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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
☒
☒QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED December 31, 20172020

OR

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

    FOR THE TRANSITION PERIOD FROM________________ TO ______________

Commission File number 1‑10799

1-10799
ADDvantage Technologies Group, Inc.
(Exact name of registrant as specified in its charter)

OKLAHOMA73‑1351610
Oklahoma73-1351610
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

1221 E. Houston
Broken Arrow, Oklahoma 740121430 Bradley Lane, Suite 196
Carrollton, Texas 75007
(Address of principal executive office)
(918) 251-9121
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☒SNo☐£
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes☒SNo☐£
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company,” and “emerging growth company” in Rule12b-2Rule 12b-2 of the Exchange Act.
Large accelerated filer☐£ Accelerated filer ☐£
Non-accelerated filer☐ (do not check if a smaller reporting company) SSmaller reporting company☒Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes☐No☒S
Shares outstanding of the issuer's $.01 par value common stock as of February 10, 2021 were 12,366,593.
Shares outstanding of the issuer's $.01 par value common stock as of January 31, 2018 were
10,225,995.


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Table of Content
ADDVANTAGE TECHNOLOGIES GROUP, INC.
Form 10-Q
For the Period Ended December 31, 20172020


Page
Item 1.Financial Statements.Page
Item 1.
24
December 31, 20172020 and September 30, 20172020
45
Three Months Ended December 31, 20172020 and 20162019
56
Three Months Ended December 31, 20172020 and 20162019
7
Three Months Ended December 31, 2020 and 2019
68
Item 2.
1416
Item 4.
1921
Item 6.
Exhibits.
22











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PART I.  FINANCIAL INFORMATION


Item 1.  Financial Statements.

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ADDVANTAGE TECHNOLOGIES GROUP, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)ADDvantage Technologies Group, Inc.

Consolidated Balance Sheets

  
December 31,
2017
  
September 30,
2017
 
Assets      
Current assets:      
Cash and cash equivalents $414,891  $3,972,723 
Accounts receivable, net of allowance for doubtful accounts of
$150,000
  
5,299,536
   
5,567,005
 
Income tax receivable  244,510   247,186 
Inventories, net of allowance for excess and obsolete        
inventory of $3,100,389 and $2,939,289, respectively  22,406,750   22,333,820 
Prepaid expenses  233,627   298,152 
Total current assets  28,599,314   32,418,886 
         
Property and equipment, at cost:        
Land and buildings  7,211,190   7,218,678 
Machinery and equipment  3,961,764   3,995,668 
Leasehold improvements  200,617   202,017 
Total property and equipment, at cost  11,373,571   11,416,363 
Less: Accumulated depreciation  (5,467,393)  (5,395,791)
Net property and equipment  5,906,178   6,020,572 
         
Investment in and loans to equity method investee  140,045   98,704 
Intangibles, net of accumulated amortization  8,234,176   8,547,487 
Goodwill  5,970,244   5,970,244 
Deferred income taxes  1,308,000   1,653,000 
Other assets  135,462   138,712 
         
Total assets $50,293,419  $54,847,605 

(in thousands, except share amounts)

(Unaudited)

December 31, 2020September 30, 2020
Assets
Current assets:
Cash and cash equivalents$5,401 8,265 
Restricted cash265 108 
Accounts receivable, net of allowances of $250, respectively4,810 3,968 
Unbilled revenue1,151 590 
Promissory note – current0 1,400 
Income tax receivable1,248 1,283 
Inventories, net of allowances of $3,054, respectively6,202 5,576 
Prepaid expenses and other assets1,011 884 
Total current assets20,088 22,074 
Property and equipment, at cost4,311 4,220 
Less: Accumulated depreciation(1,785)(1,586)
Net property and equipment2,525 2,634 
Right-of-use lease assets3,505 3,758 
Promissory note – non current2,270 2,375 
Intangibles, net of accumulated amortization1,346 1,425 
Goodwill58 58 
Other assets179 179 
Total assets$29,971 $32,503 













Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable$3,528 $3,472 
Accrued expenses1,070 1,319 
Deferred revenue126 113 
Bank line of credit2,800 2,800 
Note payable, current2,178 1,709 
Right-of-use lease obligations – current1,263 1,275 
Financing lease obligations – current272 285 
Other current liabilities56 41 
Total current liabilities11,293 11,014 
Note payable751 2,440 
Right-of-use lease obligations3,016 3,310 
Financing lease obligations737 791 
Other liabilities0 15 
Total liabilities15,797 17,570 
Shareholders’ equity:
Common stock, $0.01 par value; 30,000,000 shares authorized; 12,366,593 shares issued and outstanding, and 11,822,009 shares issued and outstanding, respectively124 118 
Paid in capital(1,379)(2,567)
Retained earnings15,429 17,382 
Total shareholders’ equity14,174 14,933 
Total liabilities and shareholders’ equity$29,971 $32,503 
See notes to unaudited consolidated condensed financial statements.

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ADDVANTAGE TECHNOLOGIES GROUP, INC.ADDvantage Technologies Group, Inc.
CONSOLIDATED CONDENSED BALANCE SHEETSConsolidated Statements of Operations
(UNAUDITED)(in thousands, except share and per share amounts)

(Unaudited)

  
December 31,
2017
  
September 30,
2017
 
Liabilities and Shareholders’ Equity      
Current liabilities:      
Accounts payable $3,478,894  $3,392,725 
Accrued expenses  1,163,451   1,406,722 
Notes payable – current portion  1,519,492   4,189,605 
Other current liabilities  643,746   664,325 
Total current liabilities  6,805,583   9,653,377 
         
Notes payable, less current portion  1,708,622   2,094,246 
Other liabilities  775,465   1,401,799 
Total liabilities  9,289,670   13,149,422 
         
Shareholders’ equity:        
Common stock, $.01 par value; 30,000,000 shares authorized; 
  10,726,653 shares issued; and 10,225,995 shares
  outstanding
  
107,267
   
107,267
 
Paid in capital  (4,734,138)  (4,746,466)
Retained earnings  46,630,634   47,337,396 
Total shareholders’ equity before treasury stock  42,003,763   42,698,197 
         
Less: Treasury stock, 500,658 shares, at cost  (1,000,014)  (1,000,014)
Total shareholders’ equity  41,003,749   41,698,183 
         
Total liabilities and shareholders’ equity $50,293,419  $54,847,605 
























Three Months Ended December 31,
20202019
Sales$12,749 $13,962 
Cost of sales9,120 10,370 
Gross profit3,629 3,592 
Operating expenses2,047 2,131 
Selling, general and administrative expenses3,215 2,776 
Depreciation and amortization expense281 448 
Loss from operations(1,914)(1,763)
Other income (expense):
Interest income48 89 
Income from equity method investment0 22 
Other expense(19)(57)
Interest expense(68)(24)
Total other income (expense), net(39)30 
Loss before income taxes(1,953)(1,733)
Benefit for income taxes0 (15)
Net loss$(1,953)$(1,718)
Basic and diluted loss per share:
Net loss$(0.16)$(0.17)
Shares used in per share calculation:
Basic and diluted12,149,778 10,361,292 
See notes to unaudited consolidated condensed financial statements.

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ADDVANTAGE TECHNOLOGIES GROUP, INC.ADDvantage Technologies Group, Inc.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONSConsolidated Statements of Changes in Shareholders' Equity
(UNAUDITED)(in thousands, except share amounts)

(Unaudited)

  Three Months Ended December 31, 
  2017  2016 
Sales $12,284,765  $12,095,826 
Cost of sales  8,903,610   8,072,197 
Gross profit  3,381,155   4,023,629 
Operating, selling, general and administrative expenses  3,646,823   3,596,824 
Income (loss) from operations  (265,668)  426,805 
Interest expense  96,094   96,644 
Income (loss) before income taxes  (361,762)  330,161 
Provision for income taxes  345,000   113,000 
         
Net income (loss) $(706,762) $217,161 
         
Earnings (loss) per share:        
Basic $(0.07) $0.02 
Diluted $(0.07) $0.02 
Shares used in per share calculation:        
Basic  10,225,995   10,134,235 
Diluted  10,225,995   10,134,559 





Common StockPaid-in
Capital		Retained
Earnings		Treasury
Stock
SharesAmountTotal
Balance, September 30, 202011,822,009 $118 $(2,567)$17,382 $— $14,933 
Net loss— — — (1,953)— (1,953)
Issuance of common shares238,194 3 876 — — 879 
Restricted stock issuance306,390 3 (3)— — 0 
Share based compensation expense— — 315 — — 315 
Balance, December 31, 202012,366,593 $124 $(1,379)$15,429 $— $14,174 

Common StockPaid-in
Capital		Retained
Earnings		Treasury
Stock
SharesAmountTotal
Balance, September 30, 201910,861,950 $109 $(4,377)$34,715 $(1,000)$29,447 
Net loss— — — (1,718)— (1,718)
Share based compensation expense— — 14 — — 14 
Balance, December 31, 201910,861,950 $109 $(4,363)$32,997 $(1,000)$27,743 




























See notes to unaudited consolidated condensed financial statements.

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ADDVANTAGE TECHNOLOGIES GROUP, INC.ADDvantage Technologies Group, Inc
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWSConsolidated Statements of Cash Flows
(UNAUDITED)(in thousands)

(Unaudited)

  Three Months Ended December 31, 
  2017  2016 
Operating Activities      
Net income (loss) $(706,762) $217,161 
Adjustments to reconcile net income (loss) to net cash        
provided by (used in) operating activities:        
Depreciation  98,143   103,787 
Amortization  313,311   311,986 
Provision for excess and obsolete inventories  161,100   166,620 
Charge for lower of cost or net realizable value for
inventories
  
11,528
   
33,447
 
Gain on disposal of property and equipment  (6,862)  – 
Deferred income tax provision (benefit)  345,000   (4,000)
Share based compensation expense  38,578   41,884 
Changes in assets and liabilities:        
 Accounts receivable
  267,469   195,077 
 Income tax receivable\payable
  2,676   119,346 
Inventories  (245,558)  650,191 
Prepaid expenses  38,275   29,060 
Other assets  3,250   (424)
Accounts payable  86,169   179,651 
Accrued expenses  (243,271)  (278,607)
Other liabilities  20,087   26,092 
Net cash provided by operating activities  183,133   1,791,271 
         
Investing Activities        
Acquisition of net operating assets  –   (6,643,540)
Guaranteed payments for acquisition of business  (667,000)  – 
Loan repayment from (investment in and loans to) equity method investee  (41,341)  970,500 
Purchases of property and equipment  –   (69,833)
Disposals of property and equipment  23,113   – 
Net cash used in investing activities  (685,228)  (5,742,873)
         
Financing Activities        
Proceeds from notes payable  –   4,000,000 
Debt issuance costs  –   (15,394)
Payments on notes payable  (3,055,737)  (437,793)
Net cash provided by (used in) financing activities  (3,055,737)  3,546,813 
         
Net decrease in cash and cash equivalents  (3,557,832)  (404,789)
Cash and cash equivalents at beginning of period  3,972,723   4,508,126 
Cash and cash equivalents at end of period $414,891  $4,103,337 
         
Supplemental cash flow information:        
Cash paid for interest $118,292  $63,161 
         
Supplemental noncash investing activities:        
Deferred guaranteed payments for acquisition of business $–  $(1,897,372)

Three Months Ended December 31,
20202019
Cash flows from operating activities:
Net loss$(1,953)$(1,718)
Adjustments to reconcile net loss from operations to net cash
used in operating activities:
Depreciation201 183 
Amortization80 265 
Change in right-of-use assets and liabilities, net(52)0 
Share based compensation expense315 18 
Gain from disposal of property and equipment(10)0 
Gain from equity method investment0 (22)
Changes in assets and liabilities:
Accounts receivable(842)49 
Unbilled revenue(562)12 
Income tax receivable\payable35 (15)
Inventories(626)(536)
Prepaid expenses and other assets(112)46 
Accounts payable56 (542)
Accrued expenses and other liabilities(250)(109)
Deferred revenue13 193 
Net cash used in operating activities(3,707)(2,176)
Cash flows provided by investing activities:
Proceeds from promissory note receivable1,505 584 
Loan repayment from equity method investee0 22 
Purchases of property and equipment(74)(100)
Disposals of property and equipment26 25 
Net cash provided by investing activities1,457 531 
Cash flows provided by (used in) financing activities:
Change in bank line of credit0 1,700 
Guaranteed payments for acquisition of business0 (667)
Payments on financing lease obligations(86)(78)
Payments on notes payable(1,249)0 
Proceeds from sale of common stock878 0 
Net cash provided by (used in) financing activities(457)955 
Net decrease in cash, cash equivalents and restricted cash(2,707)(690)
Cash, cash equivalents and restricted cash at beginning of period8,373 1,594 
Cash, cash equivalents and restricted cash at end of period$5,666 $904 
See notes to unaudited consolidated condensed financial statements.

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ADDVANTAGE TECHNOLOGIES GROUP, INC.ADDvantage Technologies Group, Inc.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTSNotes to Unaudited Consolidated Financial Statements

Note 1 - Basis of Presentation and Accounting Policies

Basis of presentation

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”). 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”).

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 unaudited consolidated condensed financial statements not misleading. ItThe Company’s business is suggested that thesesubject to seasonal variations due to weather in the geographic areas where services are performed, as well as calendar events and national holidays. Therefore, the results of operations for the three months ended December 31, 2020 and 2019, are not necessarily indicative of the results to be expected for the full fiscal year. These unaudited consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2020.

Reclassification
Certain prior period amounts have been reclassified to conform to current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.
Recently Issued Accounting Standards

In 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.

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

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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, 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 assessment in connection with this ASU and any impact that these changes may have on the Company’s 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 – InventoriesRevenue Recognition
InventoriesThe Company’s principal sales are from Wireless services, sales of Telco equipment and Telco recycled equipment, primarily in the United States. Sales to international customers in Central and South America totaled approximately $0.3 million and $0.4 million for the three months ended December 31, 2020 and 2019, respectively.
The Company’s customers include wireless carriers, wireless equipment providers, multiple system operators, resellers and direct sales to end-user customers. Sales to the Company’s largest customer totaled approximately 15% and 11% of consolidated revenues for the three months ended December 31, 2020 and 2019, respectively.
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Our sales by type were as follows, in thousands:
Three Months Ended December 31,
20202019
Wireless services sales$5,246 $6,798 
Equipment sales:
Telco7,275 6,783 
Telco repair sales6 8 
Telco recycle sales222 373 
Total sales$12,749 $13,962 
Contract assets and contract liabilities are included in Unbilled revenue and Deferred revenue, respectively, in the consolidated balance sheets. At December 31, 2020 and September 30, 2020, contract assets were $1.2 million and $0.6 million, respectively, and contract liabilities were $0.1 million and $0.1 million, respectively. The Company recognized the entire $0.1 million of contract revenue during the three months ended December 31, 2020 related to contract liabilities recorded in Deferred revenue at September 30, 2020.

Note 3 – Accounts Receivable Agreements
The Company’s Wireless segment has entered into various agreements, one agreement with recourse, to sell certain receivables to unrelated third-party financial institutions. For the agreement with recourse, the Company is responsible for collecting payments on the sold receivables from its customers. Under this agreement, the third-party financial institution advances the Company 90% of the sold receivables and establishes a reserve of 10% of the sold receivables until the Company collects the sold receivables. As the Company collects the sold receivables, the third-party financial institution will remit the remaining 10% to the Company. At December 31, 2020, the third-party financial institution has a reserve against the sold receivables of $0.3 million, which is reflected as restricted cash.  For the receivables sold under the agreement with recourse, the agreement addresses events and conditions which may obligate the Company to immediately repay the institution the outstanding purchase price of the receivables sold. The total amount of receivables uncollected by the institution was $2 million at December 31, 20172020 for which there is a limit of $4.0 million. Although the sale of receivables is with recourse, the Company did not record a recourse obligation at December 31, 2020 as the Company concluded that the sold receivables are collectible. The other agreements without recourse are under programs offered by certain customers in the Wireless segment.
For the three months ended December 31, 2020 and 2019, the Company received proceeds from the sold receivables under all of the various agreements of $5.0 million and $7.0 million, respectively, and included the proceeds in net cash used in operating activities in the Consolidated Statements of Cash Flows. The fees associated with selling these receivables ranged from 1.0% to 2.3% of the gross receivables sold for the three months ended December 31, 2020 and 2019. The Company recorded costs of $43 thousand and $0.1 million for the three months ended December 31, 2020 and 2019, respectively, in other expense in the Consolidated Statements of Operations.
Note 4 – Promissory Note Receivable
During the fiscal year ended 2019, the Company completed a sale of its former Cable TV reporting segment to Leveling 8, an entity owned by a member of our board and significant shareholder, David Chymiak. Part of the consideration for the sale was a promissory note bearing interest of 6% received from Mr. Chymiak. Mr. Chymiak personally guaranteed the promissory note due to the Company and pledged certain assets to secure the payment of the promissory note, including substantially all of Mr. Chymiak’s Company common stock. During the quarter ended December 31, 2020, the Company received principal payments totaling $1.5 million, of which approximately
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$1.0 million was a prepayment. At December 31, 2020, there was $2.3 million outstanding on the promissory note. The remaining promissory note becomes due in a final payment on June 29, 2024.
March 10, 2020, the Company entered into a loan agreement with its primary financial lender for $3.5 million to monetize a portion of this promissory note receivable. See Note 7 - Debt for disclosures related to the Company's promissory note payable.
Note 5 – Inventories
Inventories, which are all within the Telco segment, at December 31, 2020 and September 30, 20172020 are as follows:

  
December 31,
2017
  
September 30,
2017
 
New:      
Cable TV $13,667,532  $14,014,188 
Telco  1,225,888   990,218 
Refurbished and used:        
Cable TV  3,217,494   3,197,426 
Telco  7,396,225   7,071,277 
Allowance for excess and obsolete inventory:        
Cable TV  (2,450,000)  (2,300,000)
Telco  (650,389)  (639,289)
         
  $22,406,750  $22,333,820 

follows, in thousands:
December 31, 2020September 30, 2020
New equipment$1,397 $1,311 
Refurbished and used equipment7,859 7,319 
Allowance for excess and obsolete inventory(3,054)(3,054)
Total inventories, net$6,202 $5,576 
New inventoryequipment includes products purchased from the manufacturers plus “surplus-new”,“surplus-new,” which are unused products purchased from other distributors or multiple system operators. Refurbished inventory includesand used equipment include 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.

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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 $0.2 million during the three months ended December 31, 2017 and 2016.

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$3.1 million reserveallowance at December 31, 2017.  We also reviewed the cost of inventories against estimated net realizable value2020 and recorded a lower of cost or net realizable value charge for the three months ended December 31, 2017 and December 31, 2016 of $12 thousand and $33 thousand, respectively, for inventories that have a cost in excess of estimated net realizable value.September 30, 2020.

Note 36 – Intangible Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. The Company groups assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted future cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.
The intangibleIntangible assets with their associated accumulated amortization amountsand impairment at December 31, 20172020 and September 30, 20172020 are as follows:follows, in thousands:
December 31, 2020
Intangible assets:GrossAccumulated AmortizationImpairmentNet
Customer relationships – 10 years$8,396 $(4,061)$(3,894)$441 
Trade name – 10 years2,122 (1,217)0 905 
Total intangible assets$10,518 $(5,278)$(3,894)$1,346 

  December 31, 2017 
  
 
Gross
  
Accumulated
Amortization
  
 
Net
 
Intangible assets:         
Customer relationships – 10 years $8,152,000  $(2,102,491) $6,049,509 
Technology – 7 years  1,303,000   (713,545)  589,455 
Trade name – 10 years  2,119,000   (595,455)  1,523,545 
Non-compete agreements – 3 years  374,000   (302,333)  71,667 
             
Total intangible assets $11,948,000  $(3,713,824) $8,234,176 

 September 30, 2017 
 
 
Gross
  
Accumulated
Amortization
  
 
Net
 September 30, 2020
Intangible assets:         Intangible assets:GrossAccumulated
Amortization		ImpairmentNet
Customer relationships – 10 years $8,152,000  $(1,898,691) $6,253,309 Customer relationships – 10 years$8,396 $(4,021)$(3,894)$481 
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 years2,122 (1,178)0 944 
Non-compete agreements – 3 years  374,000   (292,333)  81,667 Non-compete agreements – 3 years374 (374)0 0 
            
Total intangible assets $11,948,000  $(3,400,513) $8,547,487 Total intangible assets$10,892 $(5,573)$(3,894)$1,425 
            
Note 4 – Income Taxes
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 quarter 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.

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Note 57 – Notes PayableDebt
Loan Agreement
On March 10, 2020, the Company entered into a loan agreement with its primary financial lender for $3.5 million, bearing interest at 6% per annum. The loan was payable in seven semi-annual installments of principal and Lineinterest with the first payment occurring June 30, 2020. In connection with the $1.5 million payment received in the first fiscal quarter of Credit2021 from the promissory note receivable, the Company fully repaid the remaining $1.2 million of principal outstanding under this loan.
Notes Payable

Credit Agreement
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.  Revolvinglender, which matures on December 17, 2021. The line of credit requires quarterly interest payments based on the prevailing Wall Street Journal Prime Rate, floating (3.25% at December 31, 2020), with the addition of a 4% floor rate and term loans createda fixed charge coverage ratio of 1.25 to be tested quarterly beginning June 30, 2021. At December 31, 2020, there was $2.8 million outstanding under the 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 other financial covenants,60% of eligible Telco segment inventory. Under these limitations, the Credit and Term Company’s total line of credit borrowing capacity was $4.0 million at December 31, 2020.
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) ofbe tested quarterly beginning June 30, 2021. The Company believes that it is probable that it will not more than 2.50 to 1.0.  Both financial covenants are determined quarterly.  At December 31, 2017, we werebe in compliance with our financial covenants.this covenant as of the measurement date at June 30, 2021. The noncompliance with this covenant would result in an event of default, which if not cured or waived, could result in the lender accelerating the maturity of the Company’s indebtedness or preventing access to additional funds under the line of credit agreement, or requiring prepayment of outstanding indebtedness under the loan agreement or the line of credit agreement.
At December 31, 2017,Paycheck Protection Program Loan
On April 14, 2020, the Company received a SBA Payroll Protection Program (“PPP”) loan pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), with its primary lender for $2.9 million. The PPP loan bears interest at 1% per annum, with monthly payments of principal and interest in the amount of $164,045 commencing on November 10, 2020, and matures on April 10, 2022. However, the Company has two term loans outstandingapplied for forgiveness in accordance with the terms in the CARES Act, and our lender has not required repayments while under consideration for forgiveness. The Paycheck Protection Program provides that the Credit and Term Loan Agreement.  The first outstanding termPPP loan has an outstanding balance of $0.7 million at December 31, 2017 and is due on November 30, 2021, with monthly principal payments of $15,334 plus accrued interest.  The interest rate ismay be partially or fully forgiven if the prevailing 30-day LIBOR rate plus 1.4% (2.78% at December 31, 2017) and is reset monthly.

The second outstanding term loan has an outstanding balance of $2.4 million at December 31, 2017 and is due October 14, 2019, with monthly principal and interest payments of $118,809.  The interest rate onfunds are used for certain qualifying expenses as described in 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.

Line of Credit

CARES Act. The Company has a $7.0 million Revolving Lineapplied for forgiveness of Credit (“Line of Credit”)the PPP loan in accordance with the requirements and limitations under the CreditCARES Act, the PPP Flexibility Act and Term Loan Agreement.  On March 31, 2017, the Company executed the Eighth Amendment under the CreditSBA regulations and Term Loan Agreement.  This amendment extended the Line of Credit maturity to March 30, 2018, while other terms of the Line of Credit remained essentially the same.  At December 31, 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% (4.31% at December 31, 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 December 31, 2017.

requirements.
Fair Value of Debt

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:

·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.

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

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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 loans using cash flows discounted at the current market interest rate obtained.  The faircarrying value of the Company’s second outstanding fixedterm debt approximates fair value.
Note 8 – Equity Distribution Agreement and Sale of Common Stock
On April 24, 2020, the Company entered into an Equity Distribution Agreement with Northland Securities, Inc., as agent (“Northland”), pursuant to which the Company may offer and sell, from time to time, through Northland, shares of the Company’s common stock, par value 0.01 per share, having an aggregate offering price of up to $13,850,000 ("Shares").
The offer and sale of the Shares will be made pursuant to a shelf registration statement on Form S-3 and the related prospectus filed by the Company with the Securities and Exchange Commission (the “SEC”) on March 3, 2020, as amended on March 23, 2020, and declared effective by the SEC on April 1, 2020.
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Pursuant to the Sales Agreement, Northland may sell the Shares by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933 (the “Securities Act”), including sales made by means of ordinary brokers’ transactions, including on The Nasdaq Global Market, at market prices or as otherwise agreed with Northland. Northland will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the Shares from time to time, based upon instructions from the Company, including any price or size limits or other customary parameters or conditions the Company may impose. The Sales Agreement may be terminated without prior notice at any time prior to the fulfillment if additional sales are deemed not warranted.
The Company will pay Northland a commission rate loan was $2.5 million asequal to an aggregate of 3.0% of the aggregate gross proceeds from each sale of Shares and have agreed to provide Northland with customary indemnification and contribution rights. The Company will also reimburse Northland for certain specified expenses in connection with entering into the Sales Agreement. The Sales Agreement contains customary representations and warranties and conditions to the placements of the Shares pursuant thereto.
During the three months ended December 31, 2017.2020, 238,194 Shares were sold by Northland on behalf of the Company with gross proceeds of $0.91 million, and net proceeds after commissions and fees of $0.88 million.

Note 69 – Earnings Per Share
Basic earnings per share are based on the sum of the average number of common shares outstanding and issuable, restricted and deferred shares. Diluted earnings per share include any dilutive effect of stock options and restricted stock. In computing the diluted weighted average shares, the average share price for the period is used in determining the number of shares assumed to be reacquired under the treasury stock method from the exercise of options.

Basic and diluted earnings per share for the three months ended December 31, 20172020 and 2016 are:2019 are (in thousands, except per share amounts):

  
Three Months Ended
December 31,
 
  2017  2016 
Net income (loss) attributable to
common shareholders
 $(706,762) $217,161 
         
Basic weighted average shares  10,225,995   10,134,235 
Effect of dilutive securities:        
Stock options  –   324 
Diluted weighted average shares  10,225,995   10,134,559 
         
Earnings (loss) per common share:        
Basic $(0.07) $0.02 
Diluted $(0.07) $0.02 

Three Months Ended December 31,
20202019
Net loss attributable to common shareholders$(1,953)$(1,718)
Basic and diluted weighted average shares12,149,778 10,361,292 
Basic and diluted loss per common share:$(0.16)$(0.17)
The table below includes information related to stock options that were outstanding at the end of each respective three-month period ended December 31, but have been excluded from the computation of weighted-average stock options for dilutive securities because their effect would be anti-dilutive. The stock options were anti-dilutive either due to the optionCompany incurring a net loss for the periods presented or the exercise price exceedingexceeded the average market price per share of our common stock for the three months ended December 31, or their effect would be anti-dilutive.2020 and 2019.

Three Months Ended December 31,
20202019
Stock options excluded100,000 770,000 
Weighted average exercise price of stock options$1.55 $1.73 
Average market price of common stock$2.54 $2.27 
  
Three Months Ended
December 31,
 
  2017  2016 
Stock options excluded  700,000   520,000 
Weighted average exercise price of        
stock options $2.54  $2.83 
Average market price of common stock $1.46  $1.76 

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Note 10 – Supplemental Cash Flow Information
(in thousands)Three Months Ended December 31,
20202019
Supplemental cash flow information:
Cash paid for interest$43 $102 
Supplemental noncash investing and financing activities:
Assets acquired under financing leases$34 $240 

Note 711 – Stock-Based Compensation

Plan Information

The 2015 Incentive Stock Plan (the “Plan”) provides for awards of stock options and restricted stock to officers, directors, key employees and consultants. Under the Plan, option prices will be set by the Compensation Committee and may not be less than the fair market value of the stock on the grant date.

At December 31, 2017, 1,100,4152020, 2,100,415 shares of common stock were reserved for stock award grants under the Plan.  Of these reserved shares, 212,451483,240 shares were available for future grants.

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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 share-basedstock-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
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, four-year or five-year period from the date of grant and generally expire ten years after the date of grant. Stock options granted to the Board of Directors generally become exercisable on the date of grant and generally expire ten years after the grant.

A summary of the status of the Company's stock options at December 31, 20172020 and changes during the three months then ended is presented below:

 
 
Shares
  
Wtd. Avg.
Ex. Price
 
Outstanding at September 30, 2017  700,000  $2.54 
SharesWtd. Avg.
Ex. Price		Aggregate Intrinsic
Value
Outstanding at September 30, 2020Outstanding at September 30, 2020100,000 $1.55 
Granted  –   – Granted0 0 — 
Exercised  –   – Exercised0 0 — 
Expired  –   – Expired0 0 — 
Forfeited  –   – Forfeited0 0 — 
Outstanding at December 31, 2017  700,000  $2.54 
Outstanding at December 31, 2020Outstanding at December 31, 2020100,000 $1.55 $— 
        
Exercisable at December 31, 2017  526,667  $2.78 
Exercisable at December 31, 2020Exercisable at December 31, 202083,334 $1.60 $0 
No nonqualifiedNaN stock options were granted for the three months ended December 31, 2017.2020. The Company estimates the fair value of the options granted using the Black-Scholes option valuation model. The Company estimates the expected term of options granted based on the historical grants and exercises of the Company’s options.  The Company estimates theoptions, 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 basesstock, and the risk-free rate that is used in the Black-Scholes option valuation modelbased on the implied yield in effect at the time of the option grant on U.S. Treasury zero-coupon issues with equivalent expected term. The Company has never paid cash dividends on its
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common stock and does not anticipate paying cash dividends in the foreseeable future. Consequently, theThe Company uses an expected dividend yield of zero in the Black-Scholes option valuation model.0. 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 optionrecognizes forfeitures and records share-based expense only for those awards that are expected to vest.

as they occur.
Compensation expense related to unvested stock options recorded for the three monthsquarters ended December 31, 2017 is as follows:

  Three Months Ended 
  December 31, 2017 
Fiscal year 2016 grant $1,789 
Fiscal year 2017 grant $10,539 

2020 and 2019 was $1 thousand and $13.9 thousand respectively. The Company records compensation expense over the vesting term of the related options. At December 31, 2017,2020, compensation costs related to these unvested stock options not yet recognized in the consolidated condensed statements of operations was $62,657.

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$2 thousand.
Restricted Stockstock awards
TheIn fiscal year 2021, the Company granted restricted stock in March 2017a total of 306,390 shares to its Board of Directors and a Company officer totaling 58,009 shares,certain employees, which were valued at market value on the date of the grant. The shares are being held by the Company for 12 months and will be deliveredranged in vesting from one to the directors at the end of the 12 month holding period.three years. The fair value of thesethe shares atupon issuance totaled $105,000, which is being amortized over the 12 month holding period as compensation expense.  The unamortized portionwas $0.6 million.
A summary of the Company's non-vested restricted share awards (RSA) at December 31, 2020 and changes during the quarter ended December 31, 2020 is presented in the following table (in thousands, except shares):
SharesFair Value
Non-vested at September 30, 2020475,024 $1,058 
Granted306,390 628 
Vested(66,158)(108)
Forfeited0 0 
Non-vested at December 31, 2020715,256 $1,578 
Compensation expense related to unvested stock grants recorded for the quarters ended December 31, 2020 and 2019, was $0.3 million and $4 thousand respectively. At December 31, 2020, compensation costs related to these unvested restricted share awards not yet recognized in the consolidated statements of operations was approximately $1.0 million.
Note 12 – Leases
Our Wireless segment has an operating lease for a building in Fridley, Minnesota for Fulton Technologies, Inc. As a result of closing down and vacating Fulton Technologies, Inc.’s Minnesota office in May 2019, a third-party telecom company began subleasing this building in June 2019.
Our Telco segment has an operating lease for a building in Jessup, Maryland for Nave Communications.  As a result of moving Nave’s operations to Palco Telecom, a third-party logistics provider in Huntsville, Alabama, in fiscal year 2020, Nave completely vacated the building in May 2020 and was subleasing part of the building during fiscal year 2021. 
Rental payments received related to these subleases was recorded as a reduction of rent expense in our Consolidated Statements of Operations for the periods ending December 31, 2020 and 2019. Rental payments received from subleased right-of-use assets is included in prepaid expenses on the Company’s consolidated condensed balance sheets.as follows, (in thousands).

Three Months Ended December 31,
20202019
Rent received from subleased right-of-use assets
Wireless$46 $45 
Telco57 100 
Total rental received included in rent expense$103 $145 

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Note 813 – Segment Reporting

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

Cable TelevisionWireless Infrastructure Services (“Cable TV”Wireless”)

The Company’s Cable TVWireless segment sellsprovides 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 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 equipmentsmall cells for various cable companies.

5G.
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 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,inventories, property and equipment, goodwill and intangible assets.


  Three Months Ended 
  
December 31,
2017
  
December 31,
2016
 
Sales      
Cable TV $5,826,405  $6,574,824 
Telco  6,458,540   5,539,977 
Intersegment  (180)  (18,975)
Total sales $12,284,765  $12,095,826 
         
Gross profit        
Cable TV $1,201,127  $2,400,342 
Telco  2,180,028   1,623,287 
Total gross profit $3,381,155  $4,023,629 
         
Operating income (loss)        
Cable TV $(188,500) $908,982 
Telco  (77,168)  (482,177)
Total operating income (loss) $(265,668) $426,805 
         

The Company changed the allocation of corporate general and administrative expenses between our reportable business segments. At September 30, 2020, the Company did not allocate the corporate general and administrative expenses to the reportable segments and listed those expenses separate from the operating results of those reportable segments. During fiscal 2021, the Company reviewed its reportable segments and its corporate general and administrative expenses and allocation methodology, which resulted in the Company allocating its corporate general and administrative expenses to the reportable segments. The prior period allocations have been adjusted to reflect the Company's current allocation.
Three Months Ended
(in thousands)December 31, 2020December 31, 2019
Sales
Wireless$5,247 $6,798 
Telco7,502 7,164 
Total sales$12,749 $13,962 
Gross profit
Wireless$1,609 $1,873 
Telco2,020 1,719 
Total gross profit$3,629 $3,592 
Loss from operations
Wireless$(809)$(782)
Telco(1,105)(981)
Total loss from operations$(1,914)$(1,763)
(in thousands)December 31, 2020September 30, 2020
Segment assets
Wireless$5,141 $5,324 
Telco13,799 12,298 
Non-allocated11,031 14,881 
Total assets$29,971 $32,503 

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December 31,
2017
  
September 30,
2017
 
Segment assets      
Cable TV $23,806,802  $24,116,395 
Telco  23,635,818   24,135,091 
Non-allocated  2,850,799   6,596,119 
Total assets $50,293,419  $54,847,605 


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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Special Note on Forward-Looking Statements

Certain statements in Management's Discussion and Analysis (“MD&A”), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements generally are identified by the words “estimates,” “projects,” “believes,” “plans,” “intends,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. These statements are subject to a number of risks, uncertainties and developments beyond our control or foresight, including changes in the trends of the cable televisionwireless infrastructure services industry, changes in the trends of the telecommunications industry, changes in our supplier agreements, technological developments, changes in the general economic environment, generally,the potential impact of the novel strain of coronavirus (“COVID-19”) pandemic, the growth or formation of competitors, changes in governmental regulation or taxation, changes in our personnel and other such factors. Our actual results, performance or achievements may differ significantly from the results, performance or 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.

Overview

The following MD&A is intended to help the reader understand the results of operations, financial condition, and cash flows of the Company. MD&A is provided as a supplement to, and should be read in conjunction with the information presented elsewhere in this quarterly report on Form 10-Q and with the information presented in our annual report on Form 10-K for the year ended September 30, 2017,2020, which includes our audited consolidated financial statements and the accompanying notes to the consolidated financial statements.

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

Cable TelevisionWireless Infrastructure Services (“Cable TV”Wireless”)

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

5G.
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 program.

Recent Business Developments
COVID-19
On March 11, 2020, the World Health Organization declared the current outbreak of COVID-19 to be a global pandemic, and on March 13, 2020, the United States declared a national emergency. In response to these declarations and the rapid spread of COVID-19, federal, state and local governments have imposed varying degrees of restrictions on business and social activities to contain COVID-19, including quarantine and “stay-at-home” or “shelter-in-place” orders in markets where we operate. Despite these “stay-at-home” or “shelter-in-place” orders, we are classified as an essential business due to the services and products we provide to the
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telecommunications industry.  Therefore, we continue to operate in the markets we serve, but most of our back-office and administrative personnel were working from home through December 31, 2020 while these orders were in place.  Although we can continue to operate our businesses, our revenues have slowed, especially in our Wireless segment, due to the carriers slowing down various wireless tower projects. We have not experienced a material disruption in our supply chain to date; however, we expect COVID-19 could materially negatively affect the supply chain, customer demand for our telecommunications products or further delay wireless carriers’ infrastructure build plans in the coming months as a result of the disruption and uncertainty it is causing. There is considerable uncertainty regarding the extent to which COVID-19 will continue to spread and the extent and duration of governmental and other measures implemented to try to slow the spread of COVID-19, such as large-scale travel bans and restrictions, border closures, quarantines, shelter-in-place orders and business and government shutdowns. Restrictions of this nature have caused, and may continue to cause, us, our subcontractors, suppliers and other business counterparties to experience operational delays.
In response to COVID-19, we have taken a variety of measures to ensure the availability of our critical infrastructure, promote the health and safety of our employees, and support the communities in which we operate. These measures include providing support for our customers as reflected in the FCC's "Keep Americans Connected" pledge, requiring work-from-home arrangements for a large portion of our workforce and imposing travel restrictions for our employees where practicable, canceling physical participation in meetings, events and conferences, and other modifications to our business practices. We will continue to actively monitor the situation and may take further actions as may be required by governmental authorities or that we determine are in the best interests of our employees, customers, business partners and stockholders.
While we continue to assess the COVID-19 situation, the extent to which the COVID-19 pandemic may impact our business, operating results, financial condition, or liquidity in the future will depend on future developments, including the duration of the outbreak, travel restrictions, business and workforce disruptions, and the effectiveness of actions taken to contain and treat the virus.
Results of Operations

Comparison of Results of Operations for the Three Months Ended December 31, 20172020 and December 31, 2016

2019
Consolidated

Consolidated sales increased $0.2decreased $1.21 million, before the impact of intercompany sales, or 2%9%, to $12.3$12.75 million for three months ended December 31, 2020 from $13.96 million for the three months ended December 31, 2017 from $12.12019.  The decrease in sales was due to declines in sales in the Wireless segment of $1.55 million partially offset by an increase in Telco sales of $0.34 million.
Consolidated gross profit was essentially flat at $3.6 million for three months ended December 31, 2020 compared to $3.6 million for the same period last year. The changes in gross profit were due to an increase in the Telco segment of $0.3 million, offset by a Wireless segment decrease of $0.3 million.
Consolidated operating expenses include indirect costs associated with operating our business. Indirect costs include indirect personnel costs, facility costs, vehicles, insurance, communication, and business taxes, among other cost categories. Operating expenses remained consistent at $2.0 million for the three months ended December 31, 2016.  The increase in sales was in2020 and $2.1 million the Telco segmentsame period last year.
Consolidated selling, general and administrative ("SG&A") expenses include overhead costs, which consist of $1.0 million, partially offset by a decrease in the Cable TV segment of $0.8 million.  Consolidated gross profit decreased $0.6personnel costs, insurance, professional services, and communication, and other cost categories. SG&A expense increased $0.4 million, or 16%, to $3.4 million for the three months ended

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December 31, 2017 from $4.0 million for the same period last year.  The decrease in gross profit was in the Cable TV segment of $1.1 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 $3.6$3.2 million for the three months ended December 31, 2017 compared to the same period last year.  This was due to an increase of $0.2 million in the Telco segment, offset by a decrease in the Cable TV segment of $0.1 million.

Interest expense remained flat at $0.1 million for the three months ended December 31, 2017 and 2016.

The provision for income taxes was $0.3 million for the three months ended December 31, 20172020 from a provision for income taxes of $0.1 million for the three months ended December 31, 2016.  The increase in the tax provision 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 Company estimates that its effective income tax rate for the remaining quarters of fiscal year 2018 will be approximately 27% as a result of the legislation.

Segment Results

Cable TV

Sales for the Cable TV segment decreased $0.8 million to $5.8 million for the three months ended December 31, 2017 from $6.6 million for the same period last year.  The decrease in sales was due to a decrease in refurbished equipment sales and repair service revenue of $0.5 million each, partially offset by an increase in new equipment revenue of $0.2 million.  The decrease in the refurbished equipment sales was due primarily to an overall decrease in demand for the three months ended December 31, 2017 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 two of its repair facilities and laid off personnel at its remaining repair facilities.

Gross margin was 21% for the three months ended December 31, 2017 compared to 37% 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.

Operating, selling, general and administrative expenses decreased $0.1 million to $1.4 million for the three months ended December 31, 2017 from $1.5 million for the same period last year.

Telco

Sales for the Telco segment increased $1.0 million to $6.5 million for the three months ended December 31, 2017 from $5.5$2.8 million for the same period last year. The increase in SG&A relates to increased sales for the Telco segment was duecosts and increased non-cash stock compensation.
Depreciation and amortization expenses decreased $0.17 million, or 37%, to an increase in equipment sales and recycling revenue of $0.7 million and $0.3 million, respectively.  The increase in Telco equipment sales was primarily due to Triton Datacom, which offset the continued lower equipment sales from Nave Communications.  The Company is continuing to address the lower equipment sales at Nave Communications by restructuring and expanding its sales force, targeting a broader end-user customer base, increasing its sales to the reseller market and expanding the capacity of its recycling program.

Gross margin was 34% for the three months ended December 31, 2017 and 29% for the three months ended December 31, 2016.  The increase in gross margin was due primarily to higher gross margins from equipment sales to end-user customers and our recycling program.

Operating, selling, general and administrative expenses increased $0.1 million to $2.2$0.28 million for the three months ended December 31, 20172020, from $2.1$0.45 million for the same period last year. The decrease was due primarily to a decrease in amortization expenses to the Telco segment of $0.18 million, as a result of intangible impairments taken in fiscal 2020.
Interest income primarily consists of interest earned on the promissory note. Interest income was $48 thousand for the three months ended December 31, 2020 and $0.1 million for the same period last year.
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Income from equity method investment, which consists of activity related to our investment in YKTG Solutions, for the three months ended December 31, 2020 was zero and $20 thousand for the three months ended December 31, 2019. The income for the three months ended December 31, 2019 consisted primarily of payments received under a loan to the former YKTG Solutions partners.
Interest expense for the three months ended December 31, 2020 was $0.1 million as compared to $26 thousand for the same period last year. The expense for the three months ended December 31, 2020 was primarily related to interest expense on the revolving bank line of credit and the loan with our primary financial lender. 
Income tax expense during the three months ended December 31, 2020 was zero compared to an income tax benefit of $15 thousand for the same period in 2019. Our effective tax rates during the three months ended December 31, 2020 and 2019 were approximately 0% and 1%, respectively because of an increase in our valuation allowance against our deferred tax assets in the first quarter of fiscal 2020.
Segment Results
Wireless
Revenues for the Wireless segment decreased $1.6 million to $5.2 million for the three months ended December 31, 2020 from $6.8 million for the same period of last year. Revenues continued to be negatively impacted due to delays in infrastructure spending from the major U.S. carriers related to the COVID-19 pandemic. However, we believe that the 5G rollout will gain momentum in the calendar year and that there is substantial and growing pent-up demand for 5G-related work on existing towers, new raw-land builds, and small cell networks. In addition, we have made and are continuing to make the necessary operational changes in order to be well positioned to secure an increased share of the 5G construction services work and to improve our operating cost efficiency and gross profit.
Gross profit was $1.6 million, or 31% for the three months ended December 31, 2020 and $1.9 million, or 28%, for the three months ended December 31, 2019. The improvement in the gross profit percentage was driven by the mix of specialty service work.
Operating expenses were $1.2 million for the three months ended December 31, 2020 compared to $1.5 million for the three months ended December 31, 2019 as a result of a range of cost control measures.
Selling, general and administrative expenses increased $0.2 million to $0.7 million for the three months ended December 31, 2020 from $0.5 million for the three months ended December 31, 2019. This increase was due to increased sales-related personnel costs. The corporate overhead allocation increased $0.2 million mainly as a result of the employee stock-based compensation plan and interest expense.
Depreciation and amortization expense was $0.1 million for the three months ended December 31, 2020 and 2019.
Telco
Sales for the Telco segment increased $0.34 million to $7.50 million for the three months ended December 31, 2020 from $7.16 million for the same period last year. The increase in revenues were related to increased sales of used and refurbished equipment, coupled with decreased charges for returns during the quarter compared to the prior quarter.
Gross profit was $2.0 million for the three months ended December 31, 2020 and $1.7 million for the three months ended December 31, 2019. The increased gross profit was due to increased revenues of $0.3 million, while cost of goods sold was flat year-over-year at $5.5 million.
Operating expenses increased to $0.8 million for the three months ended December 31, 2020 from $0.7 million for the three months ended December 31, 2019. The increased operating expense was due fees related to the utilization of a third-party logistics provider.
Selling, general and administrative expenses decreased $0.1 million to $0.8 million for the three months ended December 31, 2020 from $0.9 million for the same period last year. This increasedecrease was due primarily to earn-out expensesdecreased
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personnel costs and professional fees. The decrease in SG&A was offset by an increase in the corporate allocation of $0.4 million, which related to the Triton Miami, Inc. acquisitionemployee stock-compensation plan and interest expense.
Depreciation and amortization expense decreased $0.2 million to $0.1 million for the three months ended December 31, 2020 from $0.3 million for the same period last year. This was due to decreased amortization expense resulting from the impairment of $0.1 million.intangibles taken in the three months ended March 31, 2020.

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Non-GAAP Financial Measure

Adjusted EBITDA is a supplemental, non-GAAP financial measure.  EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA as presented also excludes impairment charges for operating lease right-of-use assets and intangible assets including goodwill, stock compensation expense, other income, other expense, interest income and income from equity method investment. Adjusted EBITDA is presented below because this metric is used by the financial community as a method of measuring our financial performance and of evaluating the market value of companies considered to be in similar businesses.  Since Adjusted EBITDA is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net earnings as an indicator of operating performance. Adjusted EBITDA, as calculated below, may not be comparable to similarly titled measures employed by other companies.  In addition, Adjusted EBITDA is not necessarily a measure of our ability to fund our cash needs.

AThe following table provides a reconciliation by segment of operating incomeloss from operations to Adjusted EBITDA follows:for the three months ended December 31, 2020 and December 31, 2019, in thousands:

  Three Months Ended December 31, 2017  Three Months Ended December 31, 2016 
  Cable TV  Telco  Total  Cable TV  Telco  Total 
Income (loss) from
operations
 $(188,500) $(77,168) $(265,668) $908,982  $(482,177) $426,805 
Depreciation  66,948   31,195   98,143   73,245   30,542   103,787 
Amortization  −   313,311   313,311   −   311,986   311,986 
Adjusted EBITDA (a)
 $(121,552) $267,338  $145,786  $982,227  $(139,649) $842,578 

Three Months Ended
December 31, 2020		Three Months Ended
December 31, 2019
WirelessTelcoTotalWirelessTelcoTotal
Loss from operations$(1,105)$(809)$(1,914)$(782)$(981)$(1,763)
Depreciation and amortization expense152 129 281 146 301 447 
Stock compensation expense140 175 315 9 9 18 
Adjusted EBITDA$(813)$(505)$(1,318)$(627)$(671)$(1,298)
(a)The Telco segment includes earn-out expenses of $0.1 million for the three months ended December 31, 2017 and acquisition-related costs of $0.2 million for the three months ended December 31, 2016 related to the acquisition of Triton Miami, Inc.

Critical Accounting Policies

Note 1 toOur unaudited consolidated financial statements are impacted by the Consolidated Financial Statements in Form 10-K for fiscal 2017 includes aaccounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of theour significant accounting policies or methods usedis included in the preparationNote 1- Basis of Presentation and Accounting Policies in 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.

Form 10-K.
General

The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on historical experience, current market conditions, and various other factors we believe to be reasonable, 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.certain assets. Actual results could differ from these estimates under different assumptions or conditions. The most significant estimates and assumptions are discussed below.

Inventory Valuation

OurFor our Telco segment, our position in the telecommunications industry requires us to carry large inventory quantities relative to annual sales, but it also allows us to realize high overall gross profit margins on our sales.  We market our products primarily to MSOs, telecommunication providers, 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 fromrisk for our customers.  We regularly review the value of our inventory in detail with consideration given to rapidly changing technology which can significantly affectTelco segment.

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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 lossTable 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.Contents

Our inventories are all carried in the Telco segment and consist of new and used electronic components for the cable television 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 prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  At December 31, 2017,2020, we had total inventory, before the reserve for excess and obsolete inventories, of $25.5$9.3 million, consisting of $14.8$1.4 million in new products and $10.7$7.9 million in used or refurbished products.

ForWe regularly review the Cable TV segment, our reserve at December 31, 2017 for excess and obsolete inventory was $2.5 million, which reflects an increasevalue of $0.2 million to reflect deterioration in the market demand 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 reservein detail with consideration given to rapidly changing technology which can significantly affect future customer demand. For individual inventory items, we may carry inventory quantities that are excessive relative to market potential, or we may not be able to recover our acquisition costs. In order to address the risks associated with our investment in inventory, we review inventory quantities on hand and our gross margins could be materially adversely affected.

Forreduce the Telco segment, anycarrying value for obsolete and excess telecommunications inventoryinventories, when our analysis indicates that cost will not be recovered when an item is generally processed through its recycling program when it is identified.  However, the Telco segmentsold.
We 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 $0.7$3.1 million at December 31, 2017.  In the three months ended December 31, 2017, we increased the reserve, by $11 thousand.  We also reviewed the cost of inventories against estimated market value and recorded a lower of cost or net realizable value write-off of $12 thousand for inventories that have a cost in excess of estimated net realizable value.2020. If actual market conditions differ from those projected by management, this could have a material impact on our gross margin and inventory balances based on additional write-downs to net realizable value or a benefit from inventories previously written down.

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

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 million at December 31, 2017 and September 30, 2017.   At December 31, 2017, accounts receivable, net of allowance for doubtful accounts, was $5.3 million.

Goodwill

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

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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 plan to restructure and expand 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 fair value of each reporting unit also may change.

expenses.
Intangibles

Intangible assets that have finite useful lives are amortized on a straight-line basis over their estimated useful lives ranging from 3 years to 10 years. Intangible assets are also tested for impairment when events and circumstances indicate that the carrying value may not be recoverable. As of December 31, 2020, there were no indicators of impairment present.

Liquidity and Capital Resources

Cash Flows Provided by Operating Activities

We finance our operations primarily through cash flows provided by operations, and we have a bank line of credit of up to $7.0 million.  During the three months ended December 31, 2017, we generated $0.2 million of cash flows from operations.  The cash flows from operations was favorably impacted by $0.3 million from a net decrease in accounts receivable.  The cash flows operations was negatively impacted by $0.2 million from a net increase in inventory and $0.2 million from a net decrease in accrued expenses, which primarily resulted from the first annual payment of the earn-out related to the acquisition of Triton Miami, Inc.

Cash Flows Used for Investingin Operating Activities

During the three months ended December 31, 2017,2020, cash used in investing activitiesoperations was $0.7$3.7 million. Cash flows from operations were negatively impacted by a net loss of $2.0 million and net cash used by working capital of $2.3 million, which primarily related to guaranteed payments related to the acquisitionwas partially offset by non-cash adjustments of Triton Miami, Inc. of $0.7$0.5 million.

Cash Flows Used for FinancingProvided by Investing Activities

During the three months ended December 31, 2017, we made principal2020, cash provided by investing activities was $1.5 million, consisting of $1.5 million of payments received under the promissory note receivable.
Cash Flows Used in Financing Activities
During the three months ended December 31, 2020, cash used in financing activities was $0.5 million, of $3.1which $1.2 million on our term loans under our Credit and Term Loan Agreement with our primary lender.  On December 6, 2017, as partrelated to repayment of our overall plan to become compliant withpromissory note payable, partially offset by net proceeds from the sale of our financial covenantscommon stock utilizing our shelf registration of $0.9 million. 
In March 2020, we entered into a loan agreement with our primary financial lender we extinguished one of our term loans by paying the outstanding balance of $2.7for $3.5 million, plus a prepayment penalty of $25,000.  As a result, we were in compliance with our financial covenantsbearing interest at December 31, 2017.

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Our first remaining term loan requires monthly payments of $15,334 plus accrued interest through November 2021.  Our second remaining term loan is a three year term loan with monthly6% per annum. The principal and interest payments correlate to our promissory note receivable with Leveling 8. We monetized $3.5 million of $118,809 through October 2019.  the $5.8 million remaining balance of the promissory note receivable. In connection with the $1.5 million in payments received in the first quarter of 2020, we paid down the remaining outstanding principal under this loan.
The Company has a $4.0 million revolving line of credit agreement with its primary financial lender, which matures on December 17, 2021. The line of credit requires quarterly interest payments based on the prevailing Wall Street Journal Prime Rate, floating (3.25% at December 31, 2020), with the addition of a 4% floor rate isand a fixed ratecharge coverage ratio of 4.40%.

1.25 to be tested quarterly beginning June 30, 2021. At December 31, 2017,2020, there was not a balance $2.8 million
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outstanding under ourthe line of credit. TheFuture borrowings under the line of credit are limited to the lesser of $7.0$4.0 million or the totalsum of 80% of the qualifiedeligible accounts receivable plus 50%and 60% of qualified inventory is availableeligible Telco segment inventory. Under these limitations, the Company’s total line of credit borrowing capacity was $4.0 million at December 31, 2020.
On April 14, 2020, the Company received a SBA Payroll Protection Program (“PPP”) loan pursuant to usthe Paycheck Protection Program under the revolving credit facility ($7.0 millionCoronavirus Aid, Relief, and Economic Security Act (“CARES Act”), with its primary lender for $2.9 million. The PPP loan bears interest at September 30, 2017).  Any future borrowings1% per annum, with monthly payments of principal and interest in the amount of $164,045 commencing on November 10, 2020, and matures on April 10, 2022. However, the Company has applied for forgiveness in accordance with the terms in the CARES Act, and our lender has not required repayments while under consideration for forgiveness. The Paycheck Protection Program provides that the PPP loan may be partially or fully forgiven if the funds are used for certain qualifying expenses as described in the CARES Act. The Company has applied for forgiveness of the PPP loan in accordance with the requirements and limitations under the revolving credit facility are dueCARES Act, the PPP Flexibility Act and SBA regulations and requirements.
In the first quarter of 2021, we utilized our recently filed shelf registration statement to raise additional cash by selling common shares utilizing an at maturity on March 30, 2018,the market offering under our equity distribution agreement with Northland Securities, Inc. (“Northland”). Under this program, we sold 238,194 shares for which the Company expects to renew the revolving credit facility for at least one year.

net proceeds of $0.88 million.
We believe that our cash and cash equivalents and restricted cash of $0.4$5.7 million at December 31, 2017, cash flow from operations2020 and our existing revolving bank line of credit will provide sufficient liquidity and capital resources to meetcover our operating losses and our additional working capital and debt payment needs. However, we will likely need to seek a waiver for our probable covenant violation under our loan agreements with our primary financial lender. In addition, there is still significant uncertainty surrounding the timing of the overall recovery of the economy and the timing of wireless infrastructure service opportunities for the upgrade to 5G. Therefore, depending on the timing of these factors and our primary financial lender granting us a waiver of the probable covenant violation, there is still risk that we may not have sufficient cash and cash equivalents available for us to sustain our operations at our current level.  If that were to occur, we would need to seek additional funding and further utilize our shelf registration that we have available to us in order to enhance our cash position and assist in our working capital needs.

Item 4.  Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure the information we are required to disclose in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.  Based on their evaluation as of December 31, 2017,2020, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to accomplish their objectives and to ensure the information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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PART IIII.   OTHER INFORMATION



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

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

Item 6.  Exhibits.
Exhibit No.Description
Exhibit No.Description
10.1
Financial Institution Business Loan Agreement dated December 17, 2020
31.1
31.1
Certification of Chief Executive Officer under Section 302 of the Sarbanes Oxley Act of 2002.
31.2
Certification of Chief Financial Officer under Section 302 of the Sarbanes Oxley Act of 2002.
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document.
101.SCHXBRL Taxonomy Extension Schema.
101.CALXBRL Taxonomy Extension Calculation Linkbase.
101.DEFXBRL Taxonomy Extension Definition Linkbase.
101.LABXBRL Taxonomy Extension Label Linkbase.
101.PREXBRL Taxonomy Extension Presentation Linkbase.




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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


ADDVANTAGE TECHNOLOGIES GROUP, INC.
(Registrant)


Date:  February 13, 2018               /s/ David L. Humphrey
David L. Humphrey,
President and Chief Executive Officer
(Principal Executive Officer)


Date:  February 13, 2018               /s/ Scott A. Francis
Scott A. Francis,
Chief Financial Officer
(Principal Financial Officer)

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Exhibit Index

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

Exhibit No.Description
ADDVANTAGE TECHNOLOGIES GROUP, INC.
(Registrant)
31.1Date: February 11, 2021Certification of
/s/ Joseph E. Hart
Joseph E. Hart,
President and Chief Executive Officer under Section 302 of the Sarbanes Oxley Act of 2002.
(Principal Executive Officer)
31.2Certification of
Date: February 11, 2021
/s/ Jarrod M. Watson
Jarrod M. Watson,
Chief Financial Officer under Section 302 of the Sarbanes Oxley Act of 2002.
32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2Certification of Chief(Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document.
101.SCHXBRL Taxonomy Extension Schema.
101.CALXBRL Taxonomy Extension Calculation Linkbase.
101.DEFXBRL Taxonomy Extension Definition Linkbase.
101.LABXBRL Taxonomy Extension Label Linkbase.
101.PREXBRL Taxonomy Extension Presentation Linkbase.Officer)























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