $0.2decreased $0.7 million.
Consolidated gross profit increased $2.4$4.4 million, or 19%38%, to $14.8$16.1 million for 20172021 from $12.4$11.7 million for 2016. The increase in2020. Telco gross profit was due to an increase in the Telco segment of $2.4 million.
Operating, selling, general and administrative expenses include all personnel costs, which include fringe benefits, insurance and business taxes, as well as occupancy, communication and professional services, among other less significant cost categories. Operating, selling, general and administrative expenses increased $2.6 million, or 21%, to $14.7 million for 2017 compared to $12.1 million for 2016. This increase was primarily due to increased expenses of the Telco segment of $3.0$4.7 million, partially offset by aan decrease in Cable TVgross profit in our Wireless segment expenses of $0.4$0.3 million.
Other income and expense consists of activity relatedOperating expenses increased $1.1 million to our investment in YKTG Solutions, including other income,
interest income and equity earnings (losses), and interest expense related to our notes payable. Other income, which represents our fee for our role in the YKTG Solutions projects, was zero for 2017 compared to $0.5$9.3 million for 2016. Equity income for 2017 was zero compared to an equity loss of $0.2 million for 2016. The decommission work on cell tower sites in the northeast on behalf of a major U.S. wireless provider incurred an equity loss of $0.5 million for 2016. This equity loss was partially offset by another project with a major U.S. telecommunications provider, which generated equity earnings of $0.3 million for 2016. For the yeartwelve months ended September 30, 2017, the Company did not record other income or equity income related to YKTG Solutions as the fees owed to the Company may not ultimately be collectible from YKTG Solutions.
Interest expense increased $0.2 million to $0.4 million for 2017 from $0.2 million for the same period last year
primarily related to financing the Company’s acquisition of Triton Miami.
The benefit for income taxes from continuing operations was $0.1 million, or an effective rate of 60%, for 2017 from a provision of $0.2 million, or an effective rate of 38%, for the same period last year. The effective rate for the year ended September 30, 2017 was higher in 2017 due primarily to losses in states2021 compared with higher tax rates.
Segment results
Cable TV
Sales for the Cable TV segment decreased $0.2 million, or 1%, to $22.8 million for the year ended September 30, 2017 from $23.0 million for the same period last year. The decrease in sales was primarily due to a decrease of $1.1 million in refurbished equipment sales, partially offset by an increase of $0.1 million and $0.8 million in new equipment sales and repair service revenues, respectively.
Gross profit remained flat at $7.8 million for the years ended September 30, 2017 and September 30, 2016. Gross margin was 34% for both 2017 and 2016.
Operating, selling, general and administrative expenses decreased $0.4 million, or 6%, to $5.9 million for the year ended September 30, 2017 from $6.3 million for the same period last year due primarily to a decrease in the corporate overhead allocation for 2017 primarily as a result of the Triton Miami acquisition.
Telco
Sales for the Telco segment increased $10.2 million, or 65%, to $26.0 million for the year ended September 30, 2017 from $15.8$8.2 million for the same period last year. The increase in salesoperating expenses was due primarily to our investment in our regional growth strategy to meet the demand of our customers in the Wireless segment.
Consolidated selling, general and administrative ("SG&A") expenses include overhead costs, which primarily consist of personnel costs, insurance, professional services, and communication, among other less significant cost categories. SG&A increased $3.7 million or 32% to $14.9 million in 2021 compared to $11.2 million in 2020. Increased selling expenses resulted from higher sales compensation and commissions to support growth in the Telco segment. Increased general and administrative expenses during 2021 were related to expanded operational support and infrastructure in anticipation of future 5G expansion.
In 2020 the Company recorded impairment charges of $8.7 million on intangibles including goodwill and $0.7 million on its right-of-use asset Telco Segment. See Note 1. Summary of Significant Accounting Policies and Note 8 - Leases in the Consolidated Financial Statements for further discussion of impairments.
The Company applied for and has been granted forgiveness by the Small Business Administration ("SBA") of $2.9 million in eligible expenditures for payroll, other expenses, and accrued interest described in the CARES Act, resulting in a gain on extinguishment of debt of $3.0 million in the fourth quarter of fiscal 2021.
The income tax benefit was $0.1 million for 2021 and $1.2 million for 2020, or an effective tax benefit rate of 0.8% and 6.7% respectively. The income tax benefit in fiscal 2021 was the result of an increase in new equipment sales, used equipment salesthe valuation allowance against our deferred tax assets, offset by certain refundable credits generated in the current fiscal year. The benefit in 2020 was a result of the CARES Act, where the Company took advantage of a provision to carry back net operating losses generated in 2018 through 2020 for a period of five years. As a result, the Company’s effective tax rate included an income tax benefit recognized during the year ended September 30, 2020 related to tax losses generated during the fiscal year up to the amount that the Company estimates is realizable based upon taxable income in the carry back periods. Therefore, as of September 30, 2020, the Company recorded a $1.2 million income tax receivable and recycling revenuerecorded a current benefit for income taxes. The Company continues to provide a valuation allowance of $0.2$8.5 million $9.4for 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 $20.7 million and $0.6$21.4 million for the years ended September 30, 2021 and 2020, respectively, a decrease of 3%. Our operations were impacted by customer delays in building out 5G infrastructure.
Gross profit decreased $0.3 million year over year, and gross margins were 30% and 31% for the years ended September 30, 2021 and 2020, respectively. The increase in Telco used equipment salesdecrease was primarily due to lower revenues for the segment.
Loss from operations was $6.9 million and $4.4 million for the years ended September 30, 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 were $41.5 million and $28.8 million for the years ended September 30, 2021 and 2020, respectively, an increase of $12.7 million, or 44%. The increase in sales for Triton Datacom, which offsetwas driven by the continued lower saleseconomic
recovery from Nave Communications. In addition, Triton Datacom’s sales were negatively impacted duethe COVID pandemic as workers returned to a facility closure in September for approximately two weeks because of Hurricane Maria. The Company is continuing to address the lower equipment sales at Nave Communications by restructuringoffices and expanding its sales force, targeting a broader end-user customer base, increasing salescustomers resumed purchasing our products. Nave's growth was attributable to the reseller marketglobal circuit chip supply shortage which impacted new OEM products and expandingincreased the capacity ofdemand for the recycling program.
refurbished equipment that Nave provides.
Gross profit increased $2.4$4.7 million, or 50%93%, to $7.1$9.9 million for the year ended September 30, 2017 from $4.72021 compared to $5.1 million for the same period last year. Gross margin was 27%24% and 18% for 2017the years ended September 30, 2021 and 30% for 2016. The2020, respectively. Gross margin increased primarily due to the increase in gross profit was due to Triton Datacom, which offset lower gross profit from Nave Communications asrevenue and a result of lower equipment sales. The$1.4 million decrease in gross margininventory obsolescence versus the prior year.
Loss from operations was due primarily to lower gross margins from equipment sales from Nave Communications as a result of an increased percentage of sales to resellers as compared to end-user customers$2.4 million and increased sourcing of equipment to fulfill equipment sales.
Operating, selling, general and administrative expenses increased $3.0 million, or 51%, to $8.8$14.2 million for the yearyears ended September 30, 2017 from $5.8 million for the same period last year. The increase was due primarily to operating expenses of $2.3 million from Triton Datacom, Triton Datacom earn-out expenses of $0.2 million2021 and $0.2 million of acquisition-related expenses.
2020, respectively.
Non-GAAP Financial Measure
Adjusted EBITDA is a supplemental, non-GAAP financial measure. EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA as presented also excludes 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 income (loss)loss from operations to Adjusted EBITDA follows:follows, in thousands:
| | | Year Ended September 30, 2017 | | | Year Ended September 30, 2016 | |
| | | Cable TV | | | Telco | | | Total | | | Cable TV | | | Telco | | | Total | |
| | | | | | | | | | | | | | | | | | | |
| Income (loss) from operations | | $ | 1,834,484 | | | $ | (1,688,878 | ) | | $ | 145,606 | | | $ | 1,478,676 | | | $ | (1,134,815 | ) | | $ | 343,861 | |
| Depreciation | | | 303,571 | | | | 143,263 | | | | 446,834 | | | | 322,076 | | | | 99,874 | | | | 421,950 | |
| Amortization | | | − | | | | 1,267,182 | | | | 1,267,182 | | | | − | | | | 825,804 | | | | 825,804 | |
Adjusted EBITDA (a) | | $ | 2,138,055 | | | $ | (278,433 | ) | | $ | 1,859,622 | | | $ | 1,800,752 | | | $ | (209,137 | ) | | $ | 1,591,615 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended September 30, 2021 | | For the year ended September 30, 2020 |
| Wireless | | Telco | | | | Total | | Wireless | | Telco | | | | Total |
| Loss from operations | $ | (6,864) | | | $ | (2,433) | | | | | $ | (9,297) | | | $ | (4,377) | | | $ | (14,153) | | | | | $ | (18,530) | |
| Depreciation and amortization expense | 715 | | | 513 | | | | | 1,228 | | | 628 | | | 926 | | | | | 1,554 | |
| Intangible Impairment | — | | | — | | | | | — | | | — | | | 8,714 | | | | | 8,714 | |
| Impairment of right of use asset | — | | | — | | | | | — | | | — | | | 660 | | | | | 660 | |
| Stock compensation expense | 515 | | | 493 | | | | | 1,008 | | | 216 | | | 358 | | | | | 574 | |
Adjusted EBITDA (a) (b) | $ | (5,634) | | | $ | (1,427) | | | | | $ | (7,061) | | | $ | (3,533) | | | $ | (3,495) | | | | | $ | (7,028) | |
(a) | (a)The Telco segment includes an inventory obsolescence charge of $0.4 million and $1.8 million for the years ended September 30, 2021 and 2020, respectively. In addition, the Telco segment includes earn-out expenses of $0.2 million for each of the years ended September 30, 2017 and 2016, related to the acquisition of Triton Miami and Nave Communications. |
Year Ended September 30, 2016, compared to Year Ended September 30, 2015
Consolidated
Consolidated sales decreased $5.0 million before the impact of intersegment sales, or 12%, to $38.7 million for 2016 from $43.7 million for 2015. The decrease in sales was due to a decrease in both the Cable TV and Telco segments of $2.4 million and $3.0 million, respectively.
Consolidated gross profit decreased $2.9 million, or 19%, to $12.4 million for 2016 from $15.3 million for 2015. The decrease in gross profit was due to a decrease in both the Cable TV and Telco segments of $0.3 million and $2.6 million, respectively.
Operating, selling, general and administrative expenses include all personnel costs, which include fringe benefits, insurance and business taxes, as well as occupancy, communication and professional services, among other less significant cost categories. Operating, selling, general and administrative expenses decreased $0.6 million, or 5%, to $12.1 million for 2016 compared to $12.7 million for 2015. This decrease was primarily due to decreased expenses of the Telco segment of $1.1 million, partially offset by an increase in Cable TV segment expenses of $0.5 million.
Other income and expense consists of activity related to our investment in YKTG Solutions, including other income,
interest income and equity earnings (losses), and interest expense related to our notes payable. Other income, which represents our fee for our role in the YKTG Solutions projects, was $0.5 million for 2016. Equity losses related to the YKTG Solutions investment totaled $0.2 million. The decommission work on cell tower sites in the northeast on behalf of a major U.S. wireless provider incurred an equity loss of $0.5 million for 2016. This equity loss was partially offset by another project with a major U.S. telecommunications provider, which generated equity earnings of $0.3 million.
Interest expense decreased $0.1 million to $0.2 million for 2016 from $0.3 million for the same period last year.
The provision for income taxes from continuing operations decreased by $0.6 million to $0.2 million, or an effective rate of 38%, for 2016 from $0.8 million, or an effective rate of 34%, for the same period last year.
Segment results
Cable TV
Sales for the Cable TV segment decreased $2.4 million, or 9%, to $23.0 million for the year ended September 30, 2016 from $25.4 million for the same period last year. The decrease in sales was primarily due to a decrease of $3.4 million in new equipment sales, partially offset by an increase of $0.3 million and $0.7 million in refurbished equipment sales and repair service revenues, respectively.
Gross profit decreased $0.2 million, or 3%, to $7.8 million for the year ended September 30, 2016 from $8.0 million for the same period last year. Gross margin was 34% for 2016 and 32% for 2015. The increase in gross margin was primarily due to higher gross margins on refurbished equipment sales.
Operating, selling, general and administrative expenses increased $0.5 million, or 8%, to $6.3 million for the year ended September 30, 2016 from $5.8 million for the same period last year. The increase was due primarily to increased personnel costs primarily related to the acquisition of the net operating assets of Advantage Solutions, LLC.
Telco
Sales for the Telco segment decreased $3.0 million, or 16%, to $15.8 million for the year ended September 30, 2016 from $18.8 million for the same period last year. The decrease in sales resulted from a decrease in used equipment sales of $4.1 million, partially offset by an increase in new equipment sales and recycling revenue of $1.0 million and $0.1 million, respectively. The decrease in sales was due in part to the absence of $2.3 million in used equipment sales to an end-user customer in fiscal year 2015. In addition, we believe that the decreased sales volume in 2016 was due to delays in capital expenditures from our major customers due to weak economic conditions and budgetary constraints in the first quarter of fiscal year 2016.
Gross profit decreased $2.6 million, or 36%, to $4.7 million for the year ended September 30, 2016 from $7.3 million for the same period last year. Gross margin was 30% for 2016 and 39% for 2015. The decrease in the gross margin was primarily due to lower margins on recycling revenue as a result of lower commodity prices and increased costs of products being recycled. In addition, in 2016, 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 sold, and had not yet been processed through its recycling program. Therefore, the Company recorded a $0.4 million charge, which increased cost of sales for the year ended September 30, 2016, to allow for obsolete and excess inventory. We also reviewed the cost of inventories against estimated market value and recorded a lower of cost or market reservenet realizable value charge of $0.1 million for inventories that have a cost in excess of estimated market value.the years ended September 30, 2021 and 2020.
Operating, selling,(b)The Company allocates its corporate general and administrative expenses decreased $1.1 million, or 17%, to $5.8 million for the year ended September 30, 2016 from $6.9 million for the same period last year. The decrease in expenses was primarily due to lower earn-out payments related to the Nave Communications acquisitionreportable segments. See Note 14 - Segment Reporting in March 2016 as compared to March 2015, which were $0.2 million and $0.7 million, respectively. In addition, personnel costs decreased $0.3 million. In March 2016, we made our second annual earn-out paymentthe Consolidated Financial Statements for $0.2 million, which was equal to 70%further discussion of Nave Communications’ annual adjusted EBITDA in excess of $2.0 million per year (“Nave Earn-out”). We will make the third and final Nave Earn-out payment in March 2017, which we estimate will be less than $0.3 million.segments.
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 other income, 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 income (loss) from operations to Adjusted EBITDA follows:
| | | Year Ended September 30, 2016 | | Year Ended September 30, 2015 | |
| | | Cable TV | | | Telco | | | Total | | | Cable TV | | | Telco | | | Total | |
| | | | | | | | | | | | | | | | | | | |
| Income (loss) from operations | | $ | 1,478,676 | | | $ | (1,134,815 | ) | | $ | 343,861 | | | $ | 2,210,414 | | | $ | 365,796 | | | $ | 2,576,210 | |
| Depreciation | | | 322,076 | | | | 99,874 | | | | 421,950 | | | | 296,876 | | | | 111,827 | | | | 408,703 | |
| Amortization | | | − | | | | 825,804 | | | | 825,804 | | | | − | | | | 825,805 | | | | 825,805 | |
Adjusted EBITDA (a) | | $ | 1,800,752 | | | $ | (209,137 | ) | | $ | 1,591,615 | | | $ | 2,507,290 | | | $ | 1,303,428 | | | $ | 3,810,718 | |
(a) | The Telco segment includes earn-out expenses of $0.2 and $0.7 million for the year ended September 30, 2016 and 2015, respectively, related to the acquisition of Nave Communications. |
Liquidity and Capital Resources
Liquidity and Capital Resources
Cash Flows Provided by Operating Activities
We financeAt September 30, 2021 we had cash and equivalents and restricted cash on hand of $2.9 million and availability under our operations primarily through cash flows provided by operations, and we have a bank line of credit of up to $7.0 million. During 2017, we generated $2.9 million of cash flows from operations. The cash flows from operations was favorably impacted by $1.0 million from a net increase in accounts payable. The cash flows from operations was negatively impacted by $0.7 million from a net increase in inventory.
Cash Flows Used in Investing Activities
During 2017, cash used in investing activities was $5.3 million. The cash used in investing activities is primarily related to payments of $6.6 million related to the acquisition of Triton Miami, as discussed in Note 2 of the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, and payments of $1.0 million in March 2017 for the final annual installment payment from the Nave Communications acquisition. Additionally, during 2017, cash used in investing activities was offset by note receivable payments from the YKTG Solutions joint venture of $2.5 million.
The Company recorded an accrual at present value for deferred consideration of $1.8 million related to the acquisition of Triton Miami, which consists of $2.0 million to be paid in equal annual installments over three years to the Triton Miami owners. The Company will also make annual payments to the Triton Miami owners, if they have not resigned from Triton Datacom, over the next three years equal to 60% of Triton Datacom’s annual EBITDA in excess of $1.2 million per year, which the Company estimates will be between $0.2 million and $0.6 million annually.
Cash Flows Provided by Financing Activities
During 2017, cash provided by financing activities was $1.9 million, primarily due to cash borrowingsfor a total liquidity of $4.0 million, partially offset by notes payable payments of $2.1$4.8 million. Cash borrowings were due to a new term loan of $4.0 million under our Amended and Restated Revolving Credit and Term Loan Agreement (“Credit and Term Loan Agreement”) with our primary financial lender. This term loan was used to assist in the funding of the acquisition of Triton Miami.
During 2017, we made principal payments of $2.1 million on our three term loans under our Credit and Term Loan Agreement with our primary lender. The first term loan requires monthly payments of $15,334 plus accrued interest through November 2021. Our second term loan is a five year term loan with a seven year amortization payment schedule with monthly principal and interest payments of $68,505 through March 2019. Our third term loan, entered into in connection with the acquisition of Triton Miami, is a three year term loan with monthly principal and interest payments of $118,809 through October 2019.
At September 30, 2017, there was not a balance outstanding under our line of credit. The lesser of $7.0 million or the total of 80% of the qualified accounts receivable plus 50% of qualified inventory is available to us under the revolving credit facility ($7.0 million at September 30, 2017). On March 31, 2017, the Company executed the Eighth Amendment under the Credit and Term Loan Agreement, which extended the Line of Credit maturity to March 30, 2018. The other terms of the Line of Credit remained essentially the same.
We believe that our cash and cash equivalents of $4.0 million at September 30, 2017, cash flows from operations and our existing line of credit provide sufficient liquidity and capital resources to meet our working capital and debt payment needs.
At September 30, 2017, we were not in compliance with a covenant on our fixed charge coverage ratio financial covenant with our primary financial lender under our Credit and Term Loan Agreement. This financial covenant violation was due primarily to lower operating results from our Telco segment in fiscal year 2017.bank line of credit at September 30, 2021. We notified our primary financial lender of the covenant violation, and on December 1, 2017,22, 2021 the primary financial lender granted a waiver of the covenant violation. Subsequent to September 30, 2017, we elected to extinguish our second term loan by payingOn December 14, 2021, the outstanding balance plus a prepayment penalty of $25 thousand as part of our overall plan to become compliantCompany signed an agreement with our financial covenants. As a result, we believe that we will be in compliance with our financial covenants at December 31, 2017.
Any failure to comply with these covenants in the future may result in an event of default, which if not cured or waived, could result in the lender accelerating the maturity of our indebtedness or preventing access to additional funds under the Credit and Term Loan Agreement, or requiring prepayment of outstanding indebtedness under the Credit and Term Loan Agreement. If the maturity of the indebtedness is accelerated, sufficient cash resources to satisfy the debt obligations may not be available, and we may not be able to continue operations as planned. The indebtedness under the Credit and Term Loan Agreement is secured by a security interest in substantially all of our tangible and intangible assets of the Company. If we are unable to repay such indebtedness, the lender could foreclose on these assets. However, given our ability to continue to service our debt, our past relationship with ourits primary financial lender to extend the expiration date of its revolving line of credit to January 17, 2022. We are in the process of completing an annual extension which we expect will be completed by the new expiration date. We entered into an Equity Distribution Agreement (the “Sales Agreement”) with Northland Securities, Inc., as agent (“Northland”), pursuant to which we may offer and sell, from time to time, through Northland, shares of our common stock, par value $0.01 per share, having an aggregate offering price of up to $13.9 million ("Shares"). The offer and sale of the Shares will be made pursuant to a shelf registration statement on Form S-3 and the related prospectus filed by us with the Securities and Exchange Commission (the "SEC") on March 3, 2020, as amended on March 23, 2020, and declared effective by the SEC on
April 1, 2020. We currently have approximately $10.8 million available to us to fund our working capital needs under the Sales Agreement. Based on our availability under our bank line of credit and our improved sales strategy withinSales Agreement, we believe we have sufficient liquidity and capital resources to cover our Telco segment,operating losses and our additional working capital and debt payment needs.
We continue to evaluate opportunities to expand our business through selective acquisitions and internal growth initiatives. Our capital investment decisions are determined by an analysis of the projected return on capital employed of each of those alternatives, which is substantially driven by the cost to acquire existing assets from a third party, the capital required to invest in new equipment and the point in the 5G densification cycle. Based on these factors, we expect we would be able to obtain covenant waivers from our primary financial lender until such timemake capital investment decisions that we believe will support our long-term growth strategy. Depending on the timing and scope of these opportunities, we may need to seek additional funding to finance the necessary working capital for such opportunities.
Cash Flows Used in Operating Activities
The Company has invested in its operations over the past two fiscal years with the anticipation that the Company will provide operating cash flows to fund its ongoing operations and cash flow needs. During 2021, cash used in operations was $7.5 million. We currently have cash of $2.9 million and availability under our bank line of credit of $1.9 million, for a total liquidity of $4.8 million. Cash used in operations during the year ended September 30, 2020 was $3.8 million.
Cash Flows Provided by Investing Activities
Capital expenditures and proceeds from asset sales are the main components of our investing activities. Cash provided by investing activities during the year ended September 30, 2021 was $3.5 million which included final proceeds of $3.8 million on the note receivable related to the 2019 sale of the Cable Segment. Cash provided by investing activities during the year ended September 30, 2020 was $2.4 million, including payments of $2.6 million on the note receivable.
Cash Flows (Used in) Provided by Financing Activities
Cash used in compliance with our debt covenants.financing activities during the year ended September 30, 2021 was $1.4 million, related to repayments under the note payable and bank line of credit, offset by the proceeds from the sale of common stock. The Company has $10.8 million in stock offering price available to provide cash flow under its Equity Distribution Agreement for the sale of the Company's common stock. See Note 10 - Equity Distribution Agreement and Sale of Common Stock in the accompanying consolidated financial statements for more information. Cash provided by financing activities during the year ended September 30, 2020 was $8.2 million, related to borrowing under the note payable, bank line of credit, proceeds from share issuances, and borrowings under the Paycheck Protection Program ("PPP," "PPP loan").
Critical Accounting Policies and Estimates
Note 1 to the Consolidated Financial Statements in this Form 10-K for fiscal year 20172021 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
OurFor our Telco segment, our position in the telecommunications industry and overall business strategy 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 MSOs, telecommunication providers, telecommunication resellers, and other users of cable television and telecommunication equipment who are seeking products for which manufacturers have discontinued production or cannot ship new equipment on a same-day basis as well as providing used products as an alternative to new products from the manufacturer. Carrying these large inventory quantities represents our largest risk.
We are required to make judgments as to future demand requirements from our customers. We regularly review the value of our inventory in detail with consideration given to rapidly changing technology which can significantly affect future customer demand. For individual inventory items, we may carry inventory quantities that are excessive relative to market potential, or we may not be able to recover our acquisition costs for sales that we do make. In order to address the risks associated with our investment in inventory, we review inventory quantities on hand and reduce the carrying value when the loss of usefulness of an item or other factors, such as obsolete and excess inventories, indicate that cost will not be recovered when an item is sold.
Our inventories are all carried in the Telco segment and consist of new and used electronic components for the cable and telecommunications industries.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 pricesprice in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. At September 30, 2017,2021, we had total inventory, before the reserve for excess and obsolete inventory, $25.3inventories, of $9.4 million, consisting of $14.6$1.3 million in new products and $10.7$8.1 million in used or refurbished products.
For the Cable TV segment, our reserve at September 30, 2017 for excess and obsolete inventory was $2.3 million. In 2017, we increased the reserve by $0.6 million, and we wrote down, against this reserve, the carrying value for certain inventory items by $0.5 million to reflect deterioration in the market price of that inventory. If actual market
conditions are less favorable than those projected by management, and our estimates prove to be inaccurate, we could be required to increase our inventory reserve and our gross margins could be materially adversely affected.
For the Telco segment, any obsolete and excess telecommunications inventory is processed through its recycling program when it is identified. However, the Telco segmentWe identified certain inventory that more than likely will not be sold or that the cost will not be recovered when it is sold, and had not yet been processed through itsour recycling program. Therefore, we have aan obsolete and excess inventory reserve of $0.6$3.5 million at September 30, 2017.2021. In 2017,2021, we increased the reserve net of write-downs, by $0.3$0.4 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 $0.1 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 material.
a material component of cost of sales.
Accounts Receivable Valuation
Management judgments and estimates are made in connection with establishing the allowance for doubtful accounts. Specifically, we analyze the aging of accounts receivable balances, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms. Significant changes in customer concentration or payment terms, deterioration of customer credit-worthiness, or weakening in economic trends could have a significant impact on the collectability of receivables and our operating results. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional provision to the allowance for doubtful accounts may be required. The reserve for bad debts was $0.2$0.3 million atas of September 30, 20172021 and $0.3 million at September 30, 2016.2020. At September 30, 2017,2021 and September 30, 2020, accounts receivable, net of allowance for doubtful accounts, was $5.6 million.
Note Receivable Valuation
Included in investment inwere $7.0 million and loans to equity method investee as of September 30, 2017 is a note receivable from the Company's joint venture partner, YKTG Solutions, of $0.1 million. To date, this joint venture has incurred operating losses and, as of September 30, 2017, the total assets of the joint venture are less than the amount it owes to ADDvantage. In 2017, the U.S. wireless provider, which the joint venture was supporting decommission work on cell tower sites across 13 states in the northeast, changed the process for assigning the various sites within the decommission project, which YKTG Solutions believes would result in a negative cash flow for the joint venture. Accordingly, YKTG Solutions elected to suspend the acceptance of any further work under the decommission project unless and until the U.S. wireless provider resumes its previous process of assigning the sites under the decommission project.
Management judgements and estimates are made in connection with collection of the note receivable from the joint venture. Specifically, since the decommission project on behalf of the U.S. wireless provider has been suspended, we determined the remaining billings and vendor payments to be incurred for this project to determine the ability of the joint venture to satisfy its obligations to the Company. Based on this analysis, we determined that the remaining net assets of the joint venture will not satisfy the obligation to the Company. Therefore, the Company did not record management fees or equity income for the year ended September 30, 2017, as the collectability of the amounts owed to the Company are not reasonably assured. The Company is pursuing collections from the joint venture partners under personal guarantee agreements provided to the Company. The investment in and loans to equity method investee reflects the estimated net realizable amount of $0.1$4.0 million, after considering the personal guarantees the Company has with the joint venture partners.
Goodwill
Goodwill represents the excess of purchase price of acquisitions over the acquisition date fair value of the net identifiable tangible and intangible assets acquired. Goodwill is not amortized and is tested at least annually for impairment. We perform our annual analysis during the fourth quarter of each fiscal year and in any other period in which indicators of impairment warrant additional analysis. Goodwill is evaluated for impairment by first comparing
our estimate of the fair value of each reporting unit, with the reporting unit’s carrying value, including goodwill. Our reporting units for purposes of the goodwill impairment calculation are aggregated into the Cable TV operating segment and the Telco operating segment.
Management utilizes a discounted cash flow analysis to determine the estimated fair value of each reporting unit. Significant judgments and assumptions including the discount rate, anticipated revenue growth rate, gross margins and operating expenses are inherent in these fair value estimates. As a result, actual results may differ from the estimates utilized in our discounted cash flow analysis. The use of alternate judgments and/or assumptions could result in the recognition of different levels of impairment charges in the financial statements. If the carrying value of one of the reporting units exceeds its fair value, a computation of the implied fair value of goodwill would then be compared to its related carrying value. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of goodwill, an impairment loss would be recognized in the amount of the excess. If an impairment charge is incurred, it would negatively impact our results of operations and financial position.
We performed our annual impairment test for both reporting units in the fourth quarter of 2017 and determined that the fair value of our reporting units exceeded their carrying values. Therefore, no impairment existed as of September 30, 2017.
We did not record a goodwill impairment for either of our two reporting units in the three year period ended September 30, 2017. However, we are implementing strategic plans to help prevent impairment charges in the future, which include the restructuring and expansion of the sales organization in the Telco segment to increase the volume of sales activity, and reducing inventory levels in both the Cable TV and Telco segments. Although we do not anticipate a future impairment charge, certain events could occur that might adversely affect the reported value of goodwill. Such events could include, but are not limited to, economic or competitive conditions, a significant change in technology, the economic condition of the customers and industries we serve, a significant decline in the real estate markets we operate in, a material negative change in the relationships with one or more of our significant customers or equipment suppliers, failure to successfully implement our restructure and expansion of the Telco sales organization, and failure to reduce inventory levels within the Cable TV or Telco segments. If our judgments and assumptions change as a result of the occurrence of any of these events or other events that we do not currently anticipate, our expectations as to future results and our estimate of the implied value of each reporting unit also may change.
As a result of the Triton Miami acquisition, we recorded additional goodwill of $2.1 million as the purchase price exceeded the acquisition date fair value of the net identifiable assets based on the purchase price allocation.
respectively.
Intangibles
Intangible assets that have finite useful lives are amortized on a straight-line basis over their estimated useful lives ranging from 3 years to 10 years. Intangible assets are also tested for impairment when events and circumstances indicate that the carrying value may not be recoverable. Due to our continued operating losses and the uncertainties surrounding the COVID-19 pandemic on the overall economy and the resulting impact on our Company, we determined that there were indicators for us to test our intangible assets for impairment at March 31, 2020. It was determined that we needed to perform a specific fair value assessment for each of the intangible assets at both Nave and Triton as their individual undiscounted forecasted cash flows did not exceed their respective carrying values. We then performed a fair value assessment of each of the intangible assets and compared them to the individual carrying value amounts at March 31, 2020. As a result of the Triton Miami acquisition,this assessment, we recorded additional intangible assets for customer relationshipsan impairment charge of $3.9 million trade namerelated to the customer relationship intangibles in the Telco segment as of $0.8 million and non-compete agreementsMarch 31, 2020. As of $0.1 million based on the purchase price allocation.September 30, 2021, there were no further indicators of impairment.
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.
The Company recorded a $0.7 million impairment of a right-of-use asset in the Telco segment as of September 30, 2020, related to vacating and partially subleasing a leased facility. As of September 30, 2021, there were no further indicators of impairment.
Recently Issued Accounting Standards
In May 2014,Our consideration of recent accounting pronouncements is included in Note 1 - Summary of Significant Accounting Policies to the Consolidated Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09: “Revenue from Contracts with Customers (Topic 606)”. This ASU was issued to clarify the principles for recognizing revenue and develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards (“IFRS”). In
addition, in August 2015, the FASB issued ASU No. 2015-14: “Revenue from Contracts with Customers (Topic 606). This update was issued to defer the effective date of ASU No. 2014-09 by one year. Therefore, the effective date of ASU No. 2014-09 is for annual reporting periods beginning after December 15, 2017. Management is evaluating the impact that ASU No. 2014-09 will have on the Company’s consolidated financial statements. Based on management’s assessment of ASU 2014-09, management does not expect that ASU No. 2014-09 will have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02: “Leases (Topic 842)” which is intended to improve financial reporting about leasing transactions. This ASU will require organizations (“lessees”) that lease assets with lease terms of more than twelve months to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Organizations that own the assets leased by lessees (“lessors”) will remain largely unchanged from current GAAP. In addition, this ASU will require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. The guidance is effective for annual periods beginning after December 15, 2018 and early adoption is permitted. Based on management’s initial assessment, ASU No. 2016-02 will have a material impact on the Company’s consolidated financial statements. The Company is a lessee on certain leases that will need to be reported as right of use assets and liabilities at an estimated amount of $3 million on the Company’s consolidated financial statements on the date of adoption.
In March 2016, the FASB issued ASU No. 2016-09: “Compensation – Stock Compensation (Topic 718)” which is intended to improve employee share-based payment accounting. This ASU identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. Management has determined that ASU No. 2016-09 will not have a material impact on the Company’s consolidated financial statements. The Company does not currently have excess tax benefits or deficiencies from stock compensation expense. The Company adopted ASU 2016-09 on October 1, 2017.
In June 2016, the FASB issued ASU 2016-13: “Financial Instruments — Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. This ASU requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. This ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal periods. Entities may adopt earlier as of the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years. We are currently in the process of evaluating this new standard update.
In August 2016, the FASB issued ASU 2016-15: “Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments.” This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendmentsStatements included in this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Based on management’s initial assessment of ASU No. 2016-15, the cash flows associated with guaranteed payments for acquisition of businesses will be reported as a financing activity in the Statement of Cash Flows, as opposed to an investing activity where it is currently reported.annual report.
In January 2017, the FASB issued ASU No. 2017-01: “Business Combinations (Topic 805) – Clarifying the definition of a Business.” This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. This ASU 2017-01 was issued to clarify guidance and will not have a material impact on the Company’s consolidated financial statements. ASU No. 2017-01 does not change the accounting for previously acquired businesses.
In January 2017, the FASB issued ASU 2017-04: “Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment.” This ASU eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an
impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. This ASU is effective for annual and interim goodwill impairment tests conducted in fiscal years beginning after December 15, 2019, with early adoption permitted. Management is evaluating the impact that ASU No. 2017-04 will have on the Company’s consolidated financial statements.
Off-Balance Sheet Arrangements
None.
Item 8.Financial Statements and Supplementary Data.
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September 30, 2017, 20162021 and 20152020 | |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors and Stockholders 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 September 30, 20172021 and 2016,2020, and the related consolidated statements of operations, changes in shareholders’shareholders' equity, and cash flows for eachthe years then ended, 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 threeCompany as of September 30, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the period ended September 30, 2017. United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’sCompany'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 Public Company Accounting Oversight Board (United States).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.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. OurAs part of our audits included considerationwe are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposepurposes of expressing an opinion on the effectiveness of the Company’sCompany's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
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 supportingregarding the amounts and disclosures in the financial statements, assessingstatements. 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 statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
InCritical 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 consolidated financial statements, referredtaken 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 above present fairly,which they relate.
Inventory valuation
As discussed in all material respects,Note 1 to the financial positionstatements, 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, and projected sales and gross margin rates 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 September 30, 2021, contract revenues recognized by the Company were $20.7 million. 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 and operating 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.
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| We have served as the Company’s auditor since 2006. |
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| Tulsa, Oklahoma |
| December 27, 2021 |
ADDvantage Technologies Group, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
| | | | | | | | | | | |
| | September 30, |
| | 2021 | | 2020 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 2,608 | | | $ | 8,265 | |
| Restricted cash | 334 | | | 108 | |
| Accounts receivable, net of allowances of $250 | 7,013 | | | 3,968 | |
| Unbilled revenue | 2,488 | | | 590 | |
| Promissory note, current | — | | | 1,400 | |
| Income tax receivable | — | | | 1,283 | |
| Inventories, net of allowance of $3,476 and $3,054, respectively | 5,922 | | | 5,576 | |
| Prepaid expenses and other current assets | 1,431 | | | 884 | |
| | | |
| | | |
| | | |
| Total current assets | 19,796 | | | 22,074 | |
| | | |
| Property and equipment, at cost: | | | |
| Machinery and equipment | 4,973 | | | 3,500 | |
| Leasehold improvements | 813 | | | 720 | |
| Total property and equipment, at cost | 5,786 | | | 4,220 | |
| Less: Accumulated depreciation | (2,293) | | | (1,586) | |
| Net property and equipment | 3,493 | | | 2,634 | |
| Right-of-use lease assets | 2,730 | | | 3,758 | |
| Promissory note, long-term | — | | | 2,375 | |
| | | |
| Intangibles, net of accumulated amortization | 1,107 | | | 1,425 | |
| Goodwill | 58 | | | 58 | |
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| Other assets | 128 | | | 179 | |
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| Total assets | $ | 27,312 | | | $ | 32,503 | |
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| Liabilities and Shareholders’ Equity | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 7,044 | | | $ | 3,472 | |
| Accrued expenses | 1,581 | | | 1,277 | |
| Deferred revenue | 168 | | | 113 | |
| Bank line of credit | 2,050 | | | 2,800 | |
| Notes payable, current | — | | | 1,709 | |
| Right-of-use lease obligations, current | 1,198 | | | 1,275 | |
| Finance lease obligations, current | 582 | | | 285 | |
| | | |
| Other current liabilities | 692 | | | 83 | |
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| Total current liabilities | 13,315 | | | 11,014 | |
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| Note payable | — | | | 2,440 | |
| Right-of-use lease obligations, long-term | 2,141 | | | 3,310 | |
| Finance lease obligations, long-term | 1,429 | | | 791 | |
| | | |
| Other liabilities | — | | | 15 | |
| Total liabilities | 16,885 | | | 17,570 | |
| Shareholders’ equity: | | | |
| Common stock, $.01 par value; 30,000,000 shares authorized; 12,610,229 and 11,822,009 shares issued and outstanding, respectively | 126 | | | 118 | |
| Paid in capital | (578) | | | (2,567) | |
| Retained earnings | 10,879 | | | 17,382 | |
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| | | |
| | | |
| Total shareholders’ equity | $ | 10,427 | | | $ | 14,933 | |
| | | |
| Total liabilities and shareholders’ equity | $ | 27,312 | | | $ | 32,503 | |
See notes to consolidated financial statements.
ADDvantage Technologies Group, Inc.
Consolidated Statements of Operations
(in thousands, except share and subsidiaries as of September 30, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2017, in conformity with U.S. generally accepted accounting principles.per share amounts)
| | | | | | | | | | | |
| | Years ended September 30, |
| | 2021 | | 2020 |
| Sales | $ | 62,160 | | | $ | 50,182 | |
| Cost of sales | 46,033 | | | 38,502 | |
| Gross profit | 16,127 | | | 11,680 | |
| Operating expenses | 9,329 | | | 8,166 | |
| Selling, general and administrative expense | 14,890 | | | 11,249 | |
| Impairment of right-of-use asset | — | | | 660 | |
| Impairment of intangibles including goodwill | — | | | 8,714 | |
| Depreciation and amortization expense | 1,228 | | | 1,554 | |
| Gain on disposal of assets | 23 | | | 133 | |
| Loss from operations | (9,297) | | | (18,530) | |
| Other income (expense): | | | |
| Gain on extinguishment of debt | 2,955 | | | — | |
| Interest income | 135 | | | 321 | |
| Interest expense | (238) | | | (254) | |
| Income from equity method investment | — | | | 41 | |
| Other expense | (110) | | | (160) | |
| | | |
| Other income (expense), net | 2,742 | | | (52) | |
| | | |
| Loss before income taxes | (6,555) | | | (18,582) | |
Income tax benefit | (53) | | | (1,249) | |
| | | |
| | | |
| | | |
| | | |
| Net loss | $ | (6,502) | | | $ | (17,333) | |
| | | |
| Loss per share: | | | |
| Basic and diluted | $ | (0.52) | | | $ | (1.55) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Shares used in per share calculation: | | | |
| Basic and diluted | 12,401,043 | | | 11,163,660 | |
| | | |
/s/ HOGANTAYLOR LLP
Tulsa, Oklahoma
December 14, 2017
ADDVANTAGE TECHNOLOGIES GROUP, INC.CONSOLIDATED BALANCE SHEETS
| | | September 30, | |
| | | 2017 | | | 2016 | |
| Assets | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 3,972,723 | | | $ | 4,508,126 | |
Accounts receivable, net of allowance for doubtful accounts of $150,000 and $250,000, respectively | | | 5,567,005 | | | | 4,278,855 | |
| Income tax receivable | | | 247,186 | | | | 480,837 | |
| Inventories, net of allowance for excess and obsolete | | | | | | | | |
| inventory of $2,939,289 and $2,570,868, respectively | | | 22,333,820 | | | | 21,524,919 | |
| Prepaid expenses | | | 298,152 | | | | 323,289 | |
| Total current assets | | | 32,418,886 | | | | 31,116,026 | |
| | | | | | | | | |
| Property and equipment, at cost: | | | | | | | | |
| Land and buildings | | | 7,218,678 | | | | 7,218,678 | |
| Machinery and equipment | | | 3,995,668 | | | | 3,833,230 | |
| Leasehold improvements | | | 202,017 | | | | 151,957 | |
| Total property and equipment, at cost | | | 11,416,363 | | | | 11,203,865 | |
| Less: Accumulated depreciation | | | (5,395,791 | ) | | | (4,993,102 | ) |
| Net property and equipment | | | 6,020,572 | | | | 6,210,763 | |
| | | | | | | | | |
| Investment in and loans to equity method investee | | | 98,704 | | | | 2,588,624 | |
| Intangibles, net of accumulated amortization | | | 8,547,487 | | | | 4,973,669 | |
| Goodwill | | | 5,970,244 | | | | 3,910,089 | |
| Deferred income taxes | | | 1,653,000 | | | | 1,333,000 | |
| Other assets | | | 138,712 | | | | 135,988 | |
| | | | | | | | | |
| Total assets | | $ | 54,847,605 | | | $ | 50,268,159 | |
| | | | | | | | | |
See notes to consolidated financial statements.
ADDVANTAGE TECHNOLOGIES GROUP, INC.
CONSOLIDATED BALANCE SHEETSADDvantage Technologies Group, Inc.
Consolidated Statements of Changes in Shareholders' Equity
| | | September 30, | |
| | | 2017 | | | 2016 | |
| Liabilities and Shareholders’ Equity | | | | | | |
| Current liabilities: | | | | | | |
| Accounts payable | | $ | 3,392,725 | | | $ | 1,857,953 | |
| Accrued expenses | | | 1,406,722 | | | | 1,324,652 | |
| Notes payable – current portion | | | 4,189,605 | | | | 899,603 | |
| Other current liabilities | | | 664,325 | | | | 963,127 | |
| Total current liabilities | | | 9,653,377 | | | | 5,045,335 | |
| | | | | | | | | |
| Notes payable, less current portion | | | 2,094,246 | | | | 3,466,358 | |
| Other liabilities | | | 1,401,799 | | | | 131,410 | |
| Total liabilities | | | 13,149,422 | | | | 8,643,103 | |
| | | | | | | | | |
| Shareholders’ equity: | | | | | | | | |
Common stock, $.01 par value; 30,000,000 shares authorized; 10,726,653 and 10,634,893 shares issued, respectively; 10,225,995 and 10,134,235 shares outstanding, respectively | | | 107,267 | | | | 106,349 | |
| Paid in capital | | | (4,746,466 | ) | | | (4,916,791 | ) |
| Retained earnings | | | 47,337,396 | | | | 47,435,512 | |
| Total shareholders’ equity before treasury stock | | | 42,698,197 | | | | 42,625,070 | |
| | | | | | | | | |
| Less: Treasury stock, 500,658 shares, at cost | | | (1,000,014 | ) | | | (1,000,014 | ) |
| Total shareholders’ equity | | | 41,698,183 | | | | 41,625,056 | |
| | | | | | | | | |
| Total liabilities and shareholders’ equity | | $ | 54,847,605 | | | $ | 50,268,159 | |
(in thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Paid-in | | Retained | | Treasury | | |
| | Shares | | Amount | | Capital | | Earnings | | Stock | | Total |
| Balance, September 30, 2019 | 10,861,950 | | | $ | 109 | | | $ | (4,377) | | | $ | 34,715 | | | $ | (1,000) | | | $ | 29,447 | |
| Net loss | — | | | — | | | — | | | (17,333) | | | — | | | (17,333) | |
| Treasury stock, net | (500,658) | | | (5) | | | (995) | | | — | | | 1,000 | | | — | |
| Common stock issuance | 573,199 | | | 6 | | | 2,103 | | | — | | | — | | | 2,109 | |
| Stock option exercise | 123,334 | | | 1 | | | 204 | | | — | | | — | | | 205 | |
| Restricted stock issuance | 764,184 | | | 7 | | | (76) | | | — | | | — | | | (69) | |
| Amortization of stock-based compensation | — | | | — | | | 574 | | | — | | | — | | | 574 | |
| 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 | |
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 OPERATIONSADDvantage Technologies Group, Inc.
Consolidated Statements of Cash Flows
| | | Years ended September 30, | |
| | | 2017 | | | 2016 | | | 2015 | |
| Sales | | $ | 48,713,746 | | | $ | 38,663,264 | | | $ | 43,733,620 | |
| Cost of sales | | | 33,903,153 | | | | 26,222,381 | | | | 28,434,731 | |
| Gross profit | | | 14,810,593 | | | | 12,440,883 | | | | 15,298,889 | |
| Operating, selling, general and administrative expenses | | | 14,664,987 | | | | 12,097,022 | | | | 12,722,679 | |
| Income from operations | | | 145,606 | | | | 343,861 | | | | 2,576,210 | |
| Other income (expense): | | | | | | | | | | | | |
| Other income | | | – | | | | 459,636 | | | | − | |
| Interest income | | | – | | | | 90,686 | | | | − | |
| Loss from equity method investment | | | – | | | | (184,996 | ) | | | − | |
| Interest expense | | | (389,722 | ) | | | (236,024 | ) | | | (305,310 | ) |
| Total other income (expense), net | | | (389,722 | ) | | | 129,302 | | | | (305,310 | ) |
| | | | | | | | | | | | | |
| Income (loss) before income taxes | | | (244,116 | ) | | | 473,163 | | | | 2,270,900 | |
| Provision (benefit) for income taxes | | | (146,000 | ) | | | 179,000 | | | | 773,000 | |
| | | | | | | | | | | | | |
| Net income (loss) | | $ | (98,116 | ) | | $ | 294,163 | | | $ | 1,497,900 | |
| | | | | | | | | | | | | |
| Earnings (loss) per share: | | | | | | | | | | | | |
| Basic | | $ | (0.01 | ) | | $ | 0.03 | | | $ | 0.15 | |
| Diluted | | $ | (0.01 | ) | | $ | 0.03 | | | $ | 0.15 | |
| Shares used in per share calculation: | | | | | | | | | | | | |
| Basic | | | 10,201,825 | | | | 10,141,234 | | | | 10,088,803 | |
| Diluted | | | 10,201,825 | | | | 10,145,296 | | | | 10,088,803 | |
(in thousands)
| | | | | | | | | | | |
| Years ended September 30, |
| 2021 | | 2020 |
| Operating Activities: | | | |
| Net loss | $ | (6,502) | | | $ | (17,333) | |
| | | |
| | | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | |
| Depreciation | 910 | | | 868 | |
| Amortization | 318 | | | 687 | |
| Non cash amortization of right-of-use asset and liability | (288) | | | 225 | |
| | | |
| Provision for excess and obsolete inventories | 422 | | | 1,782 | |
| Charge for lower of cost or net realizable value inventories | 105 | | | 60 | |
| Impairment of right-of-use asset | — | | | 660 | |
| Impairment of intangibles including goodwill | — | | | 8,714 | |
| Gain on disposal of property and equipment | (23) | | | (133) | |
| | | |
| Share based compensation expense | 1,009 | | | 574 | |
| Gain from equity method investment | — | | | (41) | |
| Gain on extinguishment of debt | (2,955) | | | — | |
| Changes in operating assets and liabilities: | | | |
| Accounts receivable | (3,045) | | | 859 | |
| Unbilled revenue | (1,899) | | | 2,101 | |
| Income tax refund receivable\payable | 1,284 | | | (1,262) | |
| Inventories | (875) | | | 27 | |
| Prepaid expenses and other current assets | (547) | | | (147) | |
| | | |
| | | |
| Other assets | 51 | | | (2) | |
| Accounts payable | 3,572 | | | (1,259) | |
| Accrued expenses | 898 | | | (220) | |
| Deferred revenue | 55 | | | 16 | |
| | | |
| | | |
| | | |
| | | |
| Net cash used in operating activities | (7,510) | | | (3,824) | |
| | | |
| Investing Activities: | | | |
| | | |
| | | |
| | | |
| Proceeds from promissory note receivable | 3,775 | | | 2,600 | |
| Loan repayments from equity method investee | — | | | 41 | |
| Purchases of property and equipment | (300) | | | (608) | |
| Disposals of property and equipment | 44 | | | 361 | |
| | | |
| | | |
| Net cash provided by investing activities | 3,519 | | | 2,394 | |
| | | |
| Financing Activities: | | | |
| Change in bank line of credit | (750) | | | 2,800 | |
| | | |
| Proceeds from note payable | — | | | 6,372 | |
| Guaranteed payments for acquisition of business | — | | | (667) | |
| Payments on financing lease obligations | (484) | | | (388) | |
| Payments on notes payable | (1,194) | | | (2,223) | |
| | | |
| Proceeds from sale of common stock | 899 | | | 2,109 | |
| Proceeds from stock options exercised | 89 | | | 206 | |
| Net cash (used in) provided by financing activities | (1,440) | | | 8,209 | |
| | | |
| Net (decrease) increase in cash, cash equivalents and restricted cash | (5,431) | | | 6,779 | |
| Cash, cash equivalents and restricted cash at beginning of year | 8,373 | | | 1,594 | |
| Cash, cash equivalents and restricted cash at end of year | $ | 2,942 | | | $ | 8,373 | |
| | | |
See notes to consolidated financial statements.
ADDVANTAGE TECHNOLOGIES GROUP, INC.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended September 30, 2017, 2016 and 2015
| | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | Paid-in | | | Retained | | | Treasury | | | | |
| | | Shares | | | Amount | | | Capital | | | Earnings | | | Stock | | | Total | |
| Balance, September 30, 2014 | | | 10,541,864 | | | $ | 105,419 | | | $ | (5,312,881 | ) | | $ | 45,643,449 | | | $ | (1,000,014 | ) | | $ | 39,435,973 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | – | | | | – | | | | – | | | | 1,497,900 | | | | – | | | | 1,497,900 | |
| Restricted stock issuance | | | 22,357 | | | | 223 | | | | 58,944 | | | | – | | | | – | | | | 59,167 | |
| Share based compensation expense | | | – | | | | – | | | | 141,668 | | | | – | | | | – | | | | 141,668 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, September 30, 2015 | | | 10,564,221 | | | $ | 105,642 | | | $ | (5,112,269 | ) | | $ | 47,141,349 | | | $ | (1,000,014 | ) | | $ | 41,134,708 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | – | | | | – | | | | – | | | | 294,163 | | | | – | | | | 294,163 | |
| Restricted stock, net of forfeited | | | 70,672 | | | | 707 | | | | 121,794 | | | | – | | | | – | | | | 122,501 | |
| Share based compensation expense | | | – | | | | – | | | | 73,684 | | | | – | | | | – | | | | 73,684 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, September 30, 2016 | | | 10,634,893 | | | $ | 106,349 | | | $ | (4,916,791 | ) | | $ | 47,435,512 | | | $ | (1,000,014 | ) | | $ | 41,625,056 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | – | | | | – | | | | – | | | | (98,116 | ) | | | – | | | | (98,116 | ) |
| Stock options exercised | | | 33,751 | | | | 338 | | | | (338 | ) | | | – | | | | – | | | | – | |
| Restricted stock issuance | | | 58,009 | | | | 580 | | | | 104,420 | | | | – | | | | – | | | | 105,000 | |
| Share based compensation expense | | | – | | | | – | | | | 66,243 | | | | – | | | | – | | | | 66,243 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, September 30, 2017 | | | 10,726,653 | | | $ | 107,267 | | | $ | (4,746,466 | ) | | $ | 47,337,396 | | | $ | (1,000,014 | ) | | $ | 41,698,183 | |
See notes to consolidated financial statements.
ADDvantage Technologies Group, Inc.
ADDVANTAGE TECHNOLOGIES GROUP, INC.Notes to Consolidated Financial StatementsCONSOLIDATED STATEMENTS OF CASH FLOWS
| | | Years ended September 30, | |
| | | 2017 | | | 2016 | | | 2015 | |
| Operating Activities | | | | | | | | | |
| Net income (loss) | | $ | (98,116 | ) | | $ | 294,163 | | | $ | 1,497,900 | |
| Adjustments to reconcile net income (loss) to net cash | | | | | | | | | | | | |
| provided by (used in) operating activities: | | | | | | | | | | | | |
| Depreciation | | | 446,834 | | | | 421,950 | | | | 408,703 | |
| Amortization | | | 1,267,182 | | | | 825,804 | | | | 825,805 | |
| Allowance for doubtful accounts | | | – | | | | – | | | | 50,000 | |
| Provision for excess and obsolete inventories | | | 901,599 | | | | 951,282 | | | | 600,000 | |
Charge for lower of cost or net realizable value for inventories | | | 126,822 | | | | 73,716 | | | | 12,627 | |
| (Gain) loss on disposal of property and equipment | | | – | | | | (2,000 | ) | | | 30,652 | |
| Deferred income tax provision (benefit) | | | (320,000 | ) | | | 157,000 | | | | (341,000 | ) |
| Share based compensation expense | | | 175,465 | | | | 192,213 | | | | 239,613 | |
| Loss from equity method investment | | | – | | | | 184,996 | | | | – | |
Cash provided (used) by changes in operating assets and liabilities: | | | | | | | | | | | | |
| Accounts receivable | | | (71,254 | ) | | | 115,479 | | | | 2,057,203 | |
| Income tax receivable\payable | | | 233,651 | | | | (603,329 | ) | | | 342,596 | |
| Inventories | | | (688,729 | ) | | | 1,067,179 | | | | (1,433,100 | ) |
| Prepaid expenses | | | 22,097 | | | | (165,863 | ) | | | (17,359 | ) |
| Other assets | | | (2,724 | ) | | | (1,310 | ) | | | (3,250 | ) |
| Accounts payable | | | 951,099 | | | | 15,514 | | | | (1,096,279 | ) |
| Accrued expenses | | | (90,003 | ) | | | (34,029 | ) | | | (451,197 | ) |
| Other liabilities | | | 134,890 | | | | 47,726 | | | | 120,653 | |
| Net cash provided by operating activities | | | 2,988,813 | | | | 3,540,491 | | | | 2,843,567 | |
| | | | | | | | | | | | | |
| Investing Activities | | | | | | | | | | | | |
| Acquisition of net operating assets | | | (6,643,540 | ) | | | (178,000 | ) | | | − | |
| Guaranteed payments for acquisition of business | | | (1,000,000 | ) | | | (1,000,000 | ) | | | (1,000,000 | ) |
| Loan repayments from (investment in and loans to) equity method investee | | | 2,389,920 | | | | (2,773,620 | ) | | | – | |
| Purchases of property and equipment | | | (190,303 | ) | | | (319,810 | ) | | | (172,649 | ) |
| Disposals of property and equipment | | | 1,817 | | | | 2,000 | | | | – | |
| Net cash used in investing activities | | | (5,442,106 | ) | | | (4,269,430 | ) | | | (1,172,649 | ) |
| | | | | | | | | | | | | |
| Financing Activities | | | | | | | | | | | | |
| Proceeds on notes payable | | | 4,000,000 | | | | − | | | | − | |
| Debt issuance costs | | | (16,300 | ) | | | − | | | | − | |
| Payments on notes payable | | | (2,065,810 | ) | | | (873,921 | ) | | | (846,029 | ) |
| Net cash provided by (used in) financing activities | | | 1,917,890 | | | | (873,921 | ) | | | (846,029 | ) |
| | | | | | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | (535,403 | ) | | | (1,602,860 | ) | | | 824,889 | |
| Cash and cash equivalents at beginning of year | | | 4,508,126 | | | | 6,110,986 | | | | 5,286,097 | |
| Cash and cash equivalents at end of year | | $ | 3,972,723 | | | $ | 4,508,126 | | | $ | 6,110,986 | |
| | | | | | | | | | | | | |
| Supplemental cash flow information: | | | | | | | | | | | | |
| Cash paid for interest | | $ | 360,805 | | | $ | 195,086 | | | $ | 245,051 | |
| Cash paid for (received from) income taxes | | $ | (61,000 | ) | | $ | 597,200 | | | $ | 944,000 | |
| | | | | | | | | | | | | |
| Supplemental noncash investing activities: | | | | | | | | | | | | |
| Deferred guaranteed payments for business acquisition | | $ | (1,836,105 | ) | | | – | | | | – | |
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”) as well as an equity-method investment.. Intercompany balances and transactions have been eliminated in consolidation. The Company’s reportable segments are Cable TelevisionWireless Infrastructure Services (“Cable TV”Wireless”) and Telecommunications (“Telco”).
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year's presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.
Cash, and cash equivalents
and restricted cash
Cash and cash equivalents includesinclude 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 in the Wireless segment, see Note 3 - Accounts Receivable Agreements.
Revenue recognition
The Company recognizes revenue at the time a good or service is transferred to a customer and the customer, obtains control of that good or receives the service performed. Most of the Company’s sales arrangements with customers are short-term in nature involving single performance obligations related to the delivery of goods or repair of equipment and generally provide for transfer of control at the time of shipment to the customer. The Company generally permits returns of product or repaired equipment due to defects, 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 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 the Company’s Wireless segment, the Company has entered into various agreements, one 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
InventoriesFor the Telco segment, inventories consist of new, refurbished and used electronic components for the Cable TV segment and new, refurbished and used telecommunications equipment for the Telco segment.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 both the Cable TV and Telco segments,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 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. 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.
Property and equipment
Property and equipment consistsconsist of software, office equipment, wireless services equipment and warehouse and service equipment and buildings 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 40 years, respectively.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 other income (expense).operating expense. Repairs and maintenance costs are generally expensed as incurred, whereas major improvements are capitalized. Depreciation expense was $0.4$0.9 million forin each of the years ended September 30, 2017, 20162021 and 2015.
2020.
Goodwill
Goodwill represents the excess of the purchase price of acquisitions over the acquisition date fair value of the net identifiable tangible and intangible assets of businesses acquired. In accordance with current accounting guidance, goodwillGoodwill is not amortized and is tested at least annually for impairment at the reporting unit level.impairment. The Company performs thisits annual analysis induring the fourth quarter of each fiscal year and in any other period in which indicators of impairment warrant additional analysis.
The goodwill analysis is a two-step process. Goodwill is first evaluated for impairment by comparing management’sthe estimate of the fair value forof each of the reporting unitsunit, or operating segment, with the reporting unit’s carrying value, including goodwill. If the carrying valueThe reporting units for purposes of the reporting unit exceeds its fair value, a computation ofgoodwill impairment calculation are aggregated into the implied fair value of goodwill would then be compared to its related carrying value. If the carrying value of the reporting unit’s goodwill exceedsWireless segment and ADDvantage Triton LLC (Triton) operating segment, and Nave Communications Company (Nave) operating segment.
the implied fair value of goodwill, an impairment loss would be recognized in the amount of the excess. Management utilizes a discounted cash flow analysis referred to as an income approach, to determine the estimated fair value of itseach reporting units. Judgmentsunit. Significant judgments and assumptions including the discount rate, anticipated revenue growth rate, gross margins and operating expenses are inherent in these fair value estimates. As a result, actual results may differ from the estimate of futureestimates utilized in the discounted cash flows used to determine the estimate of the reporting unit’s fair value.flow analysis. The use of alternate judgments and/or assumptions could result in the recognition of different levels of impairment charges in the consolidated financial statements. At
During the year ended September 30, 20172020, due to operating losses and 2016,uncertainties surrounding the estimatedimpact of the COVID-19 pandemic on the overall economy and the resulting impact on the capital budgets of both Customers and our Company, we determined that impairment indicators were present. The Company performed a valuation using a discounted cash flow analysis for the Nave and Triton operating segments to determine if the fair value exceeded their respective carrying values. For both Nave and Triton, the fair value for each was less than their respective carrying values. Therefore, the Company recorded an impairment charge of our reporting units exceeded its carrying$4.8 million as of March 31, 2020, which fully impaired goodwill for both operating segments in the Telco segment. Although the Company does not anticipate a future impairment charge, certain events could occur that might adversely affect the reported value soof the remaining goodwill in the Wireless segment, which was not impaired.
$0.1 million at September 30, 2021.
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 Accounting Standards Codification (“ASC”)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.
Revenue recognition
The Company recognizes revenue for product sales when title transfers, the risks and rewards of ownership have been transferred to the customer, the fee is fixed or determinable and the collection of the related receivable is probable, which is generally at the time of shipment. The stated shipping terms are generally FOB shipping point per the Company's sales agreements with its customers. Accruals are established for expected returns based on historical activity. Revenue for repair services is recognized when the repair is completed and the product is shipped back to the customer. Revenue for recycle services is recognized when title transfers, the risks and rewards of ownership have been transferred to the customer, the fee is fixed or determinable and the collection of the related receivable is probable, which is generally upon acceptance of the shipment at the recycler’s location.
Freight
Amounts billed to customers for shipping and handling represent revenues earned and are included in sales income in the accompanying consolidated statements of operations. Actual costs for shipping and handling of these sales are included in cost of sales.
Advertising costs
Advertising costs are expensed as incurred. Advertising expense was $0.5 million, $0.2$0.4 million and $0.1$0.5 million for the years ended September 30, 2017, 20162021 and 2015,2020, respectively.
Management estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States generally accepted accounting principlesof 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 continued economic trends affecting the cablewireless infrastructure or telecommunications industries could have a significant impact on the value of the Company's inventory and operating results.
Concentrations of credit 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 September 30, 2021, one Telco customer accounted for 31% of accounts receivable, and one Wireless
customer accounted for 28% of accounts receivable. 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. The Company had no customer in 2017, 2016 or 2015
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 represented in excess of 10%the value of the total net sales. The Company’s sales to foreign (non-U.S. based) customers were approximately $4.3 million, $3.0 million and $3.7 million foraward is established at the years ended September 30, 2017, 2016 and 2015, respectively. In 2017, the Cable TV segment purchased approximately 24% of its inventory from Arris Solutions, Inc. and approximately 16% of its inventory either directly from Cisco or indirectly through their primary stocking distributor. The concentration of suppliersdate of the Company’s inventory subjects the Company to risk. The Telco segment did not purchase over 10% of its total inventory purchases from any one supplier.
Employee stock-based awards
Share-based payments to employees, including grants of employee stock options, are recognized in the consolidated financial statements based on their grant date fair valueand is expensed over the requisite service period.vesting period of the grant. The Company determinesmethod of determining the fair value of share-based payments depends on the options issued,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 valuationBlack-Scholes-Merton model and amortizesusing model inputs that are determined on the calculateddate 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 termperiod of the stock options. Compensation expense for stock-based awards is included in the operating, selling, general and administrative expense section of the consolidated statements of operations.grant.
Earnings per share
Basic earnings per share is computed by dividing the earnings available to common shareholders by the weighted average number of common shares outstanding for the year. Dilutive earnings per share include any dilutive effect of stock options and restricted stock.
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.
Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements and Disclosures, definesThe carrying value of the Company’s variable-rate line of credit approximates its fair value establishes a consistent framework for measuring fair value and establishes a fair value hierarchysince the interest rate fluctuates periodically based on a floating interest rate.
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 observabilityplan consist of inputs used to measure fair value. The three levels ofa matching contribution as determined by the fair value hierarchy are as follows:
· | Level 1 – Quoted prices for identical assets in active markets or liabilities that we have the ability to access. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. |
· | Level 2 – Inputs are other than quoted prices in active markets included in Level 1 that are either directly or indirectly observable. These inputs are either directly observable in the marketplace or indirectly observable through corroboration with market data for substantially the full contractual term of the asset or liability being measured. |
· | Level 3 – Inputs that are not observable for which there is little, if any, market activity for the asset or liability being measured. These inputs reflect management’s best estimate of the assumptions market participants would use in determining fair value. |
plan document. Costs recognized under the 401(k) plan were $0.2 million and, $0.1 million for the years ended September 30,
2021 and September 30, 2020, respectively, after temporarily suspending matching contributions during 2020.Recently issued accounting standards
In May 2014, the FASB issued ASU No. 2014-09: “Revenue from Contracts with Customers (Topic 606)”. This guidance was issued to clarify the principles for recognizing revenue and develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards (“IFRS”). In addition, in August 2015, the FASB issued ASU No. 2015-14: “Revenue from Contracts with Customers (Topic 606). This update was issued to defer the effective date of ASU No. 2014-09 by one year. Therefore, the effective date of ASU No. 2014-09 is for annual reporting periods beginning after December 15, 2017. Management is evaluating the impact that ASU No. 2014-09 will have on the Company’s consolidated financial statements. Based on management’s assessment of ASU No. 2014-09, management does not expect that ASU No. 2014-09 will have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02: “Leases (Topic 842)” which is intended to improve financial reporting about leasing transactions. This ASU will require organizations (“lessees”) that lease assets with lease terms of more than twelve months to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Organizations that own the assets leased by lessees (“lessors”) will remain largely unchanged from current GAAP. In addition, this ASU will require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. The guidance is effective for annual periods beginning after December 15, 2018 and early adoption is permitted. Based on management’s initial assessment, ASU No. 2016-02 will have a material impact on the Company’s consolidated financial statements. The Company is a lessee on certain leases that will need to be reported as right of use assets and liabilities at an estimated amount of $3 million on the Company’s consolidated financial statements on the date of adoption.
In March 2016, the FASB issued ASU No. 2016-09: “Compensation – Stock Compensation (Topic 718)” which is intended to improve employee share-based payment accounting. This ASU identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. Management has determined that ASU No. 2016-09 will not have a material impact on the Company’s consolidated financial statements. The Company does not currently have excess tax benefits or deficiencies from stock compensation expense. The Company adopted ASU No. 2016-09 on October 1, 2017.
In June 2016, the FASBFinancial Accounting Standards Board (FASB) issued ASUAccounting 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. EntitiesUpon adoption, entities will now use forward-looking information to better form their credit loss estimates. This ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. ASU 2016-13 isOn November 15, 2019, the FASB delayed the effective date of the standard for annual periodscompanies 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, 2019, including interim periods within those fiscal periods. Entities may adopt earlier as of2022 for SEC filers that are eligible to be smaller reporting companies under the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years.Securities and Exchange Commission definition. We are currently in the process of evaluating this new standard update.
In August 2016,update, however we do not anticipate the FASB issued ASU 2016-15: “Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments.” This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Based on management’s initial assessment of ASU No. 2016-15, the cash flows associated with guaranteed payments for acquisition of businesses will be reported as a financing activity in the Statement of Cash Flows, as opposed to an investing activity where it is currently reported.
In January 2017, the FASB issued ASU No. 2017-01: “Business Combinations (Topic 805) – Clarifying the definition of a Business.” This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. This ASU 2017-01 was issued to clarify guidance and will not have a material impact on the Company’s consolidated financial statements. ASU No. 2017-01 does not change the accounting for previously acquired businesses.our results.
In January 2017, the FASB issued ASU 2017-04: “Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment.” This ASU eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. This ASU is effective for annual and interim goodwill impairment tests conducted in fiscal years beginning after December 15, 2019, with early adoption permitted. Management is evaluating the impact that ASU No. 2017-04 will have on the Company’s consolidated financial statements.
Reclassification
Certain prior period amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.
Note 2 – Acquisition
As part of the Company’s growth strategy, the Company has been pursuing an acquisition strategy to expand into the broader telecommunications industry. The Company formed a new subsidiary called ADDvantage Triton, LLC (“Triton Datacom”) which on October 14, 2016 acquired substantially all of the net assets of Triton Miami, Inc. (“Triton Miami”). Triton Datacom is a provider of new and refurbished enterprise networking products, including IP desktop phones, enterprise switches and wireless routers. This acquisition, along with its retained management team, is part of the overall growth strategy of the Company in that it further diversifies the Company into the broader telecommunications industry by reselling refurbished products into the enterprise customer market.
Revenue Recognition
The purchase price for Triton Miami includes the following:
| | | | |
| Upfront cash payment | | $ | 6,500,000 | |
| Deferred guaranteed payments (a) | | | 1,836,105 | |
| Working capital purchase adjustment | | | 143,540 | |
| Net purchase price | | $ | 8,479,645 | |
(a) | This amount represents the present value at the acquisition date of $2.0 million in deferred payments, which will be paid in equal annual installments over the next three years. At September 30, 2017, these deferred paymentsCompany’s principal sales are recorded in other current liabilities ($0.7 million) and other long-term liabilities ($1.2 million). |
The Company will also make annual payments to the Triton Miami owners, if they have not resigned from Triton Datacom, over the next three years equal to 60%Wireless services, sales of Triton Datacom’s annual EBITDA in excess of $1.2 million per year. The Company will recognize these annual payments as compensation expense.
Under the acquisition method of accounting, the total purchase price is allocated to Triton Miami’s tangibleTelco equipment and intangible assets acquired and liabilities assumed based on their fair values as of October 14, 2016, the effective date of the acquisition. Any remaining amount is recorded as goodwill.
The following summarizes the final purchase price allocation of the fair value of the assets acquired and the liabilities assumed at October 14, 2016:
| Assets acquired: | | (in thousands) | |
| Accounts receivable | | $ | 1,117 | |
| Inventories | | | 1,149 | |
| Property and equipment, net | | | 68 | |
| Other non-current assets | | | 1 | |
| Intangible assets | | | 4,841 | |
| Goodwill | | | 2,060 | |
| Total assets acquired | | | 9,236 | |
| | | | | |
| Liabilities assumed: | | | | |
| Accounts payable | | | 584 | |
| Accrued expenses | | | 172 | |
| Total liabilities assumed | | | 756 | |
| Net purchase price | | $ | 8,480 | |
The acquired identifiable intangible assets of approximately $4.8 million consist of customer relationships, trade name and non-compete agreements with the owners of Triton Miami.
The unaudited financial informationTelco recycled equipment, primarily in the table below summarizes the combined results of operations of ADDvantage Technologies GroupUnited States. Sales to international customers in Central and Triton Miami forSouth America totaled approximately $4.7 million and $1.9 million in the years ended September 30, 20172021 and 2020, respectively.
The Company’s customers include wireless carriers, wireless equipment providers, multiple system operators, resellers and direct sales to end-user customers. Sales to the Company’s largest customer totaled approximately 18% of consolidated sales.
Sales by type were as follows, in thousands: | | | | | | | | | | | |
| | Years Ended September 30, |
| | 2021 | | 2020 |
| | | |
| Wireless services sales | $ | 20,708 | | | $ | 21,354 | |
| Equipment sales: | | | |
| Telco | 40,663 | | | 27,109 | |
| Inter-segment | (101) | | | (25) | |
| Telco repair sales | 27 | | | 68 | |
| Telco recycle sales | 863 | | | 1,676 | |
| Total sales | $ | 62,160 | | | $ | 50,182 | |
At September 30, 2016, on a pro forma basis, as though2021 contract assets were $2.5 million and contract liabilities were $0.2 million. There were $0.6 million in contract assets and $0.1 million in contract liabilities at September 30, 2020. During the companies had been combined as of October 1, 2015. The unaudited pro forma earnings for the yearsyear ended September 30, 2017 and2021, the Company recognized $0.1 million as revenue from amounts classified as deferred revenue on our consolidated balance sheet at September 30, 2016 were adjusted2020.
Note 3 – Accounts Receivable Agreements
The Company’s Wireless segment has entered into an agreement to include intangible amortization expensesell certain receivables with recourse to an unrelated third-party financial institution. The Company is responsible for collecting payments on the sold receivables from its customers. Under this agreement, the third-party financial institution advances the Company 90% of $21 thousandthe sold receivables and $0.5establishes a reserve of 10% of the sold receivables until the Company collects the sold receivables. In addition, the third party financial institution will charge and deduct 1.6% of sold receivables. As the Company collects the sold receivables, the third-party financial institution will remit the remaining 10% to the Company. At September 30, 2021, the third-party financial institution has a reserve against the sold receivables of $0.3 million, respectively,which is reflected as restricted cash. For the receivables sold under the agreement with recourse, the agreement addresses events and Triton Datacom earn-out expensesconditions which may obligate the Company to immediately repay the institution the outstanding purchase price of $19 thousand and $0.6the receivables sold. The total amount of receivables uncollected by the institution was $2.1 million respectively. Incremental interest expenseat September 30, 2021, for which there is a limit of $7 thousand and $0.2 million was included for$3.5 million. Although the yearssale of receivables is with recourse, the Company did not record a recourse obligation at September 30, 2021 as the Company determined the sold receivables are collectible.
For the year ended September 30, 20172021, the Company received proceeds from the sold receivables under all of their various agreements of $18.3 million and September 30, 2016, respectively, as ifincluded the $4.0proceeds in net cash provided by operating activities in the consolidated statements of cash flows. The Company recorded related costs of $0.2 million term loan used to help fund the acquisition had been entered into on October 1, 2015. In addition, $0.1 million of interest expense was included for the guaranteed payments to the Triton Miami owners for the year ended September 30, 2016. The unaudited pro forma earnings for the year ended September 30, 2016 were adjusted to include $0.2 million of acquisition-related costs recorded as operating, selling, general and administrative expenses2021, in other expense in the Consolidated Statements of Operations. The unaudited pro forma financial information is provided for informational purposes only and does not purport to be indicative of the Company’s combined results of operations which would actually have been obtained had the acquisition taken place on October 1, 2015, nor should it be taken as indicative of our future consolidated resultsstatements of operations.
| | | Years Ended September 30, | |
| | | 2017 | | | 2016 | |
| | | (in thousands, except per share amounts) | |
| Sales | | $ | 49,152 | | | $ | 44,986 | |
| Income from operations | | $ | 377 | | | $ | 151 | |
| Net income | | $ | 36 | | | $ | 7 | |
| Earnings per share: | | | | | | | | |
| Basic | | $ | 0.00 | | | $ | 0.00 | |
| Diluted | | $ | 0.00 | | | $ | 0.00 | |
Note 34 – Inventories
Inventories, which are all within the Telco segment, at September 30, 20172021 and 20162020 are as follows:follows, in thousands:
| | | September 30, 2017 | | | September 30, 2016 | |
| New: | | | | | | |
| Cable TV | | $ | 14,014,188 | | | $ | 15,087,495 | |
| Telco | | | 554,034 | | | | – | |
| Refurbished and used: | | | | | | | | |
| Cable TV | | | 3,197,426 | | | | 3,383,079 | |
| Telco | | | 7,507,460 | | | | 5,625,213 | |
| Allowance for excess and obsolete inventory: | | | | | | | | |
| Cable TV | | | (2,300,000 | ) | | | (2,219,586 | ) |
| Telco | | | (639,288 | ) | | | (351,282 | ) |
| | | | | | | | | |
| Total inventories | | $ | 22,333,820 | | | $ | 21,524,919 | |
| | | | | | | | | | | |
| | 2021 | | 2020 |
| New equipment | $ | 1,295 | | | $ | 1,311 | |
| Refurbished and used equipment | 8,103 | | | 7,319 | |
| Allowance for excess and obsolete inventory: | (3,476) | | | (3,054) | |
| | | |
| Total inventories, net | $ | 5,922 | | | $ | 5,576 | |
New inventoryequipment includes products purchased from the manufacturers plus “surplus-new”, which are unused products purchased from other distributors or multiple system operators. Refurbished inventoryand 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.
The Company regularly reviews the Cable TV and Telco segment inventory quantities on hand, and an adjustment to cost is recognized when the loss of usefulness of an item or other factors, such as obsolete and excess inventories, indicate that cost will not be recovered when an item is sold. The Company recorded charges in the Cable TV segment to allow for excess and obsolete inventory, which increased cost of sales by $0.6 million for each ofIn the years ended September 30, 2017, 20162021 and 2015.
For the Telco segment, any obsolete and excess telecommunications inventory is generally processed through its recycling program when it is identified. However, in fiscal years ended September 30, 2017 and September 30, 2016,2020, 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 sold, and had not yet been processed through its recycling program. Therefore, the CompanyThe Telco segment recorded inventory obsolescence charges which increased cost of sales by $0.3$0.4 million and $0.4$1.8 million for the years ended
September 30, 20172021 and 2016,2020, respectively to allow for excess and obsolete inventory. For the year endedCompany has a $3.5 million allowance at September 30, 2015, there was not a charge recorded for excess and obsolete inventory. We2021. The Company also reviewed the cost of inventories against estimated net realizable value and recorded a lower of cost or net realizable value charge of $0.1 million for each of the years ended September 30, 20172021 and September 30, 2016 of $0.1 million2020, for inventories that have a cost in excess of estimated net realizable value.
Note 4 – Investment In and Loans to Equity Method Investee
The Company entered into a joint venture, YKTG Solutions, LLC (“YKTG Solutions”), in March 2016, whose primary purpose was to support decommission work on cell tower sites across 13 states in the northeast on behalf of a major U.S. wireless provider. YKTG Solutions is owned 51% by YKTG, LLC and 49% by the Company, and YTKG Solutions is certified as a minority-based enterprise. The joint venture is governed by an operating agreement for the purpose of completing the decommission project, but the operating agreement can be expanded to include other projects upon agreement by both owners. The Company accounts for its investment in YKTG Solutions using the equity-method of accounting.
In 2017, the U.S. wireless provider changed the process for assigning the various sites within the decommission project, which YKTG Solutions believed would result in a negative cash flow for the joint venture. Accordingly, YKTG Solutions elected to suspend the acceptance of any further work under the decommission project unless and until the U.S. wireless provider resumes its previous process of assigning the sites under the decommission project.
The Company’s carrying value in YKTG Solutions was $0.1 million at September 30, 2017 and is reflected in investment in and loans to equity method investee in the Consolidated Balance Sheets. During the year ended September 30, 2017, the Company received payments, net of advances, totaling $2.4 million from YKTG Solutions.
YKTG Solutions entered into a $2.0 million surety payment bond whereby the Company and YKTG, LLC are guarantors under the surety payment bond. Therefore, the Company’s total estimate of maximum exposure to loss as a result of its relationship with YKTG Solutions was the $0.1 million carrying value and the $2.0 million surety payment bond.
To date, this joint venture has incurred net operating losses, and, as of September 30, 2017, the total assets of the joint venture are less than the amount it owes to the Company under a line of credit that the Company provided to YKTG Solutions. Since YKTG Solutions has suspended any additional work for the U.S. wireless provider and YKTG Solutions will not have sufficient assets to repay the line of credit owed to the Company, the Company is pursuing collecting the outstanding line of credit from the YKTG, LLC owners under the personal guarantees they each have with the Company. After considering the personal guarantees the Company has with the joint venture partners and the equity losses already recorded, the Company has adjusted the investment in and loans to equity method investee to the estimated net realizable amount of $0.1 million by recording an allowance against the loan of $0.1 million.
Note 5 – Intangible Assets
The intangible assets with their associated accumulated amortization amounts at September 30, 20172021 and September 30, 2020 are as follows:follows, in thousands:
| | | | | September 30, 2021 |
| | | Gross | | | Accumulated Amortization | | | Net | | | Gross | | Accumulated
Amortization | | Impairment | | Net |
| Intangible assets: | | | | | | | | | | Intangible assets: | | | | | | | |
| Customer relationships – 10 years | | $ | 8,152,000 | | | $ | (1,898,691 | ) | | $ | 6,253,309 | | Customer relationships – 10 years | $ | 3,155 | | | $ | (2,780) | | | $ | — | | | $ | 375 | |
| Technology – 7 years | | | 1,303,000 | | | | (667,009 | ) | | | 635,991 | | |
| Trade name – 10 years | | | 2,119,000 | | | | (542,480 | ) | | | 1,576,520 | | Trade name – 10 years | 2,122 | | | (1,390) | | | — | | | 732 | |
| Non-compete agreements – 3 years | | | 374,000 | | | | (292,333 | ) | | | 81,667 | | Non-compete agreements – 3 years | 374 | | | (374) | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
| Total intangible assets | | $ | 11,948,000 | | | $ | (3,400,513 | ) | | $ | 8,547,487 | | Total intangible assets | $ | 5,651 | | | $ | (4,544) | | | $ | — | | | $ | 1,107 | |
The
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 |
| | Gross | | Accumulated
Amortization | | Impairment | | Net |
| Intangible assets: | | | | | | | |
| Customer relationships – 10 years | $ | 8,396 | | | $ | (4,021) | | | $ | (3,894) | | | $ | 481 | |
| Trade name – 10 years | 2,122 | | | (1,178) | | | — | | | 944 | |
| Non-compete agreements – 3 years | 374 | | | (374) | | | — | | | — | |
| | | | | | | |
| Total intangible assets | $ | 10,892 | | | $ | (5,573) | | | $ | (3,894) | | | $ | 1,425 | |
As of March 31, 2020, the Company determined that changes in the economy related to the COVID-19 pandemic and the continued losses experienced in the Telco segment may cause the carrying amounts of its intangible assets withto exceed their associated accumulated amortization amounts at September 30, 2016 arefair values. The Company performed an assessment of its intangible assets and determined that the carrying value of its customer relationships were in fact impaired based on valuation appraisals performed by the Company using a multi-period excess earnings model. Therefore, the Company recorded a $3.9 million impairment charge in the Telco segment as follows:
| | | Gross | | | Accumulated Amortization | | | Net | |
| Intangible assets: | | | | | | | | | |
| Customer relationships – 10 years | | $ | 4,257,000 | | | $ | (1,099,721 | ) | | $ | 3,157,279 | |
| Technology – 7 years | | | 1,303,000 | | | | (480,866 | ) | | | 822,134 | |
| Trade name – 10 years | | | 1,293,000 | | | | (334,023 | ) | | | 958,977 | |
| Non-compete agreements – 3 years | | | 254,000 | | | | (218,721 | ) | | | 35,279 | |
| | | | | | | | | | | | | |
| Total intangible assets | | $ | 7,107,000 | | | $ | (2,133,331 | ) | | $ | 4,973,669 | |
of March 31, 2020. Amortization expense was $1.3 million, $0.8$0.3 million and $0.8$0.7 million for the years ended September 30, 2017, 20162021 and 2015,2020, respectively.
The estimated aggregate amortization expense for each of the next five fiscal years is as follows:follows, in thousands:
| | | | | |
| 2022 | $ | 319 | |
| 2023 | 319 | |
| 2024 | 195 | |
| 2025 | 107 | |
| 2026 | 107 | |
| Thereafter | 60 | |
| |
| Total | $ | 1,107 | |
| 2018 | | $ | 1,253,243 | |
| 2019 | | | 1,253,243 | |
| 2020 | | | 1,214,910 | |
| 2021 | | | 1,104,663 | |
| 2022 | | | 1,027,100 | |
| Thereafter | | | 2,694,328 | |
| | | | | |
| Total | | $ | 8,547,487 | |
Note 6 – Income Taxes
The provision (benefit) for income taxes for the years ended September 30, 2017, 2016 and 2015 consists of:
| | | 2017 | | | 2016 | | | 2015 | |
| Current | | $ | 174,000 | | | $ | 22,000 | | | $ | 1,114,000 | |
| Deferred | | | (320,000 | ) | | | 157,000 | | | | (341,000 | ) |
Total provision (benefit) for income taxes | | $ | (146,000 | ) | | $ | 179,000 | | | $ | 773,000 | |
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 years ended September 30, 2017, 2016 and 2015:
| | | 2017 | | | 2016 | | | 2015 | |
| Statutory tax rate | | | 34.0 | % | | | 34.0 | % | | | 34.0 | % |
| State income taxes, net of U.S. federal tax benefit | | | 43.7 | % | | | (4.4 | %) | | | 2.1 | % |
| Return to accrual adjustment | | | (9.8 | %) | | | 1.5 | % | | | (3.0 | %) |
| Tax credits | | | 8.2 | % | | | − | | | | (0.9 | %) |
| Charges without tax benefit | | | (16.2 | %) | | | 6.8 | % | | | 1.6 | % |
| Other exclusions | | | (0.1 | %) | | | (0.1 | %) | | | 0.2 | % |
| | | | | | | | | | | | | |
| Company’s effective tax rate | | | 59.8 | % | | | 37.8 | % | | | 34.0 | % |
The charges without tax benefit rate for fiscal year 2017 includes, among other things, the impact of officer life insurance and nondeductible meals and entertainment.
The tax effects of temporary differences related to deferred taxes at September 30, 2017 and 2016 consist of the following:
| | | 2017 | | | 2016 | |
| Deferred tax assets: | | | | | | |
| Net operating loss carryforwards | | $ | 29,000 | | | $ | 281,000 | |
| Accounts receivable | | | 58,000 | | | | 97,000 | |
| Inventory | | | 1,432,000 | | | | 1,269,000 | |
| Intangibles | | | 560,000 | | | | 351,000 | |
| Accrued expenses | | | 175,000 | | | | 169,000 | |
| Stock options | | | 246,000 | | | | 226,000 | |
| Investment in equity method investee | | | 174,000 | | | | – | |
| Other | | | 179,000 | | | | 76,000 | |
| | | | 2,853,000 | | | | 2,469,000 | |
| | | | | | | | | |
| Deferred tax liabilities: | | | | | | | | |
| Financial basis in excess of tax basis of certain assets | | | 1,156,000 | | | | 926,000 | |
| Investment in equity method investee | | | – | | | | 143,000 | |
| Other | | | 44,000 | | | | 67,000 | |
| | | | | | | | | |
| Net deferred tax asset | | $ | 1,653,000 | | | $ | 1,333,000 | |
The Company’s net operating loss carryforward totals approximately $0.1 million at September 30, 2017. The net operating loss carryforward expires in 2036.
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 historical earnings and projected future earnings, that it will be able to realize the full effect of the deferred tax assets and no valuation allowance 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 2014.
Note 76 – Accrued Expenses
Accrued expenses at September 30, 20172021 and 20162020 are as follows:follows, in thousands:
| | | | | | | | | | | |
| 2021 | | 2020 |
| Employee costs | $ | 1,255 | | | $ | 942 | |
| Taxes other than income tax | (13) | | | 49 | |
| Interest | 5 | | | 23 | |
| Other, net | 334 | | | 263 | |
| | | |
| Total accrued expenses | $ | 1,581 | | | $ | 1,277 | |
| | | 2017 | | | 2016 | |
| Employee costs | | $ | 884,390 | | | $ | 1,123,940 | |
| Triton Datacom earn-out | | | 222,611 | | | | − | |
| Taxes other than income tax | | | 163,016 | | | | 120,455 | |
| Interest | | | 22,121 | | | | 13,836 | |
| Other, net | | | 114,584 | | | | 66,421 | |
| | | | | | | | | |
| | | $ | 1,406,722 | | | $ | 1,324,652 | |
Note 87 – Debt
Loan Agreement
On March 10, 2020, the Company entered into a loan agreement with its primary financial lender for $3.5 million, bearing interest at 6% per annum. The loan was payable in 7 semi-annual installments of principal and interest with the first payment occurring June 30, 2020. In connection with the $1.5 million payment received in the first fiscal quarter of 2021 from the promissory note receivable, the Company fully repaid the remaining $1.2 million of principal outstanding under this loan.
Line of Credit and Notes Payable
Credit Agreement
Notes Payable
The Company has an Amended and Restated Revolving Credit and Term Loan Agreement (“Credit and Term Loan Agreement”)a $4.0 million revolving line of credit agreement with its primary financial lender. RevolvingThe line of credit requires quarterly interest payments based on the Wall Street Journal Prime Rate ("WSJP") floating rate with a 4% minimum, and term loans createda fixed charge coverage ratio of 1.25x to be tested quarterly beginning June 30, 2021. At September 30, 2021, there was $2.1 million outstanding under the Credit and Term Loan Agreementline of credit. Future borrowings under the line of credit are collateralized by inventory,limited to the lesser of $4.0 million or the sum of 80% of eligible accounts receivable equipment and fixtures, general intangibles and a mortgage on certain property. Among other60% of eligible Telco segment inventory. Under these limitations, the Company’s total line of credit additional borrowing capacity over the amount outstanding was $1.9 million as of September 30, 2021. On December 14, 2021, the Company signed an agreement with its primary financial covenants,lender to extend the Credit and Term expiration date of its revolving line of credit to January 17, 2022. The Company is in the process of completing an annual extension which the Company expects will be completed by the new expiration date.
Loan AgreementCovenant with Primary Financial Lender
The credit agreement provides that the Company maintain a fixed charge coverage ratio (net cash flow to total fixed charges)charge) of not less than 1.25 to 1.0 and a leverage ratio (total funded debt to EBITDA) of not more than 2.50 to 1.0. Both financial covenants are determined quarterly.be tested quarterly beginning June 30, 2021. The Company was not in compliance with the fixed charge ratiothis covenant at September 30, 2017.2021. The Company notified its primary financial lender of the covenant violation, and on December 1, 2017,22, 2021, the primary financial lender granted a waiver of the covenant violation under the Credit and Termcredit agreement.
Paycheck Protection Program Loan Agreement. Subsequent to September 30, 2017, the Company elected to extinguish its second term loan in December 2017 as part of the Company’s overall plan to become compliant with its financial covenants. As a result, the Company believes it will be in compliance with its financial covenants at December 31, 2017.
At September 30, 2017, the Company has three term loans outstanding under the Credit and Term Loan Agreement. The first outstanding term loan has an outstanding balance of $0.8 million at September 30, 2017 and is due on November 30, 2021, with monthly principal payments of $15,334 plus accrued interest. The interest rate is the prevailing 30-day LIBOR rate plus 1.4% (2.63% at September 30, 2017) and is reset monthly.
The second outstanding term loan has an outstanding balance of $2.7 million at September 30, 2017 and is due March 4, 2019, with monthly principal and interest payments of $68,505, with the balance due at maturity. It is a five year term loan with a seven year amortization payment schedule with a fixed interest rate of 4.07%. Subsequent to September 30, 2017, the Company extinguished the second term loan by paying the outstanding balance plus a prepayment penalty of $25 thousand. As a result, the Company has classified the second term loan balance at September 30, 2017 in Notes payable – current portion in the Company’s Consolidated Balance Sheet.
In connection with the acquisition of Triton Miami,On April 14, 2020, the Company entered into a third terman unsecured loan under the Credit and Term Loan Agreement in the amount of $4.0 million. This term loan$2.9 million ("PPP Loan") with its primary lender pursuant to the Paycheck Protection Program ("PPP") which is sponsored by the Small Business Administration (“SBA”), and is part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), as amended by the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”). The Company applied for and has an outstanding balancebeen notified by the SBA that $2.9 million in eligible expenditures for payroll and other expenses described in the CARES Act has been forgiven. Loan and accrued interest forgiveness is reflected in the accompanying financial statements as a gain on extinguishment of $2.8 million atdebt.
As of September 30, 2017 and is due on October 14, 2019, with monthly principal and interest payments of $118,809. The interest rate on2021, the term loan is a fixed interest rate of 4.40%.
The aggregate minimum maturities of notes payabledebt for each of the next five years and thereafter are as follows:follows, in thousands:
| 2018 | | $ | 4,189,605 | |
| 2019 | | | 1,565,476 | |
| 2020 | | | 298,880 | |
| 2021 | | | 184,008 | |
| 2022 | | | 45,882 | |
| Thereafter | | | – | |
| | | | | |
| Total | | $ | 6,283,851 | |
Line | | | | | |
| 2022 | $ | 2,050 | |
| Thereafter | — | |
| Total | $ | 2,050 | |
Note 8 – Leases
ADDvantage adopted ASU No. 2016-02, Topic 842 (ASC 842) - Leases, effective October 1, 2019. This ASU requires lessees to recognize an operating lease or right-of-use ("ROU") asset and liability on the balance sheet for all ROU leases with an initial lease term greater than twelve months.
ASU 2018-11 Leases – Targeted Improvements, allows for a practical expedient wherein all periods previously reported under ASC 840 will continue to be reported under ASC 840, and periods beginning October 1, 2019 and after are reported under ASC 842. ADDvantage elected to adopt this practical expedient along with the package of Creditpractical expedients, which allows the Company to combine lease and non-lease costs.
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.
ROU lease expense consists of rent expense related to leases that were included in ROU assets under ASC 842. ADDvantage recognizes ROU lease expense on a straight-line basis, 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).
As a result of adopting ASC 842, on the effective date, the Company recognized ROU assets and liabilities of $4.6 million, and financing lease assets and liabilities of $1.4 million. ROU leases are included in ROU assets and current or long-term ROU obligations on the 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 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.
Impairment of ROU asset - The Company has a $7.0 million Revolving LineROU for a building in Jessup, Maryland for Nave Communications. The Company ceased operations in Jessup, Maryland in May 2020, and vacated the Jessup, Maryland building. The building was partially subleased during fiscal year 2020. During the third quarter of Credit (“Line of Credit”) under the Credit and Term Loan Agreement. On March 31, 2017,2020, the Company executeddetermined that the Eighth Amendment under the CreditROU asset was not recoverable and Term Loan Agreement. This amendment extended the Line of Credit maturityused an income approach to March 30, 2018, while other terms of the Line of Credit remained essentially the same. At September 30, 2017, the Company had no balance outstanding under the Line of Credit. The Line of Credit requires quarterly interest payments based on the prevailing 30-day LIBOR rate plus 2.75% (3.99% at September 30, 2017), and the interest rate is reset monthly. Any future borrowings under the Line of Credit are due on March 30, 2018. Future borrowings under the Line of Credit are limited to the lesser of $7.0 million or the net balance of 80% of qualified accounts receivable plus 50% of qualified inventory. Under these limitations, the Company’s total available Line of Credit borrowing base was $7.0 million at September 30, 2017.
Fair Value of Debt
The carrying value of the Company’s variable-rate term loan approximatesestimate its fair value, sincedetermining that the interest rate fluctuates periodically based on a floating interest rate.carrying value was partially impaired. Therefore, the Company recorded $0.7 million of impairment charges related to the lease in the Telco segment during the year ended September 30, 2020.
The Company has determinedcomponents of lease expense for the fair value of its fixed-rate term loan utilizing the Level 2 hierarchy as the fair value can be estimated from broker quotes corroborated by other market data. These broker quotes are based on observable market interest rates at which loans with similar terms and maturities could currently be executed. The Company then estimated the fair value of the fixed-rate term loan using cash flows discounted at the current market interest rate obtained. The fair value of the Company’s second term loan was approximately $2.7 million as ofyears ended September 30, 2017. The fair value of2021, and 2020 are as follows, in thousands:
| | | | | | | | | | | |
| 2021 | | 2020 |
| Right-of-use lease cost | | | |
| Impairment of right-of-use asset | $ | — | | | $ | 660 | |
| Right-of-use lease cost | 1,160 | | | 926 | |
| Total right-of-use lease cost | $ | 1,160 | | | $ | 1,586 | |
| Finance lease costs | | | |
| Amortization assets under finance leases | $ | 412 | | | $ | 335 | |
| Interest on finance lease liabilities | 75 | | | 59 | |
| Total finance lease cost | $ | 487 | | | $ | 394 | |
Supplemental cash flow information related to leases for the Company’s third outstanding fixed rate loan was $2.8 million atyears ended September 30, 2017.2021, and 2020 are as follows, in thousands:
| | | | | | | | | | | |
| 2021 | | 2020 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows from right-of-use leases | $ | 1,160 | | | $ | 1,586 | |
| Operating cash flows from finance leases | $ | 75 | | | $ | 59 | |
| Financing cash flows from finance leases | $ | 484 | | | $ | 388 | |
| | | | | | | | | | | |
| Supplemental balance sheet information related to leases are as follows, in thousands: |
| September 30, 2021 | | September 30, 2020 |
| Right-of-use leases | | | |
| Right-of-use lease assets | $ | 2,730 | | | $ | 3,758 | |
| | | |
| Right-of-use lease obligations - current | $ | 1,198 | | | $ | 1,275 | |
| Right-of-use lease obligations | 2,141 | | | 3,310 | |
| Total right-of-use lease liabilities | $ | 3,339 | | | $ | 4,585 | |
| | | |
| Finance leases | | | |
| Property and equipment, gross | $ | 2,843 | | | $ | 1,463 | |
| Accumulated depreciation | (707) | | | (393) | |
| Property and equipment, net | $ | 2,136 | | | $ | 1,070 | |
| | | |
| Financing lease obligations - current | $ | 582 | | | $ | 285 | |
| Financing lease obligations | 1,429 | | | 791 | |
| Total finance lease liabilities | $ | 2,011 | | | $ | 1,076 | |
| | | |
| Weighted Average Remaining Lease Term | | | |
| Right-of-use leases | 2.78 years | | 3.75 years |
| Finance leases | 3.75 years | | 3.88 years |
| Weighted Average Discount Rate | | | |
| Right-of-use leases | 5.00 | % | | 5.00 | % |
| Finance leases | 6.72 | % | | 4.96 | % |
Maturities of lease liabilities are as follows for the year ending September 30, 2021, in thousands:
| | | | | | | | | | | |
| Right-of-Use Leases | | Finance Leases |
| 2022 | $ | 1,341 | | | $ | 700 | |
| 2023 | 1,328 | | | 605 | |
| 2024 | 802 | | | 523 | |
| 2025 | 151 | | | 303 | |
| 2026 | — | | | 166 | |
| | | |
| Total lease payments | 3,622 | | | 2,297 | |
| Less: imputed interest | 283 | | | 286 | |
| Total lease obligations | $ | 3,339 | | | $ | 2,011 | |
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. Under the Plan, option prices will be set by the Compensation Committee and may not be less than the fair market value of the stock on the grant date.
At September 30, 2017, 1,100,4152021, 2,100,415 shares of common stock were reserved for stock award grants under the Plan. Of these reserved shares, 212,451297,389 shares were available for future grants.
Stock Options
All share-based payments to employees, including grants of employee stock options, are recognized in the consolidated financial statements based on their grant date fair value over the requisite service period. Compensation expense for stock-based awards is included in the operating, selling, general and administrative expense section of the Consolidated Statementsconsolidated statements of Operations.
operations.
Stock options are valued at the date of the award, which does not precede the approval date, and compensation cost is recognized on a straight-line basis over the vesting period. Stock options granted to employees generally become exercisable over a three four or five-year periodyears from the date of grant and generally expire ten years after the date of grant. Stock options granted to the Board of Directors generally become exercisable on the date of grant and generally expire ten years after the date of grant.
A summary of the status of the Company's stock options at September 30, 20172021 and changes during the year then ended is presented below:below in thousands, except share and per share amounts:
| | | Options | | | Weighted Average Exercise Price | | | Aggregate Intrinsic Value | | | | | | | | | | | | | | | | |
| Outstanding at September 30, 2016 | | | 570,000 | | | $ | 2.73 | | | | | |
| | | | Options (Shares) | | Weighted Average
Exercise
Price | | Aggregate
Intrinsic
Value |
| Outstanding at September 30, 2020 | | Outstanding at September 30, 2020 | 100,000 | | | $ | 1.55 | | | $ | 37 | |
| Granted | | | 140,000 | | | $ | 1.80 | | | | | Granted | — | | | — | | | — | |
| Exercised | | | − | | | $ | – | | | $ | 0 | | Exercised | (49,000) | | | 1.81 | | | 49 | |
| Expired | | | (10,000 | ) | | $ | 3.45 | | | | | | Expired | — | | | — | | | — | |
| Forfeited | | | – | | | $ | – | | | | | | Forfeited | (1,000) | | | 1.81 | | | — | |
| Outstanding at September 30, 2017 | | | 700,000 | | | $ | 2.54 | | | $ | 0 | | |
| Exercisable at September 30, 2017 | | | 526,667 | | | $ | 2.78 | | | $ | 0 | | |
| Outstanding at September 30, 2021 | | Outstanding at September 30, 2021 | 50,000 | | | $ | 1.28 | | | $ | 54 | |
| Exercisable at September 30, 2021 | | Exercisable at September 30, 2021 | 33,334 | | | $ | 1.28 | | | $ | 36 | |
The intrinsic value of exercised options exercised under the Plan for the years ended September 30, 2017, 20162021 and 2015.2020, in thousands:
| | | | | | | | | | | |
| |
| 2021 | | 2020 |
| | | |
| Value at exercise date | $ | 137 | | | $ | 510 | |
| Exercise price | 88 | | | 206 | |
| Intrinsic value | $ | 49 | | | $ | 304 | |
Information about the Company’s outstanding and exercisable stock options at September 30, 20172021 is as follows:follows, in thousands except share and per share amounts:
| | | | | | | Exercisable | | Remaining |
| | | | Stock Options | | | Stock Options | | Contractual |
| Exercise Price | | | Outstanding | | | Outstanding | | Life |
| | $1.790 | | | | 50,000 | | | | – | | 9.6 years |
| | $1.810 | | | | 90,000 | | | | – | | 9.4 years |
| | $1.750 | | | | 50,000 | | | | 16,667 | | 8.6 years |
| | $3.210 | | | | 200,000 | | | | 200,000 | | 6.5 years |
| | $2.450 | | | | 250,000 | | | | 250,000 | | 4.5 years |
| | $3.001 | | | | 60,000 | | | | 60,000 | | 0.9 years |
| | | | | | 700,000 | | | | 526,667 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Exercise Price | | Stock Options
Outstanding | | Exercisable
Stock Options
Outstanding | | Remaining Contractual Life | | Aggregate
Intrinsic
Value |
| $ | 1.28 | | | 50,000 | | | 33,334 | | | 7.25 | | $ | 36 | |
| | | | | | | | |
| | | | | | | | |
The Company granted no nonqualified stock options for the years ended September 30, 2021 and 2020, respectively.
The Company realized a net benefit related to the recognition of 140,000 shares and 50,000 shares forforfeitures of stock options during the year ended September 30, 2017 and September 30, 2016, respectively. No nonqualified stock options were granted in 2015. The Company estimated the fair value of the options granted using the Black-Scholes option valuation model and the assumptions shown in the table below. The Company estimated the expected term of options granted based on the historical grants and exercises of the Company's options. The Company estimated the volatility of its common stock at the date of the grant based on both the historical volatility as well as the implied volatility on its common stock. The Company based the risk-free rate that was used in the Black-Scholes option valuation model on the implied yield in effect at the time of the option grant on U.S. Treasury zero-coupon issues with equivalent expected terms. The Company has never paid cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company used an expected dividend yield of zero in the Black-Scholes option valuation model. The Company amortizes the resulting fair value of the options ratably over the vesting period of the awards. The Company used historical data to estimate the pre-vesting options forfeitures and records share-based expense only for those awards that are expected to vest.
The estimated fair value at date of grant for stock options utilizing the Black-Scholes option valuation model and the assumptions that were used in the Black-Scholes option valuation model for the fiscal years 2017 and 2016 stock option grants are as follows:
| | | 2017 | | | 2016 | |
| Estimated fair value of options at grant date | | $ | 96,690 | | | $ | 34,350 | |
| Black-Scholes model assumptions: | | | | | | | | |
| Average expected life (years) | | | 6 | | | | 6 | |
| Average expected volatile factor | | | 35 | % | | | 38 | % |
| Average risk-free interest rate | | | 2.4 | % | | | 1.75 | % |
| Average expected dividend yield | | | – | | | | – | |
2020. Compensation expense related to stock options recorded for the years ended September 30, 2017, 20162021 and 20152020 is as follows:
| | | 2017 | | | 2016 | | | 2015 | |
| Fiscal year 2012 grant | | $ | 5,359 | | | $ | 17,417 | | | $ | 33,044 | |
| Fiscal year 2014 grant | | | 13,575 | | | | 47,522 | | | | 108,624 | |
| Fiscal year 2016 grant | | | 16,221 | | | | 8,745 | | | | – | |
| Fiscal year 2017 grant | | | 31,088 | | | | – | | | | – | |
| | | | | | | | | | | | | |
| Total compensation expense | | $ | 66,243 | | | $ | 73,684 | | | $ | 141,668 | |
| | | | | | | | | | | |
| | 2021 | | 2020 |
| Fiscal year 2017 grant | $ | — | | | $ | (6) | |
| Fiscal year 2019 grant | 3 | | | — | |
| | | |
| | | |
| | | |
| Total compensation expense | $ | 3 | | | $ | (6) | |
The Company records compensation expense over the vesting term of the related options. At September 30, 2017,2021, compensation costs related to these unvested stock options not yet recognized in the statements of operations was $74,985.
approximately $0.0 million which will be fully amortized by 2022.
Restricted stock awards
TheIn fiscal year 2021, the Company granted restricted stock in March 2017, 2016 and 2015a total of 24,390 shares to its Board of Directors and a Company officer totaling 58,009, 62,874 shares and 31,915 shares, respectively. The restricted stock grants were valued at market value on the date of grant. The restricted shares are delivered to the directors and employees at the end of the 12 month holding period. For the shares granted in March 2015, a director resigned from the Board of Directors prior to the expiration of the respective holding period, so their individual share grant of 6,383 shares for 2015 was forfeited. The fair value of the shares upon issuance totaled $105,000, $105,000 and $60,000 for the 2017, 2016 and 2015 fiscal year grants, respectively. The grants are amortized over the 12 month holding period as compensation expense. The Company granted restricted stock in December 2015 and October 2015 to two new Directors totaling 3,333 and 4,465 shares, respectivelyboard member, which were valued at market value on the date of the grants. The holding restriction on these shares expired the first week of March 2016.grant and vested immediately. The fair value of the shares issued December 2015 and October 2015upon issuance totaled $7,500 and $10,000, respectively and was amortized over$0.1 million.
In fiscal year 2021, the holding period as compensation expense.
The Company granted restricted stock in Aprila total of 2014588,857 shares to certain employees totaling 23,676 shares,members of management, which were valued at market value on the date of grant. The shares have a holding restriction, which will expireranged in equal annual installments of 7,892 shares overvesting periods from one to three years starting in April 2015.years. The fair value of thesethe shares upon issuance totaled $76,000$1.3 million.
A summary of the Company's non-vested restricted share awards (RSA) at September 30, 2021 and changes during the year ended September 30, 2021 is being amortized overpresented in the respective one, two and three year holding periods as compensation expense.following table ($ in thousands):
| | | | | | | | | | | |
| Shares | | Fair Value |
| Non-vested at September 30, 2020 | 475,024 | | | $ | 1,058 | |
| Granted | 613,247 | | | 1,372 | |
| Vested | (228,358) | | | (455) | |
| Forfeited | (120,000) | | | (270) | |
| Non-vested at September 30, 2021 | 739,913 | | | $ | 1,706 | |
Compensation expense related to restricted stock recorded for the years ended September 30, 2017, 20162021 and 20152020 is as follows:
| | | 2017 | | | 2016 | | | 2015 | |
| Fiscal year 2014 grants | | $ | 4,222 | | | $ | 14,779 | | | $ | 58,778 | |
| Fiscal year 2015 grants | | | – | | | | 25,000 | | | | 39,167 | |
| Fiscal year 2016 grants | | | 43,750 | | | | 78,750 | | | | − | |
| Fiscal year 2017 grant | | | 61,250 | | | | − | | | | – | |
| | | | | | | | | | | | | |
| | | $ | 109,222 | | | $ | 118,529 | | | $ | 97,945 | |
Note 10 – Retirement Planfollows, in thousands:
| | | | | | | | | | | |
| | 2021 | | 2020 |
| Fiscal year 2020 grant | $ | 450 | | | $ | 15 | |
| Fiscal year 2021 grant | 556 | | | 565 | |
| | | |
| Total compensation expense | $ | 1,006 | | | $ | 580 | |
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 sponsorsdid not recognize a 401(k) plan that allows participation by all employees who are at least 21 years of age and have completed one year of service. The Company's contributions to the plan consist of a matching contribution as determined by the plan document. Coststax benefit for compensation expense recognized under the 401(k) plan were $0.3 million for each ofduring the years ended September 30, 2017, 20162021 and 2015.
2020.
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 will be made pursuant to a shelf registration statement on Form S-3 and the related prospectus filed by the Company with the Securities and Exchange Commission (the "SEC") on March 3, 2020, as amended on March 23, 2020, and declared effective by the SEC on April 1, 2020.
Pursuant to the Sales Agreement, Northland may sell the Shares by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933 (the “Securities Act”), including sales made by means of ordinary brokers’ transactions, including on The Nasdaq Global Market, at market prices or as otherwise agreed with Northland. Northland will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the Shares from time to time, based upon instructions from the Company, including any price or size limits or other customary parameters or conditions the Company may impose. The Sales Agreement may be terminated without prior notice at any time prior to the fulfillment of the Sales Agreement if additional sales are deemed not warranted.
The Company will pay Northland a commission rate equal to an aggregate of 3.0% of the aggregate gross proceeds from each sale of Shares and have agreed to provide Northland with customary indemnification and contribution rights. The Company will also reimburse Northland for certain specified expenses in connection with entering into the Sales Agreement. The Sales Agreement contains customary representations and warranties and conditions to the placements of the Shares pursuant thereto.
During the year ended September 30, 2021, 245,973 shares were sold by Northland on behalf of the Company with gross proceeds of $0.9 million, and net proceeds after commissions and fees of $0.9 million.
Note 11 - Supplemental Cash Flow Information
| | | | | | | | | | | |
| (in thousands) | Years ended September 30, |
| 2021 | | 2020 |
| | | |
| Supplemental cash flow information: | | | |
| Cash paid for interest | $ | 257 | | | $ | 230 | |
| | | |
| | | |
| Supplemental noncash investing activities: | | | |
| Assets acquired under financing leases | $ | 1,623 | | | $ | 1,352 | |
| | | |
Note 1112 – Earnings per Share
Basic and diluted earnings per share for the years ended September 30, 2017, 20162021 and 2015 are:2020, in thousands:
| | | 2017 | | | 2016 | | | 2015 | | | | | | | | | | | |
Net income (loss) attributable to common shareholders | | $ | (98,116 | ) | | $ | 294,163 | | | $ | 1,497,900 | | |
| | | | 2021 | | 2020 |
| | Net loss attributable to common shareholders | | Net loss attributable to common shareholders | $ | (6,502) | | | $ | (17,333) | |
| | Basic weighted average shares | | | 10,201,825 | | | | 10,141,234 | | | | 10,088,803 | | Basic weighted average shares | 12,401 | | | 11,164 | |
| Effect of dilutive securities: | | | | | | | | | | | | | Effect of dilutive securities: | |
| Stock options | | | – | | | | 4,062 | | | | – | | Stock options | — | | | — | |
| Diluted weighted average shares | | | 10,201,825 | | | | 10,145,296 | | | | 10,088,803 | | Diluted weighted average shares | 12,401 | | | 11,164 | |
| | | | | | | | | | | | | | | | | |
| Earnings (loss) per common share: | | | | | | | | | | | | | |
| Loss per common share: | | Loss per common share: | |
| Basic | | $ | (0.01 | ) | | $ | 0.03 | | | $ | 0.15 | | Basic | $ | (0.52) | | | $ | (1.55) | |
| Diluted | | $ | (0.01 | ) | | $ | 0.03 | | | $ | 0.15 | | Diluted | $ | (0.52) | | | $ | (1.55) | |
|
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 due to the option exercise price exceeding the average market price per share of our common stock for the fiscal year, asbecause their effect would be anti-dilutive.
| | | | 2017 | | | 2016 | | | 2015 | | | 2021 | | 2020 |
| Stock options excluded | | | 700,000 | | | | 520,000 | | | | 535,000 | | Stock options excluded | 50,000 | | | 100,000 | |
| Weighted average exercise price of | | | | | | | | | | | | | Weighted average exercise price of | |
| stock options | | $ | 2.54 | | | $ | 2.83 | | | $ | 2.88 | | stock options | $ | 1.28 | | | $ | 1.55 | |
| Average market price of common stock | | $ | 1.70 | | | $ | 1.90 | | | $ | 2.38 | | Average market price of common stock | $ | 2.57 | | | $ | 2.44 | |
Note 12 – Related Parties
The Company leases three facilities in Florida from a company owned by two employees. The total payments made on the leases were $0.1 million for the year ended September 30, 2017. The three leases terms extend through December 31, 2019.
David E. Chymiak and Kenneth A. Chymiak beneficially owned 26% and 19%, respectively, of the Company’s outstanding common stock at September 30, 2017.
Note 13 – Commitments and Contingencies
Income Taxes
The Company leases and rents various office and warehouse properties in Florida, Georgia, Maryland, North Carolina, Pennsylvania, and Tennessee. The terms on its operating leases vary and contain renewal options or are rented on a month-to-month basis. Rental payments associated with leased properties totaled $0.8 million, $0.7 million and $0.6 millionbenefit for income taxes for the years ended September 30, 2017, 20162021 and 2015, respectively. 2020 consists of, in thousands:
| | | | | | | | | | | |
| | 2021 | | 2020 |
| Continuing operations: | | | |
| Current | $ | (53) | | | $ | (1,249) | |
| Deferred | — | | | — | |
| | (53) | | | (1,249) | |
| Discontinued operations – current | — | | | — | |
| Total benefit for income taxes | $ | (53) | | | $ | (1,249) | |
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 years ended September 30, 2021 and 2020:
| | | | | | | | | | | |
| | 2021 | | 2020 |
| Statutory tax rate | 21.0 | % | | 21.0 | % |
| State income taxes, net of U.S. federal tax benefit | 5.4 | % | | 4.8 | % |
| Return to accrual adjustment | 5.8 | % | | — | % |
| Tax credits | — | % | | — | % |
| Charges without tax benefit | — | % | | 0.1 | % |
| | | |
| Valuation allowance | (32.7 | %) | | (19.4 | %) |
| Other exclusions | 1.3 | % | | 0.1 | % |
| | | |
| Company’s effective tax rate | 0.8 | % | | 6.6 | % |
The charges without tax benefit rate include, among other things, the impact of officer life insurance, nondeductible meals and entertainment and permanent basis differences in goodwill.
As a result of the CARES Act, the Company can carryback net operating losses (NOL) generated in 2018 through 2020 for a period of five years. As a result, the Company’s effective tax rate included an income tax benefit recognized during the fiscal year ended September 30, 2020 related to tax losses generated during the fiscal year up to the amount that the Company estimates is realizable based upon taxable income in the carryback periods. Therefore, as of September 30, 2020, the Company recorded a $1.2 million income tax receivable and a corresponding current benefit for income taxes. The Company continues to provide a valuation allowance of $8.5 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 September 30, 2021 and 2020 consist of the following, in thousands:
| | | | | | | | | | | |
| | 2021 | | 2020 |
| Deferred tax assets: | | | |
| Net operating loss carryforwards | $ | 5,895 | | | $ | 4,659 | |
| Accounts receivable | 69 | | | 69 | |
| Inventory | 966 | | | 883 | |
| Intangibles | 2,370 | | | 1,259 | |
| Accrued expenses | 334 | | | 132 | |
| Stock options | 5 | | | 14 | |
| Investment in equity method investee | — | | | 100 | |
| Other | 64 | | | — | |
| Total deferred tax assets | 9,703 | | | 7,116 | |
| | | |
| Deferred tax liabilities: | | | |
| Financial basis in excess of tax basis of certain assets | 815 | | | 416 | |
| Other | 365 | | | 323 | |
| Total deferred tax liabilities | 1,180 | | | 739 |
| Less valuation allowance | 8,523 | | | 6,377 | |
| | | |
| Net deferred taxes | $ | — | | | $ | — | |
The Company’s minimum annual future obligations under all existingU.S. Federal net operating leases for eachloss (“NOL”) carryforwards consist of the next fivefollowing, in thousands:
| | | | | | | | | | | |
| NOL carryforward | | Year Expires |
| Year ended September 30, 2021 | 9,500 | | | No expiry |
| Year ended September 30, 2020 | 9,270 | | | No expiry |
| Year ended September 30, 2019 | 1,605 | | | 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 $8.5 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 are as follows:before 2018.
| 2018 | | $ | 758,662 | |
| 2019 | | | 704,380 | |
| 2020 | | | 592,268 | |
| 2021 | | | 568,250 | |
| 2022 | | | 582,456 | |
| Thereafter | | | 696,926 | |
| | | | | |
| Total | | $ | 3,902,942 | |
Note 14 – Segment Reporting
The Company has twois reporting its financial performance based on its external reporting segments: Wireless Infrastructure Services and Telecommunications. These reportable segments Cable Television and Telecommunications, asare described below.
Wireless Infrastructure Services (“Wireless”) The Company's Wireless segment provides turn-key wireless infrastructure services for the 4 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.
Cable Television (“Cable TV”)
The Company’s Cable TV segment sells new, surplus and re-manufactured cable television equipment throughout North America, Central America, South America and, to a substantially lesser extent, other international regions that utilize the same technology. In addition, this segment repairs cable television equipment for various cable companies.
Telecommunications (“Telco”)
The Company’s Telco segment sells new and usedrefurbished telecommunications networking equipment, including both central office and customer premise equipment, to its customer base of telecommunications providers, enterprise customers and resellers located primarily in North America. This segment also offers its customers repair and testing services for telecommunications networking equipment. In addition, this segment offers its customers decommissioning services for surplus and obsolete equipment, which it in turn processes through its recycling services. As a result of the Triton Miami acquisition (see Note 2), this segment includes the Company’s newly formed Triton Datacom subsidiary, a provider of new and refurbished enterprise networking products, including IP desktop phones, enterprise switches and wireless routers.
program.
The Company evaluates performance and allocates its resources based on operating income. The accounting policies of its reportable segments are the same as those described in the summary of significant accounting policies.
Segment assets consist primarily of cash and cash equivalents, accounts receivable, inventory, property and equipment, goodwill and intangible assets.
The Company changed the allocation of corporate general and administrative expenses between our reportable business segments. At September 30, 2020, the Company did not allocate the corporate general and administrative expenses to the reportable segments and listed those expenses separate from the operating results of those reportable segments. During fiscal 2021, the Company reviewed its reportable segments and its corporate general and administrative expenses and allocation methodology, which resulted in the Company allocating its corporate general and administrative expenses to the reportable segments. The prior period allocations have been adjusted to reflect the Company's current allocation methodology.
| | | Years Ended | | | | | | | | | | | |
| (in thousands) | | (in thousands) | Twelve months ended September 30, |
| | | September 30, 2017 | | | September 30, 2016 | | | September 30, 2015 | | | 2021 | | 2020 |
| Sales | | | | | | | | | | Sales | | | |
| Cable TV | | $ | 22,806,175 | | | $ | 22,996,998 | | | $ | 25,396,779 | | |
| Wireless | | Wireless | $ | 20,708 | | | $ | 21,354 | |
| Telco | | | 25,994,521 | | | | 15,800,424 | | | | 18,835,116 | | Telco | 41,553 | | | 28,853 | |
| Intersegment | | | (86,950 | ) | | | (134,158 | ) | | | (498,275 | ) | Intersegment | (101) | | | (25) | |
Total sales | | $ | 48,713,746 | | | $ | 38,663,264 | | | $ | 43,733,620 | | Total sales | $ | 62,160 | | | $ | 50,182 | |
| | | | | | | | | | | | | | |
| Gross profit | | | | | | | | | | | | | Gross profit | | | |
| Cable TV | | $ | 7,738,355 | | | $ | 7,753,735 | | | $ | 8,025,651 | | |
| Wireless | | Wireless | $ | 6,277 | | | $ | 6,580 | |
| Telco | | | 7,072,238 | | | | 4,687,148 | | | | 7,273,238 | | Telco | 9,850 | | | 5,100 | |
Total gross profit | | $ | 14,810,593 | | | $ | 12,440,883 | | | $ | 15,298,889 | | Total gross profit | $ | 16,127 | | | $ | 11,680 | |
| | | | | | | | | | | | | | |
| Operating income (loss) | | | | | | | | | | | | | |
| Cable TV | | $ | 1,834,484 | | | $ | 1,478,676 | | | $ | 2,210,414 | | |
| Loss from operations | | Loss from operations | | | |
| Wireless | | Wireless | $ | (6,864) | | | $ | (4,377) | |
| Telco | | | (1,688,878 | ) | | | (1,134,815 | ) | | | 365,796 | | Telco | (2,433) | | | (14,153) | |
| Total operating income | | $ | 145,606 | | | $ | 343,861 | | | $ | 2,576,210 | | |
| Total operating loss | | Total operating loss | $ | (9,297) | | | $ | (18,530) | |
| | (in thousands) | | (in thousands) | September 30, |
| | | | | | | | | | | | | | | 2021 | | 2020 |
| Segment assets | | | | | | | | | | | | | Segment assets | | | |
| Cable TV | | $ | 24,116,395 | | | $ | 25,201,697 | | | $ | 26,494,430 | | |
| Wireless | | Wireless | $ | 7,867 | | | $ | 5,324 | |
| Telco | | | 24,135,091 | | | | 15,122,911 | | | | 17,094,713 | | Telco | 14,472 | | | 12,298 | |
| | Non-allocated | | | 6,596,119 | | | | 9,943,551 | | | | 8,097,913 | | Non-allocated | 4,973 | | | 14,881 | |
| Total assets | | $ | 54,847,605 | | | $ | 50,268,159 | | | $ | 51,687,056 | | Total assets | $ | 27,312 | | | $ | 32,503 | |
Note 15 – Quarterly ResultsSubsequent events
During the period from November 9, 2021 through December 15, 2021, the Company sold 19,346 shares of Operations (Unaudited)stock under our ATM for an average share price of $2.19 pursuant to our agreement with Northland Securities, Inc. as described in Note 10 – Equity Distribution Agreement and Sale of Common Stock.
On December 14, 2021, the Company signed an agreement with its primary financial lender to extend the expiration date of its revolving line of credit to January 17, 2022. The followingCompany is a summaryin the process of completing an annual extension which is expected to be completed by the quarterly results of operations for the years ended September 30, 2017, 2016 and 2015:new expiration date.
| | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | |
| Fiscal year ended 2017 | | | | | | | | | | | | |
| Sales | | $ | 12,095,826 | | | $ | 11,294,756 | | | $ | 12,989,990 | | | $ | 12,333,174 | |
| Gross profit | | $ | 4,023,629 | | | $ | 3,764,429 | | | $ | 3,755,951 | | | $ | 3,266,584 | |
| Net income (loss) | | $ | 217,161 | | | $ | 10,671 | | | $ | (66,863 | ) | | $ | (259,085 | ) |
Basic earnings (loss) per common share | | $ | 0.02 | | | $ | 0.00 | | | $ | (0.01 | ) | | $ | (0.03 | ) |
Diluted earnings (loss) per common share | | $ | 0.02 | | | $ | 0.00 | | | $ | (0.01 | ) | | $ | (0.03 | ) |
Fiscal year ended 2016 | | | | | | | | | | | | | | | | |
| Sales | | $ | 8,249,668 | | | $ | 10,587,187 | | | $ | 10,060,242 | | | $ | 9,766,167 | |
| Gross profit | | $ | 2,765,380 | | | $ | 3,584,612 | | | $ | 3,466,151 | | | $ | 2,624,740 | |
| Net income (loss) | | $ | 23,994 | | | $ | 145,630 | | | $ | 316,086 | | | $ | (191,547 | ) |
Basic earnings (loss) per common share | | $ | 0.00 | | | $ | 0.01 | | | $ | 0.03 | | | $ | (0.02 | ) |
Diluted earnings (loss) per common share | | $ | 0.00 | | | $ | 0.01 | | | $ | 0.03 | | | $ | (0.02 | ) |
Fiscal year ended 2015 | | | | | | | | | | | | | | | | |
| Sales | | $ | 10,837,158 | | | $ | 11,366,539 | | | $ | 11,902,391 | | | $ | 9,627,532 | |
| Gross profit | | $ | 3,831,803 | | | $ | 4,243,512 | | | $ | 4,144,607 | | | $ | 3,078,967 | |
| Net income | | $ | 415,923 | | | $ | 234,255 | | | $ | 637,134 | | | $ | 210,588 | |
| Basic earnings per common share | | $ | 0.04 | | | $ | 0.02 | | | $ | 0.06 | | | $ | 0.02 | |
| Diluted earnings per common share | | $ | 0.04 | | | $ | 0.02 | | | $ | 0.06 | | | $ | 0.02 | |
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A.Controls and Procedures.
Changes in Internal Control Over Financial Reporting
During the year ended September 30, 2021, 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 September 30, 2017.2021. 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 September 30, 2017.2021. 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 September 30, 2017,2021, our internal control over financial reporting is effective based on those criteria.
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.
During the fourth quarter ended September 30, 2017, there has been no change in our internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.Other Information.
None.
PART III
Item 10.Directors, Executive Officers and Corporate Governance.
The information required by this item concerning our officers, directors, compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, Code of Business Conduct and Ethics and Audit Committee is incorporated by reference to the information in the sections entitled “Identification of Officers,” “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Code of Ethics” and “Audit Committee,” respectively, of our Proxy Statement for the 20182020 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended September 30, 20172021 (the “Proxy Statement”). A copy of our Code of Business Conduct and Ethics is posted on our website at www.addvantagetechnologies.com.
Item 11.Executive Compensation.
Compensation
The information required by this item concerning executive compensation is incorporated by reference to the information set forth in the section entitled “Compensation of Directors and Executive Officers” of the Proxy Statement.
Item 12. | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
The information required by this item regarding security ownership and equity compensation plans is incorporated by reference to the information set forth in the section entitled “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of the Proxy Statement.
Item 13.Certain Relationships and Related Transactions, and Director Independence.
The information required by this item regarding certain relationships and related transactions and director independence is incorporated by reference to the information set forth in the section entitled “Certain Relationships and Related Transactions” and “Board of Directors,” respectively, of the Proxy Statement.
Item 14.Principal AccountingAccountant Fees and Services.
The information required by this item regarding principal accounting fees and services is incorporated by reference to the information set forth in the section entitled “Principal AccountingAccountant Fees and Services” of the Proxy Statement.
PART IV
Item 15.Exhibits, Financial Statement Schedules.
Financial Statements, Schedules and Exhibits
(a)1.Financial Statements — ADDvantage Technologies Group, Inc. and Subsidiaries:
The following financial statementsFinancial Statements listed in the Index to Consolidated Financial Statements are filed as part of this report inon Form 10-K (see Part II, Item 8.8, Financial Statements and Supplementary Data).
Report of Independent Registered Public Accounting Firm as of September 30, 2017 and 2016, and for each ofFinancial Statement Schedules
All consolidated financial statement schedules have been omitted because they are not required, are not applicable, or the three years in the period ended September 30, 2017, 2016 and 2015.
Consolidated Balance Sheets as of September 30, 2017 and 2016.
Consolidated Statements of Operations for the years ended September 30, 2017, 2016 and 2015.
Consolidated Statements of Changes in Shareholders’ Equity for the years ended September 30, 2017, 2016 and 2015.
Consolidated Statements of Cash Flows for the years ended September 30, 2017, 2016 and 2015.
Notes to Consolidated Financial Statements.
2. The following documents arerequired information has been included as exhibits toelsewhere within this Form 10-K.
ExhibitDescriptionExhibits
The information required by this Section (a)(3) of Item 15 is set forth on the exhibit index following this page.
Item 16. Form 10-K Summary
Not applicable.
| 10.1810.8* | |
| 10.9* | |
| 10.10* | |
| 10.11* | |
| 10.12* | |
| 10.19 | | | | |
| 10.13* | |
| 10.14* | |
| 10.15* | |
| 10.16* | |
| 10.17* | |
| 10.18* | |
| 10.19* | |
| 10.20* | |
| 10.21* | |
| 10.22* | |
| 10.23* | |
| 10.24* | |
| 10.25* | |
| 10.26* | |
| 10.27* | |
| 10.28* | |
| 10.29* | |
| 10.30* | |
| 21.1 | | | | |
| 10.31* | |
| 10.32* | |
| 10.33* | |
| 21.1* | |
| 101.INS | 101.INS | XBRL Instance Document. |
| 101.SCH | 101.SCH | XBRL Taxonomy Extension Schema. |
| 101.CAL | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase. |
| 101.DEF | 101.DEF | XBRL Taxonomy Extension Definition Linkbase. |
| 101.LAB | 101.LAB | XBRL Taxonomy Extension Label Linkbase. |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase. |
* incorporated by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ADDvantage Technologies Group, Inc.
| | | | | | | | |
| Date: December 27, 2021 | By: | /s/ Joseph E. Hart |
| | Joseph E. Hart, President and Chief Executive Officer |
Date: December 14, 2017 By:/s/ David L. Humphrey
David L. Humphrey, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: December 14, 2017 /s/ David E. Chymiak
David E. Chymiak, Chairman of the Board of Directors and Chief Technology Officer
Date: December 14, 2017 /s/ Scott A. Francis
Scott A. Francis, Chief Financial Officer (Principal Financial
Officer)
Date: December 14, 2017 /s/ Thomas J. Franz
Thomas J. Franz, Director
Date: December 14, 2017 /s/ Joseph E. Hart
Joseph E. Hart, Director
Date: December 14, 2017 /s/ James C. McGill
James C. McGill, Director
Date: December 14, 2017 /s/ David W. Sparkman
David W. Sparkman, Director
The following documents are included as exhibits to this Form 10-K.
ExhibitDescription
| Date: December 27, 2021 | By: | /s/ Michael A. Rutledge |
| 3.2 | Michael Rutledge, Chief Financial Officer (Principal Financial Officer) |
| Date: December 27, 2021 | | /s/ David E. Chymiak |
| 10.1 | David E. Chymiak, Director |
| Date: December 27, 2021 | | /s/ Timothy S. Harden |
| 10.3 | |
| | |
| Date: December 27, 2021 | | /s/ James C. McGill |
| | James C. McGill, Chairman of the Board of Directors dated September 1, 2009, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission by the Company on September 1, 2009 (File No. 001-10799). |
| | |
| Date: December 27, 2021 | | /s/ John M. Shelnutt |
| | John M. Shelnutt, Director |
| | |
| Date: December 27, 2021 | | /s/ David W. Sparkman |
| | David W. Sparkman, Director |
| 21.1 | Listing of the Company's subsidiaries. |
| 23.1 | Consent of HoganTaylor LLP. |
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002. |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002. |
| 32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.INS | XBRL Instance Document. |
| 101.SCH | XBRL Taxonomy Extension Schema. |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase. |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase. |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase. |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase. |
52