NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies
Organization and 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”) as well as an equity-method investment. Intercompany balances and transactions have been eliminated in consolidation. The Company’s reportable segments are Cable Television (“Cable TV”) and
Telecommunications (“Telco”).
Cash and cash equivalents
Cash and cash equivalents includes demand and time deposits, money market funds and other marketable securities with maturities of three
months or less when acquired.
Accounts receivable
Trade receivables are carried at original invoice amount less an estimate made for doubtful accounts. Management determines the allowance
for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions. Trade receivables are written off against the allowance when deemed
uncollectible. Recoveries of trade receivables previously written off are recorded when received. The Company generally does not charge interest on past due accounts.
Inventories
Inventories consist of new, refurbished and used electronic components for the Cable TV segment and new, refurbished and used
telecommunications equipment for the Telco segment. Inventory is stated at the lower of cost or net realizable value. Cost is 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. For both the Cable TV and Telco segments, the Company records an inventory reserve provision to reflect inventory at its estimated net realizable
value based on a review of inventory quantities on hand, historical sales volumes and technology changes. These reserves are to provide for items that are potentially slow-moving, excess or obsolete.
Property and equipment
Property and equipment consists of software, office equipment, warehouse and service equipment, and buildings with estimated useful lives
generally of 3 years, 5 years, 10 years and 40 years, respectively. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the shorter of the useful
lives or the remainder of the lease agreement. Gains or losses from the ordinary sale or retirement of property and equipment are recorded in other income (expense). Repairs and maintenance costs are generally expensed as incurred, whereas major
improvements are capitalized. Depreciation expense was $0.4 million for each of the years ended September 30, 2018, 2017 and 2016.
Goodwill
Goodwill represents the excess of purchase price of acquisitions over the acquisition date fair value of the net assets of businesses
acquired. Goodwill is not amortized and is tested at least annually for impairment. We perform our annual analysis during the fourth quarter of each fiscal year and in any other period in which indicators of impairment warrant additional
analysis. Goodwill is evaluated for impairment by comparing our estimate of the fair value of each reporting unit, or operating segment, with the reporting unit’s carrying value, including goodwill. Our reporting units for purposes of the
goodwill impairment calculation are the Cable TV operating segment and the Telco operating segment.
Management utilizes a discounted cash flow analysis to determine the estimated fair value of each reporting unit. Significant judgments and
assumptions including the discount rate, anticipated revenue growth rate, gross margins
and operating expenses are inherent in these fair value estimates. As a result, actual results may differ from the estimates utilized in our
discounted cash flow analysis. The use of alternate judgments and/or assumptions could result in the recognition of different levels of impairment charges in the financial statements.
Intangible assets
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.
Impairment of long-lived 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 conducts its long-lived asset impairment analyses in accordance with Accounting Standards Codification (“ASC”) 360-10-15, “Impairment or Disposal of Long-Lived Assets.” ASC 360-10-15 requires the Company to
group 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 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.
Income taxes
The Company provides for income taxes in accordance with the liability method of accounting. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and tax carryforward amounts. Management
provides a valuation allowance against deferred tax assets for amounts which are not considered “more likely than not” to be realized.
Revenue recognition
The Company recognizes revenue for product sales when title transfers, the risks and rewards of ownership have been transferred to the
customer, the fee is fixed or determinable and the collection of the related receivable is probable, which is generally at the time of shipment. The stated shipping terms are generally FOB shipping point per the Company's sales agreements with its
customers. Accruals are established for expected returns based on historical activity. Revenue for repair services is recognized when the repair is completed and the product is shipped back to the customer. Revenue for recycle services is
recognized when title transfers, the risks and rewards of ownership have been transferred to the customer, the fee is fixed or determinable and the collection of the related receivable is probable, which is generally upon acceptance of the shipment
at the recycler’s location.
Freight
Amounts billed to customers for shipping and handling represent revenues earned and are included in sales income in the accompanying
consolidated statements of operations. Actual costs for shipping and handling of these sales are included in cost of sales.
Advertising costs
Advertising costs are expensed as incurred. Advertising expense was $0.6 million, $0.5 million and $0.2 million for the years ended
September 30, 2018, 2017 and 2016, respectively.
Management estimates
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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Any significant, unanticipated changes in product demand, technological developments or continued economic trends affecting the cable or
telecommunications industries could have a significant impact on the value of the Company's inventory and operating results.
Concentrations of risk
The Company holds cash with one major financial institution, which at times exceeds FDIC insured limits. Historically, the Company has not
experienced any losses due to such concentration of credit risk.
Other financial instruments that potentially subject the Company to concentration of credit risk consist principally of trade
receivables. Concentrations of credit risk with respect to trade receivables are limited because a large number of geographically diverse customers make up the Company’s customer base, thus spreading the trade credit risk. The Company controls
credit risk through credit approvals, credit limits and monitoring procedures. The Company performs credit evaluations for all new customers but does not require collateral to support customer receivables.
The Company had no customer in 2018, 2017 or 2016 that represented in excess of 10% of the total net sales. The Company’s sales to foreign
(non-U.S. based) customers were $4.1 million, $4.3 million and $3.0 million for the years ended September 30, 2018, 2017 and 2016, respectively. In 2018, the Cable TV segment purchased approximately 15% of its inventory from Arris Solutions, Inc.
and approximately 11% of its inventory either directly from Cisco or indirectly through their primary stocking distributor. The concentration of suppliers of the Company’s inventory subjects the Company to risk. The Telco segment did not purchase
over 10% of its total inventory purchases from any one supplier.
Employee stock-based awards
Share-based payments to employees, including grants of employee stock options, are recognized in the consolidated financial statements based
on their grant date fair value over the requisite service period. The Company determines the fair value of the options issued, using the Black-Scholes valuation model, and amortizes the calculated value over the vesting term of the stock options.
Compensation expense for stock-based awards is included in the operating, selling, general and administrative expense section of the consolidated statements of operations.
Earnings per share
Basic earnings per share is computed by dividing the earnings available to common shareholders by the weighted average number of common
shares outstanding for the year. Dilutive earnings per share include any dilutive effect of stock options and restricted stock.
Fair value of financial instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities
approximate fair value due to their short maturities.
Financial Accounting Standards Board (“FASB”) ASC 820,
Fair Value Measurements and Disclosures,
defines fair value, establishes a consistent framework for measuring fair value and establishes a fair value hierarchy based on the observability of inputs used to measure fair
value. The three levels of the fair value hierarchy are as follows:
·
|
Level 1 – Quoted prices for identical assets in active markets or liabilities that we have the ability to access. Active markets
are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
|
·
|
Level 2 – Inputs are other than quoted prices in active markets included in Level 1 that are either directly or indirectly
observable. These inputs are either directly observable in the marketplace or indirectly observable through corroboration with market data for substantially the full contractual term of the asset or liability being measured.
|
·
|
Level 3 – Inputs that are not observable for which there is little, if any, market activity for the asset or liability being
measured. These inputs reflect management’s best estimate of the assumptions market participants would use in determining fair value.
|
Recently issued accounting standards
In May 2014, the FASB issued ASU 2014-09: “Revenue from Contracts with Customers (Topic 606)”. This guidance was issued to clarify the
principles for recognizing revenue and develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards (“IFRS”). In addition, in August 2015, the FASB issued ASU 2015-14: “Revenue from Contracts with Customers
(Topic 606). This update was issued to defer the effective date of ASU 2014-09 by one year. Therefore, the effective date of ASU 2014-09 is for annual reporting periods beginning after December 15, 2017. Based on management’s assessment of ASU
2014-09, management does not expect that ASU 2014-09 will have a material impact on the Company’s consolidated financial statements as the Company’s contracts generally consist of a single performance obligation to deliver tangible goods. As part
of the Company’s review of its contracts, the Company changed its processes for contract review of performance obligation contracts to help ensure the Company will be in compliance with this standard.
Management does not expect significant changes in the timing or method of revenue recognition, accounting systems, controls or a need to significantly change any accounting policies or practices. This
ASU allows the use of either the retrospective or modified retrospective transition method upon adoption. Management adopted ASU 2014-09 effective October 1, 2018, using the modified retrospective method of adoption, and will not have an
adjustment to retained earnings upon adoption. The adoption of ASU 2014-09 will result in additional disclosures.
In February 2016, the FASB issued ASU 2016-02: “Leases (Topic 842)” which is intended to improve financial reporting about leasing
transactions. This ASU will require organizations (“lessees”) that lease assets with lease terms of more than twelve months to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases.
Organizations that own the assets leased by lessees (“lessors”) will remain largely unchanged from current GAAP. In addition, this ASU will require disclosures to help investors and other financial statement users better understand the amount,
timing and uncertainty of cash flows arising from leases. The guidance is effective for annual periods beginning after December 15, 2018 and early adoption is permitted. Based on management’s initial assessment, ASU 2016-02 will have a material
impact on the Company’s consolidated financial statements. Management reviewed its lease obligations and determined that the Company generally does not enter into long-term lease obligations with the exception of its real estate leases for its
facilities. The Company is a lessee on certain real estate leases that will need to be reported as right of use assets and liabilities at an estimated amount of $3 million on the Company’s consolidated financial statements on the date of adoption.
In March 2016, the FASB issued ASU 2016-09: “Compensation – Stock Compensation (Topic 718)” which is intended to improve employee share-based
payment accounting. This ASU identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an
option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The guidance is effective for annual periods beginning after December 15,
2016 and interim periods within those annual periods. Early adoption is permitted. Management has determined that ASU 2016-09 will not have a material impact on the Company’s consolidated financial statements. The Company does not currently have
excess tax benefits or deficiencies from stock compensation expense. The Company adopted ASU 2016-09 on October 1, 2017.
In June 2016, the FASB issued 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. Entities will now 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. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those
fiscal periods. Entities may adopt earlier as of the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years. We are currently in the process of evaluating this new standard update.
In August 2016, the FASB issued ASU 2016-15: “Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash
Payments.” This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods
within those fiscal years. Early adoption is permitted. Based on management’s initial assessment of ASU 2016-15, the cash flows associated with guaranteed payments for acquisition of businesses will be reported as a financing activity in the
Statement of Cash Flows, as opposed to an investing activity where it is currently reported.
In January 2017, the FASB issued ASU 2017-04: “Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment.”
This ASU eliminates the second step in the goodwill impairment test which requires an entity to determine the implied fair value of the reporting unit’s goodwill. Instead, an entity should recognize an impairment loss if the carrying value of the
net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment loss not to exceed the amount of goodwill allocated to the reporting unit. This ASU is effective for annual and interim goodwill impairment
tests conducted in fiscal years beginning after December 15, 2019, with early adoption permitted. The Company elected to early adopt ASU 2017-04 on June 30, 2018 in connection with its goodwill assessment performed as of June 30, 2018 (See Note 5
– Goodwill).
Reclassification
Certain prior period amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on
previously reported results of operations or retained earnings.
Note 2 – Assets Held for Sale
On September 28, 2018, the Company’s Strategic Direction Committee authorized the Company’s management to sell its Broken Arrow, Oklahoma
facility, which contains the operations of one of the Cable TV segment subsidiaries, Tulsat, LLC (“Tulsat”), and the Company’s headquarters. Therefore, this property, which has a net book value of $3.7 million at September 30, 2018, was
classified as assets held for sale as of September 30, 2018 on the Company’s Consolidated Balance Sheets.
Subsequent to year end, on October 9, 2018, the Company entered
into an agreement with David Chymiak to sell the Broken Arrow, Oklahoma facility. Mr. Chymiak is the Chief Technology Officer, director, and substantial shareholder of the Company. The sale agreement provides for a purchase price of $5,000,000
payable in cash at closing. The sale closed on November 29, 2018, which generated
a pretax gain of approximately $1.4 million.
In connection with the sale of the Broken Arrow, Oklahoma facility, Tulsat entered into a ten-year lease with Mr. Chymiak for a monthly
rent of $44,000, or $528,000 per year. Tulsat, as tenant, will be responsible for most ongoing expenses related to the facility, including property tax, insurance and maintenance. As a result of the leaseback, the pretax gain of 1.4 million
will be deferred over the lease period.
Note 3 – Inventories
Inventories at September 30, 2018 and 2017 are as follows:
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
New:
|
|
|
|
|
|
|
Cable TV
|
|
$
|
12,594,138
|
|
|
$
|
14,014,188
|
|
Telco
|
|
|
1,371,545
|
|
|
|
554,034
|
|
Refurbished and used:
|
|
|
|
|
|
|
|
|
Cable TV
|
|
|
2,981,413
|
|
|
|
3,197,426
|
|
Telco
|
|
|
6,905,946
|
|
|
|
7,507,460
|
|
Allowance for excess and obsolete inventory:
|
|
|
|
|
|
|
|
|
Cable TV
|
|
|
(4,150,000
|
)
|
|
|
(2,300,000
|
)
|
Telco
|
|
|
(815,000
|
)
|
|
|
(639,288
|
)
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
18,888,042
|
|
|
$
|
22,333,820
|
|
New inventory includes products purchased from the manufacturers plus “surplus-new”, which are unused products purchased from other
distributors or multiple system operators. Refurbished inventory includes factory refurbished, Company refurbished and used products. Generally, the Company does not refurbish its used inventory until there is a sale of that product or to keep a
certain quantity on hand.
The Company regularly reviews the Cable TV and Telco segment inventory quantities on hand, and an adjustment to cost is recognized when the
loss of usefulness of an item or other factors, such as obsolete and excess inventories, indicate that cost will not be recovered when an item is sold. The Company recorded charges in the Cable TV segment
to allow for excess and obsolete inventory, which increased cost of sales by $1.9 million, $0.6 million and $0.6 million, respectively for
the years ended September 30, 2018, 2017 and 2016.
In fiscal years ended September 30, 2018, 2017 and 2016, the Telco segment identified certain inventory that more than likely will not be
sold or that the cost will not be recovered when it is processed through its recycling program. Therefore, the Company recorded charges which increased cost of sales $0.2 million, $0.3 million and $0.4 million for the years ended September 30,
2018, 2017 and 2016, respectively, to allow for excess and obsolete inventory.
We also reviewed the cost of inventories against estimated net
realizable value and recorded a lower of cost or net realizable value charge of $0.2 million, $0.1 million and $0.1 million for the years ended September 30, 2018, 2017 and 2016, respectively, for inventories that have a cost in excess of
estimated net realizable value. The Telco segment wrote-off inventory of $0.2 million as a result of moving Nave Communications Company (“Nave”) inventory to Palco Telecom.
Note 4 – Intangible Assets
During the year ended September 30, 2018, the Company moved the Nave Communications Company
inventory management and order fulfillment to Palco Telecom, a third-party reverse logistics provider in Huntsville, Alabama. As a result, Nave abandoned the inventory tracking software which was recorded as a
technology intangible.
The Company adjusted the estimated remaining useful life and recorded an intangible impairment charge of $0.4 million for the year ended September 30, 2018, which was the remaining net book value of the Telco
segment’s technology intangible. The impairment charge was recognized in restructuring charges on the Consolidated Statements of Operations (See Note 11 – Restructuring Charge).
The intangible assets with their associated accumulated amortization amounts at September 30, 2018 are as follows:
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
Customer relationships – 10 years
|
|
$
|
8,152,000
|
|
|
$
|
(2,713,890
|
)
|
|
$
|
5,438,110
|
|
Trade name – 10 years
|
|
|
2,119,000
|
|
|
|
(754,380
|
)
|
|
|
1,364,620
|
|
Non-compete agreements – 3 years
|
|
|
374,000
|
|
|
|
(332,332
|
)
|
|
|
41,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
10,645,000
|
|
|
$
|
(3,800,602
|
)
|
|
$
|
6,844,398
|
|
The intangible assets with their associated accumulated amortization amounts at September 30, 2017 are as follows:
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
Customer relationships – 10 years
|
|
$
|
8,152,000
|
|
|
$
|
(1,898,691
|
)
|
|
$
|
6,253,309
|
|
Technology – 7 years
|
|
|
1,303,000
|
|
|
|
(667,009
|
)
|
|
|
635,991
|
|
Trade name – 10 years
|
|
|
2,119,000
|
|
|
|
(542,480
|
)
|
|
|
1,576,520
|
|
Non-compete agreements – 3 years
|
|
|
374,000
|
|
|
|
(292,333
|
)
|
|
|
81,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
11,948,000
|
|
|
$
|
(3,400,513
|
)
|
|
$
|
8,547,487
|
|
Amortization expense was $1.3 million, $1.3 million and $0.8 million for the years ended September 30, 2018, 2017 and 2016, respectively.
The estimated aggregate amortization expense for each of the next five fiscal years is as follows:
2019
|
|
$
|
1,067,100
|
|
2020
|
|
|
1,028,768
|
|
2021
|
|
|
1,027,100
|
|
2022
|
|
|
1,027,100
|
|
2023
|
|
|
1,027,100
|
|
Thereafter
|
|
|
1,667,230
|
|
|
|
|
|
|
Total
|
|
$
|
6,844,398
|
|
Note 5 – Goodwill
The Company performs its annual analysis in the fourth fiscal quarter of each year for goodwill impairment on its reporting units, which for
this analysis are the Cable TV operating segment and the Telco operating segment. However, during the third fiscal quarter, there were indicators of possible impairment in its Cable TV segment which warranted the Company to perform an analysis for
goodwill impairment of the Cable TV segment. These indicators included lower operating results of the Cable TV segment compared to the prior year and projected results, and management discussions surrounding various strategic alternatives given
the lower operating performance.
As a result of these indicators, the Company determined that it was necessary to perform the goodwill impairment analysis for the Cable TV
segment. This analysis compares a calculation of the estimated fair value for the Cable TV segment utilizing a discounted cash flow analysis and compares it to the carrying value of the Cable TV segment. The Company determined that the carrying
value of the Cable TV segment exceeded the fair value.
In accordance with ASU 2017-04, which the Company elected to early adopt on June 30, 2018, the Company should recognize an impairment charge
if the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, with the impairment charge not to exceed the amount of goodwill allocated to the reporting unit. Therefore, the Company recognized
an impairment charge of $1.2 million for the year ended September 30, 2018, which was the carrying value of the Cable TV segment’s goodwill.
We performed our annual impairment test for the Telco reporting unit in the fourth quarter of 2018 and determined that the estimated fair
value of our reporting unit exceeded its carrying value, and the goodwill of Telco was not impaired.
Note 6 – Income Taxes
The Tax Cuts and Jobs Act was enacted on December 22, 2017. One of the provisions of this legislation was that it reduced the corporate
income tax rates for the Company from 34% to 21% effective beginning January 1, 2018. Due to this legislation, the Company has remeasured its deferred tax balances at the reduced enacted tax rates as well as utilized the lower anticipated
effective income tax rate for the year ended September 30, 2018 results. The provision recorded related to the remeasurement of the Company’s deferred tax balances was $0.4 million. The accounting for the effects of the rate change on the
deferred tax balances is complete and no provisional amounts were recorded for the new legislation.
The provision (benefit) for income taxes for the years ended September 30, 2018, 2017 and 2016 consists of:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Current
|
|
$
|
(17,000
|
)
|
|
$
|
174,000
|
|
|
$
|
22,000
|
|
Deferred
|
|
|
1,653,000
|
|
|
|
(320,000
|
)
|
|
|
157,000
|
|
Total provision (benefit) for income
taxes
|
|
$
|
1,636,000
|
|
|
$
|
(146,000
|
)
|
|
$
|
179,000
|
|
The following table summarizes the differences between the U.S. federal statutory rate and the Company’s effective tax rate for continuing
operations financial statement purposes for the years ended September 30, 2018, 2017 and 2016:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Statutory tax rate
|
|
|
21.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State income taxes, net of U.S. federal tax benefit
|
|
|
6.1
|
%
|
|
|
43.7
|
%
|
|
|
(4.4
|
%)
|
Return to accrual adjustment
|
|
|
(0.1
|
%)
|
|
|
(9.8
|
%)
|
|
|
1.5
|
%
|
Tax credits
|
|
|
0.3
|
%
|
|
|
8.2
|
%
|
|
|
−
|
|
Charges without tax benefit
|
|
|
(3.2
|
%)
|
|
|
(16.2
|
%)
|
|
|
6.8
|
%
|
Change in statutory rate
|
|
|
(7.7
|
%)
|
|
‒
|
|
|
‒
|
|
Valuation allowance
|
|
|
(45.1
|
%)
|
|
‒
|
|
|
|
−
|
|
Other exclusions
|
|
|
(0.1
|
%)
|
|
|
(0.1
|
%)
|
|
|
(0.1
|
%
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company’s effective tax rate
|
|
|
(28.8
|
%
)
|
|
|
59.8
|
%
|
|
|
37.8
|
%
|
The charges without tax benefit rate for fiscal year 2018 includes, among other things, the impact of officer life insurance, nondeductible
meals and entertainment and permanent basis differences in goodwill.
The tax effects of temporary differences related to deferred taxes at September 30, 2018 and 2017 consist of the
following:
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
804,000
|
|
|
$
|
208,000
|
|
Accounts receivable
|
|
|
40,000
|
|
|
|
58,000
|
|
Inventory
|
|
|
1,453,000
|
|
|
|
1,432,000
|
|
Intangibles
|
|
|
614,000
|
|
|
|
560,000
|
|
Accrued expenses
|
|
|
76,000
|
|
|
|
175,000
|
|
Stock options
|
|
|
66,000
|
|
|
|
246,000
|
|
Investment in equity method investee
|
|
|
162,000
|
|
|
|
174,000
|
|
Other
|
|
|
102,000
|
|
|
‒
|
|
|
|
|
3,317,000
|
|
|
|
2,853,000
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Financial basis in excess of tax basis of certain assets
|
|
|
726,000
|
|
|
|
1,156,000
|
|
Other
|
|
|
27,000
|
|
|
|
44,000
|
|
|
|
|
|
|
|
|
|
|
Less valuation allowance
|
|
|
2,564,000
|
|
|
‒
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
‒
|
|
|
$
|
1,653,000
|
|
The Company’s U.S. Federal net operating loss (“NOL”) carryforwards consist of the following:
|
|
NOL
carryforward
|
|
|
Year Expires
|
|
Year ended September 30, 2018
|
|
$
|
2,120,000
|
|
|
No expiry
|
|
Year ended September 30, 2016
|
|
|
82,820
|
|
|
|
2036
|
|
The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making
such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial performance. The
Company has concluded, based on its recent cumulative losses that it will not be able to realize the full effect of the deferred tax assets and a valuation allowance of $2.6 million is needed.
Based upon a review of its income tax positions, the Company believes that its positions would be sustained upon an examination by the
Internal Revenue Service and does not anticipate any adjustments that would result in a material change to its financial position. Therefore, no reserves for uncertain income tax positions have been recorded. Generally, the Company is no longer
subject to examinations by the U.S. federal, state or local tax authorities for tax years before 2015.
Note 7 – Accrued Expenses
Accrued expenses at September 30, 2018 and 2017 are as follows:
|
|
2018
|
|
|
2017
|
|
Employee costs
|
|
$
|
741,818
|
|
|
$
|
884,390
|
|
Triton Datacom earn-out
|
|
|
–
|
|
|
|
222,611
|
|
Taxes other than income tax
|
|
|
260,390
|
|
|
|
163,016
|
|
Interest
|
|
|
9,251
|
|
|
|
22,121
|
|
Other, net
|
|
|
138,551
|
|
|
|
114,584
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,150,010
|
|
|
$
|
1,406,722
|
|
Note 8 – Line of Credit and Notes Payable
Notes Payable
On May 31, 2018, the Company entered into a forbearance agreement with BOKF, NA dba Bank of Oklahoma (“Lender”) relating to the Company’s
Amended and Restated Credit and Term Loan Agreement (“Credit and Term Loan Agreement”). As the Company had previously disclosed in its March 31, 2018 Form 10-Q filed on May 15, 2018, the Company was not in compliance with the fixed charge ratio
covenant under the Credit and Term Loan Agreement at March 31, 2018 and had notified Lender of the covenant violation and requested a waiver. As a result of the covenant violation, the Company was in default under the Credit and Term Loan
Agreement, for which Lender had the right to exercise its rights under the Credit and Term Loan Agreement, including the right to accelerate the payment of the Company’s indebtedness to the Lender, to enforce the Lender’s security interest in the
collateral under the Credit and Term Loan Agreement and to pursue collection from the Company for outstanding amounts owed under the Credit and Term Loan Agreement.
Under the forbearance agreement, which is Amendment Ten to the Credit and Term Loan Agreement, Lender agreed to delete the fixed charge ratio
covenant from the Credit and Term Loan Agreement and to forbear from exercising its rights and remedies under the Credit and Term Loan Agreement through October 31, 2018 subject to, among other things, the following terms:
·
|
Reducing the revolving line commitment from $5.0 million to $3.0 million;
|
·
|
Terminating the Lender’s obligation to lend or make advances under the revolving line of credit;
|
·
|
Limiting the Company’s capital expenditure to $100,000 during the forbearance period;
|
·
|
Requiring semi-monthly reporting of its borrowing base calculation; and
|
·
|
Requiring the Company to remain in compliance with the terms of the amended Credit and Term Loan
|
Agreement.
Revolving credit and term loans created under the Credit and Term Loan Agreement were collateralized by inventory, accounts receivable,
equipment and fixtures, general intangibles and a mortgage on certain property. Among other financial covenants, the Credit and Term Loan Agreement provided that the Company maintain a leverage ratio (total funded debt to EBITDA) of not more than
2.50 to 1.0.
At September 30, 2018, the Company had two term loans outstanding under the Credit and Term Loan Agreement. The first outstanding term loan
had an outstanding balance of $0.6 million at September 30, 2018 and was due on October 31, 2018, with monthly principal payments of $15,334 plus accrued interest. The interest rate was the prevailing 30-day LIBOR rate plus 1.4% (3.66% at
September 30, 2018) and was reset monthly.
The second outstanding term loan had an outstanding balance of $1.5 million at September 30, 2018 and was due October 31, 2018, with monthly
principal and interest payments of $118,809. The interest rate on the term loan was a fixed interest rate of 4.40%.
On December 6, 2017, the Company extinguished one of its previous term loans by paying the outstanding balance of $2.7 million plus a
prepayment penalty of $25,000. Subsequent to September 30, 2018, the Company extinguished its two outstanding term loans under the forbearance agreement by paying the outstanding balances of $2.1 million.
Line of Credit
On May 31, 2018, the Company entered into a forbearance agreement, which is Amendment Ten to the Credit and Term Loan Agreement. This
amendment changed the Revolving Line of Credit (“Line of Credit”) maturity to October 31, 2018 and reduced the Line of Credit to $3.0 million from $5.0 million, while other terms of the Line of Credit remained essentially the same. At September
30, 2018, $0.5 million was outstanding under the Line of Credit and is reported in Notes payable
–
current portion on the consolidated balance
sheet. The Line of Credit required quarterly interest payments based on the prevailing 30-day LIBOR rate plus 2.75% (5.03% at September 30, 2018), and the interest rate was reset monthly. Any future borrowings under the Line of Credit were due on
October 31, 2018. Future borrowings under the Line of Credit were limited to the lesser of $3.0 million or the net balance of 80% of qualified accounts receivable plus 50% of qualified inventory.
Subsequent to September 30, 2018, the Company extinguished its Revolving Line of Credit under the forbearance agreement by paying the
outstanding balance of $0.5 million.
The aggregate minimum maturities of notes payable and the line of credit for fiscal year 2019 is $2,594,185 and $0 for
fiscal years 2020 through 2023 and thereafter.
As noted above, subsequent to September 30, 2018, the Company extinguished all of its outstanding term loans and line of credit outstanding
under the forbearance agreement. Therefore, the Company is no longer subject to the terms of the forbearance agreement and has been released from the Credit and Term Loan Agreement.
Subsequent to September 30, 2018, the Company entered into a new credit agreement with a different lender. This credit agreement contains a
$2.5 million revolving line of credit and matures on December 17, 2019. The Line of Credit requires quarterly interest payments based on the prevailing Wall Street Journal Prime rate plus 0.75% (6.00% at December 17, 2018), and the interest rate
is reset monthly. The new credit agreement provides that the Company maintain a fixed charge coverage ratio (net cash flow to total fixed charges) of not less than 1.25 to 1.0. Future borrowings under the Line of Credit are limited to the lesser
of $2.5 million or the sum of 80% of eligible accounts receivable and 25% of eligible inventory. Under these limitations, the Company’s total available Line of Credit borrowing base was $2.5 million at the time of entering into the new credit
agreement.
Fair Value of Debt
The carrying value of the Company’s variable-rate term loan approximates its fair value since the interest rate fluctuates periodically based
on a floating interest rate.
The Company has determined the fair value of its fixed-rate term loan utilizing the Level 2 hierarchy as the fair value can be estimated from
broker quotes corroborated by other market data. These broker quotes are based on observable market interest rates at which loans with similar terms and maturities could currently be executed. The Company then estimated the fair value of the
fixed-rate term loan using cash flows discounted at the current market interest rate obtained. The fair value of the Company’s outstanding fixed rate loan was $1.5 million as of September 30, 2018.
Note 9 – 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. Under the Plan, option prices will be set by the Compensation Committee and may not be less than the fair market value of the stock on the grant date.
At September 30, 2018, 1,100,415 shares of common stock were reserved for stock award grants under the Plan. Of these reserved shares,
542,301 shares were available for future grants.
Stock Options
All share-based payments to employees, including grants of employee stock options, are recognized in the consolidated financial statements
based on their grant date fair value over the requisite service period. Compensation expense for stock-based awards is included in the operating, selling, general and administrative expense section of the Consolidated Statements of Operations.
Stock options are valued at the date of the award, which does not precede the approval date, and compensation cost is recognized on a
straight-line basis over the vesting period. Stock options granted to employees generally become exercisable over a three, four or five-year period from the date of grant and generally expire ten years after the date of grant. Stock options
granted to the Board of Directors generally become exercisable on the date of grant and generally expire ten years after the date of grant.
A summary of the status of the Company's stock options at September 30, 2018 and changes during the year then ended is
presented below:
|
|
Options
|
|
|
Weighted Average
Exercise
Price
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at September 30, 2017
|
|
|
700,000
|
|
|
$
|
2.54
|
|
|
|
|
Granted
|
|
|
–
|
|
|
$
|
–
|
|
|
|
|
Exercised
|
|
|
−
|
|
|
$
|
–
|
|
|
$
|
0
|
|
Expired
|
|
|
(55,000
|
)
|
|
$
|
3.00
|
|
|
|
|
|
Forfeited
|
|
|
(355,000
|
)
|
|
$
|
2.57
|
|
|
|
|
|
Outstanding at September 30, 2018
|
|
|
290,000
|
|
|
$
|
2.40
|
|
|
$
|
0
|
|
Exercisable at September 30, 2018
|
|
|
196,667
|
|
|
$
|
2.68
|
|
|
$
|
0
|
|
There were no options exercised under the Plan for the years ended September 30, 2018, 2017 and 2016.
Information about the Company’s outstanding and exercisable stock options at September 30, 2018 is as follows:
Exercise Price
|
Stock Options
Outstanding
|
Exercisable
Stock Options
Outstanding
|
Remaining
Contractual
Life
|
$1.79
|
50,000
|
16,667
|
8.6 years
|
$1.81
|
90,000
|
30,000
|
8.4 years
|
$3.21
|
100,000
|
100,000
|
5.5 years
|
$2.45
|
50,000
|
50,000
|
3.5 years
|
|
290,000
|
196,667
|
|
No nonqualified stock options were granted in 2018. The Company granted nonqualified stock options of 140,000 shares and 50,000 shares for
the year ended September 30, 2017 and September 30, 2016, respectively. The Company estimated the fair value of the options granted using the Black-Scholes option valuation model and the assumptions shown in the table below. The Company estimated
the expected term of options granted based on the historical grants and exercises of the Company's options. The Company estimated the volatility of its common stock at the date of the grant based on both the historical volatility as well as the
implied volatility on its common stock. The Company based the risk-free rate that was used in the Black-Scholes option valuation model on the implied yield in effect at the time of the option grant on U.S. Treasury zero-coupon issues with
equivalent expected terms. The Company has never paid cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company used an expected dividend yield of zero in the
Black-Scholes option valuation model. The Company amortizes the resulting fair value of the options ratably over the vesting period of the awards. The Company used historical data to estimate the pre-vesting options forfeitures and records
share-based expense only for those awards that are expected to vest.
The estimated fair value at date of grant for stock options utilizing the Black-Scholes option valuation model and the assumptions that were
used in the Black-Scholes option valuation model for the fiscal years 2017 and 2016 stock option grants are as follows:
|
|
2017
|
|
|
2016
|
|
Estimated fair value of options at grant date
|
|
$
|
96,690
|
|
|
$
|
34,350
|
|
Black-Scholes model assumptions:
|
|
|
|
|
|
|
|
|
Average expected life (years)
|
|
|
6
|
|
|
|
6
|
|
Average expected volatile factor
|
|
|
35
|
%
|
|
|
38
|
%
|
Average risk-free interest rate
|
|
|
2.4
|
%
|
|
|
1.75
|
%
|
Average expected dividend yield
|
|
|
–
|
|
|
|
–
|
|
Compensation expense related to stock options recorded for the years ended September 30, 2018, 2017 and 2016 is as follows:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Fiscal year 2012 grant
|
|
$
|
‒
|
|
|
$
|
5,359
|
|
|
$
|
17,417
|
|
Fiscal year 2014 grant
|
|
|
‒
|
|
|
|
13,575
|
|
|
|
47,522
|
|
Fiscal year 2016 grant
|
|
|
1,789
|
|
|
|
16,221
|
|
|
|
8,745
|
|
Fiscal year 2017 grant
|
|
|
42,135
|
|
|
|
31,088
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation expense
|
|
$
|
43,924
|
|
|
$
|
66,243
|
|
|
$
|
73,684
|
|
The Company records compensation expense over the vesting term of the related options. At September 30, 2018, compensation costs related to
these unvested stock options not yet recognized in the statements of operations was $23,469.
Restricted stock
The Company granted restricted stock in March 2018, 2017 and 2016 to its Board of Directors and a Company officer totaling 80,150 shares,
58,009 shares and 62,874 shares, respectively. The restricted stock grants were valued at market value on the date of grant. The restricted shares are delivered to the directors and employees at the end of the 12 month holding period. The fair
value of the shares upon issuance totaled $105,000 for each of the 2018, 2017 and 2016 fiscal year grants. The grants are amortized over the 12 month holding period as compensation expense.
Compensation expense related to restricted stock recorded for the years ended September 30, 2018, 2017 and 2016 is as
follows:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Fiscal year 2014 grants
|
|
$
|
–
|
|
|
$
|
4,222
|
|
|
$
|
14,779
|
|
Fiscal year 2015 grants
|
|
|
–
|
|
|
|
–
|
|
|
|
25,000
|
|
Fiscal year 2016 grants
|
|
|
–
|
|
|
|
43,750
|
|
|
|
78,750
|
|
Fiscal year 2017 grant
|
|
|
43,750
|
|
|
|
61,250
|
|
|
|
–
|
|
Fiscal year 2018 grant
|
|
|
61,250
|
|
|
|
–
|
|
|
|
−
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
105,000
|
|
|
$
|
109,222
|
|
|
$
|
118,529
|
|
Note 10 – Retirement Plan
The Company sponsors a 401(k) plan that allows participation by all employees who are at least 21 years of age and have completed one year of
service. The Company's contributions to the plan consist of a matching contribution as determined by the plan document. Costs recognized under the 401(k) plan were $0.3 million for each of the years ended September 30, 2018, 2017 and 2016.
Note 11 – Restructuring Charge
The Company recorded a $0.9 million restructuring charge for the Telco Segment for the year ended September 30, 2018 resulting from
management’s decision to move Nave’s inventory management and order fulfillment operations from its facility in Jessup, Maryland to Palco Telecom (“Palco”),
a third-party
reverse logistics provider in Huntsville, Alabama. As a result, Nave incurred the following restructuring charges: 1) intangible impairment of charge of $0.4 million related to inventory tracking software that will no longer be utilized; 2)
moving expenses of $0.4 million to transfer Nave’s inventory from its facility in Jessup, Maryland to Palco; and 3) severance expenses of $0.1 million for Nave operations employees.
Note 12 – Earnings per Share
Basic and diluted earnings per share for the years ended September 30, 2018, 2017 and 2016 are:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Net income (loss) attributable to
common shareholders
|
|
$
|
(7,319,856
|
)
|
|
$
|
(98,116
|
)
|
|
$
|
294,163
|
|
Basic weighted average shares
|
|
|
10,272,749
|
|
|
|
10,201,825
|
|
|
|
10,141,234
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
–
|
|
|
|
–
|
|
|
|
4,062
|
|
Diluted weighted average shares
|
|
|
10,272,749
|
|
|
|
10,201,825
|
|
|
|
10,145,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.71
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
Diluted
|
|
$
|
(0.71
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
The table below includes information related to stock options that were outstanding at the end of each respective year but have been excluded
from the computation of weighted-average stock options for dilutive securities due to the option exercise price exceeding the average market price per share of our common stock for the fiscal year, as their effect would be anti-dilutive.
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Stock options excluded
|
|
|
290,000
|
|
|
|
700,000
|
|
|
|
520,000
|
|
Weighted average exercise price of
|
|
|
|
|
|
|
|
|
|
|
|
|
stock options
|
|
$
|
2.40
|
|
|
$
|
2.54
|
|
|
$
|
2.83
|
|
Average market price of common stock
|
|
$
|
1.39
|
|
|
$
|
1.70
|
|
|
$
|
1.90
|
|
Note 13 – Related Parties
The Company leases three facilities in Florida from a company owned by two employees. The total payments made on the leases were $0.2
million and $0.1 million for the years ended September 30, 2018 and 2017, respectively. The three leases terms extend through December 31, 2019.
David E. Chymiak and Kenneth A. Chymiak beneficially owned 26% and 19%, respectively, of the Company’s outstanding common stock at September
30, 2018.
As disclosed in Note 2 – Assets Held for Sale, subsequent to September 30, 2018, a company controlled by David Chymiak purchased the
Company’s Broken Arrow, Oklahoma facility for $5.0 million. As part of this transaction, Tulsat, an operating company within the Cable TV Segment, entered a ten-year lease with the purchaser with monthly lease payments of $44,000.
Note 14 – Commitments and Contingencies
The Company leases and rents various office and warehouse properties in Florida, Georgia, Maryland, North Carolina, and Pennsylvania. The
terms on its operating leases vary and contain renewal options or are rented on a month-to-month basis. Rental payments associated with leased properties totaled $0.8 million, $0.8 million and $0.7 million for the years ended September 30, 2018,
2017 and 2016, respectively.
At September 30, 2018, the Company’s minimum annual future obligations under all existing operating leases for each of the next five years
are as follows:
2019
|
|
$
|
701,837
|
|
2020
|
|
|
592,268
|
|
2021
|
|
|
568,250
|
|
2022
|
|
|
582,456
|
|
2023
|
|
|
597,017
|
|
Thereafter
|
|
|
99,909
|
|
|
|
|
|
|
Total
|
|
$
|
3,141,737
|
|
Note 15 – Segment Reporting
The Company has two reporting segments, Cable Television and Telecommunications, as described below.
Cable Television (“Cable TV”)
The Company’s Cable TV segment sells new, surplus and re-manufactured cable television equipment throughout North America, Central America,
South America and, to a substantially lesser extent, other international regions that utilize the same technology. In addition, this segment repairs cable television equipment for various cable companies.
Telecommunications (“Telco”)
The Company’s Telco segment sells new and used 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. 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, inventory, property and equipment,
goodwill and intangible assets.
|
|
Years Ended
|
|
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
Sales
|
|
|
|
|
|
|
|
|
|
Cable TV
|
|
$
|
19,940,705
|
|
|
$
|
22,806,175
|
|
|
$
|
22,996,998
|
|
Telco
|
|
|
27,522,696
|
|
|
|
25,994,521
|
|
|
|
15,800,424
|
|
Intersegment
|
|
|
(49,414
|
)
|
|
|
(86,950
|
)
|
|
|
(134,158
|
)
|
Total sales
|
|
$
|
47,413,987
|
|
|
$
|
48,713,746
|
|
|
$
|
38,663,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Cable TV
|
|
$
|
3,805,761
|
|
|
$
|
7,738,355
|
|
|
$
|
7,753,735
|
|
Telco
|
|
|
7,417,215
|
|
|
|
7,072,238
|
|
|
|
4,687,148
|
|
Total gross profit
|
|
$
|
11,222,976
|
|
|
$
|
14,810,593
|
|
|
$
|
12,440,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cable TV
|
|
$
|
(2,570,050
|
)
|
|
$
|
1,834,484
|
|
|
$
|
1,478,676
|
|
Telco
|
|
|
(2,623,360
|
)
|
|
|
(1,688,878
|
)
|
|
|
(1,134,815
|
)
|
Total operating income (loss)
|
|
$
|
(5,193,410
|
)
|
|
$
|
145,606
|
|
|
$
|
343,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cable TV
|
|
$
|
18,371,530
|
|
|
$
|
24,116,395
|
|
|
$
|
25,201,697
|
|
Telco
|
|
|
22,173,797
|
|
|
|
24,135,091
|
|
|
|
15,122,911
|
|
Non-allocated
|
|
|
3,849,293
|
|
|
|
6,596,119
|
|
|
|
9,943,551
|
|
Total assets
|
|
$
|
44,394,620
|
|
|
$
|
54,847,605
|
|
|
$
|
50,268,159
|
|
Note 16 – Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the years ended September 30, 2018, 2017 and 2016:
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
Fiscal year ended 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
12,284,765
|
|
|
$
|
11,649,528
|
|
|
$
|
12,573,899
|
|
|
$
|
10,905,795
|
|
Gross profit
|
|
$
|
3,381,155
|
|
|
$
|
3,345,065
|
|
|
$
|
3,082,933
|
|
|
$
|
1,413,823
|
|
Net loss
|
|
$
|
(706,762
|
)
|
|
$
|
(259,697
|
)
|
|
$
|
(1,506,699
|
)
|
|
$
|
(4,846,698
|
)
|
Basic loss per common
share
|
|
$
|
(0.07
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.47
|
)
|
Diluted loss per common
share
|
|
$
|
(0.07
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.47
|
)
|
Fiscal year ended 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
12,095,826
|
|
|
$
|
11,294,756
|
|
|
$
|
12,989,990
|
|
|
$
|
12,333,174
|
|
Gross profit
|
|
$
|
4,023,629
|
|
|
$
|
3,764,429
|
|
|
$
|
3,755,951
|
|
|
$
|
3,266,584
|
|
Net income (loss)
|
|
$
|
217,161
|
|
|
$
|
10,671
|
|
|
$
|
(66,863
|
)
|
|
$
|
(259,085
|
)
|
Basic earnings (loss) per
common share
|
|
$
|
0.02
|
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
Diluted earnings (loss) per
common share
|
|
$
|
0.02
|
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
Fiscal year ended 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
8,249,668
|
|
|
$
|
10,587,187
|
|
|
$
|
10,060,242
|
|
|
$
|
9,766,167
|
|
Gross profit
|
|
$
|
2,765,380
|
|
|
$
|
3,584,612
|
|
|
$
|
3,466,151
|
|
|
$
|
2,624,740
|
|
Net income (loss)
|
|
$
|
23,994
|
|
|
$
|
145,630
|
|
|
$
|
316,086
|
|
|
$
|
(191,547
|
)
|
Basic earnings (loss) per common share
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
|
$
|
0.03
|
|
|
$
|
(0.02
|
)
|
Diluted earnings (loss) per common share
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
|
$
|
0.03
|
|
|
$
|
(0.02
|
)
|
Note 17 – Subsequent Events
Sale of Cable TV Segment
In December 2018, the Company entered into an agreement for the sale of our Cable TV segment business to a company controlled by David
Chymiak for $10.3 million. This sale is subject to shareholder approval, which the Company anticipates occurring in our third fiscal quarter of 2019. The purchase price will consist of $3.9 million of cash and a $6.4 million promissory note to be
paid in semi-annual installments over five years with an interest rate of 6.0%. If the sale receives shareholder approval, the Company estimates that this sale will result in a pretax loss of approximately $2.8 million. In addition, if the sale
receives shareholder approval, the Company will accelerate the remaining deferred gain of $1.4 million from the sale of the Broken Arrow, Oklahoma facility (see Note 2 – Assets Held For Sale).
Purchase of Net Assets of Fulton Technologies, Inc. and Mill City Communications, Inc.
On December 27, 2018, the Company entered into a purchase agreement to acquire substantially all of the net assets of Fulton Technologies,
Inc. and Mill City Communications, Inc. These companies provide turn-key wireless infrastructure services for wireless carriers, contractors supporting the wireless carriers, and equipment manufacturers. These services primarily consist of
installing and decommissioning equipment on cell towers and small cell towers. This agreement is expected to close in early January 2019. This acquisition is part of the overall growth strategy that will further diversify the Company into the
broader telecommunications industry by providing wireless infrastructure services to the wireless telecommunications market.
The purchase price for the net assets of Fulton Technologies, Inc. and Mill City Communications, Inc. will be $1.7 million subject to a
working capital adjustment. A deposit of $500,000 was paid on December 27, 2018 in connection with signing the purchase agreement.