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ADDVANTAGE TECHNOLOGIES GROUP INC - Quarter Report: 2023 March (Form 10-Q)

Table of Contents
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 March 31, 2023
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    FOR THE TRANSITION PERIOD FROM ________________ TO ______________
Commission File number 1-10799
ADDvantage Technologies Group, Inc.
(Exact name of registrant as specified in its charter)
Oklahoma73-1351610
(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 ☒ 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 ☒ 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 ☒ 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 May 9, 2023 were 14,860,857.
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ADDVANTAGE TECHNOLOGIES GROUP, INC.
Form 10-Q
For Period Ended March 31, 2023
Page
March 31, 2023 and December 31, 2022
Three Months Ended March 31, 2023 and 2022
Three Months Ended March 31, 2023 and 2022
Three Months Ended March 31, 2023 and 2022
Item 3.Quantitative and Qualitative Disclosures about Market Risk.
Item 1.Legal Proceedings.
Item 1A.Risk Factors.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3Defaults Upon Sales of Securities and Use of Proceeds.
Item 4.Mine Safety Disclosures.
Item 5.Other Information.

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PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements.
ADDvantage Technologies Group, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
(Unaudited)
March 31,
2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents$2,555 $2,552 
Restricted cash1,473 1,101 
Accounts receivable, net of allowances of $304 and $262, respectively
1,635 1,682 
Unbilled revenue3,124 5,005 
Income tax receivable102 102 
Inventories, net of allowances of $4,118 and $3,871, respectively
8,469 9,563 
Prepaid expenses and other current assets1,308 1,399 
Total current assets18,666 21,404 
Property and equipment, at cost:
Machinery and equipment5,543 5,542 
Leasehold improvements899 899 
Total property and equipment, at cost6,442 6,441 
Less: Accumulated depreciation(3,295)(3,057)
Net property and equipment3,147 3,384 
Right-of-use lease assets1,302 1,540 
Intangibles, net of accumulated amortization629 709 
Goodwill58 58 
Other assets207 123 
Total assets$24,009 $27,218 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable$8,755 $9,407 
Accrued expenses1,552 1,445 
Deferred revenue207 148 
Right-of-use lease obligations, current1,069 1,204 
Finance lease obligations, current645 636 
Other current liabilities532 442 
Total current liabilities12,760 13,282 
Right-of-use lease obligations, long-term463 635 
Finance lease obligations, long-term1,088 1,254 
Total liabilities14,311 15,171 
Shareholders’ equity:
Common stock, $0.01 par value; 30,000,000 shares authorized; 14,788,857 and 14,132,033 shares issued and outstanding, respectively
148 141 
Paid in capital2,977 2,585 
Retained earnings6,573 9,321 
Total shareholders’ equity9,698 12,047 
Total liabilities and shareholders’ equity$24,009 $27,218 


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 March 31,
20232022
Sales$14,720 $23,759 
Cost of sales11,303 18,001 
Gross profit3,417 5,758 
Operating expenses2,047 2,753 
Selling, general and administrative expenses3,606 3,850 
Depreciation and amortization expense317 318 
Loss on disposal of assets— 2 
Loss from operations(2,553)(1,165)
Other income (expense):
Other income (expense)(149)(168)
Interest expense(46)(61)
Other income (expense), net(195)(229)
Loss before income taxes(2,748)(1,394)
Income tax benefit— — 
Net loss$(2,748)$(1,394)
Loss per share:
Basic and diluted$(0.21)$(0.11)
Shares used in per share calculation:
Basic and diluted13,273,330 13,071,053 











See notes to unaudited consolidated financial statements.
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ADDvantage Technologies Group, Inc.
Consolidated Statements of Changes in Shareholders' Equity
(in thousands, except share amounts)
(Unaudited)


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 

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 






















See notes to unaudited consolidated financial statements.
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ADDvantage Technologies Group, Inc
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Three Months Ended March 31,
20232022
Operating Activities:
Net loss$(2,748)$(1,394)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation237 238 
Amortization80 80 
Non cash amortization of right-of-use asset and liability(68)(7)
Provision for excess and obsolete inventories247 80 
Share based compensation expense399 247 
Gain on disposal of property and equipment— 2 
Changes in assets and liabilities:
Accounts receivable47 6,100 
Unbilled revenue1,881 (958)
Inventories847 (236)
Prepaid expenses and other current assets7 (313)
Accounts payable(652)1,281 
Accrued expenses and other liabilities197 403 
Deferred revenue59 18 
Net cash provided by operating activities533 5,541 
Investing Activities:
Purchases of property and equipment(1)(78)
Disposals of property and equipment— 42 
Net cash used in investing activities(1)(36)
Financing Activities:
Change in bank line of credit— (2,050)
Payments on financing lease obligations(157)(195)
Proceeds from sale of common stock— 168 
Net cash used in financing activities(157)(2,077)
Net increase in cash, cash equivalents and restricted cash375 3,428 
Cash, cash equivalents and restricted cash at beginning of period3,653 2,418 
Cash, cash equivalents and restricted cash at end of period$4,028 $5,846 






See notes to unaudited consolidated financial statements.
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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 three months ended March 31, 2023 and 2022, 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 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 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 Adopted Accounting Standards
Financial 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 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. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (ASC 842)” and ASU 2020-03, “Codification Improvements to Financial Instruments,” respectively, which include amendments to ASC 326.
ASU 2016-13 is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU 2018-19 clarifies that receivables arising from operating 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 related to the recently issued standards on financial instruments – credit losses, derivatives and hedging, and financial instruments. ASU 2019-05 provides entities that have certain instruments within the scope of ASC Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost, with an option to irrevocably 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 part 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 adoption did not have a material impact on its consolidated financial statements and related disclosures.
Note 2 – 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 $1.6 million and $1.5 million for the three months ended March 31, 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 one customer totaled 19%, and to two customers totaled 39% of consolidated revenues for the three months ended March 31, 2023 and 2022, respectively.
Our sales by type were as follows, in thousands:
Three Months Ended March 31,
20232022
Wireless services sales$6,572 $7,767 
Telco equipment8,147 15,986 
Telco repair1 6 
Total sales$14,720 $23,759 
Contract assets and contract liabilities are included in unbilled revenue and deferred revenue, respectively, in the consolidated balance sheets. At March 31, 2023 and December 31, 2022, contract assets were $3.1 million and $5.0 million, respectively, and contract liabilities were $0.2 million and $0.1 million, respectively. The Company recognized $0.1 million of contract revenue during the three months ended March 31, 2023 related to contract liabilities recorded in deferred revenue at December 31, 2022.
Note 3 – 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.
The Company has a total capacity under all four facilities of $19.0 million. As of March 31, 2023, the lender has a reserve against the sold receivables of $1.5 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 $7.0 million at March 31, 2023.  Although the sale of receivables is with recourse, the Company did not record a recourse obligation at March 31, 2023 as the Company concluded that the sold receivables are collectible. 
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For the three months ended March 31, 2023, the Company received proceeds from the sold receivables under all of their various agreements of $12.9 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 $0.2 million for the three months ended March 31, 2023, in other expense in the consolidated statements of operations.
Note 4 – Inventories
Inventories, which are all within the Telco segment, at March 31, 2023 and December 31, 2022 are as follows, in thousands:
March 31, 2023December 31, 2022
New equipment$2,144 $2,286 
Refurbished and used equipment10,443 11,148 
Allowance for excess and obsolete inventory(4,118)(3,871)
Total inventories, net$8,469 $9,563 
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 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.
Note 5 – Intangible Assets
Intangible assets with their associated accumulated amortization and impairment at March 31, 2023 and December 31, 2022 are as follows, in thousands:
March 31, 2023
Intangible assets:GrossAccumulated AmortizationNet
Customer relationships – 10 years
$3,155 $(2,940)$215 
Trade name – 10 years
2,122 (1,708)414 
Total intangible assets$5,277 $(4,648)$629 
December 31, 2022
Intangible assets:GrossAccumulated
Amortization		Net
Customer relationships – 10 years
$3,155 $(2,913)$242 
Trade name – 10 years
2,122 (1,655)467 
Total intangible assets$5,277 $(4,568)$709 
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.



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Note 7 – Equity Distribution Agreement and Sale of Common Stock
On April 24, 2020, the Company entered into an Equity Distribution Agreement (the “Sales Agreement”) with Northland Securities, Inc., as agent (“Northland”), pursuant to which the Company may offer and sell, from time to time, through Northland, shares of the Company’s common stock, par value $0.01 per share, having an aggregate offering price of up to $13.9 million ("Shares").

The offer and sale of the Shares 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.

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 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 have imposed.

The Company paid Northland a commission rate equal to an aggregate of 3.0% of the aggregate gross proceeds from each sale of Shares and agreed 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. The Sales Agreement contained customary representations and warranties and conditions to the placements of the Shares pursuant thereto.

During the three months ended March 31, 2022, 143,985 Shares were sold by Northland on behalf of the Company with gross proceeds of $0.2 million, and net proceeds after commissions and fees of $0.2 million. On November 28, 2022, the Company terminated the Sales Agreement with Northland. There were no penalties associated with the termination of the Sales Agreement. As a result of the termination, no shares were sold during the three months ended March 31, 2023.

Note 8 – Earnings Per Share
Basic and diluted earnings per share for the three months ended March 31, 2023 and 2022, in thousands:
Three Months Ended March 31,
20232022
Net loss attributable to common shareholders$(2,748)$(1,394)
Basic and diluted weighted average shares13,273 13,071 
Basic and diluted loss per common share$(0.21)$(0.11)
The table below includes information related to stock options and restricted stock awards that were outstanding at the end of each respective three-month period ended March 31, but have been excluded from the computation of weighted average shares for dilutive securities because their effect would be anti-dilutive.
Three Months Ended March 31,
20232022
Stock options excluded— 50,000 
Weighted average exercise price of stock options$1.28 
Average market price of common stock$1.32 
Unvested restricted stock awards912,883 — 
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Note 9 – Supplemental Cash Flow Information
(in thousands)Three Months Ended March 31,
20232022
Supplemental cash flow information:
Cash paid for interest$46 $62 
Supplemental noncash investing and financing activities:
Assets acquired under financing leases$— $203 
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 March 31, 2023, 3,100,415 shares of common stock were reserved for stock award grants under the Plan.  Of these reserved shares, 415,480 shares were available for future grants.
Stock Options
As of December 31, 2022, there were no outstanding stock options under the Plan. There were no stock options granted during the three months ended March 31, 2023.
Restricted stock awards
A summary of the Company's non-vested restricted share awards at March 31, 2023 and changes during the three months ended March 31, 2023 is presented in the following table (in thousands, except shares):
SharesFair Value
Non-vested at December 31, 2022531,725 $1,016 
Granted692,824 804 
Vested (275,666)(368)
Forfeited(36,000)(49)
Non-vested at March 31, 2023912,883 $1,403 
During the three month period ended March 31, 2023 and 2022, expenses related to share-based arrangements including restricted stock and stock option awards, were $0.4 million and $0.2 million, respectively.
The Company did not recognize a tax benefit for compensation expense recognized during the three months ended March 31, 2023 and 2022.
At March 31, 2023, unrecognized compensation expense related to non-vested stock-based compensation awards not yet recognized in the consolidated statements of operations was $0.8 million. That cost is expected to be recognized over a period of 3.0 years.
Note 11 – Leases
The Company has a right-of-use for a building in Jessup, Maryland which was no longer being used in operations. The Maryland property was subleased as of March 31, 2023 and will end in November, 2023. Rental payments received related to the sublease was recorded as a reduction of rent expense in our consolidated statements of operations for the periods ending March 31, 2023 and 2022.
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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 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.
(in thousands)Three Months Ended
March 31, 2023March 31, 2022
Sales
Wireless$6,572 $7,766 
Telco8,148 15,993 
Total sales$14,720 $23,759 
Gross profit
Wireless$1,344 $1,537 
Telco2,073 4,221 
Total gross profit$3,417 $5,758 
Income (loss) from operations
Wireless$(2,097)$(2,203)
Telco(456)1,038 
Total income (loss) from operations$(2,553)$(1,165)
(in thousands)March 31, 2023December 31, 2022
Segment assets
Wireless$8,223 $9,790 
Telco12,224 13,217 
Non-allocated3,562 4,211 
Total assets$24,009 $27,218 
Note 13 – 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.
Mast Hill Fund Investments
On April 7 and April 12, 2023, the Company entered into securities purchase agreements (the “Securities Purchase Agreements”) with Mast Hill Fund, L.P. (the "Purchaser") for the issuance of 13% senior secured promissory notes in the aggregate principal amount of $3.0 million (collectively the “Notes”) convertible into shares of common stock of the Company, as well as the issuance of up to 72,000 shares of common stock as a commitment fee and
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warrants for the purchase of 648,000 shares of common stock of the Company. 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 all of the Company’s obligations under the Notes. The Purchaser transactions closed on April 7 and April 12, 2023 (each, a “Closing Date”).
On April 7, 2023, the Purchaser acquired the Notes with principal amount of $2.4 million and paid the purchase price of $2.3 million after an original issue discount of $0.1 million. On the same Closing Date, the Company issued (i) a warrant to purchase 290,526 shares of common stock with an exercise price of $2.50 exercisable until the five-year anniversary of the Closing Date, (ii) a warrant to purchase 232,421 shares of common 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, and (iii) 58,105 shares of common stock to the Purchaser as additional consideration for the purchase of the Note. On the Closing Date, the Company delivered such duly executed Notes, warrants and common stock to the Purchaser against delivery of such purchase price.
On April 12, 2023, the Purchaser acquired the Notes with principal amount of $0.6 million and paid the purchase price of $0.6 million after an original issue discount of $29 thousand. On the same Closing Date, the Company issued (i) a warrant to purchase 69,474 shares of common stock with an exercise price of $2.50 exercisable until the five-year anniversary of the Closing Date, (ii) a warrant to purchase 55,579 shares of common 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, and (iii) 13,895 shares of common stock to the Purchaser as additional consideration for the purchase of the Note. On the Closing Date, the Company delivered such duly executed Notes, warrants and common stock to the Purchaser against delivery of such purchase price.
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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 wireless telecommunications industry, changes in customer and supplier relationships, technological developments, changes in the economic environment generally, the growth or formation of competitors, changes in governmental regulation or taxation, changes in our personnel, our ability to identify, complete and integrate acquisitions on favorable terms and other such factors.  Our actual results, performance or achievements may differ significantly from the results, performance or achievements expressed or implied in the forward-looking statements.  We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
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 December 31, 2022, 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.
Results of Operations
Comparison of Results of Operations for the three months ended March 31, 2023 and March 31, 2022
Consolidated
Consolidated sales decreased $9.1 million, or 38%, to $14.7 million for three months ended March 31, 2023 from $23.8 million for the three months ended March 31, 2022.  The decrease in sales was due to decreased sales in the Telco segment of $7.9 million and a decrease in Wireless segment sales of $1.2 million.
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Consolidated gross profit was $3.4 million, or 23% gross margin for the three months ended March 31, 2023, compared to gross profit of $5.8 million, or 24% gross margin for the three months ended March 31, 2022, a decrease of $2.4 million. The decrease in gross profit was primarily due to a decrease in the Telco segment of $2.1 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 $2.8 million in the same period last year, a decrease of $0.8 million due primarily to cost control measures instituted by the Company throughout 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 decreased $0.2 million, or 6%, to $3.6 million for the three months ended March 31, 2023 from $3.9 million for the same period last year. The decrease in SG&A relates primarily to decreased selling and commissions expenses related to lower revenues.
Segment Results
Wireless
Revenues for the Wireless segment decreased $1.2 million to $6.6 million for the three months ended March 31, 2023 from $7.8 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. 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 $1.3 million, or 20% for the three months ended March 31, 2023 compared to $1.5 million, or 20%, for the three months ended March 31, 2022. The decrease in gross profit dollars was the result of lower revenues quarter-over-quarter.
Loss from operations was $2.1 million and $2.2 million for three months ended March 31, 2023 and 2022, respectively. The decrease is mainly attributable to the decline in revenue.
Telco
Sales for the Telco segment decreased $7.9 million to $8.1 million for the three months ended March 31, 2023 from $16.0 million for the same period last year. The decrease in revenues was related to lower sales of used and refurbished equipment as wireless and optical carrier customers absorbed quantities of inventory purchased in 2022.
Gross profit was $2.1 million and $4.2 million for the three months ended March 31, 2023 and 2022, respectively. The decreased gross profit was due primarily to lower revenues of $8.1 million.
Loss from operations was $0.5 million for the three months ended March 31, 2023 compared to income of $1.0 million for the same period last year, primarily due to the reasons discussed above.
Non-GAAP Financial Measure
Adjusted EBITDA is a supplemental, non-GAAP financial measure.  EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization. Adjusted EBITDA as presented also excludes stock compensation expense, other income, other expense, and interest income. Adjusted EBITDA is presented below because this metric is used by the financial community as a method of measuring our financial performance and of evaluating the market value of companies considered to be in similar businesses.  Since Adjusted EBITDA is not a measure of performance calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, net earnings as an indicator of operating performance. Adjusted EBITDA, as calculated below, may
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not be comparable to similarly titled measures employed by other companies.  In addition, Adjusted EBITDA is not necessarily a measure of our ability to fund our cash needs.
The following table provides a reconciliation by segment of income (loss) from operations to Adjusted EBITDA, in thousands:
Three Months Ended
March 31, 2023		Three Months Ended
March 31, 2022
WirelessTelcoTotalWirelessTelcoTotal
Income (loss) from operations$(2,097)$(456)$(2,553)$(2,203)$1,038 $(1,165)
Depreciation and amortization expense120 197 317 197 121 318 
Stock compensation expense213 186 399 114 133 247 
Adjusted EBITDA$(1,764)$(73)$(1,837)$(1,892)$1,292 $(600)
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- Summary of Significant Accounting Policies in our 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, 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.
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
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, telecommunication 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 March 31, 2023, we had total inventory, before the reserve for excess and obsolete inventories, of $12.6 million, consisting of $2.1 million in new products and $10.4 million in used or refurbished products.
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We are required to make judgments as to future demand requirements from our customers. We regularly review the value of our inventory in detail with consideration given to rapidly changing technology which can significantly affect future customer demand.  For individual inventory items, we may carry inventory quantities that are excessive relative to market potential, or we may not be able to recover our acquisition costs for sales that we do make.  In order to address the risks associated with our investment in inventory, we review inventory quantities on hand and reduce the carrying value when the loss of usefulness of an item or other factors, such as obsolete and excess inventories, indicate that cost will not be recovered when an item is sold.
We 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 processed through recycling. Therefore, we have an obsolete and excess inventory reserve of $4.1 million at March 31, 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 a material component of cost of sales.
Intangibles
Intangible assets that have finite useful lives are amortized on a straight-line basis over their estimated useful lives of 10 years. Intangible assets are also tested for impairment when events and circumstances indicate that the carrying value may not be recoverable. As of March 31, 2023, there were no indicators of impairment present.
Liquidity and Capital Resources
Cash Flows Provided by Operating Activities
During the three months ended March 31, 2023, cash provided by operations was $0.5 million. Cash flows from operations were negatively impacted by a net loss of $2.7 million, offset by net cash provided by working capital of $2.3 million and non-cash adjustments of $0.9 million.
Cash Flows Used in Investing Activities
During the three months ended March 31, 2023, cash used in investing activities was $1 thousand, consisting of purchases of property and equipment.
Cash Flows Used in Financing Activities
During the three months ended March 31, 2023, cash used in financing activities was $0.2 million, consisting of payments on financing leases.
Liquidity and Capital Resources
At March 31, 2023 we had $4.0 million in cash and equivalents and restricted cash.
The Company has an overall capacity to factor its accounts receivable of $19.0 million for working capital needs. At March 31, 2023, the Company had $7.0 million utilized under the receivables purchase facilities, leaving $12.0 million available to the Company to factor additional receivables generated from future sales.

The Company has experienced a number of quarters with negative operating results over the recent history. Should those continue, we would need to obtain other funding arrangements to supplement working capital, which could include the filing of a registration statement for the sale of equity, and the issuance of debt, either convertible or non-convertible, which might or might not include the issuance of warrants or shares associated with the transaction.
Subsequent Event: Mast Hill Fund Investments
On April 7 and April 12, 2023, the Company received $2.9 million from Mast Hill Fund, L.P., against the issuance of 13% senior secured promissory notes in the aggregate principal amount of $3.0 million after an original issue
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discount of $0.1 million (collectively the “Notes”). See Item 1 - Note 13 - Subsequent Events in the notes to the unaudited consolidated financial statements.

Item 3.  Quantitative and 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 March 31, 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 II.   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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Item 6.  Exhibits.
Exhibit No.Description
31.1
31.2
32.1
32.2
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: May 15, 2023
/s/ Joseph E. Hart
Joseph E. Hart
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2023
/s/ Michael A. Rutledge
Michael A. Rutledge
Chief Financial Officer
(Principal Financial Officer)

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