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

FOR THE QUARTERLY PERIOD ENDED March 31, 2021

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)

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 May 12, 2021 were 12,413,372.

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ADDVANTAGE TECHNOLOGIES GROUP, INC.

Form 10-Q

For Period Ended March 31, 2021

	PART I. FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements.
	Consolidated Balance Sheets (unaudited)	3
	March 31, 2021 and September 30, 2020
	Consolidated Statements of Operations (unaudited)	4
	Three and Six Months Ended March 31, 2021 and 2020
	Consolidated Statements of Changes in Shareholders’ Equity (unaudited)	5
	Three and Six Months Ended March 31, 2021 and 2020
	Consolidated Statements of Cash Flows (unaudited)	6
	Six Months Ended March 31, 2021 and 2020
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	15
Item 4.	Controls and Procedures.	22
	PART II. OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	23
Item 6.	Exhibits	23
	SIGNATURES

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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, 2021		September 30, 2020
Assets
Current assets:
Cash and cash equivalents	$	4,949	8,265
Restricted cash	289		108
Accounts receivable, net of allowances of $250, respectively	4,617		3,968
Unbilled revenue	643		590
Promissory note – current	—		1,400
Income tax receivable	1,249		1,283
Inventories, net of allowances of $3,168 and $3,054, respectively	5,708		5,576
Prepaid expenses and other assets	1,432		884
Total current assets	18,887		22,074
Property and equipment, at cost	4,661		4,220
Less: Accumulated depreciation	(2,010)		(1,586)
Net property and equipment	2,651		2,634
Right-of-use lease assets	3,249		3,758
Promissory note – non current	2,270		2,375
Intangibles, net of accumulated amortization	1,266		1,425
Goodwill	58		58
Other assets	177		179
Total assets	$	28,558	$	32,503

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	4,353	$	3,472
Accrued expenses	1,735		1,319
Deferred revenue	67		113
Bank line of credit	2,800		2,800
Note payable, current	1,930		1,709
Right-of-use lease obligations – current	1,241		1,275
Financing lease obligations – current	355		285
Other current liabilities	14		41
Total current liabilities	12,495		11,014
Financing lease obligations - long-term	883		791
Right-of-use lease obligations - long-term	2,729		3,310
Note payable, less current portion	986		2,440
Other liabilities	—		15
Total liabilities	17,093		17,570
Shareholders’ equity:
Common stock, $0.01 par value; 30,000,000 shares authorized; 12,413,372 shares issued and outstanding, and 11,822,009 shares issued and outstanding, respectively	124		118
Paid in capital	(1,023)		(2,567)
Retained earnings	12,364		17,382
Total shareholders’ equity	11,465		14,933
Total liabilities and shareholders’ equity	$	28,558	$	32,503

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,				Six Months Ended March 31,
	2021		2020		2021		2020
Sales	$	12,667	$	11,959	$	25,416	$	25,921
Cost of sales	9,486		12,398		18,606		22,768
Gross profit	3,181		(439)		6,810		3,153
Operating expenses	2,167		2,143		4,224		4,278
Selling, general and administrative expenses	3,757		2,899		6,972		5,676
Impairment of intangibles including goodwill	—		8,714		—		8,714
Depreciation and amortization expense	304		508		585		955
Gain on disposal of assets	—		(24)		(10)		(28)
Loss from operations	(3,047)		(14,679)		(4,961)		(16,442)
Other income (expense):
Interest income	33		86		81		175
Income from equity method investment	—		19		—		41
Other expense, net	(8)		(28)		(27)		(86)
Interest expense	(42)		(59)		(110)		(82)
Total other income (expense), net	(17)		18		(56)		48
Loss before income taxes	(3,064)		(14,661)		(5,017)		(16,394)
Benefit for income taxes	—		—		—		(15)
Net loss	$	(3,064)	$	(14,661)	$	(5,017)	$	(16,379)
Basic and diluted loss per share:
Basic and diluted
Net loss	$	(0.25)	$	(1.41)	$	(0.41)	$	(1.58)
Shares used in per share calculation:
Basic and diluted	12,416,594		10,423,514		12,281,721		10,392,404

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 Stock			Paid-in Capital		Retained Earnings		Treasury Stock
	Shares	Amount								Total
Balance, September 30, 2020	11,822,009	$	118	$	(2,567)	$	17,382	$	—	$	14,933
Net loss	—	—		—		(1,953)		—		(1,953)
Issuance of common shares	238,194	3		876		—		—		879
Restricted stock issuance	306,390	3		(3)		—		—		—
Share based compensation expense	—	—		315		—		—		315
Balance, December 31, 2020	12,366,593	$	124	$	(1,379)	$	15,429	$	—	$	14,174
Net loss	—	—		—		(3,064)		—		(3,064)
Issuance of common shares	7,779	—		21		—		—		21
Restricted stock issuance, net of forfeitures	(10,000)	(1)		—		—		—		(1)
Stock option exercise	49,000	—		89		—		—		89
Share based compensation expense	—	—		246		—		—		246
Balance, March 31, 2021	12,413,372	$	124	$	(1,023)	$	12,364	$	—	$	11,465

	Common Stock			Paid-in Capital		Retained Earnings		Treasury Stock
	Shares	Amount								Total
Balance, September 30, 2019	10,861,950	$	109	$	(4,377)	$	34,715	$	(1,000)	$	29,447
Net loss	—	—		—		(1,718)		—		(1,718)
Share based compensation expense	—	—		14		—		—		14
Balance, December 31, 2019	10,861,950	$	109	$	(4,363)	$	32,997	$	(1,000)	$	27,743
Net loss	—	—		—		(14,661)		—		(14,661)
Restricted stock issuance	—	—		377		—		—		377
Stock option exercise	110,000	1		172		—		—		173
Share based compensation expense	—	—		92		—		—		92
Balance, March 31, 2020	10,971,950	$	109	$	(3,722)	$	18,336	$	(1,000)	$	13,724

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

See notes to unaudited consolidated financial statements.

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ADDvantage Technologies Group, Inc

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Six Months Ended March 31,
	2021		2020
Operating Activities:
Net loss	$	(5,017)	$	(16,379)
Adjustments to reconcile net loss from operations to net cash used in operating activities:
Depreciation	426		428
Amortization	159		527
Change in right-of-use assets and liabilities, net	(105)		—
Impairment of intangibles including goodwill	—		8,714
Provision for excess and obsolete inventories	115		2,125
Share based compensation expense	561		106
Gain from disposal of property and equipment	(10)		(28)
Gain from equity method investment	—		(41)
Changes in assets and liabilities:
Accounts receivable	(649)		(67)
Unbilled revenue	(54)		1,031
Income tax receivable\payable	35		(14)
Inventories	(247)		94
Prepaid expenses and other assets	(533)		(109)
Accounts payable	881		(355)
Accrued expenses and other liabilities	375		(401)
Deferred revenue	(46)		163
Net cash used in operating activities	(4,109)		(4,206)
Investing Activities:
Proceeds from promissory note receivable	1,505		584
Loan repayment from equity method investee	—		41
Purchases of property and equipment	(93)		(155)
Disposals of property and equipment	29		112
Net cash provided by investing activities	1,441		582
Financing Activities:
Change in bank line of credit	—		3,500
Proceeds from note payable	—		3,457
Payments on financing lease obligations	(207)		(173)
Payments on notes payable	(1,249)		(667)
Proceeds from sale of common stock	900		—
Proceeds from stock options exercised	89		173
Net cash provided by (used in) financing activities	(467)		6,290
Net (decrease) increase in cash, cash equivalents and restricted cash	(3,135)		2,666
Cash, cash equivalents and restricted cash at beginning of period	8,373		1,594
Cash, cash equivalents and restricted cash at end of period	$	5,238	$	4,260

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 six months ended March 31, 2021 and 2020, 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, 2020.

Reclassification

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

Recently Issued Accounting Standards

In 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 $0.9 million and $0.4 million for the three months ended March 31, 2021 and 2020, respectively and $1.3 million and $0.8 million for the six month period ended March 31, 2021 and 2020, respectively.

The Company’s customers include wireless carriers, wireless equipment providers, multiple system operators, resellers and direct sales to end-user customers. Sales to three customers which individually accounted 10% or greater of the Company's revenue totaled 39% and sales to one customer comprised approximately 10% of consolidated revenues for the six months ended March 31, 2021 and 2020, respectively.

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Our sales by type were as follows, in thousands:

	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
Wireless services sales	$	4,334	$	4,672	$	9,581	$	11,470
Equipment sales:
Telco	8,189		6,981		15,464		13,764
Telco repair sales	7		8		13		16
Telco recycle sales	137		298		358		671
Total sales	$	12,667	$	11,959	$	25,416	$	25,921

Contract assets and contract liabilities are included in unbilled revenue and deferred revenue, respectively, in the consolidated balance sheets. At March 31, 2021 and September 30, 2020, contract assets were $0.6 million and $0.6 million, respectively, and contract liabilities were $0.1 million and $0.1 million, respectively. The Company recognized $0.1 million of contract revenue during the six months ended March 31, 2021 related to contract liabilities recorded in deferred revenue at September 30, 2020.

Note 3 – Accounts Receivable Agreements

The Company’s Wireless segment has entered into various agreements, including one agreement with recourse, to sell certain receivables to unrelated third-party financial institutions. For the agreement with recourse, the Company is responsible for collecting payments on the sold receivables from its customers. Under this agreement, the third-party financial institution advances the Company 90% of the sold receivables and establishes a reserve of 10% of the sold receivables until the Company collects the sold receivables. As the Company collects the sold receivables, the third-party financial institution will remit the remaining 10% to the Company. At March 31, 2021, the third-party financial institution has a reserve of $0.3 million, which is reflected as restricted cash, against the sold receivables of $1.3 million. For the receivables sold under the agreement with recourse, the agreement addresses events and conditions which may obligate the Company to immediately repay the institution the outstanding purchase price of the receivables sold. The total amount of receivables uncollected by the institution was $1.3 million at March 31, 2021 for which there is a limit of $4.0 million. Although the sale of receivables is with recourse, the Company did not record a recourse obligation at March 31, 2021 as the Company concluded that the sold receivables are collectible. The other agreements without recourse are under programs offered by certain customers in the Wireless segment.

For the six months ended March 31, 2021 and 2020, the Company received proceeds from the sold receivables under all of the various agreements of $9.5 million and $11.4 million, respectively, and included the proceeds in net cash used in operating activities in the Consolidated Statements of Cash Flows. The fees associated with selling these receivables ranged from 1.4% to 2.3% of the gross receivables sold for the six months ended March 31, 2021 and 2020. The Company recorded costs of $0.1 million and $0.2 million for the three and six months ended March 31, 2021 and 2020, respectively, in other expense in the consolidated statements of operations.

Note 4 – Promissory Note Receivable

During the fiscal year ended 2019, the Company completed a sale of its former Cable TV reporting segment to Leveling 8, an entity owned by a member of our board and significant shareholder, David Chymiak. Part of the consideration for the sale was a promissory note bearing interest of 6% received from Mr. Chymiak. Mr. Chymiak personally guaranteed the promissory note due to the Company and pledged certain assets to secure the payment of the promissory note, including substantially all of Mr. Chymiak’s Company common stock. During the six months ended ended March 31, 2021, the Company received principal payments totaling $1.5 million, of which approximately $1.0 million was a prepayment. At March 31, 2021, there was $2.3 million outstanding on the promissory note. The remaining promissory note becomes due in a final payment on June 29, 2024.

On March 10, 2020, the Company entered into a loan agreement with its primary financial lender for $3.5 million to monetize a portion of this promissory note receivable. See Note 7 - Debt for disclosures related to the Company's promissory note payable.

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Note 5 – Inventories

Inventories, which are all within the Telco segment, at March 31, 2021 and September 30, 2020 are as follows, in thousands:

	March 31, 2021		September 30, 2020
New equipment	$	1,241	$	1,311
Refurbished and used equipment	7,635		7,319
Allowance for excess and obsolete inventory	(3,168)		(3,054)
Total inventories, net	$	5,708	$	5,576

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 6 – 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 and impairment at March 31, 2021 and September 30, 2020 are as follows, in thousands:

	March 31, 2021
Intangible assets:	Gross		Accumulated Amortization		Impairment		Net
Customer relationships – 10 years	$	8,396	$	(4,101)	$	(3,894)	$	401
Trade name – 10 years	2,122		(1,257)		—		865
Total intangible assets	$	10,518	$	(5,358)	$	(3,894)	$	1,266

	September 30, 2020
Intangible assets:	Gross		Accumulated Amortization		Impairment		Net
Customer relationships – 10 years	$	8,396	$	(4,021)	$	(3,894)	$	481
Trade name – 10 years	2,122		(1,178)		—		944
Non-compete agreements – 3 years	374		(374)		—		—
Total intangible assets	$	10,892	$	(5,573)	$	(3,894)	$	1,425

Note 7 – Debt

Loan Agreement

On March 10, 2020, the Company entered into a loan agreement with its primary financial lender for $3.5 million, bearing interest at 6% per annum. The loan was payable in seven semi-annual installments of principal and interest with the first payment occurring June 30, 2020. In connection with the $1.5 million payment received in the first fiscal quarter of 2021 from the promissory note receivable, the Company fully repaid the remaining $1.2 million of principal outstanding under this loan.

Credit Agreement

The Company has a $4.0 million revolving line of credit agreement with its primary financial lender, which matures on December 17, 2021. The line of credit requires quarterly interest payments based on the prevailing Wall Street Journal Prime Rate, floating (3.25% at March 31, 2021), with the addition of a 4% floor rate and a fixed charge coverage ratio of 1.25 to be tested quarterly beginning June 30, 2021. At March 31, 2021, there was $2.8 million

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outstanding under the line of credit. Future borrowings under the line of credit are limited to the lesser of $4.0 million or the sum of 80% of eligible accounts receivable and 60% of eligible Telco segment inventory. Under these limitations, the Company’s total line of credit borrowing capacity was $4.0 million at March 31, 2021.

Loan Covenant with Primary Financial Lender

The credit agreement provides that the Company maintain a fixed charge coverage ratio (net cash flow to total fixed charge) of not less than 1.25 to 1.0 to be tested quarterly beginning June 30, 2021. The Company believes that it is probable that it will not be in compliance with this covenant as of the measurement date at June 30, 2021. The noncompliance with this covenant would result in an event of default, which if not cured or waived, could result in the lender accelerating the maturity of the Company’s indebtedness or preventing access to additional funds under the line of credit agreement, or requiring prepayment of outstanding indebtedness under the loan agreement or the line of credit agreement.

Paycheck Protection Program Loan

On April 14, 2020, the Company entered into an unsecured loan in the amount of $2.9 million ("PPP Loan") with its primary lender pursuant to the Paycheck Protection Program ("PPP") which is sponsored by the Small Business Administration (“SBA”), and is part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), as amended by the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”). The PPP provides for loans to qualifying businesses, the proceeds of which may be used for payroll costs, rent, utilities, mortgage interest, and interest on other pre-existing indebtedness (the “Permissible Expenses”). The PPP Loan, and accrued interest, may be forgiven partially or in full, if certain conditions are met, which includes if funds were expended for Permissible Expenses.

The PPP Loan matures on April 14, 2022, bears interest at 1% per annum, with monthly payments of principal and interest in the amount of $164,045 commencing on the date on which the amount of loan forgiveness is determined by the SBA. The PPP Loan proceeds were used for Permissible Expenses. On August 28, 2020, we submitted our application to our lender, requesting PPP Loan forgiveness of $2.9 million. Our lender reviewed our application for forgiveness and forwarded to the SBA on September 27, 2020 for approval. In the absence of an approval or denial of our application for forgiveness from the SBA, per the Flexibility Act, the date for commencement of loan payments has not yet occurred, and we have made no loan payments.

While we believe we have met the eligibility requirements for the PPP Loan, and believe we have used the loan proceeds for Permissible Expenses, we can provide no assurances that we will receive full or partial forgiveness of the PPP Loan. Accordingly, we have recorded the full amount of the PPP Loan as debt, which is included in current and long-term debt, on our consolidated balance sheet at March 31, 2021.

Fair Value of Debt

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

Note 8 – Equity Distribution Agreement and Sale of Common Stock

On April 24, 2020, the Company entered into an Equity Distribution Agreement with Northland Securities, Inc., as agent (“Northland”), pursuant to which the Company may offer and sell, from time to time, through Northland, shares of the Company’s common stock, par value 0.01 per share, having an aggregate offering price of up to $13,850,000 ("Shares").

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

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

10

trading and sales practices to sell the Shares from time to time, based upon instructions from the Company, including any price or size limits or other customary parameters or conditions the Company may impose. The Sales Agreement may be terminated without prior notice at any time prior to the fulfillment if additional sales are deemed not warranted.

The Company will pay Northland a commission rate 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 six months ended March 31, 2021, 245,973 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 $0.9 million.

Note 9 – Earnings Per Share

Basic earnings per share are based on the sum of the average number of common shares outstanding and issuable, restricted and deferred shares. Diluted earnings per share include any dilutive effect of stock options and restricted stock. In computing the diluted weighted average shares, the average share price for the period is used in determining the number of shares assumed to be reacquired under the treasury stock method from the exercise of options. Basic and diluted earnings per share for the three and six months ended March 31, 2021 and 2020 are (in thousands, except per share amounts):

	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
Net loss attributable to common shareholders	$	(3,064)	$	(14,661)	(5,017)		(16,379)
Basic and diluted weighted average shares	12,416,594		10,423,514		12,281,721		10,392,404
Basic and diluted loss per common share:	$	(0.25)	$	(1.41)	$	(0.41)	$	(1.58)

The table below includes information related to stock options that were outstanding at the end of each respective three and six-month period ended March 31, but have been excluded from the computation of weighted-average stock options for dilutive securities because their effect would be anti-dilutive. The stock options were anti-dilutive either due to the Company incurring a net loss for the periods presented or the exercise price exceeded the average market price per share of our common stock for the three and six months ended March 31, 2021 and 2020.

	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
Stock options excluded	90,744		543,000		95,423		543,000
Weighted average exercise price of stock options	$	1.52	$	1.75	$	1.53	$	1.75
Average market price of common stock	$	2.94	$	2.79	$	2.74	$	2.52

Note 10 – Supplemental Cash Flow Information

(in thousands)	Six Months Ended March 31,
	2021		2020
Supplemental cash flow information:
Cash paid for interest	$	73	$	144
Supplemental noncash investing and financing activities:
Assets acquired under financing leases	$	369	$	454

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Note 11 – 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, 2021, 2,100,415 shares of common stock were reserved for stock award grants under the Plan.  Of these reserved shares, 450,636 shares were available for future grants.

Stock Options

A summary of the status of the Company's stock options at March 31, 2021 and changes during the three months then ended is presented below:

	Wtd. Avg. Ex. Price		Shares	Aggregate Intrinsic Value
Outstanding at September 30, 2020	$	1.55	100,000	$	37
Exercised	1.81		(49,000)	49
Outstanding at March 31, 2021	$	1.29	51,000	$	67
Exercisable at March 31, 2021	$	1.30	34,334	$	45

Restricted stock awards

A summary of the Company's non-vested restricted share awards (RSA) at March 31, 2021 and changes during the quarter ended March 31, 2021 is presented in the following table (in thousands, except shares):

	Shares	Fair Value
Non-vested at December 31, 2020	715,256	$	1,058
Granted	40,000	742
Vested	(162,200)	(455)
Forfeited	(50,000)	(125)
Non-vested at March 31, 2021	543,056	$	1,220

During the three month period ended March 31, 2021 and 2020, expenses related to share-based arrangements including restricted stock and stock option awards, were $0.2 million and $0.1 million, respectively.

During the six month period ended March 31, 2021 and 2020, compensation expenses related to share-based arrangements including restricted stock and stock option awards, were $0.6 million and $0.1 million respectively.

The Company did not recognize a tax benefit for compensation expense recognized during the three and six month period ended March 31, 2021 and 2020.

At March 31, 2021, unrecognized compensation expense related to non-vested share-based compensation awards not yet recognized in the consolidated statements of operations was $0.9 million. That cost is expected to be recognized over a period of 2.75 years.

Note 12 – Leases

Our Wireless segment has an operating lease for a building in Fridley, Minnesota for Fulton Technologies, Inc. As a result of closing down and vacating Fulton Technologies, Inc.’s Minnesota office in May 2019, a third-party telecom company began subleasing this building in June 2019.

Our Telco segment has an operating lease for a building in Jessup, Maryland for Nave Communications.  As a result of moving Nave’s operations to Palco Telecom, a third-party logistics provider in Huntsville, Alabama, in fiscal year 2020, Nave completely vacated the building in May 2020 and has subleased part of the building during certain periods of fiscal year 2021. 

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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 six month periods ending March 31, 2021 and 2020. Rental payments received from subleased right-of-use assets is as follows:

(in thousands)	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
Subleased rental receipts:
Wireless	$	46	$	46	$	91	$	91
Telco	57		100		115		201
Total subleased rental receipts	$	103	$	146	$	206	$	292

Note 13 – 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 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, which it in turn processes through its recycling program. The Company evaluates performance and allocates its resources based on operating income. The accounting policies of its reportable segments are the same as those described in the summary of significant accounting policies. Segment assets consist primarily of cash and cash equivalents, accounts receivable, inventories, property and equipment, goodwill and intangible assets.

The Company changed the allocation of corporate general and administrative expenses between our reportable business segments. At September 30, 2020, the Company did not allocate the corporate general and administrative expenses to the reportable segments and listed those expenses separate from the operating results of those reportable segments. During fiscal 2021, the Company reviewed its reportable segments and its corporate general and administrative expenses and allocation methodology, which resulted in the Company allocating its corporate general and administrative expenses to the reportable segments. The prior period allocations have been adjusted to reflect the Company's current allocation methodology.

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	Three Months Ended						Six Months Ended
(in thousands)	March 31, 2021			March 31, 2020			March 31, 2021			March 31, 2020
Sales
Wireless	$	4,334		$	4,672		$	9,581		$	11,470
Telco	8,333			7,287			15,835			14,451
Total sales	$	12,667		$	11,959		$	25,416		$	25,921
Gross profit
Wireless	$	1,527		$	175		$	3,136		$	2,048
Telco	1,654			(614)			3,674			1,105
Total gross profit (loss)	$	3,181		$	(439)		$	6,810		$	3,153
Wireless	35		%	4		%	33		%	18		%
Telco	20		%	(8)		%	23		%	8		%
Total gross profit margin (loss)	25		%	(4)		%	27		%	12		%
Loss from operations
Wireless	$	(1,537)		$	(2,453)		$	(2,642)		$	(3,235)
Telco	(1,510)			(12,226)			(2,319)			(13,207)
Total loss from operations	$	(3,047)		$	(14,679)		$	(4,961)		$	(16,442)

(in thousands)	March 31, 2021		September 30, 2020
Segment assets
Wireless	$	5,170	$	5,324
Telco	13,019		12,298
Non-allocated	10,369		14,881
Total assets	$	28,558	$	32,503

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Special Note on Forward-Looking Statements

Certain statements in Management's Discussion and Analysis (“MD&A”), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements generally are identified by the words “estimates,” “projects,” “believes,” “plans,” “intends,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. These statements are subject to a number of risks, uncertainties and developments beyond our control or foresight, including changes in the trends of the 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, the potential forgiveness of any portion of the PPP Loan, 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, 2020, 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, which it in turn processes through its recycling program.

Recent Business Developments

COVID-19

On March 11, 2020, the World Health Organization declared the current outbreak of COVID-19 to be a global pandemic, and on March 13, 2020, the United States declared a national emergency. In response to these declarations and the rapid spread of COVID-19, federal, state and local governments have imposed varying degrees of restrictions on business and social activities to contain COVID-19, including quarantine and “stay-at-home” or “shelter-in-place” orders in markets where we operate. Despite these “stay-at-home” or “shelter-in-place”

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orders, we are classified as an essential business due to the services and products we provide to the telecommunications industry. Therefore, we continue to operate in the markets we serve, but most of our back-office and administrative personnel were working from home through March 31, 2021 while these orders were in place.  Although we can continue to operate our businesses, our revenues have slowed, especially in our Wireless segment, due to the carriers slowing down various wireless tower projects. We have not experienced a material disruption in our supply chain to date.

With the partial reopening of the economy the economic effects of the pandemic and resulting societal changes remain unpredictable. 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 March 31, 2021 and March 31, 2020

Consolidated

Consolidated sales increased $0.7 million, or 6%, to $12.7 million for three months ended March 31, 2021 from $12.0 million for the three months ended March 31, 2020.  The increase in sales was due to increased sales in the Telco segment of $1.0 million partially offset by a decrease in Wireless segment sales of $0.3 million.

Consolidated gross profit increased $3.6 million for three months ended March 31, 2021 to $3.2 million compared to a deficit of $0.4 million for the same period last year. The increases in gross profit were due to an increase in the Telco segment of $2.3 million, and a Wireless segment increase of $1.3 million.

Consolidated operating expenses include indirect costs associated with operating our business such as indirect personnel, facilities, vehicles, insurance, communication, and business taxes. Operating expenses remained consistent at approximately $2.2 million for the three months ended March 31, 2021 and $2.1 million the same period last year.

Consolidated selling, general and administrative ("SG&A") expenses include overhead, which consist of personnel, insurance, professional services, communication, and other cost categories. SG&A expense increased $0.9 million, or 30%, to $3.8 million for the three months ended March 31, 2021 from $2.9 million for the same period last year. The increase in SG&A relates to increased personnel costs such as non-cash stock compensation of $0.1 million, executive severance of $0.2 million, as well as computing and communications costs of approximately $0.2 million, and $0.4 million of increased selling costs compared to the same period last year.

Depreciation and amortization expenses decreased $0.2 million, or 40%, to $0.3 million for the three months ended March 31, 2021, from $0.5 million for the same period last year. The decrease was due primarily to a decrease in amortization expenses to the Telco segment of $0.2 million, as a result of intangible impairments taken in fiscal 2020.

Interest income primarily consists of interest earned on the promissory note receivable. Interest income has decreased to $33 thousand for the three months ended March 31, 2021 compared to $0.1 million for the same period last year, as the note receivable principal has decreased.

Interest expense for the three months ended March 31, 2021 was $42 thousand as compared to $59 thousand for the same period last year. The expense was related to interest expense on the revolving bank line of credit and the loan with our primary financial lender. 

Income tax expense was zero during the three months ended March 31, 2021 and the same period in 2020. Our effective tax rates during the three months ended March 31, 2021 and 2020 were approximately 0%, respectively because increases in our valuation allowance against our deferred tax assets.

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Segment Results

Wireless

Revenues for the Wireless segment decreased $0.3 million to $4.3 million for the three months ended March 31, 2021 from $4.7 million for the same period of last year. Revenues continued to be negatively impacted due to delays in infrastructure spending from the major U.S. carriers related to the COVID-19 pandemic. However, we believe that the 5G rollout will gain momentum in the calendar year and that there is substantial constrained demand for 5G-related work on existing towers, new raw-land builds, and small cell networks. In addition, we have made and are continuing to make the necessary operational changes in order to be well positioned to secure an increased share of the 5G construction services work.

Gross profit was $1.5 million, or 35% for the three months ended March 31, 2021 compared to $0.2 million, or 4%, for the three months ended March 31, 2020. The improvement in the gross profit percentage was driven by organizational changes put into place to strengthen margins during the latter half of fiscal 2020.

Operating expenses were $1.4 million for each of the three months periods ended March 31, 2021 and 2020.

Selling, general and administrative expenses increased $0.2 million to $0.6 million for the three months ended March 31, 2021 from $0.4 million for the three months ended March 31, 2020. This increase was due to increased sales-related personnel costs. The corporate overhead allocation increased $0.3 million mainly as a result of the employee stock-based compensation plan and interest expense.

Depreciation and amortization expense was $0.2 million for the three months ended March 31, 2021 and 2020.

Telco

Sales for the Telco segment increased $1.0 million to $8.3 million for the three months ended March 31, 2021 from $7.3 million for the same period last year. The increase in revenues were related to increased sales of used and refurbished equipment, coupled with decreased charges for returns during the quarter compared to the prior year quarter.

Gross profit was $1.7 million for the three months ended March 31, 2021 and a deficit of $0.6 million for the three months ended March 31, 2020. The increase was mainly related to a $2.1 million obsolescence expense recorded in the prior year quarter.

Operating expenses increased $0.1 million to $0.8 million for the three months ended March 31, 2021 compared to $0.7 million the three months ended March 31, 2020. The increased operating expense was due to fees related to the utilization of a third-party logistics provider.

Selling, general and administrative expenses increased $0.2 million to $1.1 million for the three months ended March 31, 2021 from $0.9 million for the same period last year. This increase was due primarily to increased sales commissions. In addition, the corporate allocation increased $0.1 million, which related to the employee stock-compensation plan and executive severance costs.

Depreciation and amortization expense decreased $0.2 million to $0.1 million for the three months ended March 31, 2021 from $0.3 million for the same period last year. This was due to decreased amortization expense resulting from the impairment of intangibles taken in the three months ended March 31, 2020.

Comparison of Results of Operations for the Six Months Ended March 31, 2021 and March 31, 2020

Consolidated

Consolidated sales decreased $0.5 million, or 2%, to $25.4 million for the six months ended March 31, 2021 from $25.9 million for the six months ended March 31, 2020. The decrease in sales was primarily in the Wireless segment, which decreased $1.9 million, partially offset by an increase in sales from the Telco segment of $1.4 million.

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Consolidated gross profit increased $3.7 million, or 116%, to $6.8 million for the six months ended March 31, 2021 from $3.2 million for the same period last year. The increase in gross profit was due to an increase in the Telco segment of $2.6 million, as well as an increase in the Wireless segment of $1.1 million.

Consolidated operating expenses include indirect costs associated with operating our business such as indirect personnel costs, facilities, vehicles, insurance, communication, and business taxes, among other costs. Operating expenses decreased $0.1 million, or 1%, to $4.2 million for the six months ended March 31, 2021 from $4.3 million for the same period last year.

Consolidated selling, general and administrative expenses include overhead costs, which primarily consist of personnel, insurance, professional services, and communication, among other costs. Selling, general and administrative expenses increased $1.3 million, or 23%, to $7.0 million for the six months ended March 31, 2021 from $5.7 million for the same period last year. General and administrative costs accounted for $0.7 million of the increase, while selling costs accounted for $0.6 million of the increase. Non-cash share-based compensation accounted for $0.4 million of the increased G&A.

Depreciation and amortization expenses decreased $0.4 million, or 39%, to $0.6 million for the six months ended March 31, 2021 from $1.0 million for the same period last year. The decrease was due primarily to decreased amortization expense resulting from the impairment of intangible assets in the three months ended March 31, 2020.

Interest income primarily consists of interest earned on the promissory note from the sale of the cable business in June 2019. Interest income was $0.1 million for six months ended March 31, 2021 and $0.2 million for the six months ended March 31, 2020.

Other expense for the six months ended March 31, 2021 was $27.4 thousand as compared to $0.1 million for the same period last year. The expense for the both the six months ended March 31, 2021 and March 31, 2020 is primarily related to our factoring arrangements with our Wireless segment.

Interest expense for the six months ended March 31, 2021 was $0.1 million as compared to $0.2 million for the same period last year. Interest expense for the six months ended March 31, 2021 was related to the revolving bank line of credit, the loan with our primary financial lender.

The provision for income taxes was zero for the six months ended March 31, 2021 compared to a benefit of $15 thousand for the six months ended March 31, 2020. Our effective tax rates during the six months ended March 31, 2021 and 2020 were approximately 0% because of increases in our valuation allowance against our deferred tax assets.

Segment Results

Wireless

Revenues for the Wireless segment were $9.6 million for the six months ended March 31, 2021 and $11.5 million for the same period last year. The decrease in revenue was due to a full six months of COVID-19 related slow-down in activity included in the current year results.

Gross profit was $3.1 million, or 33% for the six months ended March 31, 2021 and $2.0 million, or 18%, for six months ended March 31, 2020. This increase is due primarily to the impact of structural operational changes and more effective customer sales change order processes in place during the current fiscal six month period.

Operating expenses decreased $0.3 million to $2.6 million for the six months ended March 31, 2021 from $2.9 million for the same period last year, mainly as a result of lower vehicle and equipment costs as a result of decreased revenues.

Selling, general and administrative expenses increased $0.3 million to $1.3 million for the six months ended March 31, 2021 from $1.0 million for the six months ended March 31, 2020, mainly as a result of personnel costs.

Depreciation and amortization expense was consistent at $0.3 million for the each of the six month periods ended March 31, 2021 and March 31, 2020.

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Telco

Sales for the Telco segment increased $1.4 million to $15.8 million for the six months ended March 31, 2021 from $14.5 million for the same period last year. The increase was mainly related to sales of used and refurbished equipment.

Gross profit was $3.7 million for the six months ended March 31, 2021 compared to $1.1 million for six months ended March 31, 2020. Gross profit for the six months ended March 31, 2021 rebounded after taking a charge of $2.1 million for inventory obsolescence expense in the same period last year.

Operating expenses increased $0.2 million to $1.6 million for the six months ended March 31, 2021 from $1.4 million for the same period last year. This increase was due primarily to increased costs from our third-party logistics provider as revenue increases, and severance costs for certain employees resulting from cost reduction activities.

Selling, general and administrative expenses increased $0.1 million to $1.8 million for the six months ended March 31, 2021 from $1.8 million for the same period last year. This increase was due to increased selling costs of $0.3 million partially offset by decreased G&A costs of $0.2 million.

Depreciation and amortization expense decreased $0.4 million to $0.2 million from $0.6 million for the six months ended March 31, 2021 and 2020, respectively, resulting from significant impairments of intangible assets in the second quarter of 2020.

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 six month periods ended March 31, 2021 and March 31, 2020, in thousands:

	Three Months Ended March 31, 2021						Three Months Ended March 31, 2020
	Wireless		Telco		Total		Wireless		Telco		Total
Loss from operations	$	(1,537)	$	(1,510)	$	(3,047)	$	(2,453)	$	(12,226)	$	(14,679)
Impairment of intangibles including goodwill	—		—		—		—		8,714		8,714
Depreciation and amortization expense	176		128		304		169		339		508
Stock compensation expense	107		139		246		23		65		88
Adjusted EBITDA	$	(1,254)	$	(1,243)	$	(2,497)	$	(2,261)	$	(3,108)	$	(5,369)
	Six Months Ended March 31, 2021						Six Months Ended March 31, 2020
	Wireless		Telco		Total		Wireless		Telco		Total
Loss from operations	$	(2,642)	$	(2,319)	$	(4,961)	$	(3,235)	$	(13,207)	$	(16,442)
Impairment of intangibles including goodwill	—		—		—		—		8,714		8,714
Depreciation and amortization expense	328		257		585		315		640		955
Stock compensation expense	247		314		561		32		74		106
Adjusted EBITDA	$	(2,067)	$	(1,748)	$	(3,815)	$	(2,888)	$	(3,779)	$	(6,667)

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

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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

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 high 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 March 31, 2021, we had total inventory, before the reserve for excess and obsolete inventories, of $8.9 million, consisting of $1.3 million in new products and $7.6 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 when it is processed through our recycling program. Therefore, we have an obsolete and excess inventory reserve of $3.2 million at March 31, 2021. 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 ranging from 3 years to 10 years. Intangible assets are also tested for impairment when events and circumstances indicate that the carrying value may not be recoverable. As of March 31, 2021, there were no indicators of impairment present.

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Liquidity and Capital Resources

Cash Flows Used in Operating Activities

During the six months ended March 31, 2021, cash used in operations was $4.1 million. Cash flows from operations were negatively impacted by a net loss of $5.0 million and net cash used by working capital of $0.2 million, which was partially offset by non-cash adjustments of $1.1 million.

Cash Flows Provided by Investing Activities

During the six months ended March 31, 2021, cash provided by investing activities was $1.4 million which consisted of $1.5 million of payments received under the promissory note receivable.

Cash Flows Used in Financing Activities

During the six months ended March 31, 2021, cash used in financing activities was $0.5 million, of which $1.2 million related to repayment of our promissory note payable, partially offset by net proceeds from the sale of our common stock utilizing our shelf registration of $0.9 million. 

In March 2020, we entered into a loan agreement with our primary financial lender for $3.5 million, bearing interest at 6% per annum. The principal and interest payments correlate to our promissory note receivable with Leveling 8. We monetized $3.5 million of the $5.8 million remaining balance of the promissory note receivable. In connection with the $1.4 million in payments received in the first quarter of 2021, we paid down the remaining outstanding principal under this loan.

The Company has a $4.0 million revolving line of credit agreement with its primary financial lender, which matures on December 17, 2021. The line of credit requires quarterly interest payments based on the prevailing Wall Street Journal Prime Rate, floating (3.25% at March 31, 2021), with the addition of a 4% floor rate and a fixed charge coverage ratio of 1.25 to be tested quarterly beginning June 30, 2021. At March 31, 2021, there was $2.8 million outstanding under the line of credit. Future borrowings under the line of credit are limited to the lesser of $4.0 million or the sum of 80% of eligible accounts receivable and 60% of eligible Telco segment inventory. Under these limitations, the Company’s total line of credit borrowing capacity was $4.0 million at March 31, 2021.

On April 14, 2020, the Company entered into an unsecured loan in the amount of $2.9 million ("PPP Loan") with our primary lender. The PPP Loan matures on April 14, 2022, bears interest at 1% per annum, with monthly payments of principal and interest in the amount of $164,045 commencing on the date on which the amount of loan forgiveness is determined. On August 28, 2020, we submitted our application to our lender, requesting PPP Loan forgiveness of $2.9 million. Our lender reviewed our application and forwarded to the SBA for approval on September 27, 2020. As of the filing of this Report, we have not received an approval or denial of our application for forgiveness from the SBA; per the Flexibility Act, the date for commencement of loan payments has not yet occurred, and we have made no loan payments. The Company deferred $0.8 million of loan payments during the six months ended March 31, 2021.

We continue to take actions to preserve and improve our liquidity. We believe that our cash and cash equivalents and restricted cash of $5.2 million at March 31, 2021 and our existing revolving bank line of credit will provide sufficient liquidity and capital resources to cover our operating losses and our additional working capital and debt payment needs. However, we will likely need to seek a waiver for our probable covenant violation under our loan agreements with our primary financial lender. Further, as discussed above, we received the PPP Loan in April 2020, which provided funding necessary to offset the immediate and anticipated impacts of COVID-19, and there is some uncertainty whether we will be granted forgiveness from the SBA. In addition, there is still uncertainty surrounding the timing of the overall recovery of the economy and the timing of wireless infrastructure service opportunities for the upgrade to 5G. Therefore, depending on the timing of these factors and our primary financial lender granting us a waiver of the probable covenant violation, there is still risk that we may not have sufficient cash and cash equivalents available for us to sustain our operations at our current level. If that were to occur, we would need to seek additional funding and further utilize our shelf registration that we have available to us in order to enhance our cash position and assist in our working capital needs.

In the six months ended March 31, 2021, we utilized our recently filed shelf registration statement to raise additional cash by selling common shares utilizing an at the market offering under our equity distribution agreement with

21

Table of Contents

Northland Securities, Inc. (“Northland”). Under this program, we sold 245,973 shares for net proceeds of $0.9 million.

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, 2021, our Chief Executive Officer and Controller 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 Controller as appropriate to allow timely decisions regarding required disclosure.

22

Table of Contents

PART II.   OTHER INFORMATION

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

During the six months ended March 31, 2021, the Company sold 245,973 shares of common stock under its registration statement on Form S-3 effective as of April 1, 2020 (333-236859). Gross proceeds from such sales during the quarter were $0.9 million and net proceeds were $0.9 million after the payment of approximately $31,313 in commissions to Northland Securities, Inc., the underwriter of the offering. Total gross proceeds to the Company from sales under such registration statement since its effective date are $3.1 million and total net proceeds to the Company are $3.0 million after the payment of $0.1 million in commissions to Northland. All sales have been made pursuant to the Prospectus Supplement filed with the Commission on April 24, 2020, under which the Company may sell up to $13,850,000 in common stock. All net proceeds to the Company from such sales have been used in accordance with the “Use of Proceeds” section of such Prospectus Supplement.

Item 6.  Exhibits.

Exhibit No.	Description
10.1	Financial Institution Business Loan Agreement dated December 17, 2020
31.1	Certification of Chief Executive Officer under Section 302 of the Sarbanes Oxley Act of 2002.
31.2	Certification of Controller under Section 302 of the Sarbanes Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Controller pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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.

23

Table of Contents

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 14, 2021
	/s/ Joseph E. Hart
	Joseph E. Hart,
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: May 14, 2021
	/s/ Donna L. Guy
	Donna L. Guy
	Controller
	(Principal Financial Officer)

24

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph E. Hart, certify that:

1.I have reviewed this quarterly report on Form 10-Q of ADDvantage Technologies Group, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	May 14, 2021
		/s/ Joseph E. Hart Joseph E. Hart President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Donna L. Guy, certify that:

1.I have reviewed this quarterly report on Form 10-Q of ADDvantage Technologies Group, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	May 14, 2021
		/s/ Donna L. Guy Donna L. Guy Controller

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of ADDvantage Technologies Group, Inc. (the “Company”) for the fiscal quarter ended March 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) I, Joseph E. Hart, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Joseph E. Hart
Name:	Joseph E. Hart
Title:	President and Chief Executive Officer
Date:	May 14, 2021

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of ADDvantage Technologies Group, Inc. (the “Company”) for the fiscal quarter ended March 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) I, Donna L. Guy, Controller of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Donna L. Guy
Name:	Donna L. Guy
Title:	Controller
Date:	May 14, 2021

XML

Cover Page - shares	6 Months Ended
	Mar. 31, 2021	May 12, 2021
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2021
Document Transition Report	false
Entity File Number	1-10799
Entity Registrant Name	ADDvantage Technologies Group, Inc.
Entity Incorporation, State or Country Code	OK
Entity Tax Identification Number	73-1351610
Entity Address, Address Line One	1430 Bradley Lane, Suite 196
Entity Address, City or Town	Carrollton
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	75007
City Area Code	(918)
Local Phone Number	251-9121
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		12,413,372
Current Fiscal Year End Date	--09-30
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q2
Entity Central Index Key	0000874292
Amendment Flag	false

XML

Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2021	Sep. 30, 2020
Current assets:
Cash and cash equivalents	$ 4,949	$ 8,265
Restricted cash	289	108
Accounts receivable, net of allowances of $250, respectively	4,617	3,968
Unbilled revenue	643	590
Promissory note – current	0	1,400
Income tax receivable	1,249	1,283
Inventories, net of allowances of $3,168 and $3,054, respectively	5,708	5,576
Prepaid expenses and other assets	1,432	884
Total current assets	18,887	22,074
Property and equipment, at cost	4,661	4,220
Less: Accumulated depreciation	(2,010)	(1,586)
Net property and equipment	2,651	2,634
Right-of-use lease assets	3,249	3,758
Promissory note – non current	2,270	2,375
Intangibles, net of accumulated amortization	1,266	1,425
Goodwill	58	58
Other assets	177	179
Total assets	28,558	32,503
Current liabilities:
Accounts payable	4,353	3,472
Accrued expenses	1,735	1,319
Deferred revenue	67	113
Bank line of credit	2,800	2,800
Note payable, current	1,930	1,709
Right-of-use lease obligations – current	1,241	1,275
Financing lease obligations – current	355	285
Other current liabilities	14	41
Total current liabilities	12,495	11,014
Financing lease obligations - long-term	883	791
Right-of-use lease obligations - long-term	2,729	3,310
Note payable, less current portion	986	2,440
Other liabilities	0	15
Total liabilities	17,093	17,570
Shareholders’ equity:
Common stock, $0.01 par value; 30,000,000 shares authorized; 12,413,372 shares issued and outstanding, and 11,822,009 shares issued and outstanding, respectively	124	118
Paid in capital	(1,023)	(2,567)
Retained earnings	12,364	17,382
Total shareholders’ equity	11,465	14,933
Total liabilities and shareholders’ equity	$ 28,558	$ 32,503

XML

Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2021	Sep. 30, 2020
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 250	$ 250
Allowance for excess and obsolete inventory	$ 3,168	$ 3,054
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	30,000,000	30,000,000
Common stock, shares issued (in shares)	12,413,372	11,822,009
Common stock, shares outstanding (in shares)	12,413,372	11,822,009

XML

Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Mar. 31, 2021	Mar. 31, 2020
Income Statement [Abstract]
Total sales	$ 12,667	$ 11,959	$ 25,416	$ 25,921
Cost of sales	9,486	12,398	18,606	22,768
Gross profit	3,181	(439)	6,810	3,153
Operating expenses	2,167	2,143	4,224	4,278
Selling, general and administrative expenses	3,757	2,899	6,972	5,676
Impairment of intangibles including goodwill	0	8,714	0	8,714
Depreciation and amortization expense	304	508	585	955
Gain on disposal of assets	0	(24)	(10)	(28)
Loss from operations	(3,047)	(14,679)	(4,961)	(16,442)
Other income (expense):
Interest income	33	86	81	175
Income from equity method investment	0	19	0	41
Other expense, net	(8)	(28)	(27)	(86)
Interest expense	(42)	(59)	(110)	(82)
Total other income (expense), net	(17)	18	(56)	48
Loss before income taxes	(3,064)	(14,661)	(5,017)	(16,394)
Benefit for income taxes	0	0	0	(15)
Net loss	$ (3,064)	$ (14,661)	$ (5,017)	$ (16,379)
Basic and diluted loss per share:
Net loss (in dollars per share)	$ (0.25)	$ (1.41)	$ (0.41)	$ (1.58)
Shares used in per share calculation:
Basic and diluted (in shares)	12,416,594	10,423,514	12,281,721	10,392,404

XML

Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($) $ in Thousands	Total	Common Stock	Paid-in Capital	Retained Earnings	Treasury Stock
Beginning Balance (in shares) at Sep. 30, 2019		10,861,950
Beginning Balance at Sep. 30, 2019	$ 29,447	$ 109	$ (4,377)	$ 34,715	$ (1,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(1,718)			(1,718)
Share based compensation expense	14		14
Ending Balance (in shares) at Dec. 31, 2019		10,861,950
Ending Balance at Dec. 31, 2019	27,743	$ 109	(4,363)	32,997	(1,000)
Beginning Balance (in shares) at Sep. 30, 2019		10,861,950
Beginning Balance at Sep. 30, 2019	29,447	$ 109	(4,377)	34,715	(1,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(16,379)
Ending Balance (in shares) at Mar. 31, 2020		10,971,950
Ending Balance at Mar. 31, 2020	13,724	$ 109	(3,722)	18,336	(1,000)
Beginning Balance (in shares) at Dec. 31, 2019		10,861,950
Beginning Balance at Dec. 31, 2019	27,743	$ 109	(4,363)	32,997	(1,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(14,661)			(14,661)
Restricted stock issuance	377		377
Stock option exercise (in shares)		110,000
Stock option exercise	173	$ 1	172
Share based compensation expense	92		92
Ending Balance (in shares) at Mar. 31, 2020		10,971,950
Ending Balance at Mar. 31, 2020	13,724	$ 109	(3,722)	18,336	(1,000)
Beginning Balance (in shares) at Sep. 30, 2020		11,822,009
Beginning Balance at Sep. 30, 2020	14,933	$ 118	(2,567)	17,382	0
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(1,953)			(1,953)
Issuance of common shares (in shares)		238,194
Issuance of common shares	879	$ 3	876
Restricted stock issuance (in shares)		306,390
Restricted stock issuance	0	$ 3	(3)
Share based compensation expense	315		315
Ending Balance (in shares) at Dec. 31, 2020		12,366,593
Ending Balance at Dec. 31, 2020	14,174	$ 124	(1,379)	15,429	0
Beginning Balance (in shares) at Sep. 30, 2020		11,822,009
Beginning Balance at Sep. 30, 2020	14,933	$ 118	(2,567)	17,382	0
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	$ (5,017)
Stock option exercise (in shares)	49,000
Ending Balance (in shares) at Mar. 31, 2021		12,413,372
Ending Balance at Mar. 31, 2021	$ 11,465	$ 124	(1,023)		0
Beginning Balance (in shares) at Dec. 31, 2020		12,366,593
Beginning Balance at Dec. 31, 2020	14,174	$ 124	(1,379)	15,429	0
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(3,064)			$ (3,064)
Issuance of common shares (in shares)		7,779
Issuance of common shares	21		21
Restricted stock issuance (in shares)		(10,000)
Restricted stock issuance	(1)	$ (1)
Stock option exercise (in shares)		49,000
Stock option exercise	89		89
Share based compensation expense	246		246
Ending Balance (in shares) at Mar. 31, 2021		12,413,372
Ending Balance at Mar. 31, 2021	$ 11,465	$ 124	$ (1,023)		$ 0

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Operating Activities:
Net loss	$ (5,017)	$ (16,379)
Adjustments to reconcile net loss from operations to net cash used in operating activities:
Depreciation	426	428
Amortization	159	527
Change in right-of-use assets and liabilities, net	(105)	0
Impairment of intangibles including goodwill	0	8,714
Provision for excess and obsolete inventories	115	2,125
Share based compensation expense	561	106
Gain from disposal of property and equipment	(10)	(28)
Gain from equity method investment	0	(41)
Changes in assets and liabilities:
Accounts receivable	(649)	(67)
Unbilled revenue	(54)	1,031
Income tax receivable\payable	35	(14)
Inventories	(247)	94
Prepaid expenses and other assets	(533)	(109)
Accounts payable	881	(355)
Accrued expenses and other liabilities	375	(401)
Deferred revenue	(46)	163
Net cash used in operating activities	(4,109)	(4,206)
Investing Activities:
Proceeds from promissory note receivable	1,505	584
Loan repayment from equity method investee	0	41
Purchases of property and equipment	(93)	(155)
Disposals of property and equipment	29	112
Net cash provided by investing activities	1,441	582
Financing Activities:
Change in bank line of credit	0	3,500
Proceeds from note payable	0	3,457
Payments on financing lease obligations	(207)	(173)
Payments on notes payable	(1,249)	(667)
Proceeds from sale of common stock	900	0
Proceeds from stock options exercised	89	173
Net cash provided by (used in) financing activities	(467)	6,290
Net (decrease) increase in cash, cash equivalents and restricted cash	(3,135)	2,666
Cash, cash equivalents and restricted cash at beginning of period	8,373	1,594
Cash, cash equivalents and restricted cash at end of period	$ 5,238	$ 4,260

XML

Basis of Presentation and Accounting Policies

6 Months Ended

Mar. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Accounting Policies

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 six months ended March 31, 2021 and 2020, 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, 2020.

Reclassification

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

Recently Issued Accounting Standards

In 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.

XML

Revenue Recognition

6 Months Ended

Mar. 31, 2021

Revenue from Contract with Customer [Abstract]

Revenue Recognition

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 $0.9 million and $0.4 million for the three months ended March 31, 2021 and 2020, respectively and $1.3 million and $0.8 million for the six month period ended March 31, 2021 and 2020, respectively.

The Company’s customers include wireless carriers, wireless equipment providers, multiple system operators, resellers and direct sales to end-user customers. Sales to three customers which individually accounted 10% or greater of the Company's revenue totaled 39% and sales to one customer comprised approximately 10% of consolidated revenues for the six months ended March 31, 2021 and 2020, respectively.

Our sales by type were as follows, in thousands:

	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
Wireless services sales	$	4,334	$	4,672	$	9,581	$	11,470
Equipment sales:
Telco	8,189		6,981		15,464		13,764
Telco repair sales	7		8		13		16
Telco recycle sales	137		298		358		671
Total sales	$	12,667	$	11,959	$	25,416	$	25,921

Contract assets and contract liabilities are included in unbilled revenue and deferred revenue, respectively, in the consolidated balance sheets. At March 31, 2021 and September 30, 2020, contract assets were $0.6 million and $0.6 million, respectively, and contract liabilities were $0.1 million and $0.1 million, respectively. The Company recognized $0.1 million of contract revenue during the six months ended March 31, 2021 related to contract liabilities recorded in deferred revenue at September 30, 2020.

XML

Accounts Receivable Agreements

6 Months Ended

Mar. 31, 2021

Receivables [Abstract]

Accounts Receivable Agreements

Accounts Receivable Agreements

The Company’s Wireless segment has entered into various agreements, including one agreement with recourse, to sell certain receivables to unrelated third-party financial institutions. For the agreement with recourse, the Company is responsible for collecting payments on the sold receivables from its customers. Under this agreement, the third-party financial institution advances the Company 90% of the sold receivables and establishes a reserve of 10% of the sold receivables until the Company collects the sold receivables. As the Company collects the sold receivables, the third-party financial institution will remit the remaining 10% to the Company. At March 31, 2021, the third-party financial institution has a reserve of $0.3 million, which is reflected as restricted cash, against the sold receivables of $1.3 million. For the receivables sold under the agreement with recourse, the agreement addresses events and conditions which may obligate the Company to immediately repay the institution the outstanding purchase price of the receivables sold. The total amount of receivables uncollected by the institution was $1.3 million at March 31, 2021 for which there is a limit of $4.0 million. Although the sale of receivables is with recourse, the Company did not record a recourse obligation at March 31, 2021 as the Company concluded that the sold receivables are collectible. The other agreements without recourse are under programs offered by certain customers in the Wireless segment.

For the six months ended March 31, 2021 and 2020, the Company received proceeds from the sold receivables under all of the various agreements of $9.5 million and $11.4 million, respectively, and included the proceeds in net cash used in operating activities in the Consolidated Statements of Cash Flows. The fees associated with selling these receivables ranged from 1.4% to 2.3% of the gross receivables sold for the six months ended March 31, 2021 and 2020. The Company recorded costs of $0.1 million and $0.2 million for the three and six months ended March 31, 2021 and 2020, respectively, in other expense in the consolidated statements of operations.

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Promissory Note Receivable

6 Months Ended

Mar. 31, 2021

Receivables [Abstract]

Promissory Note Receivable

Promissory Note Receivable

During the fiscal year ended 2019, the Company completed a sale of its former Cable TV reporting segment to Leveling 8, an entity owned by a member of our board and significant shareholder, David Chymiak. Part of the consideration for the sale was a promissory note bearing interest of 6% received from Mr. Chymiak. Mr. Chymiak personally guaranteed the promissory note due to the Company and pledged certain assets to secure the payment of the promissory note, including substantially all of Mr. Chymiak’s Company common stock. During the six months ended ended March 31, 2021, the Company received principal payments totaling $1.5 million, of which approximately $1.0 million was a prepayment. At March 31, 2021, there was $2.3 million outstanding on the promissory note. The remaining promissory note becomes due in a final payment on June 29, 2024.

On March 10, 2020, the Company entered into a loan agreement with its primary financial lender for $3.5 million to monetize a portion of this promissory note receivable. See Note 7 - Debt for disclosures related to the Company's promissory note payable.

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Inventories

6 Months Ended

Mar. 31, 2021

Inventory Disclosure [Abstract]

Inventories

Inventories

Inventories, which are all within the Telco segment, at March 31, 2021 and September 30, 2020 are as follows, in thousands:

	March 31, 2021		September 30, 2020
New equipment	$	1,241	$	1,311
Refurbished and used equipment	7,635		7,319
Allowance for excess and obsolete inventory	(3,168)		(3,054)
Total inventories, net	$	5,708	$	5,576

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.

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Intangible Assets

6 Months Ended

Mar. 31, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

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 and impairment at March 31, 2021 and September 30, 2020 are as follows, in thousands:

	March 31, 2021
Intangible assets:	Gross		Accumulated Amortization		Impairment		Net
Customer relationships – 10 years	$	8,396	$	(4,101)	$	(3,894)	$	401
Trade name – 10 years	2,122		(1,257)		—		865
Total intangible assets	$	10,518	$	(5,358)	$	(3,894)	$	1,266

	September 30, 2020
Intangible assets:	Gross		Accumulated Amortization		Impairment		Net
Customer relationships – 10 years	$	8,396	$	(4,021)	$	(3,894)	$	481
Trade name – 10 years	2,122		(1,178)		—		944
Non-compete agreements – 3 years	374		(374)		—		—
Total intangible assets	$	10,892	$	(5,573)	$	(3,894)	$	1,425

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Debt

6 Months Ended

Mar. 31, 2021

Debt Disclosure [Abstract]

Debt

Debt

Loan Agreement

On March 10, 2020, the Company entered into a loan agreement with its primary financial lender for $3.5 million, bearing interest at 6% per annum. The loan was payable in seven semi-annual installments of principal and interest with the first payment occurring June 30, 2020. In connection with the $1.5 million payment received in the first fiscal quarter of 2021 from the promissory note receivable, the Company fully repaid the remaining $1.2 million of principal outstanding under this loan.

Credit Agreement

The Company has a $4.0 million revolving line of credit agreement with its primary financial lender, which matures on December 17, 2021. The line of credit requires quarterly interest payments based on the prevailing Wall Street Journal Prime Rate, floating (3.25% at March 31, 2021), with the addition of a 4% floor rate and a fixed charge coverage ratio of 1.25 to be tested quarterly beginning June 30, 2021. At March 31, 2021, there was $2.8 million

outstanding under the line of credit. Future borrowings under the line of credit are limited to the lesser of $4.0 million or the sum of 80% of eligible accounts receivable and 60% of eligible Telco segment inventory. Under these limitations, the Company’s total line of credit borrowing capacity was $4.0 million at March 31, 2021.

Loan Covenant with Primary Financial Lender

The credit agreement provides that the Company maintain a fixed charge coverage ratio (net cash flow to total fixed charge) of not less than 1.25 to 1.0 to be tested quarterly beginning June 30, 2021. The Company believes that it is probable that it will not be in compliance with this covenant as of the measurement date at June 30, 2021. The noncompliance with this covenant would result in an event of default, which if not cured or waived, could result in the lender accelerating the maturity of the Company’s indebtedness or preventing access to additional funds under the line of credit agreement, or requiring prepayment of outstanding indebtedness under the loan agreement or the line of credit agreement.

Paycheck Protection Program Loan

On April 14, 2020, the Company entered into an unsecured loan in the amount of $2.9 million ("PPP Loan") with its primary lender pursuant to the Paycheck Protection Program ("PPP") which is sponsored by the Small Business Administration (“SBA”), and is part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), as amended by the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”). The PPP provides for loans to qualifying businesses, the proceeds of which may be used for payroll costs, rent, utilities, mortgage interest, and interest on other pre-existing indebtedness (the “Permissible Expenses”). The PPP Loan, and accrued interest, may be forgiven partially or in full, if certain conditions are met, which includes if funds were expended for Permissible Expenses.

The PPP Loan matures on April 14, 2022, bears interest at 1% per annum, with monthly payments of principal and interest in the amount of $164,045 commencing on the date on which the amount of loan forgiveness is determined by the SBA. The PPP Loan proceeds were used for Permissible Expenses. On August 28, 2020, we submitted our application to our lender, requesting PPP Loan forgiveness of $2.9 million. Our lender reviewed our application for forgiveness and forwarded to the SBA on September 27, 2020 for approval. In the absence of an approval or denial of our application for forgiveness from the SBA, per the Flexibility Act, the date for commencement of loan payments has not yet occurred, and we have made no loan payments.

While we believe we have met the eligibility requirements for the PPP Loan, and believe we have used the loan proceeds for Permissible Expenses, we can provide no assurances that we will receive full or partial forgiveness of the PPP Loan. Accordingly, we have recorded the full amount of the PPP Loan as debt, which is included in current and long-term debt, on our consolidated balance sheet at March 31, 2021.

Fair Value of Debt

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

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Equity Distribution Agreement and Sale of Common Stock

6 Months Ended

Mar. 31, 2021

Equity [Abstract]

Equity Distribution Agreement and Sale of Common Stock

Equity Distribution Agreement and Sale of Common Stock

On April 24, 2020, the Company entered into an Equity Distribution Agreement with Northland Securities, Inc., as agent (“Northland”), pursuant to which the Company may offer and sell, from time to time, through Northland, shares of the Company’s common stock, par value 0.01 per share, having an aggregate offering price of up to $13,850,000 ("Shares").

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

Pursuant to the Sales Agreement, Northland may sell the Shares by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933 (the “Securities Act”), including sales made by means of ordinary brokers’ transactions, including on The Nasdaq Global Market, at market prices or as otherwise agreed with Northland. Northland will use commercially reasonable efforts consistent with its normal

trading and sales practices to sell the Shares from time to time, based upon instructions from the Company, including any price or size limits or other customary parameters or conditions the Company may impose. The Sales Agreement may be terminated without prior notice at any time prior to the fulfillment if additional sales are deemed not warranted.

The Company will pay Northland a commission rate 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 six months ended March 31, 2021, 245,973 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 $0.9 million.

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Earnings per Share

6 Months Ended

Mar. 31, 2021

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

Basic earnings per share are based on the sum of the average number of common shares outstanding and issuable, restricted and deferred shares. Diluted earnings per share include any dilutive effect of stock options and restricted stock. In computing the diluted weighted average shares, the average share price for the period is used in determining the number of shares assumed to be reacquired under the treasury stock method from the exercise of options. Basic and diluted earnings per share for the three and six months ended March 31, 2021 and 2020 are (in thousands, except per share amounts):

	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
Net loss attributable to common shareholders	$	(3,064)	$	(14,661)	(5,017)		(16,379)
Basic and diluted weighted average shares	12,416,594		10,423,514		12,281,721		10,392,404
Basic and diluted loss per common share:	$	(0.25)	$	(1.41)	$	(0.41)	$	(1.58)

The table below includes information related to stock options that were outstanding at the end of each respective three and six-month period ended March 31, but have been excluded from the computation of weighted-average stock options for dilutive securities because their effect would be anti-dilutive. The stock options were anti-dilutive either due to the Company incurring a net loss for the periods presented or the exercise price exceeded the average market price per share of our common stock for the three and six months ended March 31, 2021 and 2020.

	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
Stock options excluded	90,744		543,000		95,423		543,000
Weighted average exercise price of stock options	$	1.52	$	1.75	$	1.53	$	1.75
Average market price of common stock	$	2.94	$	2.79	$	2.74	$	2.52

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Supplemental Cash Flow Information

6 Months Ended

Mar. 31, 2021

Supplemental Cash Flow Elements [Abstract]

Supplemental Cash Flow Information

Supplemental Cash Flow Information

(in thousands)	Six Months Ended March 31,
	2021		2020
Supplemental cash flow information:
Cash paid for interest	$	73	$	144
Supplemental noncash investing and financing activities:
Assets acquired under financing leases	$	369	$	454

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Stock-Based Compensation

6 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation

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, 2021, 2,100,415 shares of common stock were reserved for stock award grants under the Plan.  Of these reserved shares, 450,636 shares were available for future grants.

Stock Options

A summary of the status of the Company's stock options at March 31, 2021 and changes during the three months then ended is presented below:

	Wtd. Avg. Ex. Price		Shares	Aggregate Intrinsic Value
Outstanding at September 30, 2020	$	1.55	100,000	$	37
Exercised	1.81		(49,000)	49
Outstanding at March 31, 2021	$	1.29	51,000	$	67
Exercisable at March 31, 2021	$	1.30	34,334	$	45

Restricted stock awards

A summary of the Company's non-vested restricted share awards (RSA) at March 31, 2021 and changes during the quarter ended March 31, 2021 is presented in the following table (in thousands, except shares):

	Shares	Fair Value
Non-vested at December 31, 2020	715,256	$	1,058
Granted	40,000	742
Vested	(162,200)	(455)
Forfeited	(50,000)	(125)
Non-vested at March 31, 2021	543,056	$	1,220

During the three month period ended March 31, 2021 and 2020, expenses related to share-based arrangements including restricted stock and stock option awards, were $0.2 million and $0.1 million, respectively.

During the six month period ended March 31, 2021 and 2020, compensation expenses related to share-based arrangements including restricted stock and stock option awards, were $0.6 million and $0.1 million respectively.

The Company did not recognize a tax benefit for compensation expense recognized during the three and six month period ended March 31, 2021 and 2020.

At March 31, 2021, unrecognized compensation expense related to non-vested share-based compensation awards not yet recognized in the consolidated statements of operations was $0.9 million. That cost is expected to be recognized over a period of 2.75 years.

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Leases

6 Months Ended

Mar. 31, 2021

Leases [Abstract]

Leases

Leases

Our Wireless segment has an operating lease for a building in Fridley, Minnesota for Fulton Technologies, Inc. As a result of closing down and vacating Fulton Technologies, Inc.’s Minnesota office in May 2019, a third-party telecom company began subleasing this building in June 2019.

Our Telco segment has an operating lease for a building in Jessup, Maryland for Nave Communications.  As a result of moving Nave’s operations to Palco Telecom, a third-party logistics provider in Huntsville, Alabama, in fiscal year 2020, Nave completely vacated the building in May 2020 and has subleased part of the building during certain periods of fiscal year 2021. 

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 six month periods ending March 31, 2021 and 2020. Rental payments received from subleased right-of-use assets is as follows:

(in thousands)	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
Subleased rental receipts:
Wireless	$	46	$	46	$	91	$	91
Telco	57		100		115		201
Total subleased rental receipts	$	103	$	146	$	206	$	292

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Segment Reporting

6 Months Ended

Mar. 31, 2021

Segment Reporting [Abstract]

Segment Reporting

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 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, which it in turn processes through its recycling program. The Company evaluates performance and allocates its resources based on operating income. The accounting policies of its reportable segments are the same as those described in the summary of significant accounting policies. Segment assets consist primarily of cash and cash equivalents, accounts receivable, inventories, property and equipment, goodwill and intangible assets.

The Company changed the allocation of corporate general and administrative expenses between our reportable business segments. At September 30, 2020, the Company did not allocate the corporate general and administrative expenses to the reportable segments and listed those expenses separate from the operating results of those reportable segments. During fiscal 2021, the Company reviewed its reportable segments and its corporate general and administrative expenses and allocation methodology, which resulted in the Company allocating its corporate general and administrative expenses to the reportable segments. The prior period allocations have been adjusted to reflect the Company's current allocation methodology.

	Three Months Ended						Six Months Ended
(in thousands)	March 31, 2021			March 31, 2020			March 31, 2021			March 31, 2020
Sales
Wireless	$	4,334		$	4,672		$	9,581		$	11,470
Telco	8,333			7,287			15,835			14,451
Total sales	$	12,667		$	11,959		$	25,416		$	25,921
Gross profit
Wireless	$	1,527		$	175		$	3,136		$	2,048
Telco	1,654			(614)			3,674			1,105
Total gross profit (loss)	$	3,181		$	(439)		$	6,810		$	3,153
Wireless	35		%	4		%	33		%	18		%
Telco	20		%	(8)		%	23		%	8		%
Total gross profit margin (loss)	25		%	(4)		%	27		%	12		%
Loss from operations
Wireless	$	(1,537)		$	(2,453)		$	(2,642)		$	(3,235)
Telco	(1,510)			(12,226)			(2,319)			(13,207)
Total loss from operations	$	(3,047)		$	(14,679)		$	(4,961)		$	(16,442)

(in thousands)	March 31, 2021		September 30, 2020
Segment assets
Wireless	$	5,170	$	5,324
Telco	13,019		12,298
Non-allocated	10,369		14,881
Total assets	$	28,558	$	32,503

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Basis of Presentation and Accounting Policies (Policies)

6 Months Ended

Mar. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of presentation

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 six months ended March 31, 2021 and 2020, 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, 2020.

Reclassification

ReclassificationCertain prior period amounts have been reclassified to conform to current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.

Recently issued accounting standards

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.

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Revenue Recognition (Tables)

6 Months Ended

Mar. 31, 2021

Revenue from Contract with Customer [Abstract]

Disaggregation of Revenue

Our sales by type were as follows, in thousands:

	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
Wireless services sales	$	4,334	$	4,672	$	9,581	$	11,470
Equipment sales:
Telco	8,189		6,981		15,464		13,764
Telco repair sales	7		8		13		16
Telco recycle sales	137		298		358		671
Total sales	$	12,667	$	11,959	$	25,416	$	25,921

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Inventories (Tables)

6 Months Ended

Mar. 31, 2021

Inventory Disclosure [Abstract]

Schedule of Inventory, Current

Inventories, which are all within the Telco segment, at March 31, 2021 and September 30, 2020 are as follows, in thousands:

	March 31, 2021		September 30, 2020
New equipment	$	1,241	$	1,311
Refurbished and used equipment	7,635		7,319
Allowance for excess and obsolete inventory	(3,168)		(3,054)
Total inventories, net	$	5,708	$	5,576

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Intangible Assets (Tables)

6 Months Ended

Mar. 31, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Intangible Assets and Goodwill

Intangible assets with their associated accumulated amortization and impairment at March 31, 2021 and September 30, 2020 are as follows, in thousands:

	March 31, 2021
Intangible assets:	Gross		Accumulated Amortization		Impairment		Net
Customer relationships – 10 years	$	8,396	$	(4,101)	$	(3,894)	$	401
Trade name – 10 years	2,122		(1,257)		—		865
Total intangible assets	$	10,518	$	(5,358)	$	(3,894)	$	1,266

	September 30, 2020
Intangible assets:	Gross		Accumulated Amortization		Impairment		Net
Customer relationships – 10 years	$	8,396	$	(4,021)	$	(3,894)	$	481
Trade name – 10 years	2,122		(1,178)		—		944
Non-compete agreements – 3 years	374		(374)		—		—
Total intangible assets	$	10,892	$	(5,573)	$	(3,894)	$	1,425

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Earnings Per Share (Tables)

6 Months Ended

Mar. 31, 2021

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

Basic and diluted earnings per share for the three and six months ended March 31, 2021 and 2020 are (in thousands, except per share amounts):

	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
Net loss attributable to common shareholders	$	(3,064)	$	(14,661)	(5,017)		(16,379)
Basic and diluted weighted average shares	12,416,594		10,423,514		12,281,721		10,392,404
Basic and diluted loss per common share:	$	(0.25)	$	(1.41)	$	(0.41)	$	(1.58)

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

The stock options were anti-dilutive either due to the Company incurring a net loss for the periods presented or the exercise price exceeded the average market price per share of our common stock for the three and six months ended March 31, 2021 and 2020.

	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
Stock options excluded	90,744		543,000		95,423		543,000
Weighted average exercise price of stock options	$	1.52	$	1.75	$	1.53	$	1.75
Average market price of common stock	$	2.94	$	2.79	$	2.74	$	2.52

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Supplemental Cash Flow Information (Tables)

6 Months Ended

Mar. 31, 2021

Supplemental Cash Flow Elements [Abstract]

Schedule of Cash Flow, Supplemental Disclosures

(in thousands)	Six Months Ended March 31,
	2021		2020
Supplemental cash flow information:
Cash paid for interest	$	73	$	144
Supplemental noncash investing and financing activities:
Assets acquired under financing leases	$	369	$	454

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Stock-Based Compensation (Tables)

6 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Abstract]

Share-based Payment Arrangement, Option, Activity

A summary of the status of the Company's stock options at March 31, 2021 and changes during the three months then ended is presented below:

	Wtd. Avg. Ex. Price		Shares	Aggregate Intrinsic Value
Outstanding at September 30, 2020	$	1.55	100,000	$	37
Exercised	1.81		(49,000)	49
Outstanding at March 31, 2021	$	1.29	51,000	$	67
Exercisable at March 31, 2021	$	1.30	34,334	$	45

Disclosure of Share-based Compensation Arrangements by Share-based Payment Award

A summary of the Company's non-vested restricted share awards (RSA) at March 31, 2021 and changes during the quarter ended March 31, 2021 is presented in the following table (in thousands, except shares):

	Shares	Fair Value
Non-vested at December 31, 2020	715,256	$	1,058
Granted	40,000	742
Vested	(162,200)	(455)
Forfeited	(50,000)	(125)
Non-vested at March 31, 2021	543,056	$	1,220

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Leases (Tables)

6 Months Ended

Mar. 31, 2021

Leases [Abstract]

Lease, Cost

Rental payments received from subleased right-of-use assets is as follows:

(in thousands)	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
Subleased rental receipts:
Wireless	$	46	$	46	$	91	$	91
Telco	57		100		115		201
Total subleased rental receipts	$	103	$	146	$	206	$	292

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Segment Reporting (Tables)

6 Months Ended

Mar. 31, 2021

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment

The Company changed the allocation of corporate general and administrative expenses between our reportable business segments. At September 30, 2020, the Company did not allocate the corporate general and administrative expenses to the reportable segments and listed those expenses separate from the operating results of those reportable segments. During fiscal 2021, the Company reviewed its reportable segments and its corporate general and administrative expenses and allocation methodology, which resulted in the Company allocating its corporate general and administrative expenses to the reportable segments. The prior period allocations have been adjusted to reflect the Company's current allocation methodology.

	Three Months Ended						Six Months Ended
(in thousands)	March 31, 2021			March 31, 2020			March 31, 2021			March 31, 2020
Sales
Wireless	$	4,334		$	4,672		$	9,581		$	11,470
Telco	8,333			7,287			15,835			14,451
Total sales	$	12,667		$	11,959		$	25,416		$	25,921
Gross profit
Wireless	$	1,527		$	175		$	3,136		$	2,048
Telco	1,654			(614)			3,674			1,105
Total gross profit (loss)	$	3,181		$	(439)		$	6,810		$	3,153
Wireless	35		%	4		%	33		%	18		%
Telco	20		%	(8)		%	23		%	8		%
Total gross profit margin (loss)	25		%	(4)		%	27		%	12		%
Loss from operations
Wireless	$	(1,537)		$	(2,453)		$	(2,642)		$	(3,235)
Telco	(1,510)			(12,226)			(2,319)			(13,207)
Total loss from operations	$	(3,047)		$	(14,679)		$	(4,961)		$	(16,442)

(in thousands)	March 31, 2021		September 30, 2020
Segment assets
Wireless	$	5,170	$	5,324
Telco	13,019		12,298
Non-allocated	10,369		14,881
Total assets	$	28,558	$	32,503

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Revenue Recognition - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Mar. 31, 2021	Mar. 31, 2020	Sep. 30, 2020
Disaggregation of Revenue [Line Items]
Total sales	$ 12,667	$ 11,959	$ 25,416	$ 25,921
Contract assets	643		643		$ 590
Contract liabilities	67		67		$ 113
Contract liabilities, revenue recognized			$ 100
Customer Concentration Risk | Revenue Benchmark | Largest Customer
Disaggregation of Revenue [Line Items]
Total gross profit margin (loss)			39.00%	10.00%
Non-US
Disaggregation of Revenue [Line Items]
Total sales	$ 900	$ 400	$ 1,300	$ 800

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Revenue Recognition - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Mar. 31, 2021	Mar. 31, 2020
Disaggregation of Revenue [Line Items]
Total sales	$ 12,667	$ 11,959	$ 25,416	$ 25,921
Telco | Operating segments
Disaggregation of Revenue [Line Items]
Total sales	8,333	7,287	15,835	14,451
Wireless services sales
Disaggregation of Revenue [Line Items]
Total sales	4,334	4,672	9,581	11,470
Equipment sales: | Telco | Operating segments
Disaggregation of Revenue [Line Items]
Total sales	8,189	6,981	15,464	13,764
Telco repair sales
Disaggregation of Revenue [Line Items]
Total sales	7	8	13	16
Telco recycle sales
Disaggregation of Revenue [Line Items]
Total sales	$ 137	$ 298	$ 358	$ 671

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Accounts Receivable Agreements (Details) - USD ($)		3 Months Ended		6 Months Ended
	Mar. 31, 2021	Mar. 31, 2021	Mar. 31, 2020	Mar. 31, 2021	Mar. 31, 2020	Sep. 30, 2020
Accounts, Notes, Loans and Financing Receivable [Line Items]
Restricted cash	$ 289,000	$ 289,000		$ 289,000		$ 108,000
Certain Receivables to Unrelated Third-parties
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable agreement, percent of sold receivables advanced	90.00%	90.00%		90.00%
Accounts receivable agreement, reserve of sold receivables, percent	10.00%	10.00%		10.00%
Restricted cash	$ 300,000	$ 300,000		$ 300,000
Accounts receivable, sale	(1,300,000)
Maximum limit of receivables uncollected	4,000,000.0	4,000,000.0		4,000,000.0
Proceeds from collection of finance receivables				9,500,000	$ 11,400,000
Certain Receivables to Unrelated Third-parties | Other Nonoperating Income (Expense)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Cost of selling receivables		100,000	$ 100,000	$ 200,000	$ 200,000
Certain Receivables to Unrelated Third-parties | Minimum
Accounts, Notes, Loans and Financing Receivable [Line Items]
Receivables, cost of sales, percent				1.40%
Certain Receivables to Unrelated Third-parties | Maximum
Accounts, Notes, Loans and Financing Receivable [Line Items]
Receivables, cost of sales, percent					2.30%
Uncollectible Receivables
Accounts, Notes, Loans and Financing Receivable [Line Items]
Thirty party financial institution reserve	$ (1,300,000)	$ (1,300,000)		$ (1,300,000)

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Promissory Note Receivable (Details) - USD ($) $ in Thousands	6 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Mar. 10, 2020
Accounts, Notes, Loans and Financing Receivable [Line Items]
Proceeds from promissory note receivable	$ 1,505	$ 584
Proceeds from promissory note receivable prepayment	1,000
Promissory note, amount outstanding	$ 2,300
Loan Agreement with Primary Financial Leader
Accounts, Notes, Loans and Financing Receivable [Line Items]
Debt instrument, face amount			$ 3,500
Promissory Note
Accounts, Notes, Loans and Financing Receivable [Line Items]
Notes receivable, interest rate	6.00%

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Inventories - Schedule of Inventory (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Sep. 30, 2020
Inventory [Line Items]
Allowance for excess and obsolete inventory	$ (3,168)	$ (3,054)
Total inventories, net	5,708	5,576
New equipment
Inventory [Line Items]
Inventory, gross	1,241	1,311
Refurbished and used equipment
Inventory [Line Items]
Inventory, gross	$ 7,635	$ 7,319

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Intangible Assets - Schedule of Intangible Assets (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Mar. 31, 2021	Sep. 30, 2020
Finite-Lived Intangible Assets [Line Items]
Gross	$ 10,518	$ 10,892
Accumulated Amortization	(5,358)	(5,573)
Impairment	(3,894)	(3,894)
Net	1,266	1,425
Customer relationships
Finite-Lived Intangible Assets [Line Items]
Gross	8,396	8,396
Accumulated Amortization	(4,101)	(4,021)
Impairment	(3,894)	(3,894)
Net	$ 401	$ 481
Useful life	10 years	10 years
Trade names
Finite-Lived Intangible Assets [Line Items]
Gross	$ 2,122	$ 2,122
Accumulated Amortization	(1,257)	(1,178)
Impairment	0	0
Net	$ 865	$ 944
Useful life	10 years	10 years
Noncompete agreements
Finite-Lived Intangible Assets [Line Items]
Gross		$ 374
Accumulated Amortization		(374)
Impairment		0
Net		$ 0
Useful life		3 years

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Debt (Details)		3 Months Ended	6 Months Ended
	Apr. 14, 2020 USD ($)	Dec. 31, 2020 USD ($)	Mar. 31, 2021 USD ($)	Mar. 31, 2020 USD ($)	Mar. 10, 2020 USD ($) installment
Debt Instrument [Line Items]
Proceeds from promissory note receivable			$ 1,505,000	$ 584,000
Repayments of notes payable			1,249,000	667,000
Proceeds from note payable			$ 0	$ 3,457,000
Leveling 8 | Promissory Note
Debt Instrument [Line Items]
Proceeds from promissory note receivable		$ 1,500,000
Loan Agreement
Debt Instrument [Line Items]
Debt instrument, face amount					$ 3,500,000
Debt instrument, interest rate					6.00%
Loan Agreement | Leveling 8
Debt Instrument [Line Items]
Repayments of notes payable		$ 1,200,000
Credit and Term Loan Agreement | Revolving Credit Facility
Debt Instrument [Line Items]
Debt instrument, number of installments | installment					7
New Credit Agreement
Debt Instrument [Line Items]
Fixed charge coverage ratio, minimum Requirement			1.25
New Credit Agreement | Revolving Credit Facility
Debt Instrument [Line Items]
Line of credit, maximum borrowing capacity			$ 4,000,000.0
Debt instrument, effective interest rate			3.25%
Debt instrument, floor rate			4.00%
Line of credit, amount outstanding			$ 2,800,000
Percentage of qualified accounts receivable used in determination of maximum borrowing capacity of line of credit			0.80
Percentage of qualified inventory used in determination of maximum borrowing capacity of line of credit			0.60
Line of credit, current borrowing capacity			$ 4,000,000.0
Loan Agreement with Primary Financial Leader
Debt Instrument [Line Items]
Debt instrument, face amount					$ 3,500,000
Fixed charge coverage ratio, minimum Requirement					1.25
Paycheck Protection Program CARES Act
Debt Instrument [Line Items]
Debt instrument, interest rate	1.00%
Proceeds from note payable	$ 2,900,000
Debt instrument, periodic payment, total	$ 164,045

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Equity Distribution Agreement and Sale of Common Stock (Details) - USD ($)	6 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Sep. 30, 2020	Apr. 24, 2020
Subsidiary, Sale of Stock [Line Items]
Common stock, par value (in dollars per share)	$ 0.01		$ 0.01
Proceeds from sale of common stock, gross	$ 900,000	$ 0
Sales Agreement With Northland
Subsidiary, Sale of Stock [Line Items]
Common stock, par value (in dollars per share)				$ 0.01
Maximum aggregate offering price				$ 13,850,000
Commission rate	3.00%
Issuance of common shares (in shares)	245,973
Proceeds from sale of common stock, gross	$ 900,000
Proceeds from sale of common stock, net	$ 900,000

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Earnings Per Share - Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended				6 Months Ended
	Mar. 31, 2021	Dec. 31, 2020	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2021	Mar. 31, 2020
Earnings Per Share [Abstract]
Net loss attributable to common shareholders	$ (3,064)	$ (1,953)	$ (14,661)	$ (1,718)	$ (5,017)	$ (16,379)
Basic and diluted (in shares)	12,416,594		10,423,514		12,281,721	10,392,404
Basic and diluted loss per common share (in dollars per share)	$ (0.25)		$ (1.41)		$ (0.41)	$ (1.58)

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Earnings Per Share - Anti-dilutive Securities (Details) - $ / shares	3 Months Ended		6 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Mar. 31, 2021	Mar. 31, 2020
Earnings Per Share [Abstract]
Stock options excluded (in shares)	90,744	543,000	95,423	543,000
Weighted average exercise price of stock options (in dollars per share)	$ 1.52	$ 1.75	$ 1.53	$ 1.75
Average market price of common stock (in dollars per share)	$ 2.94	$ 2.79	$ 2.74	$ 2.52

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Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands	6 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Supplemental cash flow information:
Cash paid for interest	$ 73	$ 144
Supplemental noncash investing and financing activities:
Assets acquired under financing leases	$ 369	$ 454

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Stock-Based Compensation - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Mar. 31, 2021	Mar. 31, 2020
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation expense	$ 0.2	$ 0.1	$ 0.6	$ 0.1
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation expense	0.2	$ 0.1	0.6	$ 0.1
Compensation cost, not yet recognized	$ 0.9		$ 0.9
Recognized over a period			2 years 9 months
The 2015 Incentive Stock Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock, capital shares reserved for future issuance (in shares)	2,100,415		2,100,415
Number of shares available for grant (in shares)	450,636		450,636

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Stock-Based Compensation - Share-based Payment Arrangement, Option, Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended
	Mar. 31, 2021
Wtd. Avg. Ex. Price
Outstanding, weighted average exercise price (in dollars per share)	$ 1.55
Exercised (in dollars per share)	1.81
Outstanding, weighted average exercise price (in dollars per share)	1.29
Exercisable, weighted average exercise price (in dollars per share)	$ 1.30
Shares
Outstanding, beginning balance (in shares)	100,000
Stock options, exercised (in shares)	(49,000)
Outstanding, ending balance (in shares)	51,000
Exercisable (in shares)	34,334
Aggregate Intrinsic Value
Outstanding beginning balance	$ 37
Exercised	49
Outstanding ending balance	67
Exercisable, aggregate intrinsic value	$ 45

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Stock-Based Compensation - Schedule of Non-vested Restricted Share Awards (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($) shares
Shares
Nonvested, beginning balance (in shares) | shares	715,256
Granted (in shares) | shares	40,000
Vested (in shares) | shares	(162,200)
Forfeited (in shares) | shares	(50,000)
Nonvested, ending balance (in shares) | shares	543,056
Fair Value
Non-vested, beginning balance | $	$ 1,058
Granted | $	742
Vested | $	(455)
Forfeited | $	(125)
Non-vested, ending balance | $	$ 1,220

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Leases (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Mar. 31, 2021	Mar. 31, 2020
Lessee, Lease, Description [Line Items]
Total subleased rental receipts	$ 103	$ 146	$ 206	$ 292
Wireless
Lessee, Lease, Description [Line Items]
Total subleased rental receipts	46	46	91	91
Telco
Lessee, Lease, Description [Line Items]
Total subleased rental receipts	$ 57	$ 100	$ 115	$ 201

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Segment Reporting (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Mar. 31, 2021	Mar. 31, 2020	Sep. 30, 2020
Segment Reporting Information [Line Items]
Total sales	$ 12,667	$ 11,959	$ 25,416	$ 25,921
Total gross profit (loss)	3,181	(439)	6,810	3,153
Total loss from operations	(3,047)	(14,679)	(4,961)	$ (16,442)
Segment assets	28,558		$ 28,558		$ 32,503
Operating segments
Segment Reporting Information [Line Items]
Total gross profit (loss)	$ 3,181	$ (439)
Total gross profit margin (loss)	25.00%	(4.00%)	27.00%	12.00%
Non-allocated
Segment Reporting Information [Line Items]
Segment assets	$ 10,369		$ 10,369		14,881
Wireless | Operating segments
Segment Reporting Information [Line Items]
Total sales	4,334	$ 4,672	9,581	$ 11,470
Total gross profit (loss)	$ 1,527	$ 175	$ 3,136	$ 2,048
Total gross profit margin (loss)	35.00%	4.00%	33.00%	18.00%
Total loss from operations	$ (1,537)	$ (2,453)	$ (2,642)	$ (3,235)
Segment assets	5,170		5,170		5,324
Telco | Operating segments
Segment Reporting Information [Line Items]
Total sales	8,333	7,287	15,835	14,451
Total gross profit (loss)	$ 1,654	$ (614)	$ 3,674	$ 1,105
Total gross profit margin (loss)	20.00%	(8.00%)	23.00%	8.00%
Total loss from operations	$ (1,510)	$ (12,226)	$ (2,319)	$ (13,207)
Segment assets	$ 13,019		$ 13,019		$ 12,298