UNITED STATES
|
SECURITIES AND EXCHANGE COMMISSION
|
Washington, D.C. 20549
|
FORM 10-K
|
☒ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
For the fiscal year ended September 30, 2018
|
☐TRANSITION REPORT UNDER 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.)
|
1221 E. Houston, Broken Arrow, Oklahoma
|
74012
|
(Address of principal executive offices)
|
(Zip code)
|
Registrant’s telephone number: (918) 251-9121
|
Securities registered under Section 12(b) of the Act:
|
Title of each class
|
Name of exchange on which registered
|
Common Stock, $.01 par value
|
NASDAQ Global Market
|
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
|
Yes ☐ No ☒
|
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
|
Yes ☐ No ☒
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
|
Yes ☒ No ☐
|
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
|
☒
|
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☒
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
|
Yes ☐ No ☒
|
The aggregate market value of the outstanding shares of common stock, par value $.01 per share, held by non-affiliates
computed by reference to the closing price of the registrant’s common stock as of March 31, 2018 was $7,240,925.
|
|
The number of shares of the registrant’s outstanding common stock, $.01 par value per share, was 10,306,145 as of
November 30, 2018.
|
|
Page
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||
PART I
|
||
Item 1.
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Business.
|
|
Item 2.
|
Properties.
|
|
Item 3.
|
Legal Proceedings.
|
|
PART II
|
||
Item 5.
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Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
|
|
Item 6.
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Selected Financial Data.
|
|
Item 7.
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Management's Discussion and Analysis of Financial Condition and Results
of Operations.
|
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Item 8.
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Financial Statements and Supplementary Data.
|
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
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Item 9A.
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Controls and Procedures.
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Item 9B.
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Other Information.
|
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PART III
|
||
Item 10.
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Directors, Executive Officers and Corporate Governance.
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Item 11.
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Executive Compensation.
|
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
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Item 13.
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Certain Relationships and Related Transactions, and Director Independence.
|
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Item 14.
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Principal Accounting Fees and Services.
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PART IV
|
||
Item 15.
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Exhibits, Financial Statement Schedules.
|
|
SIGNATURES
|
2018
|
2017
|
2016
|
||||||||||
United States
|
||||||||||||
Cable TV
|
$
|
18,723,589
|
$
|
21,566,082
|
$
|
21,936,344
|
||||||
Telco
|
24,606,027
|
22,822,538
|
13,693,837
|
|||||||||
Canada, Central America, Asia, Europe, Mexico, South America and Other
|
||||||||||||
Cable TV
|
1,217,116
|
1,240,093
|
1,055,682
|
|||||||||
Telco
|
2,867,255
|
3,085,033
|
1,977,401
|
|||||||||
$
|
47,413,987
|
$
|
48,713,746
|
$
|
38,663,264
|
·
|
we sell both new and refurbished Cable TV equipment as well as repair what we sell, while most of our competition does not offer
all of these services;
|
·
|
we stock both new and refurbished inventory;
|
·
|
we stock a wide breadth of inventory, which many of our competitors do not, due to working capital constraints;
|
·
|
we can reconfigure new and refurbished equipment to meet the different needs of our customers;
|
·
|
we can meet our customers’ timing needs for product due to our inventory on hand; and
|
·
|
we have experienced sales support staff that have the technical know-how to assist our customers regarding solutions for various
products and configurations.
|
·
|
we stock a broad range of new, refurbished and used inventory, which allows us to meet our customers’ timing needs;
|
·
|
our ability to source unique and sometimes rare, high demand inventory;
|
·
|
we offer a range of repair and testing capabilities to help improve the quality of our inventory and, beginning in fiscal year
2019, this will allow us to repair and test as a service to our customers and vendors;
|
·
|
we have experienced sales support staff that maintain strong and longstanding relationships with our customers;
|
·
|
we maintain a sales force that has a strong technical knowledge of the products we offer;
|
·
|
we have the following quality certifications: TL9000 (telecommunications quality certification), ISO 14001 (environmental
management certification), OHSAS18000 (occupational safety and health management certification), and R2 (EPA responsible recycling practices for electronics); and
|
·
|
we provide multiple services for our customers including deinstallation and decommission of products, storage and management of
spares inventory and recycling.
|
·
|
Broken Arrow, Oklahoma – We owned a facility in a suburb of Tulsa consisting of our headquarters, additional offices, warehouse and
service center of approximately 162,500 square feet on ten acres, with an investment of $4.9 million, financed by a loan with a remaining balance of $0.6 million, due in full on October 31, 2018 at an interest rate of LIBOR plus 1.4%.
Subsequent to September 30, 2018, we paid the remaining loan balance of $0.6 million and, a company controlled by David Chymiak, our Chief Technology Officer, purchased this facility for $5.0 million in cash. As part of this transaction,
Tulsat, LLC, an operating company within the Cable TV Segment, entered into a ten-year lease with the purchaser with monthly lease payments of $44,000 (See Note 2 – Assets Held for Sale in the Notes to the consolidated financial
statements). The lease is guaranteed by ADDvantage, but the landlord and its lender have agreed to release the guarantee in the event of the sale of our cable television business pursuant to the terms of the existing agreement for such
sale.
|
·
|
Deshler, Nebraska – We own a facility near Lincoln consisting of land and an office, warehouse and service center of approximately
8,000 square feet.
|
·
|
Warminster, Pennsylvania – We own a facility in a suburb of Philadelphia consisting of an office, warehouse and service center of
approximately 12,000 square feet, with an investment of $0.6 million.
|
·
|
Sedalia, Missouri – We own a facility near Kansas City consisting of land, an office, warehouse and service center of approximately
60,300 square feet.
|
·
|
New Boston, Texas – We own a facility near Texarkana consisting of land, an office, warehouse and service center of approximately
13,000 square feet.
|
·
|
Suwanee, Georgia – We rent, on a month-to-month basis, a facility in a suburb of Atlanta consisting of an office and service center
of approximately 5,000 square feet, with monthly rental payments of $3,060.
|
·
|
Jessup, Maryland – We lease a facility in a suburb of Baltimore consisting of an office, warehouse, and service center of
approximately 88,000 square feet, with monthly rental payments of $44,153 increasing each year by 2.5% through November 30, 2023. In September 2018, we moved the Nave Communications Company (“Nave”) warehousing and inventory fulfillment
from this facility warehouse to Palco Telecom, a third-party reverse logistics partner in Huntsville, Alabama. We will be exiting this facility and moving our office staff to another location in the Baltimore area in 2019.
|
·
|
Miami, Florida – We lease four different adjoining properties in Miami, Florida consisting of office space, warehouse, and service
center totaling approximately 9,000 square feet with monthly rental payments to a Company owned by two employees of $12,626 per month through December 31, 2019 for three of the properties. We pay an unrelated third-party lease payments
of $2,461 per month through November 30, 2018 for the remaining property. On December 1, 2018, we leased a property from a third party with monthly rent payments of $17 thousand increasing each year by 3% through December 31, 2023.
|
Year Ended September 30, 2018
|
High
|
Low
|
First Quarter
|
$2.33
|
$1.38
|
Second Quarter
|
$1.57
|
$1.28
|
Third Quarter
|
$1.50
|
$1.21
|
Fourth Quarter
|
$1.83
|
$1.29
|
Year Ended September 30, 2017
|
High
|
Low
|
First Quarter
|
$1.94
|
$1.60
|
Second Quarter
|
$2.08
|
$1.70
|
Third Quarter
|
$1.92
|
$1.58
|
Fourth Quarter
|
$1.70
|
$1.32
|
Plan Category
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)
|
Weighted-average exercise price of outstanding options, warrants and rights
(b)
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column
(a))
(c)
|
Equity compensation plans approved by security holders
|
290,000
|
$2.40
|
542,301
|
Equity compensation plans not approved by security holders
|
0
|
0
|
0
|
Total
|
290,000
|
$2.40
|
542,301
|
2018
|
2017
|
2016
|
2015
|
2014
|
||||||||||||||||
Sales
|
$
|
47,414
|
$
|
48,714
|
$
|
38,663
|
$
|
43,734
|
$
|
35,889
|
||||||||||
Income (loss) from operations
|
$
|
(5,193
|
)
|
$
|
146
|
$
|
344
|
$
|
2,576
|
$
|
1,097
|
|||||||||
Income (loss) from continuing
operations
|
$
|
(7,320
|
)
|
$
|
(98
|
)
|
$
|
294
|
$
|
1,498
|
$
|
659
|
||||||||
Continuing operations earnings (loss)
per share
|
||||||||||||||||||||
Basic
|
$
|
(0.71
|
)
|
$
|
(0.01
|
)
|
$
|
0.03
|
$
|
0.15
|
$
|
0.07
|
||||||||
Diluted
|
$
|
(0.71
|
)
|
$
|
(0.01
|
)
|
$
|
0.03
|
$
|
0.15
|
$
|
0.07
|
||||||||
Total assets
|
$
|
44,395
|
$
|
54,848
|
$
|
50,268
|
$
|
51,687
|
$
|
53,139
|
||||||||||
Long-term obligations inclusive
of current maturities
|
$
|
2,594
|
$
|
6,284
|
$
|
4,366
|
$
|
5,240
|
$
|
6,086
|
·
|
Warehousing and inventory fulfillment cost savings – As a result of moving the operations to Alabama, we anticipate that we
should generate operating cost savings in excess of $1 million per year due to lower facilities, payroll and overhead costs. Since Palco’s expertise is logistics, their systems and processes should improve Nave’s inventory storage and
efficiency of fulfillment of inventory orders, which will in turn allow Nave to better serve its customers.
|
·
|
Inventory certification – Palco has the in-house ability to test and repair telecommunication parts. Nave plans to implement a
process in 2019 to offer customers certified telecommunication parts with enhanced warranties in response to increased customer and industry demand for higher-quality products. In order to implement this process, Nave will be making
additional investments in test equipment to be housed in Palco’s facilities. Although Nave will incur additional costs to certify its inventory, we believe this change will provide increased top-line revenues as well as improving our
brand quality. We intend to add additional sales personnel as necessary to support this demand.
|
·
|
Geography – Nave’s operations were located on the east coast in Baltimore, which we believe negatively impacted our ability to be
competitive in the western US due to inventory shipment delivery times. Subsequent to the move to Palco, our inventory fulfillment operation will now be in Alabama, which will significantly improve delivery times across the US, which
will allow Nave to increase its customer base across more geographic areas of the US.
|
·
|
Repair – Today, Nave cannot repair telecommunications products internally and generally does not offer repair services as a
product line to its customers. With the move to Palco and our investment in test equipment, Nave plans to begin offering customers repair services in late 2019. We believe that this product offering will generate increased top-line
revenue and profitability for Nave.
|
·
|
Operational efficiencies – The new facility will allow us to refurbish more customer premise units per person and will also allow
us to expand our models that we refurbish. Currently, we primarily focus on the refurbishment of Cisco IP desk phones, but we will now plan to add additional assembly lines to focus on additional manufacturers that our customers are
requesting.
|
·
|
Investment in additional new and refurbished inventory ‒ Increasing the footprint of our warehouse and adding additional storage
height will allow us the opportunity to invest in additional inventory. This will include the addition of new manufactures as well as increased quantities of current inventory to fulfill customer demand.
|
·
|
Wholesale broker-to-broker sales expansion – As a result of the investment in additional new and refurbished inventory, we plan to
expand our brokerage service team and to expand our broker sales platforms.
|
·
|
Carrier customers – The new facility will provide the footprint space required to expand our focus into the telephone carrier
market, which we do not currently support. Therefore, as we expand our product line offerings discussed above, we plan to begin marketing to the telephone carrier market in late 2019.
|
Year Ended September 30, 2018
|
Year Ended September 30, 2017
|
|||||||||||||||||||||||
Cable TV
|
Telco
|
Total
|
Cable TV
|
Telco
|
Total
|
|||||||||||||||||||
Income (loss) from operations
|
$
|
(2,570,050
|
)
|
$
|
(2,623,360
|
)
|
$
|
(5,193,410
|
)
|
$
|
1,834,484
|
$
|
(1,688,878
|
)
|
$
|
145,606
|
||||||||
Restructuring charge
|
‒
|
941,059
|
941,059
|
‒
|
‒
|
‒
|
||||||||||||||||||
Goodwill impairment
charge
|
1,150,059
|
–
|
1,150,059
|
–
|
–
|
–
|
||||||||||||||||||
Depreciation
|
247,790
|
130,406
|
378,196
|
303,571
|
143,263
|
446,834
|
||||||||||||||||||
Amortization
|
−
|
1,253,244
|
1,253,244
|
−
|
1,267,182
|
1,267,182
|
||||||||||||||||||
Adjusted EBITDA (a)
|
$
|
(1,172,201
|
)
|
$
|
(298,651
|
)
|
$
|
(1,470,852
|
)
|
$
|
2,138,055
|
$
|
(278,433
|
)
|
$
|
1,859,622
|
(a) |
The Telco segment includes earn-out expenses of $0.2 million for the year ended September 30, 2017, related to the acquisition of Triton Miami.
|
Year Ended September 30, 2017
|
Year Ended September 30, 2016
|
|||||||||||||||||||||||
Cable TV
|
Telco
|
Total
|
Cable TV
|
Telco
|
Total
|
|||||||||||||||||||
Income (loss) from operations
|
$
|
1,834,484
|
$
|
(1,688,878
|
)
|
$
|
145,606
|
$
|
1,478,676
|
$
|
(1,134,815
|
)
|
$
|
343,861
|
||||||||||
Depreciation
|
303,571
|
143,263
|
446,834
|
322,076
|
99,874
|
421,950
|
||||||||||||||||||
Amortization
|
−
|
1,267,182
|
1,267,182
|
−
|
825,804
|
825,804
|
||||||||||||||||||
Adjusted EBITDA (a)
|
$
|
2,138,055
|
$
|
(278,433
|
)
|
$
|
1,859,622
|
$
|
1,800,752
|
$
|
(209,137
|
)
|
$
|
1,591,615
|
(a) |
The Telco segment includes earn-out expenses of $0.2 million for each of the years ended September 30, 2017 and 2016, related to the acquisition of Triton
Miami and Nave Communications.
|
·
|
Reducing the revolving line commitment from $5.0 million to $3.0 million;
|
·
|
Terminating the Lender’s obligation to lend or make advances under the revolving line of credit;
|
·
|
Limiting the Company’s capital expenditures to $100,000 during the forbearance period;
|
·
|
Requiring semi-monthly reporting of the Company’s borrowing base calculation; and
|
·
|
Requiring the Company to remain in compliance with the terms of the amended Credit and Term Loan Agreement.
|
Index to Financial Statements
|
Page
|
Report of Independent Registered Public Accounting Firm
|
|
Consolidated Balance Sheets, September 30, 2018 and 2017
|
|
Consolidated Statements of Operations, Years ended
|
|
September 30, 2018, 2017 and 2016
|
|
Consolidated Statements of Changes in Shareholders’ Equity, Years ended
|
|
September 30, 2018, 2017 and 2016
|
|
Consolidated Statements of Cash Flows, Years ended
|
|
September 30, 2018, 2017 and 2016
|
|
Notes to Consolidated Financial Statements
|
September 30,
|
||||||||
2018
|
2017
|
|||||||
Assets
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
3,129,280
|
$
|
3,972,723
|
||||
Accounts receivable, net of allowance for doubtful accounts of
$150,000
|
4,400,868
|
5,567,005
|
||||||
Income tax receivable
|
178,766
|
247,186
|
||||||
Inventories, net of allowance for excess and obsolete
|
||||||||
inventory of $4,965,000 and $2,939,289, respectively
|
18,888,042
|
22,333,820
|
||||||
Prepaid expenses
|
264,757
|
298,152
|
||||||
Assets held for sale
|
3,666,753
|
‒
|
||||||
Total current assets
|
30,528,466
|
32,418,886
|
||||||
Property and equipment, at cost:
|
||||||||
Land and buildings
|
2,208,676
|
7,218,678
|
||||||
Machinery and equipment
|
3,884,859
|
3,995,668
|
||||||
Leasehold improvements
|
200,617
|
202,017
|
||||||
Total property and equipment, at cost
|
6,294,152
|
11,416,363
|
||||||
Less: Accumulated depreciation
|
(4,276,024
|
)
|
(5,395,791
|
)
|
||||
Net property and equipment
|
2,018,128
|
6,020,572
|
||||||
Investment in and loans to equity method investee
|
49,000
|
98,704
|
||||||
Intangibles, net of accumulated amortization
|
6,844,398
|
8,547,487
|
||||||
Goodwill
|
4,820,185
|
5,970,244
|
||||||
Deferred income taxes, net of valuation allowance
|
‒
|
1,653,000
|
||||||
Other assets
|
134,443
|
138,712
|
||||||
Total assets
|
$
|
44,394,620
|
$
|
54,847,605
|
||||
September 30,
|
||||||||
2018
|
2017
|
|||||||
Liabilities and Shareholders’ Equity
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$
|
4,657,188
|
$
|
3,392,725
|
||||
Accrued expenses
|
1,150,010
|
1,406,722
|
||||||
Notes payable – current portion
|
2,594,185
|
4,189,605
|
||||||
Other current liabilities
|
664,374
|
664,325
|
||||||
Total current liabilities
|
9,065,757
|
9,653,377
|
||||||
Notes payable, less current portion
|
‒
|
2,094,246
|
||||||
Other liabilities
|
801,612
|
1,401,799
|
||||||
Total liabilities
|
9,867,369
|
13,149,422
|
||||||
Shareholders’ equity:
|
||||||||
Common stock, $.01 par value; 30,000,000 shares authorized;
10,806,803 and 10,726,653 shares issued, respectively;
10,306,145 and 10,225,995 shares outstanding, respectively
|
108,068
|
107,267
|
||||||
Paid in capital
|
(4,598,343
|
)
|
(4,746,466
|
)
|
||||
Retained earnings
|
40,017,540
|
47,337,396
|
||||||
Total shareholders’ equity before treasury stock
|
35,527,265
|
42,698,197
|
||||||
Less: Treasury stock, 500,658 shares, at cost
|
(1,000,014
|
)
|
(1,000,014
|
)
|
||||
Total shareholders’ equity
|
34,527,251
|
41,698,183
|
||||||
Total liabilities and shareholders’ equity
|
$
|
44,394,620
|
$
|
54,847,605
|
Years ended September 30,
|
||||||||||||
2018
|
2017
|
2016
|
||||||||||
Sales
|
$
|
47,413,987
|
$
|
48,713,746
|
$
|
38,663,264
|
||||||
Cost of sales
|
36,191,011
|
33,903,153
|
26,222,381
|
|||||||||
Gross profit
|
11,222,976
|
14,810,593
|
12,440,883
|
|||||||||
Operating, selling, general and administrative expenses
|
14,325,268
|
14,664,987
|
12,097,022
|
|||||||||
Restructuring charge
|
941,059
|
‒
|
‒
|
|||||||||
Goodwill impairment charge
|
1,150,059
|
–
|
–
|
|||||||||
Income (loss) from operations
|
(5,193,410
|
)
|
145,606
|
343,861
|
||||||||
Other income (expense):
|
||||||||||||
Other income
|
–
|
–
|
459,636
|
|||||||||
Interest income
|
–
|
–
|
90,686
|
|||||||||
Loss from equity method investment
|
(258,558
|
)
|
–
|
(184,996
|
)
|
|||||||
Interest expense
|
(231,888
|
)
|
(389,722
|
)
|
(236,024
|
)
|
||||||
Total other income (expense), net
|
(490,446
|
)
|
(389,722
|
)
|
129,302
|
|||||||
Income (loss) before income taxes
|
(5,683,856
|
)
|
(244,116
|
)
|
473,163
|
|||||||
Provision (benefit) for income taxes
|
1,636,000
|
(146,000
|
)
|
179,000
|
||||||||
Net income (loss)
|
$
|
(7,319,856
|
)
|
$
|
(98,116
|
)
|
$
|
294,163
|
||||
Earnings (loss) per share:
|
||||||||||||
Basic
|
$
|
(0.71
|
)
|
$
|
(0.01
|
)
|
$
|
0.03
|
||||
Diluted
|
$
|
(0.71
|
)
|
$
|
(0.01
|
)
|
$
|
0.03
|
||||
Shares used in per share calculation:
|
||||||||||||
Basic
|
10,272,749
|
10,201,825
|
10,141,234
|
|||||||||
Diluted
|
10,272,749
|
10,201,825
|
10,145,296
|
Common Stock
|
Paid-in
|
Retained
|
Treasury
|
|||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Earnings
|
Stock
|
Total
|
|||||||||||||||||||
Balance, September 30, 2015
|
10,564,221
|
$
|
105,642
|
$
|
(5,112,269
|
)
|
$
|
47,141,349
|
$
|
(1,000,014
|
)
|
$
|
41,134,708
|
|||||||||||
Net income
|
–
|
–
|
–
|
294,163
|
–
|
294,163
|
||||||||||||||||||
Restricted stock, net of forfeited
|
70,672
|
707
|
121,794
|
–
|
–
|
122,501
|
||||||||||||||||||
Share based compensation expense
|
–
|
–
|
73,684
|
–
|
–
|
73,684
|
||||||||||||||||||
Balance, September 30, 2016
|
10,634,893
|
$
|
106,349
|
$
|
(4,916,791
|
)
|
$
|
47,435,512
|
$
|
(1,000,014
|
)
|
$
|
41,625,056
|
|||||||||||
Net loss
|
–
|
–
|
–
|
(98,116
|
)
|
–
|
(98,116
|
)
|
||||||||||||||||
Stock options exercised
|
33,751
|
338
|
(338
|
)
|
–
|
–
|
–
|
|||||||||||||||||
Restricted stock issuance
|
58,009
|
580
|
104,420
|
–
|
–
|
105,000
|
||||||||||||||||||
Share based compensation expense
|
–
|
–
|
66,243
|
–
|
–
|
66,243
|
||||||||||||||||||
Balance, September 30, 2017
|
10,726,653
|
$
|
107,267
|
$
|
(4,746,466
|
)
|
$
|
47,337,396
|
$
|
(1,000,014
|
)
|
$
|
41,698,183
|
|||||||||||
Net loss
|
–
|
–
|
–
|
(7,319,856
|
)
|
–
|
(7,319,856
|
)
|
||||||||||||||||
Restricted stock issuance
|
80,150
|
801
|
104,199
|
–
|
–
|
105,000
|
||||||||||||||||||
Share based compensation expense
|
–
|
–
|
43,924
|
–
|
–
|
43,924
|
||||||||||||||||||
Balance, September 30, 2018
|
10,806,803
|
$
|
108,068
|
$
|
(4,598,343
|
)
|
$
|
40,017,540
|
$
|
(1,000,014
|
)
|
$
|
34,527,251
|
Years ended September 30,
|
||||||||||||
2018
|
2017
|
2016
|
||||||||||
Operating Activities
|
||||||||||||
Net income (loss)
|
$
|
(7,319,856
|
)
|
$
|
(98,116
|
)
|
$
|
294,163
|
||||
Adjustments to reconcile net income (loss) to net cash
|
||||||||||||
provided by (used in) operating activities:
|
||||||||||||
Depreciation
|
378,196
|
446,834
|
421,950
|
|||||||||
Amortization
|
1,253,244
|
1,267,182
|
825,804
|
|||||||||
Provision for excess and obsolete inventories
|
2,025,711
|
901,599
|
951,282
|
|||||||||
Charge for lower of cost or net realizable value for
inventories
|
246,053
|
126,822
|
73,716
|
|||||||||
(Gain) loss on disposal of property and equipment
|
41,354
|
–
|
(2,000
|
)
|
||||||||
Deferred income tax provision (benefit)
|
1,653,000
|
(320,000
|
)
|
157,000
|
||||||||
Share based compensation expense
|
155,174
|
175,465
|
192,213
|
|||||||||
Restructuring charge
|
449,845
|
‒
|
‒
|
|||||||||
Goodwill impairment charge
|
1,150,059
|
‒
|
‒
|
|||||||||
Loss from equity method investment
|
258,558
|
–
|
184,996
|
|||||||||
Cash provided (used) by changes in operating assets
and liabilities:
|
||||||||||||
Accounts receivable
|
1,359,983
|
(71,254
|
)
|
115,479
|
||||||||
Income tax receivable\payable
|
68,420
|
233,651
|
(603,329
|
)
|
||||||||
Inventories
|
988,285
|
(688,729
|
)
|
1,067,179
|
||||||||
Prepaid expenses
|
27,145
|
22,097
|
(165,863
|
)
|
||||||||
Other assets
|
4,269
|
(2,724
|
)
|
(1,310
|
)
|
|||||||
Accounts payable
|
1,264,463
|
951,099
|
15,514
|
|||||||||
Accrued expenses
|
(245,331
|
)
|
(90,003
|
)
|
(34,029
|
)
|
||||||
Other liabilities
|
66,862
|
134,890
|
47,726
|
|||||||||
Net cash provided by operating activities
|
3,825,434
|
2,988,813
|
3,540,491
|
|||||||||
Investing Activities
|
||||||||||||
Acquisition of net operating assets
|
‒
|
(6,643,540
|
)
|
(178,000
|
)
|
|||||||
Guaranteed payments for acquisition of business
|
(667,000
|
)
|
(1,000,000
|
)
|
(1,000,000
|
)
|
||||||
Loan repayments from (investment in and loans to) equity method investee
|
(208,854
|
)
|
2,389,920
|
(2,773,620
|
)
|
|||||||
Purchases of property and equipment
|
(127,257
|
)
|
(190,303
|
)
|
(319,810
|
)
|
||||||
Disposals of property and equipment
|
23,900
|
1,817
|
2,000
|
|||||||||
Net cash used in investing activities
|
(979,211
|
)
|
(5,442,106
|
)
|
(4,269,430
|
)
|
||||||
Financing Activities
|
||||||||||||
Net change in bank revolving line of credit
|
500,000
|
–
|
−
|
|||||||||
Proceeds on notes payable
|
–
|
4,000,000
|
−
|
|||||||||
Debt issuance costs
|
–
|
(16,300
|
)
|
−
|
||||||||
Payments on notes payable
|
(4,189,666
|
)
|
(2,065,810
|
)
|
(873,921
|
)
|
||||||
Net cash provided by (used in) financing activities
|
(3,689,666
|
)
|
1,917,890
|
(873,921
|
)
|
|||||||
Net decrease in cash and cash equivalents
|
(843,443
|
)
|
(535,403
|
)
|
(1,602,860
|
)
|
||||||
Cash and cash equivalents at beginning of year
|
3,972,723
|
4,508,126
|
6,110,986
|
|||||||||
Cash and cash equivalents at end of year
|
$
|
3,129,280
|
$
|
3,972,723
|
$
|
4,508,126
|
||||||
Supplemental cash flow information:
|
||||||||||||
Cash paid for interest
|
$
|
220,117
|
$
|
360,805
|
$
|
195,086
|
||||||
Cash paid for (received from) income taxes
|
$
|
(59,674
|
)
|
$
|
(61,000
|
)
|
$
|
597,200
|
||||
Supplemental noncash investing activities:
|
||||||||||||
Deferred guaranteed payments for acquisition of business
|
$
|
–
|
$
|
(1,836,105
|
)
|
$
|
–
|
|||||
Note receivable from disposition of net operating assets
|
$
|
225,000
|
$
|
–
|
$
|
–
|
·
|
Level 1 – Quoted prices for identical assets in active markets or liabilities that we have the ability to access. Active markets
are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
|
·
|
Level 2 – Inputs are other than quoted prices in active markets included in Level 1 that are either directly or indirectly
observable. These inputs are either directly observable in the marketplace or indirectly observable through corroboration with market data for substantially the full contractual term of the asset or liability being measured.
|
·
|
Level 3 – Inputs that are not observable for which there is little, if any, market activity for the asset or liability being
measured. These inputs reflect management’s best estimate of the assumptions market participants would use in determining fair value.
|
September 30,
2018
|
September 30,
2017
|
|||||||
New:
|
||||||||
Cable TV
|
$
|
12,594,138
|
$
|
14,014,188
|
||||
Telco
|
1,371,545
|
554,034
|
||||||
Refurbished and used:
|
||||||||
Cable TV
|
2,981,413
|
3,197,426
|
||||||
Telco
|
6,905,946
|
7,507,460
|
||||||
Allowance for excess and obsolete inventory:
|
||||||||
Cable TV
|
(4,150,000
|
)
|
(2,300,000
|
)
|
||||
Telco
|
(815,000
|
)
|
(639,288
|
)
|
||||
Total inventories
|
$
|
18,888,042
|
$
|
22,333,820
|
Gross
|
Accumulated
Amortization
|
Net
|
||||||||||
Intangible assets:
|
||||||||||||
Customer relationships – 10 years
|
$
|
8,152,000
|
$
|
(2,713,890
|
)
|
$
|
5,438,110
|
|||||
Trade name – 10 years
|
2,119,000
|
(754,380
|
)
|
1,364,620
|
||||||||
Non-compete agreements – 3 years
|
374,000
|
(332,332
|
)
|
41,668
|
||||||||
Total intangible assets
|
$
|
10,645,000
|
$
|
(3,800,602
|
)
|
$
|
6,844,398
|
Gross
|
Accumulated
Amortization
|
Net
|
||||||||||
Intangible assets:
|
||||||||||||
Customer relationships – 10 years
|
$
|
8,152,000
|
$
|
(1,898,691
|
)
|
$
|
6,253,309
|
|||||
Technology – 7 years
|
1,303,000
|
(667,009
|
)
|
635,991
|
||||||||
Trade name – 10 years
|
2,119,000
|
(542,480
|
)
|
1,576,520
|
||||||||
Non-compete agreements – 3 years
|
374,000
|
(292,333
|
)
|
81,667
|
||||||||
Total intangible assets
|
$
|
11,948,000
|
$
|
(3,400,513
|
)
|
$
|
8,547,487
|
2019
|
$
|
1,067,100
|
||
2020
|
1,028,768
|
|||
2021
|
1,027,100
|
|||
2022
|
1,027,100
|
|||
2023
|
1,027,100
|
|||
Thereafter
|
1,667,230
|
|||
Total
|
$
|
6,844,398
|
2018
|
2017
|
2016
|
||||||||||
Current
|
$
|
(17,000
|
)
|
$
|
174,000
|
$
|
22,000
|
|||||
Deferred
|
1,653,000
|
(320,000
|
)
|
157,000
|
||||||||
Total provision (benefit) for income taxes
|
$
|
1,636,000
|
$
|
(146,000
|
)
|
$
|
179,000
|
2018
|
2017
|
2016
|
||||||||||
Statutory tax rate
|
21.0
|
%
|
34.0
|
%
|
34.0
|
%
|
||||||
State income taxes, net of U.S. federal tax benefit
|
6.1
|
%
|
43.7
|
%
|
(4.4
|
%)
|
||||||
Return to accrual adjustment
|
(0.1
|
%)
|
(9.8
|
%)
|
1.5
|
%
|
||||||
Tax credits
|
0.3
|
%
|
8.2
|
%
|
−
|
|||||||
Charges without tax benefit
|
(3.2
|
%)
|
(16.2
|
%)
|
6.8
|
%
|
||||||
Change in statutory rate
|
(7.7
|
%)
|
‒
|
‒
|
||||||||
Valuation allowance
|
(45.1
|
%)
|
‒
|
−
|
||||||||
Other exclusions
|
(0.1
|
%)
|
(0.1
|
%)
|
(0.1
|
%)
|
||||||
Company’s effective tax rate
|
(28.8
|
%)
|
59.8
|
%
|
37.8
|
%
|
2018
|
2017
|
|||||||
Deferred tax assets:
|
||||||||
Net operating loss carryforwards
|
$
|
804,000
|
$
|
208,000
|
||||
Accounts receivable
|
40,000
|
58,000
|
||||||
Inventory
|
1,453,000
|
1,432,000
|
||||||
Intangibles
|
614,000
|
560,000
|
||||||
Accrued expenses
|
76,000
|
175,000
|
||||||
Stock options
|
66,000
|
246,000
|
||||||
Investment in equity method investee
|
162,000
|
174,000
|
||||||
Other
|
102,000
|
‒
|
||||||
3,317,000
|
2,853,000
|
|||||||
Deferred tax liabilities:
|
||||||||
Financial basis in excess of tax basis of certain assets
|
726,000
|
1,156,000
|
||||||
Other
|
27,000
|
44,000
|
||||||
Less valuation allowance
|
2,564,000
|
‒
|
||||||
Net deferred tax asset |
$ |
‒ | $ |
1,653,000 |
NOL carryforward
|
Year Expires
|
|||||||
Year ended September 30, 2018
|
$
|
2,120,000
|
No expiry
|
|||||
Year ended September 30, 2016
|
82,820
|
2036
|
2018
|
2017
|
|||||||
Employee costs
|
$
|
741,818
|
$
|
884,390
|
||||
Triton Datacom earn-out
|
–
|
222,611
|
||||||
Taxes other than income tax
|
260,390
|
163,016
|
||||||
Interest
|
9,251
|
22,121
|
||||||
Other, net
|
138,551
|
114,584
|
||||||
$
|
1,150,010
|
$
|
1,406,722
|
·
|
Reducing the revolving line commitment from $5.0 million to $3.0 million;
|
·
|
Terminating the Lender’s obligation to lend or make advances under the revolving line of credit;
|
·
|
Limiting the Company’s capital expenditure to $100,000 during the forbearance period;
|
·
|
Requiring semi-monthly reporting of its borrowing base calculation; and
|
·
|
Requiring the Company to remain in compliance with the terms of the amended Credit and Term Loan
|
Options
|
Weighted Average Exercise
Price
|
Aggregate
Intrinsic
Value
|
||||||||||
Outstanding at September 30, 2017
|
700,000
|
$
|
2.54
|
|||||||||
Granted
|
–
|
$
|
–
|
|||||||||
Exercised
|
−
|
$
|
–
|
$
|
0
|
|||||||
Expired
|
(55,000
|
)
|
$
|
3.00
|
||||||||
Forfeited
|
(355,000
|
)
|
$
|
2.57
|
||||||||
Outstanding at September 30, 2018
|
290,000
|
$
|
2.40
|
$
|
0
|
|||||||
Exercisable at September 30, 2018
|
196,667
|
$
|
2.68
|
$
|
0
|
Exercise Price
|
Stock Options
Outstanding
|
Exercisable
Stock Options
Outstanding
|
Remaining
Contractual
Life
|
$1.79
|
50,000
|
16,667
|
8.6 years
|
$1.81
|
90,000
|
30,000
|
8.4 years
|
$3.21
|
100,000
|
100,000
|
5.5 years
|
$2.45 | 50,000 | 50,000 |
3.5 years |
290,000
|
196,667
|
2017
|
2016
|
|||||||
Estimated fair value of options at grant date
|
$
|
96,690
|
$
|
34,350
|
||||
Black-Scholes model assumptions:
|
||||||||
Average expected life (years)
|
6
|
6
|
||||||