NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 1 - Unaudited interim condensed consolidated financial statements
The accompanying unaudited condensed consolidated
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
In the opinion of management, all adjustments, which are normal and recurring, have been included in order to make the information
not misleading. Information included in the consolidated balance sheet as of October 31, 2016 has been derived from, and certain
terms used herein are defined in, the audited consolidated financial statements of the Company as of October 31, 2016 included
in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the year ended October 31, 2016 that was previously
filed with the Securities and Exchange Commission (“SEC”). Operating results for the three- and six-month periods ended
April 30, 2017 are not necessarily indicative of the results that may be expected for the year ending October 31, 2017. The unaudited
condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes
thereto included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2016.
Principles of consolidation
The accompanying unaudited condensed consolidated
financial statements include the accounts of RF Industries, Ltd., Cables Unlimited, Inc. (“Cables Unlimited”), Comnet
Telecom Supply, Inc. (“Comnet”), and Rel-Tech Electronics, Inc. (“Rel-Tech”), wholly-owned subsidiaries
of RF Industries, Ltd. All intercompany balances and transactions have been eliminated in consolidation.
Revenue recognition
Four basic criteria must be met before revenue
can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee
is fixed and determinable; and (4) collectability is reasonably assured. The Company recognizes revenue from product sales after
purchase orders are received which contain a fixed price and for shipments with terms of FOB Shipping Point, revenue is recognized
upon shipment, for shipments with terms of FOB Destination, revenue is recognized upon delivery and revenue from services is recognized
when services are performed, and the recovery of the consideration is considered probable.
Recent accounting standards
In August 2016, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, Classification of Certain Cash Receipts
and Cash Payments. The new standard will change the classification of certain cash payments and receipts within the cash flow statement.
Specifically, payments for debt prepayment or debt extinguishment costs, including third-party costs, premiums paid, and other
fees paid to lenders that are directly related to the debt prepayment or debt extinguishment, excluding accrued interest, will
now be classified as financing activities. Previously, these payments were classified as operating expenses. The guidance is effective
for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019,
with early adoption permitted, and will be applied retrospectively. The Company does not expect that the adoption of this new standard
will have a material impact on its Consolidated Financial Statements.
In February 2016, the FASB issued Accounting
Standards Update No. 2016-02, Leases. This ASU requires lessees to recognize most leases on their balance sheets related to the
rights and obligations created by those leases. The ASU also requires additional qualitative and quantitative disclosures related
to the nature, timing and uncertainty of cash flows arising from leases. The guidance is effective for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating
the impact the adoption of this new standard will have on its Consolidated Financial Statements.
In March 2016, the FASB issued Accounting Standards
Update No. 2016-09, Compensation – Stock Compensation. The new standard will modify several aspects of the accounting and
reporting for employee share-based payments and related tax accounting impacts, including the presentation in the statements of
operations and cash flows of certain tax benefits or deficiencies and employee tax withholdings, as well as the accounting for
award forfeitures over the vesting period. The new standard is effective for fiscal years beginning after December 15, 2016 and
interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption
of this new standard will have on its Consolidated Financial Statements.
In November 2015, the FASB issued Accounting
Standards Update No. 2015-17, Income Taxes. Current GAAP requires an entity to separate deferred income tax liabilities and assets
into current and noncurrent amounts in a classified balance sheet. The new standard simplifies the presentation of deferred tax
assets and liabilities and requires that deferred tax assets and liabilities be classified as noncurrent in a classified balance
sheet. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, with early adoption
permitted. This ASU affected our disclosures relating to deferred tax assets and liabilities. The Company has applied this guidance
prospectively and it did not have a material impact on the consolidated balance sheets.
In May 2014, the FASB issued Accounting Standards
Update No. 2014-09, Revenue from Contracts with Customers. This guidance will supersede Topic 605, Revenue Recognition, in addition
to other industry-specific guidance, once effective. The new standard requires a company to recognize revenue in a manner that
depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company
expects to be entitled in exchange for those goods and services. In August 2015, the FASB issued ASU 2015-14, Revenue
from Contracts with Customers: Deferral of the Effective Date, as a revision to ASU 2014-09, which revised the effective date to
fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted but not prior
to periods beginning after December 15, 2016 (i.e., the original adoption date per ASU 2014-09). In March 2016, the FASB issued
ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, which clarifies certain aspects of the
principal-versus-agent guidance, including how an entity should identify the unit of accounting for the principal versus agent
evaluation and how it should apply the control principle to certain types of arrangements, such as service transactions. The amendments
also reframe the indicators to focus on evidence that an entity is acting as a principal rather than as an agent. In April 2016,
the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies
how an entity should evaluate the nature of its promise in granting a license of intellectual property, which will determine whether
it recognizes revenue over time or at a point in time. The amendments also clarify when a promised good or service is separately
identifiable (i.e., distinct within the context of the contract) and allow entities to disregard items that are immaterial in the
context of a contract. The Company does not expect that the adoption of this new standard will have a material impact on its Consolidated
Financial Statements.
Note 2 - Discontinued operations
For the three and six months ended April 30,
2017, the Company recognized approximately $66,000 and $128,000 of royalty income for RadioMobile, which amounts, net after tax,
have has been included within discontinued operations. For the three-and six-months ended April
30, 2016, the Company recognized approximately $2,000 of royalty income for the RF Neulink division, which amounts have been included
within discontinued operations.
During March 2016, the Company announced the
shutdown of its Bioconnect division, which comprised the entire operations of the Medical Cabling and Interconnect segment. The
closure is part of the Company’s ongoing plan to close or dispose of underperforming divisions that are not part of the Company’s
core operations. For the three and six months ended April 30, 2017, the Company recognized approximately $10,000 of income
from sale of equipment for the Bioconnect division, which has been included within discontinued operations. For the three and six
months ended April 30, 2016, the Company recognized approximately $59,000 loss and $99,000 loss for the Bioconnect division, which
has been included within discontinued operations.
Note 3 - Sale of Aviel Electronics division
On December 22, 2015, the Company sold the assets
of its Aviel Electronics division at a gain of approximately $35,000. The terms of the sale included $150,000 cash due upon closing
and a $250,000 secured promissory note ($83,000 of which is recorded in other current assets and $63,000 in other assets as of
April 30, 2017) with principal and interest (at 5%) payable over a three-year period. Aviel Electronics’ sales and loss from
continuing operations before provision for income taxes of $86,000 and $40,000, respectively, were included in the Company’s
RF Connector and Cable Assembly segment for the six months ended April 30, 2016.
The sale of the Aviel Electronics division does
not represent a strategic shift that has a major effect on the Company’s operations and financial results. Accordingly, historical
results and the sale of Aviel Electronics will be reported in income from continuing operations.
Note 4 - Inventories and major vendors
Inventories, consisting of materials, labor
and manufacturing overhead, are stated at the lower of cost or market. Cost has been determined using the weighted average cost
method. Inventory carrying value is net of inventory reserves of $676,000 and $500,000 at April 30, 2017 and October 31, 2016,
respectively. Inventories consist of the following (in thousands):
|
|
April 30, 2017
|
|
|
October 31, 2016
|
|
|
|
|
|
|
|
|
Raw materials and supplies
|
|
$
|
2,880
|
|
|
$
|
2,642
|
|
Work in process
|
|
|
330
|
|
|
|
279
|
|
Finished goods
|
|
|
3,480
|
|
|
|
3,101
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
6,690
|
|
|
$
|
6,022
|
|
Purchases of inventory from one
major vendor for the three months ended April 30, 2017 represented 14% of inventory purchases. No vendor accounted for
greater than 10% of inventory purchases for the six months ended April 30, 2017. No vendor accounted for greater than 10% of
inventory purchases for the three months ended April 30, 2016. Purchases of inventory from one major vendor during the six
months ended April 30, 2016 represented 10% of total inventory purchases. The Company has arrangements with its vendors to
purchase product based on purchase orders periodically issued by the Company.
Note 5 - Other current assets
Other current assets consist of the following
(in thousands):
|
|
April 30, 2017
|
|
|
October 31, 2016
|
|
|
|
|
|
|
|
|
Prepaid taxes
|
|
$
|
899
|
|
|
$
|
871
|
|
Prepaid expense
|
|
|
381
|
|
|
|
347
|
|
Notes receivable, current portion
|
|
|
83
|
|
|
|
83
|
|
Other
|
|
|
96
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
1,459
|
|
|
$
|
1,436
|
|
Long-term portion of notes receivable of $63,000
is recorded in other assets.
Note 6 - Earnings per share
Basic earnings (loss) per
share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding increased
by the effects of assuming that other potentially dilutive securities (such as stock options) outstanding during the period had
been exercised and the treasury stock method had been applied. Potentially dilutive securities totaling 1,003,854 and 899,820 for
the three months ended April 30, 2017 and 2016, respectively, and 1,003,854 and 868,524 for the six months ended April 30, 2017
and 2016, respectively, were excluded from the calculation of diluted per share amounts because of their anti-dilutive effect.
The following table summarizes the computation
of basic and diluted weighted average shares outstanding:
|
|
Three Months Ended April 30,
|
|
|
Six Months Ended April 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic earnings per share
|
|
|
8,834,747
|
|
|
|
8,759,570
|
|
|
|
8,882,863
|
|
|
|
8,738,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add effects of potentially dilutive securities-assumed exercise of stock options
|
|
|
42,454
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for diluted earnings per share
|
|
|
8,877,201
|
|
|
|
8,759,570
|
|
|
|
8,882,863
|
|
|
|
8,738,012
|
|
Note 7 - Stock-based compensation and equity transactions
The
Company’s current stock incentive plan provides for the granting of qualified and nonqualified options to the Company’s
officers, directors and employees. The Company satisfies the exercise of options by issuing previously unissued common shares.
No options were granted to Company employees during the three and six months ended April
30, 2017 and 2016.
Company stock option plans
Descriptions of the Company’s
stock option plans are included in Note 10 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2016.
A summary of the status of the options granted under the Company’s stock option plans as of April 30, 2017 and the changes
in options outstanding during the six months then ended is presented in the table that follows:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Outstanding at November 1, 2016
|
|
|
1,007,851
|
|
|
$
|
4.07
|
|
Options granted
|
|
|
309,356
|
|
|
$
|
1.50
|
|
Options canceled or expired
|
|
|
(163,353
|
)
|
|
$
|
3.80
|
|
Options outstanding at April 30, 2017
|
|
|
1,153,854
|
|
|
$
|
3.42
|
|
Options exercisable at April 30, 2017
|
|
|
807,735
|
|
|
$
|
3.52
|
|
Options vested and expected to vest at April 30, 2017
|
|
|
1,151,823
|
|
|
$
|
3.42
|
|
Weighted average remaining contractual life of options outstanding
as of April 30, 2017: 4.04 years
Weighted average remaining contractual life of options exercisable
as of April 30, 2017: 3.26 years
Weighted average remaining contractual life of options vested and
expected to vest as of April 30, 2017: 4.04 years
Aggregate intrinsic value of options outstanding at April 30, 2017:
$107,000
Aggregate intrinsic value of options exercisable at April 30, 2017:
$92,000
Aggregate intrinsic value of options vested and expected to vest
at April 30, 2017: $107,000
As of April 30, 2017, $311,000
of expense with respect to nonvested share-based arrangements has yet to be recognized and is expected to be recognized over a
weighted average period of 3.01 years.
Effective for the fiscal
year ending October 31, 2017, non-employee directors receive $50,000 annually, which is paid one-half in cash and one-half through
the grant of non-qualified stock options to purchase shares of the Company’s common stock. Previously, for the fiscal year
ended October 31, 2016, non-employee directors received $30,000 annually. During the quarter ended January 31, 2017, the Company
granted each of its four non-employee directors 77,339 options. The number of stock options granted to each director was determined
by dividing $25,000 by the fair value of a stock option grant using the Black-Scholes model ($0.32 per share). These options vest
ratably over fiscal year 2017.
Stock option expense
During the six months ended
April 30, 2017 and 2016, stock-based compensation expense totaled $99,000 and $102,000, respectively. During the three months ended
April 30, 2017 and 2016, stock-based compensation expense totaled $48,000 and $51,000, respectively. For the six months ended April
30, 2017 and 2016, stock-based compensation classified in cost of sales amounted to $6,000 and $17,000, respectively, and stock-based
compensation classified in selling and general expense amounted to $93,000 and $85,000, respectively.
Note 8 - Concentrations of credit risk
Financial instruments which potentially subject
the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company
maintains its cash and cash equivalents with high-credit quality financial institutions. At April 30, 2017, the Company had cash
and cash equivalent balances in excess of federally insured limits in the amount of approximately $3.1 million.
Two customers accounted for approximately 15%
and 14% of the Company’s net sales for the six-month period ended April 30, 2017. Of the two customers, one accounted for
approximately 15% of the Company’s net sales for the six-month period ended April 30, 2016. The same customers accounted
for approximately 16% and 17% of the Company’s net sales for the three months ended April 30, 2017 and one customer accounted
for approximately 15% of the Company’s net sales for the three months ended April 30, 2016. At April 30, 2017, these customers’
accounts receivable balance accounted for approximately 16% and 24% of the total net accounts receivable balance. At October 31,
2016, one of the customer’s accounts receivable balance accounted for approximately 20% of the Company’s total net
accounts receivable balances. Although these customers have been ongoing major customers of the Company, the written agreements
with these customers do not have any minimum purchase obligations and the customers could stop buying the Company’s products
at any time and for any reason. A reduction, delay or cancellation of orders from these customers or the loss of these customers
could significantly reduce the Company’s future revenues and profits.
Note 9 - Segment information
The Company aggregates operating divisions into
operating segments that have similar economic characteristics primarily in the following areas: (1) the nature of the product and
services; (2) the nature of the production process; (3) the type or class of customer for their products and services; (4) the
methods used to distribute their products or services; (5) if applicable, the nature of the regulatory environment. As of April
30, 2017, the Company has two segments: 1) RF Connector and Cable Assembly and 2) Custom Cabling Manufacturing and Assembly based
upon this evaluation.
The RF Connector and Cable Assembly segment
consisted of one division and the Custom Cabling Manufacturing and Assembly segment was composed of three divisions. The four
divisions that met the quantitative thresholds for segment reporting are Connector and Cable Assembly, Cables Unlimited, Comnet
and Rel-Tech. The specific customers are different for each division; however, there is some overlapping of product sales to them.
The methods used to distribute products are similar within each division aggregated.
Management identifies the Company’s segments
based on strategic business units that are, in turn, based along market lines. These strategic business units offer products and
services to different markets in accordance with their customer base and product usage. For segment reporting purposes, the Connector
and Cable Assembly division constitutes the RF Connector and Cable Assembly segment, and the Cables Unlimited, Comnet and Rel-Tech
divisions constitute the Custom Cabling Manufacturing and Assembly segment.
As reviewed by the Company’s chief operating
decision maker, the Company evaluates the performance of each segment based on income or loss before income taxes. The Company
charges depreciation and amortization directly to each division within the segment. Accounts receivable, inventory, property and
equipment, goodwill and intangible assets are the only assets identified by segment. Except as discussed above, the accounting
policies for segment reporting are the same for the Company as a whole.
Substantially all of the
Company’s operations are conducted in the United States; however, the Company derives a portion of its revenue from export
sales. The Company attributes sales to geographic areas based on the location of the customers. The following table presents the
sales of the Company by geographic area for the three and six months ended April 30, 2017 and 2016 (in thousands):
|
|
Three Months Ended April 30,
|
|
|
Six Months Ended April 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
7,418
|
|
|
$
|
7,603
|
|
|
$
|
13,954
|
|
|
$
|
14,095
|
|
Foreign countries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
|
130
|
|
|
|
75
|
|
|
|
176
|
|
|
|
146
|
|
Israel
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62
|
|
Mexico
|
|
|
70
|
|
|
|
52
|
|
|
|
77
|
|
|
|
149
|
|
All other
|
|
|
22
|
|
|
|
5
|
|
|
|
50
|
|
|
|
67
|
|
|
|
|
222
|
|
|
|
132
|
|
|
|
303
|
|
|
|
424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
7,640
|
|
|
$
|
7,735
|
|
|
$
|
14,257
|
|
|
$
|
14,519
|
|
Net sales, income (loss)
from continuing operations before provision (benefit) for income taxes and other related segment information for the three months
ended April 30, 2017 and 2016 are as follows (in thousands):
|
|
RF Connector
|
|
|
Custom Cabling
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Manufacturing and
|
|
|
|
|
|
|
|
|
|
Cable Assembly
|
|
|
Assembly
|
|
|
Corporate
|
|
|
Total
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,607
|
|
|
$
|
5,033
|
|
|
$
|
-
|
|
|
$
|
7,640
|
|
Income (loss) from continuing operations before provision (benefit) for income taxes
|
|
|
102
|
|
|
|
(36
|
)
|
|
|
(2
|
)
|
|
|
64
|
|
Depreciation and amortization
|
|
|
41
|
|
|
|
173
|
|
|
|
-
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,079
|
|
|
$
|
5,656
|
|
|
$
|
-
|
|
|
$
|
7,735
|
|
Income (loss) from continuing operations before provision (benefit) for income taxes
|
|
|
(250
|
)
|
|
|
172
|
|
|
|
28
|
|
|
|
(50
|
)
|
Depreciation and amortization
|
|
|
51
|
|
|
|
211
|
|
|
|
-
|
|
|
|
262
|
|
Net sales, income (loss)
from continuing operations before provision (benefit) for income taxes and other related segment information for the six months
ended April 30, 2017 and 2016 are as follows (in thousands):
|
|
RF Connector
|
|
|
Custom Cabling
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Manufacturing and
|
|
|
|
|
|
|
|
|
|
Cable Assembly
|
|
|
Assembly
|
|
|
Corporate
|
|
|
Total
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
5,142
|
|
|
$
|
9,115
|
|
|
$
|
-
|
|
|
$
|
14,257
|
|
Income (loss) from continuing operations before provision (benefit) for income taxes
|
|
|
83
|
|
|
|
(376
|
)
|
|
|
18
|
|
|
|
(275
|
)
|
Depreciation and amortization
|
|
|
88
|
|
|
|
346
|
|
|
|
-
|
|
|
|
434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
4,036
|
|
|
$
|
10,483
|
|
|
$
|
-
|
|
|
$
|
14,519
|
|
Income (loss) from continuing operations before provision (benefit) for income taxes
|
|
|
(664
|
)
|
|
|
15
|
|
|
|
28
|
|
|
|
(621
|
)
|
Depreciation and amortization
|
|
|
97
|
|
|
|
431
|
|
|
|
-
|
|
|
|
528
|
|
Note 10 - Income tax provision
The Company uses an estimated annual effective
tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various
jurisdictions in which the Company operates, to determine its quarterly provision (benefit) for income taxes. Certain significant
or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective
tax rates from quarter to quarter.
The provision (benefit) for income taxes was
47% and (238)% of income (loss) before income taxes for the three months ended April 30, 2017 and 2016, respectively, and 26% and
60% of income (loss) from before income taxes for the six months ended April 30, 2017 and 2016, respectively. The change in the effective
income tax rate from period to period was primarily driven by a decrease to the Company’s full year financial forecast.
The Company recorded income from discontinued
operations, net of tax, as disclosed in Note 2.
The total amount of unrecognized tax benefits
was $0 as of April 30, 2017 and October 31, 2016.
The total balance of accrued interest and penalties
related to uncertain tax positions was $0 as of April 30, 2017 and October 31, 2016. The Company recognizes interest and penalties
related to uncertain tax positions, if any, as a component of income tax expense and the accrued interest and penalties, if any,
are included in deferred and other long-term liabilities in the Company's condensed consolidated balance sheets. There were no
material interest or penalties included in income tax expense for the six months ended April 30, 2017.
Note 11 - Intangible assets
Intangible assets consist of the following (in
thousands):
|
|
April 30, 2017
|
|
|
October 31, 2016
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
Non-compete agreements (estimated lives 3 - 5 years)
|
|
$
|
310
|
|
|
$
|
310
|
|
Accumulated amortization
|
|
|
(292
|
)
|
|
|
(273
|
)
|
|
|
|
18
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
Customer relationships (estimated lives 7 - 15 years)
|
|
|
5,099
|
|
|
|
5,099
|
|
Accumulated amortization
|
|
|
(1,915
|
)
|
|
|
(1,644
|
)
|
|
|
|
3,184
|
|
|
|
3,455
|
|
|
|
|
|
|
|
|
|
|
Patents (estimated life 14 years)
|
|
|
142
|
|
|
|
142
|
|
Accumulated amortization
|
|
|
(20
|
)
|
|
|
(15
|
)
|
|
|
|
122
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
3,324
|
|
|
$
|
3,619
|
|
|
|
|
|
|
|
|
|
|
Non-amortizable intangible assets:
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
1,237
|
|
|
$
|
1,237
|
|
Amortization expense for the six-months
ended April 30, 2017 and the year-ended October 31, 2016 was $295,000 and $649,000, respectively.
Note 12 - Accrued expenses
Accrued expenses consist
of the following (in thousands):
|
|
April 30, 2017
|
|
|
October 31, 2016
|
|
|
|
|
|
|
|
|
Wages payable
|
|
$
|
690
|
|
|
$
|
941
|
|
Accrued receipts
|
|
|
712
|
|
|
|
578
|
|
Earn-out liability
|
|
|
396
|
|
|
|
707
|
|
Other current liabilities
|
|
|
378
|
|
|
|
544
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
2,176
|
|
|
$
|
2,770
|
|
Accrued receipts represent purchased inventory
for which invoices have not been received.
Non-current portion of earn-out liability of
$20,000 is recorded in other long-term liabilities.
Note 13 - Former line of credit
From May 2015 until September 2016, the Company
had a $5 million line of credit available to it from its bank. The Company did not use the line of credit and, effective September
8, 2016, the Company terminated the line of credit.
Note 14 - Commitments
In April 2014, the Company amended its lease
for its facility in San Diego, California, extending the term of the lease and reducing its square footage. The amended lease was
scheduled to expire in March 2017; however, on January 26, 2017, the term of the lease was extended until July 31, 2022, and the
rental payments increased $2,596 per month from $20,125 to $22,721 per month. The minimum annual rentals are being charged to expense
on a straight-line basis over the lease term. The San Diego lease also requires the payment of the Company’s pro rata share
of real estate taxes and insurance, maintenance and other operating expenses related to the facilities.
The Cables Unlimited division leases an approximately
12,000 square foot facility located in Yaphank, New York. In April 2016, the lease was extended until June 30, 2017. Cables Unlimited’s
monthly rent expense under the lease is $13,000 per month, plus payments of all utilities, janitorial expenses, routine maintenance
costs and costs of insurance for Cables Unlimited’s business operations and equipment. The landlord is a company controlled
by Darren Clark, the former owner and current President of Cables Unlimited.
The Comnet Telecom division leases approximately
15,000 square feet in two suites located in East Brunswick, New Jersey. Comnet’s monthly rent expense under the leases is
approximately $11,655 per month for these facilities, and the leases expire in September 2017.
The Rel-Tech Electronic division leases approximately
13,750 square feet located in Milford, Connecticut. Rel-Tech’s net monthly rent expense under the lease is approximately
$8,307 per month for these facilities, and the leases expires in August 2017.
Note 15 - Cash dividend and declared dividends
The Company paid dividends of $0.02 per
share during the three months ended April 30, 2017 and 2016 for a total of $177,000 and $177,000, respectively. The Company
paid dividends of $0.04 per share during the six months ended April 30, 2017 for a total of $353,000. The Company paid
dividends of $0.02 and $0.07 per share during the six months ended April 30, 2016 for a total of $787,000.
Note 16 - Subsequent events
At its June 9, 2017 meeting,
the Board of Directors of the Company declared a quarterly cash dividend of $0.02 per share to be paid on July 14, 2017 to stockholders
of record on June 30, 2017.
In addition, the
Board of Directors also approved the extension of the Company’s lease at its current terms, as described above, with
Cables Unlimited until June 30, 2018.
On June 5, 2017, the
Company amended its lease for its facility in San Diego, California, increasing its square footage by 2,321 from 19,587 to
21,908. The amended lease expires July 31, 2022, and the rental payments increased $2,692 per month for the first year from
$22,721 to $25,413 per month.