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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, 2017June 30, 2023

OR

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

    FOR THE TRANSITION PERIOD FROM________________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☒No☐£
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☒No☐£
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)  ☒ Smaller reporting company☒Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes☐No☒
Shares outstanding of the issuer's $.01 par value common stock as of August 9, 2023 were 14,982,524.
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 Contents
ADDVANTAGE TECHNOLOGIES GROUP, INC.
Form 10-Q
For the Period Ended December 31, 2017June 30, 2023


Page
Item 1.Financial Statements.Page
Item 1.
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June 30, 2023 and December 31, 2017 and September 30, 20172022
4
Three and Six Months Ended December 31, 2017June 30, 2023 and 20162022
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Three and Six Months Ended June 30, 2023 and 2022
56
ThreeSix Months Ended December 31, 2017June 30, 2023 and 20162022
67
Item 2.
1416
Item 3.
Item 4.Quantitative and Qualitative Disclosures about Market Risk.
Controls and Procedures.
1922
PART II - OTHER INFORMATION
Item 6.
Exhibits.4.
22
SIGNATURES
Item 1.Legal Proceedings.
23
Item 1A.Risk Factors.
23
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
23
Item 3Defaults Upon Sales of Securities and Use of Proceeds.
23
Item 4.Mine Safety Disclosures.
23
Item 5.Other Information.
23
Item 6.
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PART I.  FINANCIAL INFORMATION


Item 1.  Financial Statements.

ADDVANTAGE TECHNOLOGIES GROUP, INC.ADDvantage Technologies Group, Inc.
CONSOLIDATED CONDENSED BALANCE SHEETSConsolidated Balance Sheets
(UNAUDITED)(in thousands, except share amounts)

(Unaudited)

 
December 31,
2017
  
September 30,
2017
 June 30,
2023		December 31, 2022
Assets      Assets
Current assets:      Current assets:
Cash and cash equivalents $414,891  $3,972,723 Cash and cash equivalents$2,832 $2,552 
Accounts receivable, net of allowance for doubtful accounts of
$150,000
  
5,299,536
   
5,567,005
 
Restricted cashRestricted cash739 1,101 
Accounts receivable, net of allowances of $304 and $262, respectivelyAccounts receivable, net of allowances of $304 and $262, respectively1,385 1,682 
Unbilled revenueUnbilled revenue1,831 5,005 
Income tax receivable  244,510   247,186 Income tax receivable102 102 
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 
Inventories, net of allowances of $4,097 and $3,871, respectivelyInventories, net of allowances of $4,097 and $3,871, respectively8,076 9,563 
Prepaid expenses and other current assetsPrepaid expenses and other current assets1,203 1,399 
Total current assets  28,599,314   32,418,886 Total current assets16,168 21,404 
        
Property and equipment, at cost:        Property and equipment, at cost:
Land and buildings  7,211,190   7,218,678 
Machinery and equipment  3,961,764   3,995,668 Machinery and equipment5,565 5,542 
Leasehold improvements  200,617   202,017 Leasehold improvements899 899 
Total property and equipment, at cost  11,373,571   11,416,363 Total property and equipment, at cost6,464 6,441 
Less: Accumulated depreciation  (5,467,393)  (5,395,791)Less: Accumulated depreciation(3,533)(3,057)
Net property and equipment  5,906,178   6,020,572 Net property and equipment2,931 3,384 
Right-of-use lease assetsRight-of-use lease assets1,060 1,540 
        
Investment in and loans to equity method investee  140,045   98,704 
Intangibles, net of accumulated amortization  8,234,176   8,547,487 Intangibles, net of accumulated amortization549 709 
Goodwill  5,970,244   5,970,244 Goodwill58 58 
Deferred income taxes  1,308,000   1,653,000 
Other assets  135,462   138,712 Other assets207 123 
        
Total assets $50,293,419  $54,847,605 Total assets$20,973 $27,218 

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable$6,151 $9,407 
Accrued expenses1,428 1,445 
Deferred revenue349 148 
Notes payable2,210 — 
Right-of-use lease obligations, current933 1,204 
Finance lease obligations, current640 636 
Other current liabilities589 442 
Total current liabilities12,300 13,282 
Right-of-use lease obligations, long-term288 635 
Finance lease obligations, long-term937 1,254 
Total liabilities13,525 15,171 
Shareholders’ equity:
Common stock, $0.01 par value; 30,000,000 shares authorized; 14,942,524 and 14,132,033 shares issued and outstanding, respectively149 141 
Paid in capital3,559 2,585 
Retained earnings3,740 9,321 
Total shareholders’ equity7,448 12,047 
Total liabilities and shareholders’ equity$20,973 $27,218 















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 June 30,Six Months Ended June 30,
2023202220232022
Sales$12,088 $27,789 $26,807 $51,548 
Cost of sales8,816 19,642 20,118 37,643 
Gross profit3,272 8,147 6,689 13,905 
Operating expenses1,967 2,544 4,014 5,296 
Selling, general and administrative expenses3,288 4,145 6,894 7,996 
Depreciation and amortization expense317 313 634 630 
Loss on disposal of assets— — — 2 
Income (loss) from operations(2,300)1,145 (4,853)(19)
Other income (expense):
Other income (expense)(184)(233)(333)(401)
Interest expense(334)(37)(379)(99)
Other income (expense), net(518)(270)(712)(500)
Income (loss) before income taxes(2,818)875 (5,565)(519)
Income tax provision16 — 16 — 
Net income (loss)$(2,834)$875 $(5,581)$(519)
Income (loss) per share:
Basic and diluted$(0.20)$0.07 $(0.41)$(0.04)
Shares used in per share calculation:
Basic and diluted13,999,816 13,191,792 13,638,538 13,131,754 




































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
SharesAmountTotal
Balance, December 31, 202214,132,033 $141 $2,585 $9,321 $12,047 
Net loss— — — (2,748)(2,748)
Restricted stock issuance656,824 7 (7)— — 
Amortization of stock-based compensation— — 399 — 399 
Balance, March 31, 202314,788,857 $148 $2,977 $6,573 $9,698 
Net loss— — — (2,834)(2,834)
Common stock and warrants issuance72,000 1 384 — 385 
Restricted stock issuance81,667 1 (1)— — 
Amortization of stock-based compensation— — 199 — 199 
Balance, June 30, 202314,942,524 $149 $3,559 $3,740 $7,448 



Common StockPaid-in
Capital		Retained
Earnings
SharesAmountTotal
Balance, December 31, 202113,041,127 $130 $335 $8,850 $9,315 
Net loss— — — (1,394)(1,394)
Common stock issuance143,985 2 166 — 168 
Restricted stock issuance4,000 — — — — 
Amortization of stock-based compensation— — 247 — 247 
Balance, March 31, 202213,189,112 $132 $748 $7,456 $8,336 
Net income— — — 875 875 
Common stock issuance30,745 — 38 — 38 
Restricted stock forfeitures(51,666)(1)1 — — 
Amortization of stock-based compensation— — 103 — 103 
Balance, June 30, 202213,168,191 $132 $890 $8,331 $9,353 



Due to rounding, numbers presented may not foot to the totals provided.





































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)

Six Months Ended June 30,
20232022
Operating Activities:
Net loss$(5,581)$(519)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation475 471 
Amortization360 159 
Non cash amortization of right-of-use asset and liability(138)(131)
Provision for excess and obsolete inventories226 147 
Charge for lower of cost or net realizable value inventories51 — 
Share based compensation expense598 350 
Gain on disposal of property and equipment— 2 
Changes in assets and liabilities:
Accounts receivable297 4,085 
Unbilled revenue3,174 (567)
Inventories1,210 (2,104)
Prepaid expenses and other current assets112 (201)
Accounts payable(3,256)3,747 
Accrued expenses and other liabilities133 542 
Deferred revenue201 (120)
Net cash (used in) provided by operating activities(2,138)5,861 
Investing Activities:
Purchases of property and equipment(23)(129)
Disposals of property and equipment— 42 
Net cash used in investing activities(23)(87)
Financing Activities:
Change in bank line of credit— (2,050)
Proceeds from notes payable2,850 — 
Payment for debt issuance costs(270)— 
Payments on notes payable(187)— 
Payments on financing lease obligations(314)(409)
Proceeds from sale of common stock— 206 
Net cash provided by (used in) financing activities2,079 (2,253)
Net (decrease) increase in cash, cash equivalents and restricted cash(82)3,521 
Cash, cash equivalents and restricted cash at beginning of period3,653 2,418 
Cash, cash equivalents and restricted cash at end of period$3,571 $5,939 
  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)






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. It
The 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 six months ended June 30, 2023 and 2022, 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 December 31, 2022.
Change in year end
In September 2022, the Company's Board of Directors approved a change in the Company's fiscal year end from September 30 2017.

to December 31. The Company's current fiscal year runs from January 1 through December 31. As a result of the change in year end, the Company filed a Transition Report on Form 10-Q for the period from October 1, 2021 through December 31, 2021.
Recently IssuedAdopted Accounting Standards

InFinancial Instruments – Credit Losses. The Financial Accounting Standards Board ("FASB") issued five Accounting Standards Updates (ASUs) related to financial instruments – credit losses. The ASUs issued were: (1) in June 2016, ASU 2016-13, “Financial Instruments – Credit Losses (“ASC 326”): Measurement of Credit Losses on Financial Instruments,” (2) in November 2018, ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” (3) in April 2019, ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” (4) in May 2014,2019, ASU 2019-05, “Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief” and (5) in November 2019, ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses.” Additionally, in February and March 2020, the FASB issued ASU 2020-02, “Financial Instruments—Credit Losses (Topic 326) and Leases (ASC 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 2014-09: “Revenue from Contracts with Customers (Topic 606)”. This guidance was issued119 and Update to clarify the principles for recognizing revenueSEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (ASC 842)” and develop a common revenue standard for U.S. GAAP and InternationalASU 2020-03, “Codification Improvements to Financial Reporting Standards (“IFRS”). In addition, in August 2015, the FASB issued Instruments,” respectively, which include amendments to ASC 326.
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)” which2016-13 is intended to improve financial reporting about leasing transactions.  This ASU will require organizations (“lessees”) that lease assets with lease termsby requiring timelier recording of more than twelve months to recognizecredit losses 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 investorsloans and other financial statement users better understand the amount, timinginstruments held by financial institutions and uncertainty of cash flowsother organizations. ASU 2018-19 clarifies that receivables arising from leases.  Theoperating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leasing standard. ASU 2019-04 clarifies and improves areas of guidance is effective for annual periods beginning after December 15, 2018related to the recently issued standards on financial instruments – credit losses, derivatives and early adoption is permitted.  Based on management’s initial assessment,hedging, and financial instruments. ASU No. 2016-02 will2019-05 provides entities that have a material impact oncertain instruments within the Company’s consolidated financial statements.  The Company is a lessee on certain leases that will need to be reported as rightscope of use assets and liabilitiesASC Subtopic 326-20, Financial Instruments—Credit Losses—Measured 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,Amortized Cost, with an option to recognize gross stock compensation expense with actual forfeitures recognizedirrevocably elect the fair value option in Subtopic 825-10, Financial Instruments—Overall. ASU 2019-11 clarifies guidance around how to report expected recoveries and reinforces existing guidance that prohibits organizations from recording negative allowances for available-for-sale debt securities, among other narrow scope and technical improvements. ASU 2020-02 adds a Securities and Exchange Commission (SEC) paragraph pursuant to the
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issuance of SEC Staff Accounting Bulletin No. 119 on loan losses to FASB Codification ASC 326 and also updates the SEC section of the Codification for the change in the effective date of ASC 842. ASU 2020-03 makes narrow-scope improvements to various aspects of the financial instrument guidance as they occur, as well as certain classificationspart of the FASB’s ongoing Codification improvement project aimed at clarifying specific areas of accounting guidance to help avoid unintended application.
The Company adopted the applicable guidance in ASU 2016-13, ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-11, ASU 2020-02 and ASU 2020-03 on January 1, 2023, and 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 willdid not have a material impact on the Company’sits consolidated financial statements.  statements and related disclosures.

Note 2 - Going Concern Assessment
The Company does not currentlyaccompanying financial statements have excess tax benefits or deficiencies from stock compensation expense.  The Company adopted ASU No. 2016-09been prepared on October 1, 2017.

In June 2016,a going concern basis, which contemplates the FASB issued ASU 2016-13: “Financial Instruments — Credit Losses (Topic 326) – Measurementrealization 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 reasonablesatisfaction of liabilities and supportable forecasts.  Entities will now use forward-looking information to better form their credit loss estimates.  This ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio.  ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal periods.  Entities may adopt earlier as of the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years.  We are currentlycommitments in the processnormal course of evaluating this new standard update.

In August 2016,business. Should 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 willCompany be reportedunable to continue as a financing activity in the Statement of Cash Flows, as opposedgoing concern, it may be unable 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 ifrealize the carrying value of the netits assets assignedand 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.  meet its liabilities as they become due.
The Company is currently evaluating methodology changeshas been subject to adverse conditions that may be required in performing its annual goodwill impairment assessment in connection with this ASUraise substantial doubt about the Company's ability to continue as a going concern for one year following the issuance of these unaudited interim consolidated financial statements, including negative financial trends, specifically operating losses, working capital deficiency, and any impact that these changes may haveother adverse key financial ratios. Additionally, the impacts of unfavorable wireless industry conditions and significant debt service requirements 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 reportedposition, results of operations, and cash flows give rise to substantial doubt about the Company’s ability to pay its obligations as they come due. In consideration of the substantial amount of short-term debt outstanding, detailed below, and the aforementioned unfavorable wireless industry conditions, the Company will be engaging advisors to assist with the evaluation, negotiation, and consummation of strategic alternatives, which may include, but are not limited to, seeking a restructuring, amendment or retainedrefinancing of existing debt through a private restructuring, the issuance of equity securities, a sale of a portion or all of the Company or its assets, or reorganization under Chapter 11 of the Bankruptcy Code. However, there can be no assurances that the Company will be able to successfully restructure its indebtedness, raise additional capital, improve its financial position or complete any strategic transactions. As a result of these uncertainties and the likelihood of a restructuring or reorganization, management has concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern within one year that these financial statements are made available.
Management’s plans to alleviate the substantial doubt about the Company’s ability to continue as a going concern include attempting to grow its revenues and improve its business profitability and its ability to generate sufficient cash flow from its operations to meet its operating needs on a timely basis, obtaining additional working capital funds through various sources, and eliminating inefficiencies in order to meet its anticipated cash requirements. However, there can be no assurance that these plans and arrangements will be sufficient to fund the Company’s ongoing capital expenditures and other requirements.
The unaudited interim consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that the Company cannot continue as a going concern.

Management Plans
In assessing the Company’s liquidity, management reviews its cash and its operating and capital expenditure commitments. The Company’s liquidity needs are to meet its working capital requirements, operating expenses, capital expenditure and debt service obligations. As of June 30, 2023, the Company’s current liabilities exceeded the current assets by approximately $4.2 million, exclusive of inventories.
Management is evaluating all options to refinance its existing short-term debt obligations as well as exploring alternative financing, refinancing, restructuring and capital-raising activities, in order to address its ongoing liquidity needs and to maintain sufficient access to the loan and capital markets on commercially acceptable terms to finance its business. In support of these efforts, management is pursuing various initiatives including, but not limited to, the following:

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•Cash management: An attentive and strategic focus on cash flow has been implemented. A weekly cash flow forecast is produced that analyzes cash flow activities as well as anticipated cash flow. Also, the Company is focused on optimizing working capital management;
•Operating results: Management is committed to focusing on operating results, which is expected to improve operating cash flows and bring the Company’s financial performance back in line with historical operating results. The Company expects to see continued improvement in cash flow throughout 2024 as the increase in orders from new customers improve earnings. As construction in the fiber broadband space increases, along with concerted attempts to enter into a long term agreement with a significant customer in the Wireless segment, sales growth is expected to increase and margins to expand as a result of operating leverage;

•Capital spending: Management expects to minimize capital expenditures in 2024;
•Strategic options: An investment banker is being engaged to investigate all strategic options, including the disposal of assets; and
•Debt refinancing: Continued undertakings to partially or completely refinance the debt.
Note 23 – Revenue Recognition
The Company’s principal sales are from Wireless services and sales of Telco equipment, primarily in the United States. Sales to international customers totaled approximately $1.2 million and $2.0 million for the three months ended June 30, 2023 and 2022, respectively, and $2.8 million and $3.6 million for the six months ended June 30, 2023 and 2022, respectively.
The Company’s customers include wireless carriers, wireless equipment providers, multiple system operators, resellers and direct sales to end-user customers. Sales, which individually amounted to 10% or greater of the Company's revenue, to two customers totaled 31%, and to two customers totaled 33% of consolidated revenues for the six months ended June 30, 2023 and 2022, respectively.
Our sales by type were as follows, in thousands:
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Wireless services sales$6,329 $7,243 $12,901 $15,009 
Equipment sales:
Telco equipment5,750 20,346 13,897 36,333 
Telco repair9 8 9 14 
Telco recycle— 192 — 192 
Total sales$12,088 $27,789 $26,807 $51,548 
Contract assets and contract liabilities are included in unbilled revenue and deferred revenue, respectively, in the consolidated balance sheets. At June 30, 2023 and December 31, 2022, contract assets were $1.8 million and $5.0 million, respectively, and contract liabilities were $0.3 million and $0.1 million, respectively. The Company recognized $0.1 million of contract revenue during the six months ended June 30, 2023 related to contract liabilities recorded in deferred revenue at December 31, 2022.
Note 4 – Accounts Receivable Agreements
The Company maintains accounts receivable purchase facilities for its Nave and Triton subsidiaries with its primary financial lender with capacities of $10.0 million for Nave and $3.0 million for Triton. The lender charges a fee of 1.75% of sold receivables. The Company also maintains accounts receivable purchase facilities for its Fulton subsidiary, providing a credit capacity excluding a major customer of $3.0 million, with a fee of 2.0% of sold receivables, and credit capacity secured by receivables of a major customer of $3.0 million, with a fee of 1.6% of sold receivables.

All four facilities are secured by the subsidiary's receivables, and the lender advances 90% of sold receivables and establishes a reserve of 10% of the sold receivables at initial sale, which increases to 100% over time after 120 days, until the Company collects the sold receivables. All four facilities mature on December 17, 2023.
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The Company has a total capacity under all four facilities of $19.0 million. As of June 30, 2023, the lender has a reserve against the sold receivables of $0.7 million, which is reflected as restricted cash on the consolidated balance sheets.  The facilities agreements address events and conditions which may obligate the Company to immediately repay the institution the outstanding purchase price of the receivables sold. The total amount of receivables uncollected by the institution was $3.1 million at June 30, 2023.  Although the sale of receivables is with recourse, the Company did not record a recourse obligation at June 30, 2023 as the Company concluded that the sold receivables are collectible. 
For the six months ended June 30, 2023, the Company received proceeds from the sold receivables under all of their various agreements of $22.8 million and included the proceeds in net cash provided by operating activities in the consolidated statements of cash flows. The Company recorded related costs of $0.4 million for the six months ended June 30, 2023, in other expense in the consolidated statements of operations.
Note 5 – Inventories
Inventories, which are all within the Telco segment, at June 30, 2023 and December 31, 2017 and September 30, 20172022 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:
June 30, 2023December 31, 2022
New equipment$1,976 $2,286 
Refurbished and used equipment10,197 11,148 
Allowance for excess and obsolete inventory(4,097)(3,871)
Total inventories, net$8,076 $9,563 
New inventoryequipment includes products purchased from the manufacturers plus “surplus-new”, which are unused products purchased from other distributors or multiple system operators.  Refurbished inventoryand used equipment includes factory refurbished, Company refurbished and used products. Generally, the Company does not refurbish its used inventory until there is a sale of that product or to keep a certain quantity on hand.

7
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 million reserve at December 31, 2017.  We also reviewed the cost of inventories against estimated net realizable value and recorded a lower of cost or net realizable value charge for the 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.

Note 36 – Intangible Assets

The intangibleIntangible assets with their associated accumulated amortization amountsand impairment at June 30, 2023 and December 31, 2017 and September 30, 20172022 are as follows:follows, in thousands:

  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
 June 30, 2023
Intangible assets:         Intangible assets:GrossAccumulated AmortizationNet
Customer relationships – 10 years $8,152,000  $(1,898,691) $6,253,309 Customer relationships – 10 years$3,155 $(2,966)$189 
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 (1,762)360 
Non-compete agreements – 3 years  374,000   (292,333)  81,667 
            
Total intangible assets $11,948,000  $(3,400,513) $8,547,487 Total intangible assets$5,277 $(4,728)$549 
            
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.
December 31, 2022
Intangible assets:GrossAccumulated
Amortization		Net
Customer relationships – 10 years$3,155 $(2,913)$242 
Trade name – 10 years2,122 (1,655)467 
Total intangible assets$5,277 $(4,568)$709 

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Note 57 – Notes PayableDebt
Credit Agreement
On March 17, 2022, the Company closed its $3.0 million credit facility for its Nave and Line of Credit
Notes Payable

The Company has an Amended and Restated Revolving Credit and Term Loan Agreement (“Credit and Term Loan Agreement”)Triton subsidiaries with its primary financial lender. Revolving creditSee Note 4 - Accounts Receivable Agreements for more information about the Company's receivables purchase facilities.

Convertible Promissory Notes

In April 2023, the Company entered into securities purchase agreements for the issuance of convertible senior promissory notes (the “April Notes”) with Mast Hill Fund, L.P. (the “Holder”). In the aggregate, the principal balance was $3.0 million, of which the purchase price was $2.8 million, and the original issue discount was $0.2 million. The April Notes have a term loans createdof one year and bear interest at a rate of 13% per annum. The Company and its subsidiaries entered into certain Security Agreements, creating a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance, and discharge in full of the Company’s obligations under the CreditApril Notes. The April Notes are subject to certain covenants as defined in the securities purchase agreement which includes maintaining its common stock listing status with the Nasdaq Capital Market, and Term Loan Agreement are collateralized by inventory, accounts receivable, equipment and fixtures, general intangibles andmaintaining a mortgage on certain property.  Among other financial covenants,minimum market capitalization of $5 million.

In connection with the Credit and Term Loan Agreement provides thatissuance of the April Notes, the Company maintainissued (i) warrants to purchase 360,000 shares of common stock with an exercise price of $2.50 exercisable until the five-year anniversary of the closing date, and (ii) a fixed charge coverage ratio (net cash flowwarrant to total fixed charges)purchase 288,000 shares of not less than 1.25common stock with an exercise price of $1.40 exercisable until the five-year anniversary of the closing date, which warrant shall be cancelled and extinguished against payment of the Notes (together, the “April Warrants”). Additionally, as a commitment fee to 1.0 andthe Holder, 72,000 shares of the Company’s common stock were issued in connection with the April Notes. The April Notes also contain a leverage ratio (total funded debtconversion feature which allows the Holder to EBITDA)convert any portion of not more than 2.50 to 1.0.  Both financial covenants are determined quarterly.  At December 31, 2017, we were in compliance with our financial covenants.
At December 31, 2017, the Company has two term loans outstanding under the Credit and Term Loan Agreement.  The first outstanding term loan has an outstanding balance of $0.7 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 is 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 monthlyunpaid principal and interest paymentsinto shares of $118,809.the Company’s common stock at a conversion price of $2.50 per share. Pursuant to the April Notes, the Company is required to hold an annual shareholders meeting within 90 calendar days after the first date that the Company's common stock traded at a share price below $1.00 during five consecutive trading days. The interest rateCompany's stock traded below $1.00 for five consecutive days on May 1, 2023. On June 9, 2023, Mast Hill and the Company amended the April Notes and agreed to allow the Company to hold its Annual Shareholder meeting by September 30, 2023. On August 10, 2023 the Company filed a Definitive Proxy Statement for the meeting of shareholders to be held on September 22, 2023.

The conversion feature contained in the April Notes was evaluated for derivative accounting under ASC 815, Derivatives and Hedging, and determined not to be considered a derivative and therefore has been recorded in liabilities as part of the April Notes and not bifurcated. The April Warrants were evaluated and did not meet the criteria to be classified as derivatives, and accordingly, were recognized as equity instruments at fair value using a Black-Scholes model valuation. The commitment fee shares were earned upon closing, and as such were recognized as equity based on the term loan is a fixedclosing stock price. As of June 30, 2023, the contra-liabilities for the commitment fee and April Warrants were $0.3 million and are amortized to interest rateexpense, the remaining debt issuance costs were $0.3 million, repayments on the April Notes were $0.2 million, and the net outstanding principal balance of 4.40%.the April Notes was $2.2 million.


Note 8 – Equity Distribution Agreement and Sale of Common Stock
On December 6, 2017,April 24, 2020, the Company extinguished oneentered into an Equity Distribution Agreement (the “Sales Agreement”) with Northland Securities, Inc., as agent (“Northland”), pursuant to which the Company may offer and sell, from time to time, through Northland, shares of the Company’s common stock, par value $0.01 per share, having an aggregate offering price of up to $13.9 million ("Shares").

The offer and sale of the Shares were made pursuant to a shelf registration statement on Form S-3 and the related prospectus filed by the Company with the Securities and Exchange Commission (the "SEC") on March 3, 2020, as amended on March 23, 2020, and declared effective by the SEC on April 1, 2020.

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Pursuant to the Sales Agreement, Northland sold the Shares by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933 (the “Securities Act”), including sales made by means of ordinary brokers’ transactions, including on The Nasdaq Capital Market, at market prices or as otherwise agreed with Northland. Northland used commercially reasonable efforts consistent with its previous term loans by payingnormal trading and sales practices to sell the outstanding balance of $2.7 million plus a prepayment penalty of $25,000.Shares from time to time, based upon instructions from the Company, including any price or size limits or other customary parameters or conditions the Company may have imposed.

Line of Credit


The Company haspaid Northland a $7.0 million Revolving Linecommission rate equal to an aggregate of Credit (“Line3.0% of Credit”) under the Creditaggregate gross proceeds from each sale of Shares and Term Loanagreed to provide Northland with customary indemnification and contribution rights. The Company also reimbursed Northland for certain specified expenses in connection with entering into the Sales Agreement. On March 31, 2017,The Sales Agreement contained customary representations and warranties and conditions to the placements of the Shares pursuant thereto.

During the six months ended June 30, 2022, 174,730 Shares were sold by Northland on behalf of the Company executedwith gross proceeds of $0.2 million, and net proceeds after commissions and fees of $0.2 million. On November 28, 2022, the Eighth Amendment underCompany terminated the Credit and Term Loan Agreement.  This amendment extendedSales Agreement with Northland. There were no penalties associated with the Line of Credit maturity to March 30, 2018, while other termstermination 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.

Fair Value of Debt

FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishesSales Agreement. As 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 levelsresult of the fair value hierarchy are as follows:termination, no shares were sold during the six months ended June 30, 2023.


·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 its variable-rate term loan approximates its fair value since the interest rate fluctuates periodically based on a floating interest rate.

9

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 fair value of the Company’s second outstanding fixed rate loan was $2.5 million as of December 31, 2017.

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 and six months ended December 31, 2017June 30, 2023 and 2016 are:2022, in thousands:

  
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 June 30,Six Months Ended June 30,
2023202220232022
Net income (loss) attributable to common shareholders$(2,834)$875 $(5,581)$(519)
Basic and diluted weighted average shares14,000 13,192 13,639 13,132 
Basic and diluted loss per common share$(0.20)$0.07 $(0.41)$(0.04)
The table below includes information related to stock options and restricted stock awards that were outstanding at the end of each respective three-monththree and six-month period ended December 31,June 30, but have been excluded from the computation of weighted-average stock optionsweighted average shares for dilutive securities due to the option exercise price exceeding the average market price per share of our common stock for the three months ended December 31, orbecause their effect would be anti-dilutive.

Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Stock options excluded— 50,000 — 50,000 
Weighted average exercise price of stock options$1.28 $1.28 
Average market price of common stock$1.27 $1.29 
Unvested restricted stock awards897,490 — 897,490 — 
  
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)Six Months Ended June 30,
20232022
Supplemental cash flow information:
Cash paid for interest$378 $99 
Cash paid for taxes$16 $— 
Supplemental noncash investing and financing activities:
Assets acquired under financing leases$— $281 
Common stock and warrants issued in conjunction with the issuance of convertible debt$384 $— 
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, 1,100,415June 30, 2023, 3,100,415 shares of common stock were reserved for stock award grants under the Plan.  Of these reserved shares, 212,451333,813 shares were available for future grants.

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Stock Options

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

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

A summary of the status of the Company's stock optionsnon-vested restricted share awards at December 31, 2017June 30, 2023 and changes during the three months then ended June 30, 2023 is presented below:in the following table (in thousands, except shares):

  
 
Shares
  
Wtd. Avg.
Ex. Price
 
Outstanding at September 30, 2017  700,000  $2.54 
Granted  –   – 
Exercised  –   – 
Expired  –   – 
Forfeited  –   – 
Outstanding at December 31, 2017  700,000  $2.54 
         
Exercisable at December 31, 2017  526,667  $2.78 

SharesFair Value
Non-vested at March 31, 2023912,883 $1,403 
Granted95,000 80 
Vested(97,060)(138)
Forfeited(13,333)(34)
Non-vested at June 30, 2023897,490 $1,311 
No nonqualified stock options were granted forDuring the three month period ended June 30, 2023 and 2022, expenses related to share-based arrangements including restricted stock, were $0.2 million and $0.1 million, respectively.
During the six month period ended June 30, 2023 and 2022, compensation expenses related to share-based arrangements including restricted stock, were $0.6 million and $0.4 million respectively.
The Company did not recognize a tax benefit for compensation expense recognized during the three and six months ended December 31, 2017.  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 grantsJune 30, 2023 and exercises of the Company’s options.  The Company estimates the volatility of its common stock at the date of the grant based on both the historical volatility as well as the implied volatility on its common stock.  The Company bases the risk-free rate that is used in the Black-Scholes option valuation model on the implied yield in effect at the time of the option grant on U.S. Treasury zero-coupon issues with equivalent expected term.  The Company has never paid cash dividends on its common stock and does not anticipate paying cash dividends in the foreseeable future.  Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes option valuation model.  The Company amortizes the resulting fair value of the options ratably over the vesting period of the awards.  The Company uses historical data to estimate the pre-vesting option forfeitures and records share-based expense only for those awards that are expected to vest.2022.

CompensationAt June 30, 2023, unrecognized compensation expense related to unvested stock options recorded for the three months 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 

The Company recordsnon-vested stock-based compensation expense over the vesting term of the related options.  At December 31, 2017, compensation costs related to these unvested stock optionsawards not yet recognized in the consolidated condensed statements of operations was $62,657.$0.6 million. That cost is expected to be recognized over a period of 3.0 years.

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Restricted Stock
Note 12 – Leases
The Company granted restricted stockhas a right-of-use for a building in March 2017 to its BoardJessup, Maryland which was no longer being used in operations. The Maryland property was subleased as of Directors and a Company officer totaling 58,009 shares, which were valued at market value on the date of grant.  The shares are being held by the Company for 12 monthsJune 30, 2023 and will be deliveredend in November, 2023. Rental payments received related to the directors atsublease was recorded as a reduction of rent expense in our consolidated statements of operations for the endperiods ending June 30, 2023 and 2022.
13
Table of the 12 month holding period.  The fair value of these shares at issuance totaled $105,000, which is being amortized over the 12 month holding period as compensation expense.  The unamortized portion of the restricted stock is included in prepaid expenses on the Company’s consolidated condensed balance sheets.Contents

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.

Wireless Infrastructure Services (“Wireless”) The Company's Wireless segment provides turn-key wireless infrastructure services for the four major U.S. wireless carriers, communication tower companies, national integrators, and original equipment manufacturers that support these wireless carriers.  These services primarily consist of the installation and upgrade of technology on cell sites and the construction of new small cells for 5G.
Cable Television (“Cable TV”)

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

Telecommunications (“Telco”)

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

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

Segment assets consist primarily of cash and cash equivalents, accounts receivable, inventory, property and equipment, goodwill and intangible assets. The Company allocates its corporate general and administrative expenses to the reportable segments.

(in thousands)Three Months EndedSix Months Ended
June 30, 2023June 30, 2022June 30, 2023June 30, 2022
Sales
Wireless$6,329 $7,243 $12,901 $15,009 
Telco5,759 20,546 13,906 36,539 
Total sales$12,088 $27,789 $26,807 $51,548 
Gross profit
Wireless$1,786 $1,974 $3,131 $3,511 
Telco1,486 6,173 3,558 10,394 
Total gross profit$3,272 $8,147 $6,689 $13,905 
Income (loss) from operations
Wireless$(1,676)$(1,461)$(3,780)$(3,659)
Telco(624)2,606 (1,073)3,640 
Total income (loss) from operations$(2,300)$1,145 $(4,853)$(19)
  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 
         

(in thousands)June 30, 2023December 31, 2022
Segment assets
Wireless$6,260 $9,790 
Telco10,952 13,217 
Non-allocated3,761 4,211 
Total assets$20,973 $27,218 

Note 14 – Subsequent Events
The Company has evaluated subsequent events through the filing of this Form 10-Q, and except as described below, determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements.
Accounts Receivable Agreements with Vast Bank, N.A
On August 9, 2023, due to underutilization as a result of reduced sales the last two quarters, the Company signed Modification Addendums (the “Modification”) to its accounts receivable purchase facilities for its Nave, Triton and

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12Fulton subsidiaries with Vast Bank, N.A. (“Vast”). The Nave and Triton facilities, after Modification, provide credit capacities of $5.0 million for Nave and $1.5 million for Triton. The Fulton facilities, after Modification, provide a credit capacity excluding a major customer of $6.0 million, and credit capacity secured by receivables of a major customer of $1.5 million. For all four facilities, all other terms and provisions remain in full force and effect.



  
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,” "anticipates," “believes,” “plans,” “intends,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. These statements are subject to a number of risks, uncertainties and developments beyond our control or foresight, including changes in the trends of the cable television industry, changes in the trends of thewireless telecommunications industry, changes in ourcustomer and supplier agreements,relationships, technological developments, changes in the economic environment generally, the growth or formation of competitors, changes in governmental regulation or taxation, changes in our personnel, our ability to identify, complete and integrate acquisitions on favorable terms and other such factors.  Our actual results, performance or achievements may differ significantly from the results, performance or 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,December 31, 2022, 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.equipment.

Results of Operations

Comparison of Results of Operations for the Three Months Ended December 31, 2017three months ended June 30, 2023 and December 31, 2016

June 30, 2022
Consolidated

Consolidated sales increased $0.2decreased $15.7 million, before the impact of intercompany sales, or 2%57%, to $12.3$12.1 million for three months ended June 30, 2023 from $27.8 million for the three months ended December 31, 2017 from $12.1June 30, 2022.  The decrease in sales was due to decreased sales in the Telco segment of $14.8 million and a decrease in Wireless segment sales of $0.9 million.
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Consolidated gross profit was $3.3 million, or 27% gross margin for the three months ended June 30, 2023, compared to gross profit of $8.1 million, or 29% gross margin for the three months ended June 30, 2022, a decrease of $4.8 million. The decrease in gross profit was primarily due to a decrease in the Telco segment of $4.7 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 were $2.0 million, compared to $2.5 million in the same period last year, a decrease of $0.5 million due primarily to cost control measures instituted by the Company throughout 2022, which included headcount reductions, fleet reductions and other operating reductions in the Wireless segment.
Consolidated selling, general and administrative ("SG&A") expenses include overhead costs, which consist of personnel costs, insurance, professional services, and communication, among other less significant cost categories. SG&A expense decreased $0.8 million, or 21%, to $3.3 million for the three months ended December 31, 2016.  The increase in sales was in the Telco segment of $1.0 million, partially offset by a decrease in the Cable TV segment of $0.8 million.  Consolidated gross profit decreased $0.6 million, or 16%, to $3.4 million for the three months ended

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December 31, 2017June 30, 2023 from $4.0$4.1 million for the same period last year. The decrease in gross profit was inSG&A relates primarily to decreased selling and commissions expenses related to lower revenues.
Segment Results
Wireless
Revenues for the Cable TVWireless segment of $1.1decreased $0.9 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 $3.6to $6.3 million for the three months ended December 31, 2017 compared toJune 30, 2023 from $7.2 million for the same period of last year. This was dueThe decline in revenues over the prior year period relates to an increasethe pace of $0.2 millionthe 5G services construction undertaken on behalf of our expanded customer base. Most of the large wireless carriers slowed their build outs in the Telco segment,second quarter of 2023, causing a reduction in sites we could build.
Gross profit was $1.8 million, or 28% for the three months ended June 30, 2023 compared to $2.0 million, or 27%, for the three months ended June 30, 2022. The decrease in gross profit dollars was the result of lower revenues quarter-over-quarter, offset partially by a decrease in the Cable TV segment of $0.1 million.higher profit margin.

Interest expense remained flat at $0.1Loss from operations was $1.7 million and $1.5 million for the three months ended December 31, 2017June 30, 2023 and 2016.

The provision for income taxes was $0.3 million for the three months ended December 31, 2017 from a provision for income taxes of $0.1 million for the three months ended December 31, 2016.2022, respectively. The increase in the tax provision was due primarilyis mainly attributable to the Tax Cutsdecline in revenues 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.gross profit.

Segment Results

Cable TV

Telco
Sales for the Cable TVTelco segment decreased $0.8$14.8 million to $5.8 million for the three months ended December 31, 2017June 30, 2023 from $6.6$20.6 million for the same period last year. The decrease in revenues in the three months ended June 30, 2023 was related to lower sales of used and refurbished equipment as wireless and optical carrier customers absorbed quantities of inventory purchased during calendar year 2022.
Gross profit was $1.5 million and $6.2 million for the three months ended June 30, 2023 and 2022, respectively. The decreased gross profit was due primarily to the decline in revenues.
Loss from operations was $0.6 million for the three months ended June 30, 2023 compared to income of $2.6 million for the same period last year, primarily due to the reasons discussed above.

Comparison of Results of Operations for the six months ended June 30, 2023 and June 30, 2022

Consolidated
Consolidated sales decreased $24.7 million, or 48%, to $26.8 million for six months ended June 30, 2023 from $51.5 million for the six months ended June 30, 2022.  The decrease in sales was due to decreased sales in the Telco segment of $22.6 million and a decrease in Wireless segment sales of $2.1 million.
Consolidated gross profit was $6.7 million, or 25% gross margin for the six months ended June 30, 2023, compared to gross profit of $13.9 million, or 27% gross margin for the six months ended June 30, 2022, a decrease of $7.2 million. The decrease in gross profit was primarily due to a decrease in refurbished equipment salesthe Telco segment of $6.8 million.
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Consolidated operating expenses include indirect costs associated with operating our business. Indirect costs include indirect personnel costs, facility costs, vehicles, insurance, communication, and repair service revenue of $0.5business taxes, among other cost categories. Operating expenses were $4.0 million, each, partially offset by an increase in new equipment revenue of $0.2 million.  The decreasecompared to $5.3 million in the refurbished equipment sales wassame period last year, a decrease of $1.3 million due primarily to an overall decreasecost control measures instituted by the Company throughout 2022, which included headcount reductions, fleet reductions and other operating reductions in demandthe Wireless segment.
Consolidated selling, general and administrative ("SG&A") expenses include overhead costs, which consist of personnel costs, insurance, professional services, and communication, among other less significant cost categories. SG&A expense decreased $1.1 million, or 14%, to $6.9 million for the threesix 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%June 30, 2023 from $8.0 million for the same period last year. The decrease in gross margin was dueSG&A relates primarily to a significant increase in volumedecreased selling and commissions expenses related to lower revenues.
Segment Results
Wireless
Revenues for a new equipment sales customer with low margins.

Operating, selling, general and administrative expensesthe Wireless segment decreased $0.1$2.1 million to $1.4$12.9 million for the threesix months ended December 31, 2017June 30, 2023 from $1.5$15.0 million for the same period of last year. The decline in revenues over the prior year period relates to the pace of the 5G services construction undertaken on behalf of our expanded customer base, as customers slowed their 5G rollouts for various economic reasons.

Gross profit was $3.1 million, or 24% for the six months ended June 30, 2023 compared to $3.5 million, or 23%, for the six months ended June 30, 2022. The decrease in gross profit dollars was the result of the decline in revenues.
Loss from operations was $3.8 million and $3.7 million for the six months ended June 30, 2023 and 2022, respectively. The increase is mainly attributable to the decline in revenues.
Telco

Sales for the Telco segment increased $1.0decreased $22.6 million to $6.5$13.9 million for the threesix months ended December 31, 2017June 30, 2023 from $5.5$36.5 million for the same period last year. The increasedecrease in revenues in the first six months of 2023 was related to lower sales of used and refurbished equipment as wireless and optical carrier customers absorbed quantities of inventory purchased during 2022.
Gross profit was $3.6 million and $10.4 million for the Telco segment was due to an increase in equipment salessix months ended June 30, 2023 and recycling revenue of $0.7 million and $0.3 million,2022, 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 indecreased gross marginprofit was due primarily to higher gross marginsthe decline in revenues.
Loss from equipment sales to end-user customers and our recycling program.

Operating, selling, general and administrative expenses increased $0.1 million to $2.2operations was $1.1 million for the threesix months ended December 31, 2017 from $2.1June 30, 2023 compared to income of $3.6 million for the same period last year.  This increase wasyear, primarily due primarily to earn-out expenses related to the Triton Miami, Inc. acquisition of $0.1 million.reasons discussed above.

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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 stock compensation expense, other income, other expense, and interest income and income from equity method investment.income. 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
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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 income (loss) from operations to Adjusted EBITDA, follows:in thousands:
Three Months Ended June 30, 2023Three Months Ended June 30, 2022
WirelessTelcoTotalWirelessTelcoTotal
Income (loss) from operations$(1,676)$(624)$(2,300)$(1,461)$2,606 $1,145 
Depreciation and amortization expense197 120 317 192 121 313 
Stock compensation expense108 91 199 44 59 103 
Adjusted EBITDA$(1,371)$(413)$(1,784)$(1,225)$2,786 $1,561 
Six Months Ended June 30, 2023Six Months Ended June 30, 2022
WirelessTelcoTotalWirelessTelcoTotal
Income (loss) from operations$(3,780)$(1,073)$(4,853)$(3,659)$3,640 $(19)
Depreciation and amortization expense394 240 634 388 242 630 
Stock compensation expense302 296 598 145 205 350 
Adjusted EBITDA$(3,084)$(537)$(3,621)$(3,126)$4,087 $961 

  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 

(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- Summary of Significant 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.

Accounts receivable
Trade receivables are carried at original invoice amount less an estimate made for doubtful accounts. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions. Trade receivables are written off against the allowance when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. The Company generally does not charge interest on past due accounts. The adoption of the guidance in ASC 326 did not have a material impact on trade receivables and the allowance for doubtful accounts.
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 overallhigher gross profit margins on our sales.  We market our products primarily to MSOs, telecommunication providers, telecommunication resellers, and other users of cable television and telecommunication equipment who are seeking products for which manufacturers have discontinued production or cannot ship new equipment on a same-day basis, as well as providing used products as an alternative to new products from the manufacturer.  Carrying these large inventory quantities represents our largest risk.risk for our Telco segment.

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Our inventories are all carried in the Telco segment and consist of new and used electronic components for the telecommunications industry.  Inventory is stated at the lower of cost or net realizable value, with cost determined using the weighted-average method. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.  At June 30, 2023, we had total inventory, before the reserve for excess and obsolete inventories, of $12.2 million, consisting of $2.0 million in new products and $10.2 million in used or refurbished products.
We are required to make judgments as to future demand requirements from our customers. We regularly review the value of our inventory in detail with consideration given to rapidly changing technology which can significantly affect

16
future customer demand.  For individual inventory items, we may carry inventory quantities that are excessive relative to market potential, or we may not be able to recover our acquisition costs for sales that we do make.  In order to address the risks associated with our investment in inventory, we review inventory quantities on hand and reduce the carrying value when the loss of usefulness of an item or other factors, such as obsolete and excess inventories, indicate that cost will not be recovered when an item is sold.

Our inventories consist of new and used electronic components for the cable television and telecommunications industries.  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, we had total inventory, before the reserve for excess and obsolete inventories, of $25.5 million, consisting of $14.8 million in new products and $10.7 million in used or refurbished products.

For the Cable TV segment, our reserve at December 31, 2017 for excess and obsolete inventory was $2.5 million, which reflects an increase 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 reserve and our gross margins could be materially adversely affected.

For the Telco segment, any obsolete and excess telecommunications inventory is generally processed through its recycling program when it is identified.  However, the Telco segmentWe identified certain inventory that more than likely will not be sold or that the cost will not be recovered or that the cost will not be recovered when it is sold, and had not yet been processed through its recycling program.recycling. Therefore, we have aan obsolete and excess inventory reserve of $0.7$4.1 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.June 30, 2023. 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 morecomponent 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 resultcost 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.

sales.
Intangibles

Intangible assets that have finite useful lives are amortized on a straight-line basis over their estimated useful lives ranging from 3 years toof 10 years. Intangible assets are also tested for impairment when events and circumstances indicate that the carrying value may not be recoverable.

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 threesix months ended December 31, 2017, we generated $0.2 million ofJune 30, 2023, cash flows from operations.  The cashused in operations was $2.1 million. Cash flows from operations was favorably impacted by $0.3 million from a net decrease in accounts receivable.  The cash flows operations waswere negatively impacted by $0.2 million from a net increase in inventoryloss of $5.6 million, offset by net cash provided by working capital of $1.9 million and $0.2 million from a net decrease in accrued expenses, which primarily resulted from the first annual paymentnon-cash adjustments of the earn-out related to the acquisition of Triton Miami, Inc.

$1.6 million.
Cash Flows Used forin Investing Activities

During the threesix months ended December 31, 2017,June 30, 2023, cash used in investing activities was $0.7 million, which primarily related to guaranteed payments related to the acquisition$23 thousand, consisting of Triton Miami, Inc.purchases of $0.7 million.

property and equipment.
Cash Flows Used forin Financing Activities

During the threesix months ended December 31, 2017,June 30, 2023, cash provided by financing activities was $2.1 million, consisting of net proceeds from notes payable of $2.9 million, partially offset by payments on financing leases, and payments for debt issuance costs and notes payable.
Liquidity and Capital Resources
At June 30, 2023 we made principal paymentshad $3.6 million in cash and equivalents and restricted cash.
After taking into consideration the events listed in Subsequent Event: Accounts Receivable Agreements with Vast Bank, N.A below, the Company has an overall capacity to factor its accounts receivable of $14.0 million for working capital needs. At June 30, 2023, the Company had $3.1 million utilized under the receivables purchase facilities, leaving $10.9 million available to the Company to factor additional receivables generated from future sales.

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Going Concern
The Company has been subject to adverse conditions, which include a number of quarters with negative operating results, that raise substantial doubt about the Company's ability to continue as a going concern for one year. These conditions relate to unfavorable industry conditions and significant debt service requirements on our term loans under our Creditthe Company’s financial position, as discussed in Note 2 of the accompanying unaudited consolidated financial statements. Management’s plans to alleviate the substantial doubt about the Company’s ability to continue as a going concern include attempting to improve its business profitability and Term Loan Agreementits ability to generate sufficient cash flow from its operations to meet its operating needs on a timely basis, obtaining additional working capital funds through various sources, and eliminating inefficiencies in order to meet its anticipated cash requirements. However, there can be no assurance that these plans and arrangements will be sufficient to fund the Company’s ongoing capital expenditures and other requirements.

Notice of Delisting

On June 7, 2023, the Company received a letter (the “Notice”) from The Nasdaq Stock Market notifying the Company that, because the closing bid price for its common stock has been below $1.00 per share for 30 consecutive business days, it no longer complies with our primary lender.  Onthe minimum bid price requirement for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”), and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the Minimum Bid Price Requirement exists if the deficiency continues for a period of 30 consecutive business days.

The Notice has no immediate effect on the listing of the Company’s common stock on The Nasdaq Capital Market. Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided an initial compliance period of 180 calendar days, or until December 6, 2017, as part4, 2023, to regain compliance with the Minimum Bid Price Requirement. During the compliance period, the Company’s shares of our overall plancommon stock will continue to become compliant with our financial covenants with our primary financial lender, we extinguished onebe listed and traded on The Nasdaq Capital Market. To regain compliance, the closing bid price of our term loans by paying the outstanding balanceCompany’s common stock must meet or exceed $1.00 per share for a minimum of $2.7 million plus a prepayment penalty of $25,000.  As a result, we wereten consecutive business days during the 180-calendar day grace period.

In the event the Company is not in compliance with our financial covenantsthe Minimum Bid Price Requirement by December 4, 2023, the Company may be afforded a second 180-calendar day grace period. To qualify, the Company would be required to meet the continued listing requirements for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement. In addition, the Company would be required to provide written notice of its intention to cure the minimum bid price deficiency during this second 180-day compliance period.

The Company intends to actively monitor the bid price for its common stock between now and December 4, 2023. In order to raise the per share trading price of the Company’s common stock to maintain its listing on the Nasdaq Capital Market, the Company’s stockholders have been asked to approve, at December 31, 2017.an annual stockholders meeting to be held on September 22, 2023, an amendment to its Certificate of Incorporation to effect a reverse stock split of its common stock at a reverse stock split ratio ranging from 2:1 to 10:1, inclusive, as determined by the Chief Executive Officer in his sole discretion.

Increase in Authorized Shares of Common Stock

By means of a Definitive Proxy Statement filed August 10, 2023, the Company is seeking shareholder approval, on an annual stockholders meeting to be held on September 22, 2023, to amend its Certificate of Incorporation to increase its authorized shares of common stock from 35,000,000 to 100,000,000, of which 95,000,000 shares shall be Common Stock with a par value of $0.01 per share, and 5,000,000 shares shall be Preferred Stock with a par value of $1.00 per share.

Reverse Stock Split

By means of a Definitive Proxy Statement filed August 10, 2023, the Company is seeking shareholder approval, on an annual stockholders meeting to be held on September 22, 2023, to amend its Certificate of Incorporation to effect a reverse stock split of its common stock at a reverse stock split ratio ranging from 2:1 to 10:1, inclusive, as

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Our firstdetermined by the Chief Executive Officer in his sole discretion with the authorized capital 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 monthly principal and interest payments of $118,809 through October 2019.unchanged at 100,000,000 shares. The interest rate is a fixed rate of 4.40%.

At December 31, 2017, there was not a balance outstanding under our line of credit.  The lesser of $7.0 million or the total of 80%primary purpose of the qualifiedreverse stock split is to raise the per share trading price of the Company’s common stock in order to maintain its listing on the Nasdaq Capital Market. Delisting from Nasdaq may adversely affect the Company’s ability to raise additional financing through the public or private sale of our equity securities, may significantly affect the ability of investors to trade in the Company’s securities and may negatively affect the value and liquidity of the Company’s common stock.

Subsequent Event: Accounts Receivable Agreements with Vast Bank, N.A.

On August 9, 2023, due to underutilization as a result of reduced sales the last two quarters, the Company signed Modification Addendums (the “Modification”) to its accounts receivable plus 50%purchase facilities for its Nave, Triton and Fulton subsidiaries with Vast Bank, N.A. (“Vast”). The Nave and Triton facilities, after Modification, provide credit capacities of qualified inventory is available to us under the revolving$5.0 million for Nave and $1.5 million for Triton. The Fulton facilities, after Modification, provide a credit facility ($7.0capacity excluding a major customer of $6.0 million, at September 30, 2017).  Any future borrowings under the revolvingand credit facility are due at maturity on March 30, 2018, for which the Company expects to renew the revolving credit facility for at least one year.capacity secured by receivables of a major customer of $1.5 million. For all four facilities, all other terms and provisions remain in full force and effect.


We believe that our cash
Item 3.  Quantitative and cash equivalents of $0.4 million at December 31, 2017, cash flow from operations and our existing line of credit provide sufficient liquidity and capital resources to meet our working capital and debt payment needs.Qualitative Disclosures about Market Risk.


Not applicable.
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,June 30, 2023, 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 1. Legal Proceedings.
From time to time, we are involved in routine litigation that arises in the ordinary course of business. We are not currently involved in any claims outside the ordinary course of business that are material to our financial condition or results of operations.

Item 1A. Risk Factors.
Not Applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.

Item 3. Defaults Upon Senior Securities.
None.

Item 4. Mine Safety Disclosures.
Not Applicable.

Item 5. Other Information.
None.

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s
Item 6.  Exhibits.
Exhibit No.Description
Exhibit No.Description
10.39
Modification Addendum to the Business Manager Agreement between Nave Communications Company and Vast Bank, N.A., executed August 9, 2023.
31.1
10.40
Modification Addendum to the Business Manager Agreement between Triton Datacom and Vast Bank, N.A., executed August 9, 2023.
10.41
Modification Addendum to the Business Manager Agreement between Fulton Technologies, Inc. and Vast Bank, N.A., executed August 9, 2023.
10.42
Modification Addendum to the Business Manager Agreement between Fulton Technologies, Inc. and Vast Bank, N.A., executed August 9, 2023.
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: August 14, 2023Certification 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: August 14, 2023
/s/ Michael A. Rutledge
Michael A. Rutledge
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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