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

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  However, the information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the consolidated condensed financial statements not misleading.  It is suggested that these consolidated condensed financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017.

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.  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.statements as the Company’s contracts generally consist of a single performance obligation to deliver tangible goods.  As part of the Company’s review of its contracts, the Company changed its processes for contract review of performance obligation contracts to help ensure the Company will be in compliance with this standard.

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.  Management reviewed its lease obligations and determined that the Company generally does not enter into long-term lease obligations with the exception of its real estate leases for its facilities.  The Company is a lessee on certain real estate leases that will need to be reported as right of use assets and liabilities at an estimated amount of $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 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

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 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 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.  The Company is currently evaluating methodology changes that may be required in performing its annual goodwill impairment assessmentelected to early adopt ASU 2017-04 on June 30, 2018 in connection with this ASU and any impact that these changes may have on the Company’s financial statements.

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

Company refurbished and used products.  Generally, the Company does not refurbish its used inventory until there is a sale of that product or to keep a certain quantity on hand.

The Company regularly reviews the Cable TV segment inventory quantities on hand, and an adjustment to cost is recognized when the loss of usefulness of an item or other factors, such as obsolete and excess inventories, indicate that cost will not be recovered when an item is sold.  The Company recorded charges in the Cable TV segment to allow for obsolete inventory, which increased the cost of sales $0.2by $0.5 million during the threenine months ended December 31, 2017 and 2016.June 30, 2018, to an allowance of $2.8 million at June 30, 2018.

For the Telco segment, any obsolete or excess telecommunications inventory is generally processed through its recycling program when it is identified.  However, the Telco segment has 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 has a $0.7 million reserveallowance at December 31, 2017.June 30, 2018.  In the nine months ended June 30, 2018, the Company increased the allowance by $0.1 million.  The Company We also reviewed the cost of inventories against estimated net realizable value and recorded a lower of cost or net realizable value charge for the threenine months ended December 31,June 30, 2018 and June 30, 2017 of $0.2 million and December 31, 2016 of $12 thousand and $33 thousand,$0.1 million, respectively, for inventories that have a cost in excess of estimated net realizable value.

The intangible assets with their associated accumulated amortization amounts at December 31, 2017June 30, 2018 and September 30, 2017 are as follows:

The Tax Cuts and Jobs Act was enacted on December 22, 2017.  One of the provisions of this legislation was that it reduced the corporate income tax rates for the Company from 34% to 21% effective beginning January 1, 2018.  Since the Company’s fiscal year begins on October 1, this results in a blended rate for 2018 of 24.3%.  Due to this legislation, the Company has remeasured its deferred tax balances at the reduced enacted tax rates as well as utilized the lower anticipated effective income tax rate for first quarterthe nine months ended results.  The provision recorded related to the remeasurement of the Company’s deferred tax balances was $0.4 million.  The accounting for the effects of the rate change on the deferred tax balances is complete and no provisional amounts were recorded for the new legislation.

Revolving credit and term loans created under the Credit and Term Loan Agreement are collateralized by inventory, accounts receivable, equipment and fixtures, general intangibles and a mortgage on certain property.  Among other financial covenants, the Credit and Term Loan Agreement provides that the Company maintain a fixed charge coverage ratio (net cash flow to total fixed charges) of not less than 1.25 to 1.0 and a leverage ratio (total funded debt to EBITDA) of not more than 2.50 to 1.0.  Both financial covenants are determined quarterly.  At December 31, 2017, we were in compliance with our financial covenants.

At December 31, 2017,June 30, 2018, the Company has two term loans outstanding under the Credit and Term Loan Agreement.  The first outstanding term loan has an outstanding balance of $0.7$0.6 million at December 31, 2017June 30, 2018 and is due on November 30, 2021,October 31, 2018, with monthly principal payments of $15,334 plus accrued interest.  The interest rate is the prevailing 30-day LIBOR rate plus 1.4% (2.78%(3.40% at December 31, 2017)June 30, 2018) and is reset monthly.

The second outstanding term loan has an outstanding balance of $2.4$1.8 million at December 31, 2017June 30, 2018 and is due October 14, 2019,31, 2018, with monthly principal and interest payments of $118,809.  The interest rate on the term loan is a fixed interest rate of 4.40%.

On December 6, 2017, the Company extinguished one of its previous term loans by paying the outstanding balance of $2.7 million plus a prepayment penalty of $25,000.

TheOn May 31, 2018, the Company hasentered into a $7.0 millionforbearance agreement, which is Amendment Ten to the Credit and Term Loan Agreement.  This amendment changed the Revolving Line of Credit (“Line of Credit”) under the Creditmaturity to October 31, 2018 and Term Loan Agreement.  On March 31, 2017, the Company executed the Eighth Amendment under the Credit and Term Loan Agreement.  This amendment extendedreduced the Line of Credit maturity to March 30, 2018,$3.0 million from $5.0 million, while other terms of the Line of Credit remained essentially the same.  At December 31, 2017, the Company had no balanceJune 30, 2018, $0.5 million was outstanding under the Line of Credit.Credit and is reported in Notes payable – current portion on the consolidated balance sheet.  The Line of Credit requires quarterly interest payments based on the prevailing 30-day LIBOR rate plus 2.75% (4.31%(4.82% at December 31, 2017)June 30, 2018), and the interest rate is reset monthly.  Any future borrowings under the Line of Credit are due on March 30,October 31, 2018.  Future borrowings under the Line of Credit are limited to the lesser of $7.0$3.0 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$3.0 million at December 31, 2017.June 30, 2018.

FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a consistent framework for measuring fair value and establishes a fair value hierarchy based on the observability of inputs used to measure fair value.  The three levels of the fair value hierarchy are as follows:

The Company has determined the carrying value of its variable-rate term loan approximates its fair value since the interest rate fluctuates periodically based on a floating interest rate.

The Company has determined 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 loansloan using cash flows discounted at the current market interest rate obtained.  The fair value of the Company’s second outstanding fixed rate loan was $2.5$1.8 million as of December 31, 2017.June 30, 2018.

Note 67 – Earnings Per Share

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

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.

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

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

grant.  Stock options granted to the Board of Directors generally become exercisable on the date of grant and generally expire ten years after the grant.

No nonqualified stock options were granted for the threenine months ended December 31, 2017.June 30, 2018.  The Company estimates the fair value of the options granted using the Black-Scholes option valuation model.  The Company estimates the expected term of options granted based on the historical grants and exercises of the Company’s options.  The Company estimates the volatility of its common stock at the date of the grant based on both the historical volatility as well as the implied volatility on its common stock.  The Company bases the risk-free rate that is used in the Black-Scholes option valuation model on the implied yield in effect at the time of the option grant on U.S. Treasury zero-coupon issues with equivalent expected term.  The Company has never paid cash dividends on its common stock and does not anticipate paying cash dividends in the foreseeable future.  Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes option valuation model.  The Company amortizes the resulting fair value of the options ratably over the vesting period of the awards.  The Company uses historical data to estimate the pre-vesting option forfeitures and records share-based expense only for those awards that are expected to vest.

The Company records compensation expense over the vesting term of the related options.  At December 31, 2017,June 30, 2018, compensation costs related to these unvested stock options not yet recognized in the consolidated condensed statements of operations was $62,657.$33,999.

The Company granted restricted stock in March 20172018 to its Board of Directors and a Company officer totaling 58,00980,150 shares, which were valued at market value on the date of grant.  The shares are being held by the Company for 12 months and will be delivered to the directors at the end of the 12 month holding period.  The fair value of these shares at issuance totaled $105,000, which is being amortized over the 12 month holding period as compensation expense.  The unamortized portion of the restricted stock is included in prepaid expenses on the Company’s consolidated condensed balance sheets.

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

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

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

The Company evaluates performance and allocates its resources based on operating income.  The accounting policies of its reportable segments are the same as those described in the summary of significant accounting policies.

Segment assets consist primarily of cash and cash equivalents, accounts receivable, inventory, property and equipment, goodwill and intangible assets.

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

Certain statements in Management's Discussion and Analysis (“MD&A”), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements generally are identified by the words “estimates,” “projects,” “believes,” “plans,” “intends,” “will likely result,” and similar expressions.  Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. These statements are subject to a number of risks, uncertainties and developments beyond our control or foresight, including changes in the trends of the cable television industry, changes in the trends of the telecommunications industry, changes in our supplier agreements, technological developments, changes in the general economic environment, generally, the growth or formation of competitors, changes in governmental regulation or taxation, changes in our personnel and other such factors.  Our actual results, performance or achievements may differ significantly from the results, performance or achievementachievements 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.

The following MD&A is intended to help the reader understand the results of operations, financial condition, and cash flows of the Company.  MD&A is provided as a supplement to, and should be read in conjunction with the information presented elsewhere in this quarterly report on Form 10-Q and with the information presented in our annual report on Form 10-K for the year ended September 30, 2017, which includes our audited consolidated financial statements and the accompanying notes to the consolidated financial statements.

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

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

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

Consolidated sales increased $0.2decreased $0.4 million before the impact of intercompany sales, or 2%3%, to $12.3$12.6 million for the three months ended December 31, 2017June 30, 2018 from $12.1$13.0 million for the three months ended December 31, 2016.June 30, 2017.  The increasedecrease in sales was in the Telco segment of $1.0 million, partially offset by a decrease in the Cable TV segment of $0.8$1.1 million, partially offset by an increase in sales in the Telco segment of $0.7 million.  Consolidated gross profit decreased $0.6$0.7 million, or 16%18%, to $3.4$3.1 million for the three months ended June

December 31, 201730, 2018 from $4.0$3.8 million for the same period last year.  The decrease in gross profit was in the Cable TV segment of $0.8 million, partially offset by an increase in the Telco segment of $0.1 million.

Sales for the Cable TV segment decreased $1.1 million to $4.9 million for the three months ended June 30, 2018 from $6.0 million for the same period last year.  The decrease in sales was due to a decrease in repair service revenue and in refurbished equipment sales of $0.8 million and $0.4 million, respectively, partially offset by an increase in new equipment revenue of $0.1 million.  The decrease in repair service revenue was due primarily to the loss of a large repair business customer in the first quarter of fiscal year 2018.  As a result of this loss, the Company has closed three of its repair facilities and reduced personnel at its remaining repair facilities.  The decrease in the refurbished equipment sales was due primarily to an overall decrease in demand for the three months ended June 30, 2018 as compared to last year.

Consolidated sales increased $0.1 million before the impact of intercompany sales, or 1%, to $36.5 million for the nine months ended June 30, 2018 from $36.4 million for the nine months ended June 30, 2017.  The increase in sales was in the Telco segment of $2.3 million, partially offset by a decrease in the Cable TV segment of $2.2 million.  Consolidated gross profit decreased $1.7 million, or 15%, to $9.8 million for the nine months ended June 30, 2018 from $11.5 million for the same period last year.  The decrease in gross profit was in the Cable TV segment of $2.2 million, partially offset by an increase in the Telco segment of $0.5 million.

Consolidated operating, selling, general and administrative expenses include all personnel costs, which include fringe benefits, insurance and business taxes, as well as occupancy, communication and professional services, among other less significant cost categories.  Operating, selling, general and administrative expenses remained flat at $3.6decreased $0.3 million, or 3%, to $10.7 million for the threenine months ended December 31, 2017 compared toJune 30, 2018 from $11.0 million for the same period last year.  This decrease in expenses was due to the Cable TV segment of $0.5 million, partially offset by an increase of $0.2 million in the Telco segment offset byof $0.2 million.

The Company recognized a decreasegoodwill impairment charge of $1.2 million in the Cable TV segment for the nine months ended June 30, 2018 (See Note 4 – Goodwill in the Notes to the unaudited consolidated condensed financial statements).

Other income and expense primarily consists of $0.1 million.activity related to our investment in YKTG Solutions, including equity earnings (losses).  Equity losses for the nine months ended June 30, 2018 were $0.3 million and zero for the nine months ended June 30, 2017.  The equity losses for the nine months ended June 30, 2018 consisted primarily of a legal settlement with a subcontractor on the YKTG Solutions wireless cell tower decommissioning project and the associated legal expenses.

Interest expense remained flat atdecreased $0.1 million to $0.2 million for the threenine months ended June 30, 2018 from $0.3 million for the same period last year.  The decrease in interest expense was due primarily to the impact of paying off one of our term loans in December 31, 2017 and 2016.2017.

The provisionbenefit for income taxes was $0.3 million$30 thousand for the threenine months ended December 31, 2017 fromJune 30, 2018 compared to a provision for income taxes of $0.1 million for the threenine months ended December 31, 2016.June 30, 2017.  The increase in the tax provisionbenefit of $30 thousand was due primarily to the Tax Cuts and Jobs Act enacted on December 22, 2017.  One of the provisions of this legislation was to reduce the corporate income tax rates effective beginning January 1, 2018.  As a result of the reduced corporate income tax rate, the Company remeasured its deferred tax balances at the reduced corporate income tax rate, which resulted in income tax expense of $0.4 million.  The effective tax rate for the nine months ended June 30, 2018 was also reduced by net operating losses in states with higher tax rates due primarily to the loss from YKTG Solutions and from a loss on impairment of goodwill which was nondeductible.  The Company estimates that its effective income tax rate for the remaining quartersfourth quarter of fiscal year 2018 will be approximately 27%30% as a result of the legislation.

Sales for the Cable TV segment decreased $0.8$2.2 million to $5.8$15.4 million for the threenine months ended December 31, 2017June 30, 2018 from $6.6$17.6 million for the same period last year.  The decrease in sales was due to a decrease in repair service revenue and refurbished equipment sales of $2.1 million and repair service revenue of $0.5$1.1 million, each,respectively, partially offset by an increase in new equipment revenue of $0.2$1.0 million.  The decrease in repair service revenue was due primarily to the loss of a large repair business customer in the first quarter of fiscal year 2018.  The decrease in the refurbished equipment sales was due primarily to an overall decrease in demand for the threenine months ended December 31, 2017June 30, 2018 as compared to last year. The decrease in repair service revenue was due primarily to the loss of a significant repair customer in the quarter.  As a result of this loss, the Company has closed twothree of its repair facilities and laid offreduced personnel at its remaining repair facilities.

Gross margin was 21%25% for the threenine months ended December 31, 2017June 30, 2018 compared to 37%34% for the same period last year.  The decrease in gross margin was due primarily to a significant increase in volume for a new equipment sales customer with low margins.margins and an overall decrease in margins on equipment sales.

Operating, selling, general and administrative expenses decreased $0.1$0.5 million to $1.4$3.9 million for the threenine months ended December 31, 2017June 30, 2018 from $1.5$4.4 million for the same period last year.  This decrease was due primarily to decreased employee expenses as the Company closed three of its repair facilities and reduced personnel at its remaining repair facilities in 2018.  The Cable TV segment incurred a goodwill impairment charge of $1.2 million for the nine months ended June 30, 2018 (See Note 4 – Goodwill in the Notes to the unaudited consolidated condensed financial statements).

Sales for the Telco segment increased $1.0$2.3 million to $6.5$21.1 million for the threenine months ended December 31, 2017June 30, 2018 from $5.5$18.8 million for the same period last year.  The increase in sales for the Telco segment was due to an increase in equipment sales and recycling revenue of $0.7 million and $0.3 million, respectively.$2.3 million.  The increase in Telco equipment sales was primarily due to increased sales at Nave Communications and Triton Datacom which offset the continued lower equipment sales from Nave Communications.of $2.2 million and $0.1 million, respectively.  The Company is continuing to address the lowerincrease in equipment sales at Nave Communications can be attributed in part to the Company addressing the lower equipment sales it had been experiencing over the past several quarters at Nave Communications by restructuring and expanding its sales force targetingand implementing a broader end-user customer base, increasing itsnew sales to the reseller market and expanding the capacity of its recycling program.strategy.

Gross margin was 34%28% for the threenine months ended December 31, 2017June 30, 2018 and 29% for the three monthssame period ended December 31, 2016.June 30, 2017.  The increasedecrease in gross margin was due primarily to higher expenses of $0.1 million related to the lower of cost or net realizable value charge, partially offset by increased recycling revenue which resulted in higher gross margins from equipment salesprimarily due to end-user customers and our recycling program.the fixed costs incurred within this product line.

Operating, selling, general and administrative expenses increased $0.1$0.2 million to $2.2$6.7 million for the threenine months ended December 31, 2017June 30, 2018 from $2.1$6.5 million for the same period last year.  This increase was due primarily to earn-out expenses related to the Triton Miami, Inc. acquisition of $0.1 million.increased personnel expenses.

Adjusted EBITDA is a supplemental, non-GAAP financial measure.  EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization.  Adjusted EBITDA as presented excludes impairment charges, 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, as calculated below, may not be comparable to similarly titled measures employed by other companies.  In addition, Adjusted EBITDA is not necessarily a measure of our ability to fund our cash needs.

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

Note 1 to the Consolidated Financial Statements in Form 10-K for fiscal 2017 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.

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.

Our position in the industry requires us to carry large inventory quantities relative to annual sales, but it also allows us to realize high overall gross profit margins on our sales.  We market our products primarily to MSOs, telecommunication providers and other users of cable television and telecommunication equipment who are seeking products for which manufacturers have discontinued production or cannot ship new equipment on a same-day basis

as well as providing used products as an alternative to new products from the manufacturer.  Carrying these large inventory quantities represents our largest risk.

We are required to make judgments as to future demand requirements from our customers.  We regularly review the value of our inventory in detail with consideration given to rapidly changing technology which can significantly affect

Our inventories consist of new and used electronic components for the cable television and telecommunications industries.  Inventory isInventories are stated at the lower of cost or net realizable value, with cost determined using the weighted-average method.  Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  At December 31, 2017,June 30, 2018, we had total inventory, before the reserveallowance for excess and obsolete inventories, of $25.5$23.5 million, consisting of $14.8$13.3 million in new products and $10.7$10.2 million in used or refurbished products.

For the Cable TV segment, our reserveallowance at December 31, 2017June 30, 2018 for excess and obsolete inventory was $2.5$2.8 million, which reflects an increase of $0.2$0.5 million to reflect deterioration infor the market demand of that inventory.nine months ended June 30, 2018.  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 reserveallowance and our gross margins could be materially adversely affected.

For the Telco segment, any obsolete and excess telecommunications inventory is generally processed through its recycling program when it is identified.  However, 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, we have a reservean allowance of $0.7 million at December 31, 2017.June 30, 2018.  In the threenine months ended December 31, 2017,June 30, 2018, we increased the reserve,allowance, by $11 thousand.$0.1 million.  We also reviewed the cost of inventories against estimated market value and recorded a lower of cost or net realizable value write-offcharge of $12 thousand$0.2 million for inventories that have a cost in excess of estimated net realizable value.  If actual market conditions differ from those projected by management, this could have a material impact on our gross margin and inventory balances based on additional write-downs to net realizable value or a benefit from inventories previously written down.

Inbound freight charges are included in cost of sales.  Purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs and other inventory expenditures are included in operating expenses, since the amounts involved are not considered material.

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 reserveallowance for bad debts was $0.2 million at December 31, 2017June 30, 2018 and September 30, 2017.  At December 31, 2017,June 30, 2018, accounts receivable, net of allowance for doubtful accounts, was $5.3$5.1 million.

Goodwill represents the excess of purchase price of acquisitions over the acquisition date fair value of the net assets of businesses 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, or operating segment, with the reporting unit’s carrying value, including goodwill.  Our reporting

units for purposes of the goodwill impairment calculation are 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

On June 30, 2018, we elected to early adopt ASU 2017-04, which eliminates the carrying value of one ofsecond step in the reporting units exceeds its fair value, a computation ofgoodwill impairment test which requires an entity to determine the implied fair value of goodwill would then be compared to its related carrying value. Ifthe reporting unit’s goodwill.  Instead, an entity should recognize an impairment charge if the carrying value of the net assets assigned to the reporting unit’s goodwillunit exceeds the implied fair value of goodwill, anthe reporting unit, with the impairment loss would be recognized incharge not to exceed the amount of goodwill allocated to the excess.reporting unit.   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 unitsthe Telco segment 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.levels.  Although we do not anticipate a future impairment charge, certain events could occur that might adversely affect the reported value of goodwill.  Such events could include, but are not limited to, economic or competitive conditions, a significant change in technology, the economic condition of the customers and industries we serve, a significant decline in the real estate markets we operate in, a material negative change in the relationships with one or more of our significant customers or equipment suppliers, failure to successfully implement our plan to restructure and expand the Telco sales organization, and failure to reduce inventory levels within the Cable TV or Telco segments.segment.  If our judgments and assumptions change as a result of the occurrence of any of these events or other events that we do not currently anticipate, our expectations as to future results and our estimate of the implied fair value of each reporting unitthe Telco segment  also may change.

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.

We finance our operations primarily through cash flows provided by operations, and we have a bank line of credit of up to $7.0$3.0 million.  During the threenine months ended December 31, 2017,June 30, 2018, we generated $0.2$2.4 million of cash flows from operations.  The cash flows from operations was favorably impacted by $0.3$1.3 million from a net decrease in inventory, which is primarily due to implementing a strategic plan to reduce inventory levels in both the Cable TV and Telco segments.  The cash flows from operations was negatively impacted by $0.7 million from a net decrease in accounts receivable.  The cash flows operationspayable, which was negatively impacted by $0.2 million from a net increase inprimarily due to timing of payments for inventory and $0.2 million from a net decrease in accrued expenses, which primarily resulted frompurchases for the first annual payment of the earn-out related to the acquisition of Triton Miami, Inc.Cable TV segment.

During the threenine months ended December 31, 2017,June 30, 2018, cash used in investing activities was $0.7$0.9 million, which primarily related to guaranteed payments related to the acquisition of Triton Miami, Inc. of $0.7 million.

During the threenine months ended December 31, 2017, weJune 30, 2018, cash used in financing activities was $3.3 million.  We made principal payments of $3.1$3.8 million on our term loans under our Credit and Term Loan Agreement with our primary lender.  On December 6, 2017, as part of our overall plan to become compliant with our financial covenants with our primary financial lender, we extinguished one of our term loans by paying the outstanding balance of $2.7 million plus a prepayment penalty of $25,000.  As a result, we were in compliance with our financial covenants at December 31, 2017.

Our first remaining term loan requires monthly payments of $15,334 plus accrued interest through November 2021.interest.  Our second remaining term loan is a three year term loan withrequires monthly principal and interest payments of $118,809 through October 2019.$118,809.  The interest rate is a fixed rate of 4.40%.  Both term loans are due October 31, 2018.

At December 31, 2017,June 30, 2018, there was not a balance outstanding of $0.5 million under our line of credit.  The lesser of $7.0$3.0 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 ($7.03.0 million at SeptemberJune 30, 2017)2018).  Any future borrowings under the revolvingbalance outstanding on our line of credit facility areis due at maturity on March 30, 2018, for which the Company expects to renew the revolving credit facility for at least one year.October 31, 2018.

We believe that our cash and cash equivalents of $0.4$2.1 million at December 31, 2017,June 30, 2018, cash flowflows from operations and our existing line of credit contained in the forbearance agreement provide sufficient liquidity and capital resources to meet our working capital and debt payment needs.  In addition, we believe that we will be able to secure funding from a different

We maintain disclosure controls and procedures that are designed to ensure the information we are required to disclose in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.  Based on their evaluation as of December 31, 2017,June 30, 2018, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to accomplish their objectives and to ensure the information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.