ADDVANTAGE TECHNOLOGIES GROUP INC - Quarter Report: 2022 June (Form 10-Q)
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 | ||||
OR
FOR THE TRANSITION PERIOD FROM________________ TO ______________
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Commission File number 1-10799
ADDvantage Technologies Group, Inc.
(Exact name of registrant as specified in its charter)
| Oklahoma | 73-1351610 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| 1430 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 S No £ | ||||
| Indicate by check mark whether the registrant has submitted electronically 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 S No £ | ||||
| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | |||||
Large accelerated filer £ Accelerated filer £ Non-accelerated filer S 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 8, 2022 were 13,276,191.
1
ADDVANTAGE TECHNOLOGIES GROUP, INC.
Form 10-Q
For Period Ended June 30, 2022
| Page | ||||||||
June 30, 2022 and September 30, 2021 | ||||||||
Three and Nine Months Ended June 30, 2022 and 2021 | ||||||||
Three and Nine Months Ended June 30, 2022 and 2021 | ||||||||
Nine Months Ended June 30, 2022 and 2021 | ||||||||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | |||||||
| Exhibits | ||||||||
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ADDvantage Technologies Group, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
(Unaudited)
| June 30, 2022 | September 30, 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 4,157 | $ | 2,608 | |||||||
| Restricted cash | 1,782 | 334 | |||||||||
Accounts receivable, net of allowances of $250, respectively | 2,384 | 7,013 | |||||||||
| Unbilled revenue | 2,786 | 2,488 | |||||||||
Inventories, net of allowances of $3,714 and $3,476, respectively | 7,609 | 5,922 | |||||||||
| Prepaid expenses and other assets | 1,584 | 1,431 | |||||||||
| Total current assets | 20,302 | 19,796 | |||||||||
| Property and equipment, at cost: | |||||||||||
| Machinery and equipment | 5,512 | 4,973 | |||||||||
| Leasehold improvements | 899 | 813 | |||||||||
| Total property and equipment, at cost | 6,411 | 5,786 | |||||||||
| Less: Accumulated depreciation | (2,899) | (2,293) | |||||||||
| Net property and equipment | 3,512 | 3,493 | |||||||||
| Right-of-use lease assets | 2,009 | 2,730 | |||||||||
| Intangibles, net of accumulated amortization | 868 | 1,107 | |||||||||
| Goodwill | 58 | 58 | |||||||||
| Other assets | 117 | 128 | |||||||||
| Total assets | $ | 26,866 | $ | 27,312 | |||||||
| Liabilities and Shareholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 10,559 | $ | 7,044 | |||||||
| Accrued expenses | 1,509 | 1,581 | |||||||||
| Deferred revenue | 87 | 168 | |||||||||
| Bank line of credit | — | 2,050 | |||||||||
| Right-of-use lease obligations, current | 1,215 | 1,198 | |||||||||
| Finance lease obligations, current | 665 | 582 | |||||||||
| Other current liabilities | 922 | 692 | |||||||||
| Total current liabilities | 14,957 | 13,315 | |||||||||
| Right-of-use lease obligations, long-term | 1,221 | 2,141 | |||||||||
| Finance lease obligations, long-term | 1,335 | 1,429 | |||||||||
| Total liabilities | 17,513 | 16,885 | |||||||||
| Shareholders’ equity: | |||||||||||
Common stock, $0.01 par value; 30,000,000 shares authorized; 13,168,191 and 12,610,229 shares issued and outstanding, respectively | 132 | 126 | |||||||||
| Paid in capital | 890 | (578) | |||||||||
| Retained earnings | 8,331 | 10,879 | |||||||||
| Total shareholders’ equity | 9,353 | 10,427 | |||||||||
| Total liabilities and shareholders’ equity | $ | 26,866 | $ | 27,312 | |||||||
See notes to unaudited consolidated financial statements.
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ADDvantage Technologies Group, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share amounts)
(Unaudited)
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| $ | 27,789 | $ | 17,017 | $ | 70,238 | $ | 42,433 | ||||||||||||||||
| Cost of sales | 19,642 | 12,748 | 51,702 | 31,354 | |||||||||||||||||||
| Gross profit | 8,147 | 4,269 | 18,536 | 11,079 | |||||||||||||||||||
| Operating expenses | 2,544 | 2,508 | 7,796 | 6,733 | |||||||||||||||||||
| Selling, general and administrative expenses | 4,145 | 3,561 | 11,684 | 10,532 | |||||||||||||||||||
| Depreciation and amortization expense | 313 | 314 | 975 | 899 | |||||||||||||||||||
| Loss (gain) on disposal of assets | — | (13) | 2 | (23) | |||||||||||||||||||
| Income (loss) from operations | 1,145 | (2,101) | (1,921) | (7,062) | |||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest income | — | 34 | — | 115 | |||||||||||||||||||
| Other expense, net | (233) | (34) | (473) | (61) | |||||||||||||||||||
| Interest expense | (37) | (46) | (154) | (156) | |||||||||||||||||||
| Other income (expense), net | (270) | (46) | (627) | (102) | |||||||||||||||||||
| Income (loss) before income taxes | 875 | (2,147) | (2,548) | (7,164) | |||||||||||||||||||
| Benefit for income taxes | — | (23) | — | (23) | |||||||||||||||||||
| Net income (loss) | $ | 875 | $ | (2,124) | $ | (2,548) | $ | (7,141) | |||||||||||||||
| Income (loss) per share: | |||||||||||||||||||||||
| Basic and diluted | $ | 0.07 | $ | (0.17) | $ | (0.20) | $ | (0.58) | |||||||||||||||
| Shares used in per share calculation: | |||||||||||||||||||||||
| Basic and diluted | 13,191,792 | 12,495,438 | 12,980,634 | 12,352,960 | |||||||||||||||||||
See notes to unaudited consolidated financial statements.
4
ADDvantage Technologies Group, Inc.
Consolidated Statements of Changes in Shareholders' Equity
(in thousands, except share amounts)
(Unaudited)
| Common Stock | Paid-in Capital | Retained Earnings | |||||||||||||||||||||||||||
| Shares | Amount | Total | |||||||||||||||||||||||||||
| Balance, September 30, 2021 | 12,610,229 | $ | 126 | $ | (578) | $ | 10,879 | $ | 10,427 | ||||||||||||||||||||
| Net loss | — | — | — | (2,029) | (2,029) | ||||||||||||||||||||||||
| Common stock issuance | 320,787 | 3 | 633 | — | 636 | ||||||||||||||||||||||||
| Restricted stock issuance | 110,111 | 1 | (1) | — | — | ||||||||||||||||||||||||
| Amortization of stock-based compensation | — | — | 281 | — | 281 | ||||||||||||||||||||||||
| Balance, December 31, 2021 | 13,041,127 | $ | 130 | $ | 335 | $ | 8,850 | $ | 9,315 | ||||||||||||||||||||
| Net loss | — | — | — | (1,394) | (1,394) | ||||||||||||||||||||||||
| Common stock issuance | 143,985 | 2 | 166 | — | 168 | ||||||||||||||||||||||||
| Restricted stock issuance | 4,000 | — | — | — | — | ||||||||||||||||||||||||
| Amortization of stock-based compensation | — | — | 247 | — | 247 | ||||||||||||||||||||||||
| Balance, March 31, 2022 | 13,189,112 | $ | 132 | $ | 748 | $ | 7,456 | $ | 8,336 | ||||||||||||||||||||
| Net income | — | — | — | 875 | 875 | ||||||||||||||||||||||||
| Common stock issuance | 30,745 | — | 38 | — | 38 | ||||||||||||||||||||||||
| Restricted stock forfeitures | (51,666) | (1) | 1 | — | — | ||||||||||||||||||||||||
| Amortization of stock-based compensation | — | — | 103 | — | 103 | ||||||||||||||||||||||||
| Balance, June 30, 2022 | 13,168,191 | $ | 132 | $ | 890 | $ | 8,331 | $ | 9,353 | ||||||||||||||||||||
| Common Stock | Paid-in Capital | Retained Earnings | |||||||||||||||||||||||||||
| Shares | Amount | Total | |||||||||||||||||||||||||||
| Balance, September 30, 2020 | 11,822,009 | $ | 118 | $ | (2,567) | $ | 17,382 | $ | 14,933 | ||||||||||||||||||||
| Net loss | — | — | — | (1,953) | (1,953) | ||||||||||||||||||||||||
| Common stock issuance | 238,194 | 3 | 876 | — | 879 | ||||||||||||||||||||||||
| Restricted stock issuance | 306,390 | 3 | (3) | — | — | ||||||||||||||||||||||||
| Amortization of stock-based compensation | — | — | 315 | — | 315 | ||||||||||||||||||||||||
| Balance, December 31, 2020 | 12,366,593 | $ | 124 | $ | (1,379) | $ | 15,429 | $ | 14,174 | ||||||||||||||||||||
| Net loss | — | — | — | (3,064) | (3,064) | ||||||||||||||||||||||||
| Common stock issuance | 7,779 | — | 21 | — | 21 | ||||||||||||||||||||||||
| Restricted stock issuance, net of forfeitures | (10,000) | (1) | — | — | (1) | ||||||||||||||||||||||||
| Stock option exercise | 49,000 | — | 89 | — | 89 | ||||||||||||||||||||||||
| Amortization of stock-based compensation | — | — | 246 | — | 246 | ||||||||||||||||||||||||
| Balance, March 31, 2021 | 12,413,372 | $ | 124 | $ | (1,023) | $ | 12,364 | $ | 11,466 | ||||||||||||||||||||
| Net loss | — | — | — | (2,124) | (2,124) | ||||||||||||||||||||||||
| Restricted stock issuance | 98,000 | 1 | (1) | — | — | ||||||||||||||||||||||||
| Amortization of stock-based compensation | — | — | 279 | — | 279 | ||||||||||||||||||||||||
| Balance, June 30, 2021 | 12,511,372 | $ | 125 | $ | (745) | $ | 10,240 | $ | 9,620 | ||||||||||||||||||||
Due to rounding, numbers presented may not foot to the totals provided.
See notes to unaudited consolidated financial statements.
5
ADDvantage Technologies Group, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| Nine Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Operating Activities: | |||||||||||
| Net loss | $ | (2,548) | $ | (7,141) | |||||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation | 736 | 661 | |||||||||
| Amortization | 239 | 239 | |||||||||
| Non cash amortization of right-of-use asset and liability | (182) | (161) | |||||||||
| Provision for excess and obsolete inventories | 238 | 115 | |||||||||
| Stock based compensation expense | 631 | 840 | |||||||||
| Loss (gain) from disposal of property and equipment | 2 | (23) | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable | 4,629 | (4,379) | |||||||||
| Unbilled revenue | (298) | (274) | |||||||||
| Income tax receivable/payable | — | 1,255 | |||||||||
| Inventories | (1,925) | (150) | |||||||||
| Prepaid expenses and other assets | (142) | (269) | |||||||||
| Accounts payable | 3,515 | 3,012 | |||||||||
| Accrued expenses and other liabilities | 158 | 456 | |||||||||
| Deferred revenue | (81) | 31 | |||||||||
| Net cash provided by (used in) operating activities | 4,972 | (5,788) | |||||||||
| Investing Activities: | |||||||||||
| Proceeds from promissory note receivable | — | 1,910 | |||||||||
| Purchases of property and equipment | (245) | (185) | |||||||||
| Disposals of property and equipment | 42 | 43 | |||||||||
| Net cash (used in) provided by investing activities | (203) | 1,768 | |||||||||
| Financing Activities: | |||||||||||
| Payments on bank line of credit | (2,050) | — | |||||||||
| Payments on financing lease obligations | (564) | (359) | |||||||||
| Payments on notes payable | — | (1,249) | |||||||||
| Proceeds from sale of common stock | 842 | 900 | |||||||||
| Proceeds from stock options exercised | — | 89 | |||||||||
| Net cash used in financing activities | (1,772) | (619) | |||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 2,997 | (4,639) | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 2,942 | 8,373 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 5,939 | $ | 3,734 | |||||||
See notes to unaudited consolidated financial statements.
6
ADDvantage Technologies Group, Inc.
Notes to Unaudited Consolidated Financial Statements
Note 1 - Basis of Presentation and Accounting Policies
Basis of presentation
The consolidated financial statements include the accounts of ADDvantage Technologies Group, Inc. and its subsidiaries, all of which are wholly owned (collectively, the “Company”). Intercompany balances and transactions have been eliminated in consolidation. The Company’s reportable segments are Wireless Infrastructure Services (“Wireless”) and Telecommunications (“Telco”).
The accompanying unaudited consolidated 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, which are, in the opinion of management, necessary in order to make the unaudited consolidated financial statements not misleading.
The Company’s business is subject 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 nine months ended June 30, 2022 and 2021, are not necessarily indicative of the results to be expected for the full fiscal year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021.
Recently Issued Accounting Standards
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13: “Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments.” This ASU requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. Upon adoption, entities will use forward-looking information to better form their credit loss estimates. This ASU also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. On November 15, 2019, the FASB delayed the effective date of the standard for companies that qualify under smaller reporting company reporting rules. As amended, the effective date of ASC Topic 326 was delayed until fiscal years beginning after December 15, 2022 for SEC filers that are eligible to be smaller reporting companies under the Securities and Exchange Commission definition. We are currently in the process of evaluating this new standard update, however we do not anticipate the adoption will have a material impact on our results.
Note 2 – Revenue Recognition
The Company’s principal sales are from Wireless services, sales of Telco equipment and Telco recycled equipment, primarily in the United States. Sales to international customers totaled approximately $2.0 million and $1.6 million for the three months ended June 30, 2022 and 2021, respectively and $4.7 million and $2.9 million for the nine months ended June 30, 2022 and 2021, respectively.
The Company’s customers include wireless carriers, wireless equipment providers, multiple system operators, resellers and direct sales to end-user customers. Sales, which individually amounted to 10% or greater of the Company's revenue, to two customers totaled 34%, and to three customers totaled 39% of consolidated revenues for the nine months ended June 30, 2022 and 2021, respectively.
7
Our sales by type were as follows, in thousands:
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Wireless services sales | $ | 7,243 | $ | 4,136 | $ | 22,128 | $ | 13,716 | |||||||||||||||
| Telco equipment | 20,346 | 12,826 | 47,757 | 28,289 | |||||||||||||||||||
| Telco repair | 8 | 1 | 25 | 14 | |||||||||||||||||||
| Telco recycle | 192 | 54 | 328 | 414 | |||||||||||||||||||
| Total sales | $ | 27,789 | $ | 17,017 | $ | 70,238 | $ | 42,433 | |||||||||||||||
Contract assets and contract liabilities are included in unbilled revenue and deferred revenue, respectively, in the consolidated balance sheets. At June 30, 2022 and September 30, 2021, contract assets were $2.8 million and $2.5 million, respectively, and contract liabilities were $0.1 million and $0.2 million, respectively. The Company recognized $0.2 million of contract revenue during the nine months ended June 30, 2022 related to contract liabilities recorded in deferred revenue at September 30, 2021.
Note 3 – Accounts Receivable Agreements
On March 17, 2022, the Company replaced its $3.0 million credit facility for its Nave and Triton subsidiaries with its primary financial lender with new accounts receivable purchase facilities with capacities of $12.5 million for Nave and $3.0 million for Triton. Under both facilities, the lender advances the Company 90% of sold receivables and establishes a reserve of 10% of the sold receivables until the Company collects the sold receivables. The lender charges a fee of 1.3% of sold receivables, and both facilities mature on March 17, 2023.
On March 17, 2022, the Company also restructured its accounts receivable purchase facilities secured by the Company’s Fulton subsidiary’s receivables. Under the restructure, the credit capacity excluding a major customer is $1.0 million, with a fee of 1.6% of sold receivables. The credit capacity secured by receivables of a major customer is $2.5 million, with a fee of 1.5% of sold receivables. The lender advances the Company 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. The facilities mature on December 17, 2022.
The Company has a total capacity under all four facilities of $19.0 million, which has been reallocated between the facilities to accommodate current needs. As of June 30, 2022, the lender has a reserve against the sold receivables of $1.8 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 $11.8 million at June 30, 2022 for which there is a limit of $19.0 million. Although the sale of receivables is with recourse, the Company did not record a recourse obligation at June 30, 2022 as the Company concluded that the sold receivables are collectible.
For the nine months ended June 30, 2022 and 2021, the Company received proceeds from the sold receivables from all of the facilities of $43.2 million and $12.9 million, respectively, and included the proceeds in net cash provided by or used in operating activities in the consolidated statements of cash flows. The Company recorded costs of $0.6 million and $0.2 million for the nine months ended June 30, 2022 and 2021, respectively, in other expense in the consolidated statements of operations.
Note 4 – Inventories
Inventories, which are all within the Telco segment, at June 30, 2022 and September 30, 2021 are as follows, in thousands:
| June 30, 2022 | September 30, 2021 | ||||||||||
| New equipment | $ | 1,951 | $ | 1,295 | |||||||
| Refurbished and used equipment | 9,372 | 8,103 | |||||||||
| Allowance for excess and obsolete inventory | (3,714) | (3,476) | |||||||||
| Total inventories, net | $ | 7,609 | $ | 5,922 | |||||||
8
New equipment includes products purchased from manufacturers plus “surplus-new,” which are unused products purchased from other distributors or multiple system operators. Refurbished and used equipment include factory refurbished, Company refurbished and used products.
Note 5 – Intangible Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. The Company groups assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted future cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.
Intangible assets with their associated accumulated amortization at June 30, 2022 and September 30, 2021 are as follows, in thousands:
| June 30, 2022 | |||||||||||||||||
| Intangible assets: | Gross | Accumulated Amortization | Net | ||||||||||||||
Customer relationships – 10 years | $ | 3,155 | $ | (2,860) | $ | 295 | |||||||||||
Trade name – 10 years | 2,122 | (1,549) | 573 | ||||||||||||||
| Total intangible assets | $ | 5,277 | $ | (4,409) | $ | 868 | |||||||||||
| September 30, 2021 | |||||||||||||||||
| Intangible assets: | Gross | Accumulated Amortization | Net | ||||||||||||||
Customer relationships – 10 years | $ | 3,155 | $ | (2,780) | $ | 375 | |||||||||||
Trade name – 10 years | 2,122 | (1,390) | 732 | ||||||||||||||
| Total intangible assets | $ | 5,277 | $ | (4,170) | $ | 1,107 | |||||||||||
Note 6 – Debt
Credit Agreement
On March 17, 2022, the Company closed its $3.0 million credit facility for its Nave and Triton subsidiaries with its primary financial lender. See Note 3 - Accounts Receivable Agreements for more information about the Company's receivables purchase facilities.
Note 7 – Equity Distribution Agreement and Sale of Common Stock
On April 24, 2020, the Company entered into an Equity Distribution Agreement with Northland Securities, Inc., as agent (“Northland”), pursuant to which the Company may offer and sell, from time to time, through Northland, shares of the Company’s common stock, par value 0.01 per share, having an aggregate offering price of up to $13.9 million ("Shares").
The offer and sale of the Shares will be made pursuant to a shelf registration statement on Form S-3 and the related prospectus filed by the Company with the Securities and Exchange Commission (the “SEC”) on March 3, 2020, as amended on March 23, 2020, and declared effective by the SEC on April 1, 2020.
Pursuant to the Sales Agreement, Northland may sell the Shares by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933 (the “Securities Act”), including sales made by means of ordinary brokers’ transactions, including on The Nasdaq Global Market, at market prices or as otherwise agreed with Northland. Northland will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the Shares from time to time, based upon instructions from the Company, including any price or size limits or other customary parameters or conditions the Company may impose. The Sales Agreement may be terminated without prior notice at any time prior to the fulfillment if additional sales are deemed not warranted.
9
The Company will pay Northland a commission rate equal to an aggregate of 3.0% of the aggregate gross proceeds from each sale of Shares and have agreed to provide Northland with customary indemnification and contribution rights. The Company will also reimburse Northland for certain specified expenses in connection with entering into the Sales Agreement. The Sales Agreement contains customary representations and warranties and conditions to the placements of the Shares pursuant thereto.
During the nine months ended June 30, 2022, 495,517 shares were sold by Northland on behalf of the Company with gross proceeds of $0.9 million, and net proceeds after commissions and fees of $0.8 million.
Note 8 – Earnings Per Share
Basic and diluted earnings per share for the three and nine months ended June 30, 2022 and 2021 are (in thousands, except per share amounts):
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income (loss) attributable to common shareholders | $ | 875 | $ | (2,124) | $ | (2,548) | $ | (7,141) | |||||||||||||||
| Basic and diluted weighted average shares | 13,191,792 | 12,495,438 | 12,980,634 | 12,352,960 | |||||||||||||||||||
| Basic and diluted income (loss) per common share | $ | 0.07 | $ | (0.17) | $ | (0.20) | $ | (0.58) | |||||||||||||||
The table below includes information related to stock options that were outstanding at the end of each respective three and nine month period ended June 30, but have been excluded from the computation of weighted-average stock options for dilutive securities because their effect would be anti-dilutive.
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Stock options excluded | 50,000 | 50,000 | 50,000 | 50,000 | |||||||||||||||||||
| Weighted average exercise price of stock options | $ | 1.28 | $ | 1.28 | $ | 1.28 | $ | 1.28 | |||||||||||||||
| Average market price of common stock | $ | 1.27 | $ | 2.35 | $ | 1.55 | $ | 2.61 | |||||||||||||||
Note 9 – Supplemental Cash Flow Information
| (in thousands) | Nine Months Ended June 30, | ||||||||||
| 2022 | 2021 | ||||||||||
| Supplemental cash flow information: | |||||||||||
| Cash paid for interest | $ | 158 | $ | 106 | |||||||
| Supplemental noncash investing and financing activities: | |||||||||||
| Assets acquired under financing leases | $ | 553 | $ | 832 | |||||||
Note 10 – 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. At June 30, 2022, 2,100,415 shares of common stock were reserved for stock award grants under the Plan. Of these reserved shares, 268,695 shares were available for future grants.
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Stock Options
As of September 30, 2021, there were 50,000 stock options with a weighted average exercise price of $1.28 per share and an aggregate intrinsic value of $54,000 outstanding under the Plan. There were no stock options granted, exercised, expired or forfeited during the nine months ended June 30, 2022. As of June 30, 2022, 50,000 stock options remained outstanding and exercisable, with an average exercise price of $1.28 per share and an aggregate intrinsic value of $(1,000).
Restricted stock awards
A summary of the Company's non-vested restricted share awards at June 30, 2022 and changes during the quarter ended June 30, 2022 is presented in the following table (in thousands, except shares):
| Shares | Fair Value | ||||||||||
| Non-vested at March 31, 2022 | 596,787 | $ | 1,377 | ||||||||
| Granted | — | — | |||||||||
| Vested | (13,333) | (28) | |||||||||
| Forfeited | (51,666) | (121) | |||||||||
| Non-vested at June 30, 2022 | 531,788 | $ | 1,228 | ||||||||
During the three month period ended June 30, 2022 and 2021, expenses related to share-based arrangements including restricted stock and stock option awards, were $0.1 million and $0.3 million, respectively.
During the nine month period ended June 30, 2022 and 2021, compensation expenses related to share-based arrangements including restricted stock and stock option awards, were $0.6 million and $0.8 million respectively.
The Company did not recognize a tax benefit for compensation expense recognized during the three and nine month period ended June 30, 2022 and 2021.
At June 30, 2022, unrecognized compensation expense related to non-vested stock-based compensation awards not yet recognized in the consolidated statements of operations was $0.4 million. That cost is expected to be recognized over a period of 2.7 years.
Note 11 – Leases
Our Wireless segment has an operating lease for a building in Fridley, Minnesota for Fulton Technologies, Inc. As a result of closing down and vacating Fulton Technologies, Inc.’s Minnesota office in May 2019, a third-party telecom company began subleasing this building in June 2019. The lease term expired on December 31, 2021.
Our Telco segment has an operating lease for a building in Jessup, Maryland for Nave Communications. As a result of moving Nave’s operations to Palco Telecom, a third-party logistics provider in Huntsville, Alabama, in fiscal year 2020, Nave completely vacated the building in May 2020 and has subleased the building through the end of the lease period.
Rental payments received related to these subleases were recorded as a reduction to rent expense in our consolidated statements of operations for the three and nine month periods ending June 30, 2022 and 2021.
Note 12 – Segment Reporting
The Company is reporting its financial performance based on its external reporting segments: Wireless Infrastructure Services and Telecommunications. These reportable segments are described below.
Wireless Infrastructure Services (“Wireless”) The Company's Wireless segment provides turn-key wireless infrastructure services for the four major U.S. wireless carriers, communication tower companies, national integrators, and original equipment manufacturers that support these wireless carriers. These services primarily consist of the installation and upgrade of technology on cell sites and the construction of new small cells for 5G.
Telecommunications (“Telco”) The Company’s Telco segment sells new and refurbished telecommunications networking equipment, including both central office and customer premise equipment, to its customer base of
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telecommunications providers, enterprise customers and resellers located primarily in North America. This segment also offers its customers repair and testing services for telecommunications networking equipment.
The Company evaluates performance and allocates its resources based on operating income. The accounting policies of its reportable segments are the same as those described in the summary of significant accounting policies. Segment assets consist primarily of cash and cash equivalents, accounts receivable, inventory, property and equipment, goodwill and intangible assets. The Company allocates its corporate general and administrative expenses to the reportable segments.
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (in thousands) | June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||||||||
| Sales | |||||||||||||||||||||||
| Wireless | $ | 7,243 | $ | 4,136 | $ | 22,128 | $ | 13,716 | |||||||||||||||
| Telco | 20,546 | 12,881 | 48,110 | 28,717 | |||||||||||||||||||
| Total sales | $ | 27,789 | $ | 17,017 | $ | 70,238 | $ | 42,433 | |||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Wireless | $ | 1,974 | $ | 1,233 | $ | 5,018 | $ | 4,369 | |||||||||||||||
| Telco | 6,173 | 3,036 | 13,518 | 6,710 | |||||||||||||||||||
| Total gross profit (loss) | $ | 8,147 | $ | 4,269 | $ | 18,536 | $ | 11,079 | |||||||||||||||
| Income (loss) from operations | |||||||||||||||||||||||
| Wireless | $ | (1,461) | $ | (2,117) | $ | (5,985) | $ | (4,759) | |||||||||||||||
| Telco | 2,606 | 16 | 4,064 | (2,303) | |||||||||||||||||||
| Total income (loss) from operations | $ | 1,145 | $ | (2,101) | $ | (1,921) | $ | (7,062) | |||||||||||||||
| (in thousands) | June 30, 2022 | September 30, 2021 | |||||||||
| Segment assets | |||||||||||
| Wireless | $ | 7,968 | $ | 7,867 | |||||||
| Telco | 13,595 | 14,472 | |||||||||
| Non-allocated | 5,303 | 4,973 | |||||||||
| Total assets | $ | 26,866 | $ | 27,312 | |||||||
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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 wireless infrastructure services industry, changes in the trends of the telecommunications industry, changes in our supplier agreements, technological developments, changes in the general economic environment, the potential impact of the novel strain of coronavirus (“COVID-19”) pandemic, the growth or formation of competitors, changes in governmental regulation or taxation, changes in our personnel and other such factors. Our actual results, performance or achievements may differ significantly from the results, performance or achievements expressed or implied in the forward-looking statements. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
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, 2021, which includes our audited consolidated financial statements and the accompanying notes to the consolidated financial statements.
The Company reports its financial performance based on two external reporting segments: Wireless and Telecommunications. These reportable segments are described below.
Wireless Infrastructure Services (“Wireless”)
The Company’s Wireless segment provides turn-key wireless infrastructure services for the four major U.S. wireless carriers, communication tower companies, national integrators, and original equipment manufacturers that support these wireless carriers. These services primarily consist of the installation and upgrade of technology on cell sites and the construction of new small cells for 5G.
Telecommunications (“Telco”)
The Company’s Telco segment sells new and refurbished telecommunications networking equipment, including both central office and customer premise equipment, to its customer base of telecommunications providers, enterprise customers and resellers located primarily in North America. This segment also offers its customers repair and testing services for telecommunications networking equipment. In addition, this segment offers its customers decommissioning services for surplus and obsolete equipment.
Recent Business Developments
COVID-19
On March 11, 2020, the World Health Organization declared the current outbreak of COVID-19 to be a global pandemic, and on March 13, 2020, the United States declared a national emergency. In response to these declarations and the rapid spread of COVID-19, federal, state and local governments have imposed varying degrees of restrictions on business and social activities to contain COVID-19, including quarantine and “stay-at-home” or “shelter-in-place” orders in markets where we operate. Despite these “stay-at-home” or “shelter-in-place” orders, we are classified as an essential business due to the services and products we provide to the
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telecommunications industry. Therefore, we continue to operate in the markets we serve while these orders were in place. Most of our back-office and administrative personnel worked from home while these orders were in place, these personnel began working in the office as restrictions were relaxed or lifted.
With the partial reopening of the economy the economic effects of the pandemic, including new Covid 19 variants, and resulting societal changes remain unpredictable. Although we experienced increased revenues in recent quarters compared to prior year quarters since the pandemic began in 2020, there are a number of uncertainties that could impact our future results of operations, including the efficacy and widespread distribution of a vaccine, the return of major outdoor events during the summer and fall months, and the impact of COVID-19 on the operating results and capital budgets of our customers.
Results of Operations
Comparison of Results of Operations for the three months ended June 30, 2022 and June 30, 2021
Consolidated
Consolidated sales increased $10.8 million, or 63%, to $27.8 million for the three months ended June 30, 2022 from $17.0 million for the three months ended June 30, 2021. The increase in sales was due to a 60% increase in sales in the Telco segment of $7.7 million and a 75% increase in Wireless segment sales of $3.1 million.
Consolidated gross profit was $8.1 million, or 29% gross margin for the three months ended June 30, 2022, compared to gross profit of $4.3 million, or 25% gross margin for the three months ended June 30, 2021, an increase of $3.8 million. The increase in gross profit was due to an increase in the Telco segment of $3.1 million, and an increase in the Wireless segment of $0.7 million. The improvement in margin percent was due to strong demand in our Telco segment fueled by global supply issues, along with expansion of our offerings to both wireless and optical network carriers to support both wireless and broadband connectivity for optical and IP transport offset by 3% lower margins in the Wireless segment which was attributable to mobilization costs for the newer markets entered into with a large customer earlier in the year.
Consolidated operating expenses include indirect costs associated with operating our business. Indirect costs include indirect personnel costs, facility costs, vehicles, fuel, insurance, communication, and business taxes, among other cost categories. Operating expenses were $2.5 million, compared to $2.5 million in the same period last year, representing no change in absolute dollars, but a decline from 15% of revenue to 9% of revenue due primarily to cost control measures instituted by the Company during the latter part of the fiscal second quarter and continuing into the fiscal third quarter of 2022.
Consolidated selling, general and administrative ("SG&A") expenses include overhead costs, which consist of personnel costs, insurance, professional services, and communication, among other less significant cost categories. SG&A expense increased $0.5 million, or 16%, to $4.1 million for the three months ended June 30, 2022 from $3.6 million for the same period last year. The increase in SG&A relates primarily to increased selling and commissions expenses to support higher revenues.
Segment Results
Wireless
Revenues for the Wireless segment increased $3.1 million to $7.2 million for the three months ended June 30, 2022 from $4.1 million for the same period of last year. The growth in revenues over the prior year period relates to the pace of the 5G services activity undertaken on behalf of our expanded customer base. Revenues from some customers have been impacted by global supply chain issues as components necessary for build outs have slowed in some cases.
Gross profit was $2.0 million, or 27% for the three months ended June 30, 2022 compared to $1.2 million, or 30%, for the three months ended June 30, 2021. The decrease in the gross profit percentage was the result of new business with a major customer at a lower margin level caused by deploying to new markets and related startup costs.
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Loss from operations was $1.5 million and $2.1 million for three months ended June 30, 2022 and 2021, respectively. The decrease is mainly attributable to investment in our regional growth strategy associated with anticipated 5G infrastructure build outs.
Telco
Sales for the Telco segment increased $7.7 million to $20.6 million for the three months ended June 30, 2022 from $12.9 million for the same period last year. The increase was related to increased sales of used and refurbished equipment as a result of continued global supply chain constraints along with expansion of our offerings to both wireless and optical network carriers to support both wireless and broadband connectivity for optical and IP transport.
Gross profit was $6.2 million and $3.0 million for the three months ended June 30, 2022 and 2021, respectively. The increased gross profit was due primarily to increased revenues of $20.6 million. Additionally, global supply chain issues have generally led to higher pricing to customers.
Income from operations was $2.6 million for the three months ended June 30, 2022 compared to $16 thousand for the same period last year, increasing primarily due to the reasons discussed above.
Comparison of Results of Operations for the nine months ended June 30, 2022 and June 30, 2021
Consolidated
Consolidated sales increased $27.8 million, or 66%, to $70.2 million for the nine months ended June 30, 2022 from $42.4 million for the nine months ended June 30, 2021. The increase in sales was due to increased sales in the Telco segment of $19.4 million and an increase in Wireless segment sales of $8.4 million.
Consolidated gross profit increased $7.4 million, or 67%, to $18.5 million for the nine months ended June 30, 2022 from $11.1 million for the same period last year. The increase in gross profit was due to an increase in the Telco segment of $6.8 million, as well as an increase in the Wireless segment of $0.6 million.
Consolidated operating expenses increased $1.1 million, or 16%, to $7.8 million for the nine months ended June 30, 2022 from $6.7 million for the same period last year, due primarily to increases in headcount in our Wireless segment to support 5G services activity during the year.
Consolidated selling, general and administrative expenses increased $1.2 million, or 11%, to $11.7 million for the nine months ended June 30, 2022 from $10.5 million for the same period last year. The increase in SG&A relates primarily to increased selling and commissions expenses to support higher revenues.
Segment Results
Wireless
Revenues for the Wireless segment were $22.1 million for the nine months ended June 30, 2022 and $13.7 million for the same period last year. The increase in revenues over the prior year period relates to the pace of the 5G services activity the Company estimates is now underway.
Gross profit was $5.0 million, or 23% for the nine months ended June 30, 2022 and $4.4 million, or 32%, for the nine months ended June 30, 2021. The decrease in the gross profit percentage was the result of new business with a major customer at a lower margin level caused by deploying to new markets and related startup costs, and as a result of a couple of non-profitable markets, due to lower volume commitments from some customers, which we have exited.
Loss from operations was $6.0 million and $4.8 million for nine months ended June 30, 2022 and 2021, respectively. The increase is mainly attributable to investment in our regional growth strategy associated with anticipated 5G infrastructure build outs.
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Telco
Sales for the Telco segment increased $19.4 million to $48.1 million for the nine months ended June 30, 2022 from $28.7 million for the same period last year. The increase was related to increased sales of used and refurbished equipment as a result of continued global supply chain constraints along with expansion of our offerings to both wireless and optical network carriers to support both wireless and broadband connectivity for optical and IP transport.
Gross profit was $13.5 million for the nine months ended June 30, 2022 compared to $6.7 million for the nine months ended June 30, 2021, as a result of the segment's increase in revenues coupled with an increase in gross profit percent by 5% due to price elasticity associated with global supply chain issues.
Income from operations was $4.1 million for the nine months ended June 30, 2022 compared to a loss of $2.3 million for the same period last year.
Non-GAAP Financial Measure
Adjusted EBITDA is a supplemental, non-GAAP financial measure. EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA as presented also excludes impairment charges for operating lease right-of-use assets and intangible assets including goodwill, stock compensation expense, other income, other expense, interest income and income from equity method investment. Adjusted EBITDA is presented below because this metric is used by the financial community as a method of measuring our financial performance and of evaluating the market value of companies considered to be in similar businesses. Since Adjusted EBITDA is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net earnings as an indicator of operating performance. Adjusted EBITDA, as calculated below, may not be comparable to similarly titled measures employed by other companies. In addition, Adjusted EBITDA is not necessarily a measure of our ability to fund our cash needs.
The following table provides a reconciliation by segment of loss from operations to Adjusted EBITDA for the three and nine month periods ended June 30, 2022 and 2021, in thousands:
| Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||
| Wireless | Telco | Total | Wireless | Telco | Total | ||||||||||||||||||||||||||||||
| Income (loss) from operations | $ | (1,461) | $ | 2,606 | $ | 1,145 | $ | (2,117) | $ | 16 | $ | (2,101) | |||||||||||||||||||||||
| Depreciation and amortization expense | 192 | 121 | 313 | 185 | 129 | 314 | |||||||||||||||||||||||||||||
| Stock compensation expense | 44 | 59 | 103 | 136 | 143 | 279 | |||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | (1,225) | $ | 2,786 | $ | 1,561 | $ | (1,796) | $ | 288 | $ | (1,508) | |||||||||||||||||||||||
| Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||
| Wireless | Telco | Total | Wireless | Telco | Total | ||||||||||||||||||||||||||||||
| Income (loss) from operations | $ | (5,985) | $ | 4,064 | $ | (1,921) | $ | (4,759) | $ | (2,303) | $ | (7,062) | |||||||||||||||||||||||
| Depreciation and amortization expense | 608 | 367 | 975 | 513 | 387 | 899 | |||||||||||||||||||||||||||||
| Stock compensation expense | 289 | 342 | 631 | 383 | 457 | 840 | |||||||||||||||||||||||||||||
| Adjusted EBITDA | $ | (5,088) | $ | 4,773 | $ | (315) | $ | (3,863) | $ | (1,459) | $ | (5,323) | |||||||||||||||||||||||
Critical Accounting Policies
Our unaudited consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of our significant accounting policies is included in Note 1- Basis of Presentation and Accounting Policies in our Form 10-K.
General
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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, which form the basis for making judgments about the carrying values of certain assets. Actual results could differ from these estimates under different assumptions or conditions. The most significant estimates and assumptions are discussed below.
Inventory Valuation
For 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 higher gross profit margins on our sales. We market our products primarily to telecommunication providers, resellers, and other users of telecommunication equipment who are seeking products for which manufacturers have discontinued production or cannot ship new equipment on a same-day basis, as well as providing used products as an alternative to new products from the manufacturer. Carrying these large inventory quantities represents our largest risk for our Telco segment.
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, 2022, we had total inventory, before the reserve for excess and obsolete inventories, of $11.3 million, consisting of $1.9 million in new products and $9.4 million in used or refurbished products.
We regularly review the value of our inventory in detail with consideration given to rapidly changing technology which can significantly affect future customer demand. For individual inventory items, we may carry inventory quantities that are excessive relative to market potential, or we may not be able to recover our acquisition costs. In order to address the risks associated with our investment in inventory, we review inventory quantities on hand and reduce the carrying value for obsolete and excess inventories, when our analysis indicates that cost will not be recovered when an item is sold.
We identified certain inventory that more than likely will not be sold or that the cost will not be recovered. Therefore, we have an obsolete and excess inventory reserve of $3.7 million at June 30, 2022. 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.
Intangibles
Intangible assets that have finite useful lives are amortized on a straight-line basis over their estimated useful lives. Intangible assets are also tested for impairment when events and circumstances indicate that the carrying value may not be recoverable. As of June 30, 2022, there were no indicators of impairment present.
Liquidity and Capital Resources
Cash Flows Provided by Operating Activities
During the nine months ended June 30, 2022, cash provided by operations was $5.0 million. Cash flows from operations were negatively impacted by a net loss of $2.5 million, offset by net cash provided by working capital of $5.8 million primarily related to the reduction of receivables associated with our new accounts receivable purchase facilities, and non-cash adjustments of $1.7 million, primarily depreciation, amortization, and stock based compensation expenses.
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Cash Flows Used in Investing Activities
During the nine months ended June 30, 2022, cash used in investing activities was $0.2 million, consisting primarily of purchases of property and equipment.
Cash Flows Used in Financing Activities
During the nine months ended June 30, 2022, cash used in financing activities was $1.8 million, primarily consisting of $2.1 million related to repayment of our bank line of credit and payments on financing lease obligations of $0.5 million, partially offset by net proceeds from the sale of our common stock utilizing our shelf registration of $0.8 million.
Liquidity and Capital Resources
At June 30, 2022 we had cash and equivalents and restricted cash on hand of $5.9 million.
On March 17, 2022, the Company replaced its $3.0 million credit facility for its Nave and Triton subsidiaries with its primary financial lender with new accounts receivable purchase facilities. The Company also restructured its accounts receivable purchase facilities secured by the Company’s Fulton subsidiary’s receivables. With the new and restructured receivables purchase facilities, the Company has an overall capacity to factor its accounts receivable of $19.0 million for working capital needs.
We entered into an Equity Distribution Agreement (the “Sales Agreement”) with Northland Securities, Inc., as agent (“Northland”), pursuant to which we may offer and sell, from time to time, through Northland, shares of our common stock, par value $0.01 per share, having an aggregate offering price of up to $13.9 million ("Shares"). The offer and sale of the Shares will be made pursuant to a shelf registration statement on Form S-3 and the related prospectus filed by us with the Securities and Exchange Commission (the "SEC") on March 3, 2020, as amended on March 23, 2020, and declared effective by the SEC on April 1, 2020. The shelf registration statement will remain effective for three years from the date declared effective by the SEC. We currently have approximately $9.9 million available to us to fund our working capital needs under the Sales Agreement. Based on our availability under our accounts receivable purchase facilities and our Sales Agreement, we believe we have sufficient liquidity and capital resources to cover our operating losses and our additional working capital and debt payment needs.
Item 4. Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure the information we are required to disclose in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based on their evaluation as of June 30, 2022, 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 II. OTHER INFORMATION
Item 2. Unregistered Sales of Securities and Use of Proceeds.
During the nine months ended June 30, 2022, the Company sold 495,517 shares of common stock under its registration statement on Form S-3 effective as of April 1, 2020 (333-236859). Gross proceeds from such sales during the nine months were $0.9 million and net proceeds were $0.8 million after the payment of $37 thousand in commissions to Northland Securities, Inc., the underwriter of the offering. Total gross proceeds to the Company from sales under such registration statement since its effective date are $4.0 million and total net proceeds to the Company are $3.9 million after the payment of $0.1 million in commissions to Northland. All sales have been made pursuant to the Prospectus Supplement filed with the Commission on April 24, 2020, under which the Company may sell up to $13.9 million in common stock. All net proceeds to the Company from such sales have been used in accordance with the “Use of Proceeds” section of such Prospectus Supplement.
Item 6. Exhibits.
| Exhibit No. | Description | ||||
| 31.1 | |||||
| 31.2 | |||||
| 32.1 | |||||
| 32.2 | |||||
| 101.INS | XBRL Instance Document. | ||||
| 101.SCH | XBRL Taxonomy Extension Schema. | ||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase. | ||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase. | ||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase. | ||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase. | ||||
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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: August 11, 2022 | |||||
| /s/ Joseph E. Hart | |||||
| Joseph E. Hart, | |||||
| President and Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
| Date: August 11, 2022 | |||||
| /s/ Michael A. Rutledge | |||||
| Michael A. Rutledge | |||||
| Interim Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
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