NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 1 - Unaudited interim condensed consolidated financial
statements
The accompanying unaudited condensed consolidated
financial statements of RF Industries, Ltd. and its divisions and two wholly-owned subsidiaries (collectively, hereinafter the
“Company”) 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, 2018 has been derived from, and certain
terms used herein are defined in, the audited consolidated financial statements of the Company as of October 31, 2018 included
in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the year ended October 31, 2018 that was previously
filed with the Securities and Exchange Commission (“SEC”). Operating results for the three months ended January 31,
2019 are not necessarily indicative of the results that may be expected for the year ending October 31, 2019. 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, 2018.
Principles of consolidation
The accompanying unaudited condensed consolidated
financial statements include the accounts of RF Industries, Ltd. and its two wholly-owned subsidiaries, Cables Unlimited, Inc.
(“Cables Unlimited”) and Rel-Tech Electronics, Inc. (“Rel-Tech”). All intercompany balances and transactions
have been eliminated in consolidation.
Reclassifications
Certain amounts in the prior
period condensed consolidated financial statements and notes have been reclassified to conform to the current period
presentation of continuing operations and discontinued operations (see Note 2). These reclassifications had no effect on
reported consolidated net income.
Revenue recognition
On November 1, 2018, the Company
adopted ASU No. 2014-09, Revenue from Contacts with Customers (Topic 606) (“ASC 606”) applying the modified
retrospective method. The core principle of ASC 606 is that revenue should be recorded in an amount that reflects the
consideration to which we expect to be entitled in exchange for goods or services promised to customers. Under ASC 606, the
Company follows a five-step model to: (1) identify the contract with our customer; (2) identify our performance obligations
in our contract; (3) determine the transaction price for our contract; (4) allocate the transaction price to our performance
obligations; and (5) recognize revenue when (or as) each performance obligation is satisfied. In accordance with this
accounting principle, the Company recognizes revenue using the output method at a point in time when finished goods have
been transferred to the customer and there are no other obligations to customers after the title of the goods have
transferred. Title of goods are transferred based on shipping terms for each customer – for shipments with terms of FOB
Shipping Point, title is transferred upon shipment; for shipments with terms of FOB Destination, title is transferred
upon delivery.
Recent accounting standards
Recently issued
accounting pronouncements not yet adopted:
In February 2016, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 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 January 2017, the FASB issued ASU No.
2017-04, Intangibles-Goodwill and Other, which simplifies the accounting for goodwill impairments by eliminating step 2 from the
goodwill impairment test. Instead, if “the carrying amount of a reporting unit exceeds its fair value, an impairment loss
shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.”
The guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently
evaluating the impact the adoption of this new standard will have on its Consolidated Financial Statements.
Recently issued accounting pronouncements
adopted:
In May 2014, the FASB issued ASC 606. This guidance superseded Topic 605, Revenue Recognition,
in addition to other industry-specific guidance. 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. On November 1, 2018, the Company adopted ASC 606 applying the modified retrospective method. The Company
has performed a review of ASC 606 as compared to its previous accounting policies for our product revenue and did not identify
any material impact to revenue. Therefore, there was no adjustment to retained earnings for a cumulative effect. The necessary
changes to business processes and controls to effectively review and account for any new contracts under this standard have been
implemented.
Note 2 - Discontinued operations
On October 31, 2018, the Company sold all
of the assets and liabilities of its subsidiary, Comnet Telecom Supply (“Comnet”), to RAP Acquisition Inc., a New Jersey
corporation. Comnet was a New Jersey-based manufacturer and supplier of telecommunications and data products, including fiber optic
cables, cabling technologies, custom patch cord assemblies, data center consoles, and other data center equipment. This division
was one of the three subsidiaries in the Company’s Custom Cabling Manufacturing Assembly segment. For the three months ended
January 31, 2018, the Company recognized pretax income of $196,000 from the discontinued operations of Comnet, and an income tax
expense of $46,000. The major line items constituting the income from discontinued operations of Comnet for the three months ended
January 31, 2018 are as follows (in thousands):
|
|
January 31,
|
|
|
|
2018
|
|
Major line items constituting pretax income from discontinued operations:
|
|
|
|
|
Net sales
|
|
$
|
2,374
|
|
Cost of sales
|
|
|
(1,765
|
)
|
Gross profit
|
|
|
609
|
|
Selling, general and administrative expense
|
|
|
(413
|
)
|
Pretax income from discontinued operations
|
|
|
196
|
|
Provision for income taxes
|
|
|
46
|
|
Income from discontinued operations
|
|
$
|
150
|
|
Note 3 - Inventories and major vendors
Inventories, consisting of materials, labor
and manufacturing overhead, are stated at the lower of cost or net realizable value. Cost has been determined using the weighted
average cost method. Inventories consist of the following (in thousands):
|
|
January 31, 2019
|
|
|
October 31, 2018
|
|
|
|
|
|
|
|
|
Raw materials and supplies
|
|
$
|
3,600
|
|
|
$
|
2,711
|
|
Work in process
|
|
|
757
|
|
|
|
603
|
|
Finished goods
|
|
|
3,812
|
|
|
|
3,799
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
8,169
|
|
|
$
|
7,113
|
|
Two vendors each accounted for 17% of inventory
purchases for the three months ended January 31, 2019. For the three months ended January 31, 2018, one vendor accounted for 30%
of inventory purchases. The Company has arrangements with these vendors to purchase products based on purchase orders periodically
issued by the Company.
Note 4 - Other current assets
Other current assets consist of the following
(in thousands):
|
|
January 31, 2019
|
|
|
October 31, 2018
|
|
|
|
|
|
|
|
|
Prepaid taxes
|
|
$
|
180
|
|
|
$
|
335
|
|
Prepaid expense
|
|
|
365
|
|
|
|
228
|
|
Notes receivable, current portion
|
|
|
-
|
|
|
|
20
|
|
Other
|
|
|
236
|
|
|
|
245
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
781
|
|
|
$
|
828
|
|
Note 5 - Accrued expenses
Accrued expenses consist
of the following (in thousands):
|
|
January 31, 2019
|
|
|
October 31, 2018
|
|
|
|
|
|
|
|
|
Wages payable
|
|
$
|
756
|
|
|
$
|
1,705
|
|
Accrued receipts
|
|
|
840
|
|
|
|
1,271
|
|
Other current liabilities
|
|
|
463
|
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
2,059
|
|
|
$
|
3,377
|
|
Accrued receipts
represent purchased inventory for which invoices have not been received.
Note 6 - Earnings per share
Basic earnings per share is computed by
dividing net income 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 issuable securities totaling 93,000 and 771,973 shares for the three months ended January
31, 2019 and 2018, 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 January 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic earnings per share
|
|
|
9,309,454
|
|
|
|
8,880,384
|
|
|
|
|
|
|
|
|
|
|
Add effects of potentially dilutive securities-assumed exercise of stock options
|
|
|
528,700
|
|
|
|
218,917
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for diluted earnings per share
|
|
|
9,838,154
|
|
|
|
9,099,301
|
|
Note 7 - Stock-based compensation and equity transactions
On December 13, 2017, the Company granted
80,000 incentive stock options to an employee. These options vested 8,000 shares on the date of grant, and the balance vests as
to 8,000 shares per year thereafter on each of the next nine anniversaries of December 13, 2017, and expire ten years from the
date of grant. On December 3, 2018, the Company granted each of two employees 25,000 incentive stock options. These options vested
5,000 each on the date of grant, and the balance vests as to 5,000 shares each per year thereafter on each of the next four anniversaries
of December 3, 2018, and expire five years from the date of grant. On December 3, 2018, the Company also granted one employee 10,000
incentive stock options. These options vested 2,000 shares on the date of grant, and the balance vests as to 2,000 shares per year
thereafter on each of the next four anniversaries of December 3, 2018, and expire five years from the date of grant. No other options
were granted to Company employees during the three months ended January 31, 2019 and 2018.
The weighted average fair value of employee
and non-employee directors’ stock options granted by the Company during the three months ended January 31, 2019 and 2018
was estimated to be $8.47 and $2.44, respectively, per share, using the Black-Scholes option pricing model with the following assumptions:
|
|
Three Months Ended January 31,
|
|
|
|
2019
|
|
|
2018
|
|
Risk-free interest rate
|
|
|
2.98
|
%
|
|
|
1.87
|
%
|
Dividend yield
|
|
|
0.94
|
%
|
|
|
3.28
|
%
|
Expected life of the option
|
|
|
5.76 years
|
|
|
|
4.54 years
|
|
Volatility factor
|
|
|
55.64
|
%
|
|
|
46.83
|
%
|
Expected volatilities are based on historical
volatility of the Company’s stock price and other factors. The Company used the historical method to calculate the expected
life of the 2019 and 2018 option grants. The expected life represents the period of time that options granted are expected to be
outstanding. The risk-free rate is based on the U.S. Treasury rate with a maturity date corresponding to the options’ expected
life. The dividend yield is based upon the historical dividend yield.
Company stock option plans
Descriptions of the Company’s stock
option plans are included in Note 9 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2018. A summary
of the status of the options granted under the Company’s stock option plans as of January 31, 2019 and the changes in options
outstanding during the three months then ended is presented in the table that follows:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Outstanding at November 1, 2018
|
|
|
942,366
|
|
|
$
|
3.09
|
|
Options granted
|
|
|
93,000
|
|
|
$
|
8.47
|
|
Options exercised
|
|
|
(65,734
|
)
|
|
$
|
5.20
|
|
Options canceled or expired
|
|
|
(5,250
|
)
|
|
$
|
6.82
|
|
Options outstanding at January 31, 2019
|
|
|
964,382
|
|
|
$
|
3.44
|
|
Options exercisable at January 31, 2019
|
|
|
632,799
|
|
|
$
|
2.92
|
|
Options vested and expected to vest at January 31, 2019
|
|
|
963,022
|
|
|
$
|
3.45
|
|
Weighted average remaining contractual life
of options outstanding as of January 31, 2019: 4.83 years
Weighted average remaining contractual life
of options exercisable as of January 31, 2019: 3.39 years
Weighted average remaining contractual life
of options vested and expected to vest as of January 31, 2019: 4.82 years
Aggregate intrinsic value of options outstanding
at January 31, 2019: $4,608,000
Aggregate intrinsic value of options exercisable
at January 31, 2019: $3,333,000
Aggregate intrinsic value of options vested
and expected to vest at January 31, 2019: $4,589,000
As of January 31, 2019, $532,000 of expense
with respect to nonvested share-based arrangements has yet to be recognized but is expected to be recognized over a weighted average
period of 5.63 years.
Non-employee directors receive a compensation
package of $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. During the quarter ended January 31, 2019, the Company granted each of its five non-employee
directors 6,600 non-qualified stock 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 ($3.471 per share). These options vest ratably over fiscal
year 2019 and expire five years from the date of grant. Effective November 1, 2018, in addition to the compensation received for
serving on the Board of Directors, the Chairman of each committee of the Board will receive $15,000 per year in cash for services
rendered as Chairman.
Stock option expense
During the three months ended January 31,
2019 and 2018, stock-based compensation expense totaled $114,000 and $75,000, respectively, and was classified in selling and general
expense.
Note 8 - Concentrations of credit risk
Financial instruments that 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 January 31, 2019, the Company had cash
and cash equivalent balances in excess of federally insured limits in the amount of approximately $11.8 million.
Two customers, a distributor and an equipment
manufacturer, accounted for approximately 38% and 14%, respectively, of the Company’s net sales for the three-month period
ended January 31, 2019. At January 31, 2019, these two customers’ accounts receivable balances accounted for approximately
30% and 22%, respectively, of the total net accounts receivable balance. For the three-month period ended January 31, 2018, one
customer, a distributor, accounted for approximately 47% of the Company’s net sales. At January 31, 2018, this customer’s
accounts receivable balance accounted for approximately 44% of the Company’s total net accounts receivable balance. Although
these customers have been on-going major customers of the Company, the written agreements with these customers do not have any
minimum purchase obligations and they 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. Based upon this evaluation, as of January 31, 2019, the Company had two segments
–
RF
Connector and Cable Assembly (“RF Connector segment”) and Custom Cabling Manufacturing and Assembly (“Custom
Cabling segment”).
The RF Connector segment consisted of
one division and the Custom Cabling segment was composed of two divisions. The three divisions that met the quantitative
thresholds for segment reporting are the RF Connector and Cable Assembly division (“RF Connector division”),
Cables Unlimited, and Rel-Tech. While each segment had similar products and services, with one major exception, there was
little overlapping of these services to their customer base. In addition, sales or product and services for the RF
Connector segment were primarily through the distribution channel while the Custom Cabling segment sales were through a
combination of distribution and direct to the end customer.
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
RF Connector division constitutes the RF Connector segment, and the Cables Unlimited and Rel-Tech divisions constitute the Custom
Cabling 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 months ended January 31, 2019 and 2018 (in thousands):
|
|
Three Months Ended January 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
10,470
|
|
|
$
|
7,764
|
|
Foreign Countries:
|
|
|
|
|
|
|
|
|
Canada
|
|
|
165
|
|
|
|
153
|
|
Mexico
|
|
|
-
|
|
|
|
39
|
|
All Other
|
|
|
12
|
|
|
|
10
|
|
|
|
|
177
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
10,647
|
|
|
$
|
7,966
|
|
Net sales, income from
continuing operations before provision for income taxes and other related segment information for the three months ended January
31, 2019 and 2018 are as follows (in thousands):
|
|
RF Connector
|
|
|
Custom Cabling
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Manufacturing and
|
|
|
|
|
|
|
|
2019
|
|
Cable Assembly
|
|
|
Assembly
|
|
|
Corporate
|
|
|
Total
|
|
Net sales
|
|
$
|
3,258
|
|
|
$
|
7,389
|
|
|
$
|
-
|
|
|
$
|
10,647
|
|
Income from continuing operations before provision for income taxes
|
|
|
280
|
|
|
|
506
|
|
|
|
22
|
|
|
|
808
|
|
Depreciation and amortization
|
|
|
45
|
|
|
|
92
|
|
|
|
-
|
|
|
|
137
|
|
Total assets
|
|
|
6,635
|
|
|
|
11,026
|
|
|
|
14,846
|
|
|
|
32,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,630
|
|
|
$
|
5,336
|
|
|
$
|
-
|
|
|
$
|
7,966
|
|
Income (loss) from continuing operations before provision for income taxes
|
|
|
(157
|
)
|
|
|
514
|
|
|
|
3
|
|
|
|
360
|
|
Depreciation and amortization
|
|
|
44
|
|
|
|
83
|
|
|
|
-
|
|
|
|
127
|
|
Total assets
|
|
|
6,074
|
|
|
|
8,264
|
|
|
|
12,513
|
|
|
|
26,851
|
|
Note 10 - Income taxes
On December 22, 2017, the U.S. President
signed the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act, among other things, lowered the U.S. corporate income
tax rate from 35% to 21% effective January 1, 2018. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income
Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allowed us to record provisional amounts during a measurement
period not to extend beyond one year of the enactment date. As a result, we previously recorded a provisional estimate of the effect
of the Tax Act in our financial statements. In the first quarter of 2019, we completed our analysis to determine the effect of
the Tax Act and recorded no additional adjustments as of December 22, 2018.
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 for income taxes was 21% and
16% of income before income taxes for the three months ended January 31, 2019 (the “fiscal 2019 quarter”) and 2018
(the “fiscal 2018 quarter”), respectively. The increase in the effective tax rate from the fiscal 2018 quarter to fiscal
2019 quarter was primarily driven by the elimination of the benefit from the domestic production activities deduction and the one-time
benefit recorded in the prior year related to the reduction in the Company’s deferred tax liability due to the change in
the federal tax rate, both as a result of the Tax Act. The Company recorded income from discontinued operations, net of tax, as
disclosed in Note 2.
The Company had $65,000 and $58,000 of unrecognized
tax benefits, inclusive of interest and penalties, as of January 31, 2019 and October 31, 2018, respectively. The unrecognized
tax benefits, if recognized, would result in a net tax benefit of $15,000 as of January 31, 2019.
Note 11 - Intangible assets
Intangible assets consist of the following
(in thousands):
|
|
January 31, 2019
|
|
|
October 31, 2018
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
Customer relationships (estimated lives 7 - 15 years)
|
|
$
|
2,879
|
|
|
$
|
2,879
|
|
Accumulated amortization
|
|
|
(1,686
|
)
|
|
|
(1,619
|
)
|
|
|
|
1,193
|
|
|
|
1,260
|
|
|
|
|
|
|
|
|
|
|
Patents (estimated life 14 years)
|
|
|
142
|
|
|
|
142
|
|
Accumulated amortization
|
|
|
(37
|
)
|
|
|
(35
|
)
|
|
|
|
105
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
1,298
|
|
|
$
|
1,367
|
|
|
|
|
|
|
|
|
|
|
Non-amortizable intangible assets:
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
657
|
|
|
$
|
657
|
|
Amortization expense
for the three months ended January 31, 2019 and the year ended October 31, 2018 was $69,000 and $275,000, respectively. As of January
31, 2019, the weighted-average amortization period for the amortizable intangible assets is 10.98 years.
Note 12 - Commitments
The Company currently leases its corporate
headquarters and RF connector and cable assembly manufacturing facilities in San Diego, California. On June 5, 2017, the Company
entered into a fifth amendment to its lease for its facility in San Diego, California. As a result, the Company now leases a total
of approximately 21,908 square feet of office, warehouse and manufacturing space at its San Diego location. The term of the lease
expires on July 31, 2022, and the rental payments under the lease currently are $22,721 per month. 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.
|
(i)
|
On June 9, 2017, the Cables Unlimited division entered into an amendment to its lease with K&K Unlimited, as landlord, under which Cables Unlimited leases its 12,000 square foot manufacturing facility in Yaphank, New York, to extend the term of the lease to June 30, 2018. Cables Unlimited’s monthly rent expense under the amended lease remains at $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. On June 6, 2018, Cables Unlimited extended its lease with K&K Unlimited for an additional three years to June 30, 2021, with the same terms and conditions.
|
|
|
|
(ii)
|
On July 25, 2017, the Rel-Tech Electronic division entered into a lease for approximately 13,750 square feet located in Milford, Connecticut. Rel-Tech’s current net monthly rent expense under the lease is $8,707 per month for these facilities. The new lease expires in August 2019.
|
|
|
|
|
(iii)
|
On November 1, 2018,
the Cables Unlimited division entered into a lease agreement with 100 Bellport Avenue, LLC, as landlord, for approximately
7,500 square feet located in Yaphank, New York, with a monthly rent expense of $5,625. The lease expires on October 31,
2019. On February 1, 2019, Cables Unlimited entered into an amendment to this lease to expand the leased space by an
additional 5,000 square feet and increasing the monthly rent expense by $3,750, resulting in a total rent expense of $9,375
per month. The lease’s expiration date remains at October 31, 2019.
|
For the three months ended January 31, 2019,
the aggregate monthly rental for all of the Company’s facilities currently was approximately $50,000 per month, plus utilities,
maintenance and insurance.
Note 13 - Cash dividend and declared
dividends
The Company paid dividends
of $0.02 per share during the three months ended January 31, 2019 and 2018 for a total of $186,000 and $176,000, respectively.
Note 14 - Subsequent events
On February 1, 2019, Cables Unlimited amended
its lease with 100 Bellport Avenue, LLC to expand the leased space by an additional 5,000 square feet, resulting in a total rent
expense of $9,375 per month.
On
March 8, 2019, the Board of Directors of the Company declared a quarterly cash dividend of $0.02 per share to be paid on April
15, 2019 to stockholders of record on March 31, 2019.
On March 11, 2019, the Company announced
that it has entered into a binding agreement to purchase all of the assets of C Enterprises, L.P., a California based designer,
manufacturer, and distributor of fiber and copper custom cables and cable assembles, and other related products used in the data
center, networking, and wireless markets. The total cash outlay related to the purchase of C Enterprises is currently not expected
to have a material impact on the Company’s liquidity and capital resources.