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 three 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, 2017 has been derived
from, and certain terms used herein are defined in, the audited consolidated financial statements of the Company as of October
31, 2017 included in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the year ended October 31, 2017
that was previously filed with the Securities and Exchange Commission (“SEC”). Operating results for the three month
ended January 31, 2018 are not necessarily indicative of the results that may be expected for the year ending October 31, 2018.
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, 2017.
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 that 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
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 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 continues to assess the impact this new standard may have on its
ongoing financial reporting. The Company has identified its revenue streams both by contract and product type and is assessing
each for potential impacts. For the revenue streams assessed, the Company does not anticipate a material impact in the timing
or amount of revenue recognized.
In January 2017, the FASB issued Accounting
Standards Update 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 March 2016, the FASB issued Accounting Standards
Update No. 2016-09, Compensation – Stock Compensation. The new standard modified 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. One provision within this pronouncement requires that excess income tax benefits and tax deficiencies
related to share-based payments be recognized within income tax expense in the statement of income, rather than within additional
paid-in capital on the balance sheet. The Company adopted this provision in the first quarter of fiscal 2018. The adoption of
this provision was applied prospectively. The impact to the Company's results of operations related to this provision in the first
quarter of fiscal 2018 was an increase in the benefit for income taxes of $19,000, and a 3.5% lower effective tax rate than if
the standard had not been adopted. The impact of this provision on the Company's future results of operations will depend in part
on the market prices for the Company's shares on the dates there are taxable events related to share awards, but is not expected
to be material. In connection with another provision within this pronouncement, the Company has elected to account for forfeitures
as they occur rather than estimate expected forfeitures, with the change being applied prospectively. The adoption of this and
other provisions within the pronouncement did not have a material impact on the Company’s financial statements.
Note 2 - Discontinued operations
For the three months ended January 31, 2018
and January 31, 2017, the Company recognized approximately $0 and $62,000 of royalty income, respectively, for RadioMobile, which
amount has 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 months ended January 31, 2017, the Company recognized approximately $10,000 of income from sale of equipment for the
Bioconnect division, which has been included within discontinued operations.
Note 3 - 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. Inventories consist of the following (in thousands):
|
|
January 31, 2018
|
|
|
October 31, 2017
|
|
|
|
|
|
|
|
|
Raw materials and supplies
|
|
$
|
2,932
|
|
|
$
|
2,520
|
|
Work in process
|
|
|
367
|
|
|
|
194
|
|
Finished goods
|
|
|
3,498
|
|
|
|
3,395
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
6,797
|
|
|
$
|
6,109
|
|
One vendor accounted for 23% of inventory purchases
for the three months ended January 31, 2018. No vendor accounted for greater than 10% of inventory purchases for the three months
ended January 31, 2017. The Company has arrangements with these vendors to purchase product 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, 2018
|
|
|
October 31, 2017
|
|
|
|
|
|
|
|
|
Prepaid taxes
|
|
$
|
-
|
|
|
$
|
20
|
|
Prepaid expense
|
|
|
472
|
|
|
|
526
|
|
Notes receivable, current portion
|
|
|
83
|
|
|
|
83
|
|
Other
|
|
|
200
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
755
|
|
|
$
|
744
|
|
Long-term portion of notes receivable of $0
and $21,000 is recorded in other assets at January 31, 2018 and October 31, 2017, respectively.
Note 5 - Accrued expenses and other long-term liabilities
Accrued expenses consist
of the following (in thousands):
|
|
January 31, 2018
|
|
|
October 31, 2017
|
|
|
|
|
|
|
|
|
Wages payable
|
|
$
|
935
|
|
|
$
|
855
|
|
Accrued receipts
|
|
|
1,036
|
|
|
|
695
|
|
Earn-out liability
|
|
|
206
|
|
|
|
236
|
|
Other current liabilities
|
|
|
520
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
2,697
|
|
|
$
|
2,242
|
|
Accrued receipts represent purchased inventory
for which invoices have not been received.
The Company measures
at fair value certain financial assets and liabilities. U. S. GAAP specifies a hierarchy of valuation techniques based on whether
the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs have created the following
fair-value hierarchy:
Level 1 - Quoted
prices for identical instruments in active markets;
Level 2 - Quoted
prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active,
and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3 - Valuations
derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The contingent consideration
liability represents future earn-out liability that we may be required to pay in conjunction with the acquisition of Rel-Tech
and Comnet. The Company estimates the fair value of the earn-out liability using a probability-weighted scenario of estimated
qualifying earn-out gross profit related to Rel-Tech and EBITDA related to Comnet calculated at net present value (level 3 of
the fair value hierarchy).
The following table
summarizes our financial assets and liabilities measured at fair value on a recurring basis as of January 31, 2018 (in thousands):
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Earn-out liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
206
|
|
The following table summarizes our financial
assets and liabilities measured at fair value on a recurring basis as of October 31, 2017 (in thousands):
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Earn-out liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
236
|
|
The following table summarizes the Level 3
transactions for the three months ended January 31, 2018 and for the year ended October 31, 2017 (in thousands):
|
|
Level 3
|
|
|
|
January 31, 2018
|
|
|
October 31, 2017
|
|
Beginning balance
|
|
$
|
236
|
|
|
$
|
835
|
|
Payments
|
|
|
-
|
|
|
|
(578
|
)
|
Change in value
|
|
|
(30
|
)
|
|
|
(21
|
)
|
Ending Balance
|
|
$
|
206
|
|
|
$
|
236
|
|
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
(loss) per share is computed by dividing net income (loss) 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 771,973 and 1,024,188
for the three months ended January 31, 2018 and 2017, 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,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic earnings (loss) per share
|
|
|
8,880,384
|
|
|
|
8,834,747
|
|
|
|
|
|
|
|
|
|
|
Add effects of potentially dilutive securities-assumed exercise of stock options
|
|
|
218,917
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for diluted earnings (loss) per share
|
|
|
9,099,301
|
|
|
|
8,834,747
|
|
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. On December 13, 2017, the Company granted 80,000 incentive
stock options to an employee. These options vest 8,000 on the date of grant and 8,000 shares per year thereafter on each of the
next nine anniversaries of December 13, 2017 and expire ten years from date of grant. No options were granted to Company employees
during the three months ended January 31, 2017.
The weighted average fair value of
employee and non-employee directors’ stock options granted by the Company during the three months ended January 31,
2018 and 2017 was estimated to be $2.44 and $1.50, respectively, per share, using the Black-Scholes option pricing model with
the following assumptions:
|
|
2018
|
|
|
2017
|
|
Risk-free interest rate
|
|
|
1.87
|
%
|
|
|
0.98
|
%
|
Dividend yield
|
|
|
3.28
|
%
|
|
|
5.33
|
%
|
Expected life of the option
|
|
|
4.54 years
|
|
|
|
3.50 years
|
|
Volatility factor
|
|
|
46.83
|
%
|
|
|
42.37
|
%
|
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 2018 and 2017 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, 2017. A summary
of the status of the options granted under the Company’s stock option plans as of January 31, 2018 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, 2017
|
|
|
1,159,771
|
|
|
$
|
3.19
|
|
Options granted
|
|
|
269,635
|
|
|
$
|
2.44
|
|
Options canceled or expired
|
|
|
(163,769
|
)
|
|
$
|
4.86
|
|
Options outstanding at January 31, 2018
|
|
|
1,265,637
|
|
|
$
|
3.08
|
|
Options exercisable at January 31, 2018
|
|
|
817,913
|
|
|
$
|
3.10
|
|
Options vested and expected to vest at January 31, 2018
|
|
|
1,261,614
|
|
|
$
|
3.08
|
|
Weighted average remaining contractual life
of options outstanding as of January 31, 2018: 4.63 years
Weighted average remaining contractual life
of options exercisable as of January 31, 2018: 3.21 years
Weighted average remaining contractual life
of options vested and expected to vest as of January 31, 2018: 4.62 years
Aggregate intrinsic value of options outstanding
at January 31, 2018: $1,012,000
Aggregate intrinsic value of options exercisable
at January 31, 2018: $736,000
Aggregate intrinsic value of options vested
and expected to vest at January 31, 2018: $1,007,000
As of January 31, 2018, $418,000 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 5.04 years.
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. During the quarter ended January 31, 2018, the Company granted each of its five non-employee directors 37,927 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 ($0.659 per share). These options vest ratably over fiscal year 2018.
Stock option expense
During the three months ended January 31, 2018
and 2017, stock-based compensation expense totaled $75,000 and $51,000, respectively. For the three months ended January 31, 2018
and 2017, stock-based compensation classified in cost of sales amounted to none and $3,000, respectively, and stock-based compensation
classified in selling and general expense amounted to $75,000 and $48,000, respectively.
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, 2018, the Company had
cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $5.3 million.
One customer accounted for approximately 36%
of the Company’s net sales for the three-month period ended January 31, 2018. At January 31, 2018, this customer’s
accounts receivable balance accounted for approximately 32% of the Company’s total net accounts receivable balance. Two customers accounted for approximately
15% and 10% of the Company’s net sales for the three-month period ended January 31, 2017. At January
31, 2017, these customers’ accounts receivable balances accounted for approximately 15% and 13% 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. As of
January 31, 2018, the Company had 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 months ended January 31, 2018 and 2017 (in thousands):
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
10,138
|
|
|
$
|
6,536
|
|
Foreign Countries:
|
|
|
|
|
|
|
|
|
Canada
|
|
|
153
|
|
|
|
46
|
|
Mexico
|
|
|
39
|
|
|
|
7
|
|
All Other
|
|
|
11
|
|
|
|
28
|
|
|
|
|
203
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
10,341
|
|
|
$
|
6,617
|
|
Net sales, income
(loss) from continuing operations before provision (benefit) for income taxes and other related segment information for the
three months ended January 31, 2018 and 2017 are as follows (in thousands):
|
|
RF Connector
|
|
|
Custom Cabling
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Manufacturing and
|
|
|
|
|
|
|
|
|
|
Cable Assembly
|
|
|
Assembly
|
|
|
Corporate
|
|
|
Total
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,630
|
|
|
$
|
7,711
|
|
|
$
|
-
|
|
|
$
|
10,341
|
|
Income (loss) from continuing operations before provision (benefit) for income taxes
|
|
|
(12
|
)
|
|
|
566
|
|
|
|
3
|
|
|
|
557
|
|
Depreciation and amortization
|
|
|
44
|
|
|
|
168
|
|
|
|
-
|
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,535
|
|
|
$
|
4,082
|
|
|
$
|
-
|
|
|
$
|
6,617
|
|
Loss from continuing operations before benefit for income taxes
|
|
|
(18
|
)
|
|
|
(341
|
)
|
|
|
20
|
|
|
|
(339
|
)
|
Depreciation and amortization
|
|
|
47
|
|
|
|
173
|
|
|
|
-
|
|
|
|
220
|
|
Note 10 - Income taxes
On December 22, 2017, the 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. Consequently, we wrote down our net deferred tax liability as of October 31, 2017
by $41,000 to reflect the estimated impact of the Tax Act. While we have substantially completed our provisional analysis of the
income tax effects of the Tax Act and recorded a reasonable estimate of such effects, the net one-time charge related to the Tax
Act may differ, possibly materially, due to, among other things, further refinement of our calculations, changes in interpretations
and assumptions that we have made, additional guidance that may be issued by the U.S. Government, and actions and related accounting
policy decisions we may take as a result of the Tax Act. We will complete our analysis over a one-year measurement period ending
December 22, 2018, and any adjustments during this measurement period will be included in net earnings from continuing operations
as an adjustment to income tax expense in the reporting period when such adjustments are determined.
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
18% and 30% of income (loss) before income taxes for the three months ended January 31, 2018 and 2017, respectively. The decrease
in the effective income tax rate from period to period was primarily driven by the reduction of the federal corporate income tax
rate due to the Tax Act resulting in the recognition of a benefit of $41,000, recognition of a stock option windfall benefit of
$19,000 related to the exercise of NQSOs and the benefit of R&D credits.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 January 31, 2018 and October 31, 2017. The total balance of accrued interest and penalties related to uncertain tax
positions was $0 as of January 31, 2018 and October 31, 2017. 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 three months ended January 31, 2018 or 2017.
Note 11 - Intangible assets
Intangible assets consist of the following
(in thousands):
|
|
January 31, 2018
|
|
|
October 31, 2017
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
Customer relationships (estimated lives 7 - 15 years)
|
|
|
5,099
|
|
|
|
5,099
|
|
Accumulated amortization
|
|
|
(2,323
|
)
|
|
|
(2,186
|
)
|
|
|
|
2,776
|
|
|
|
2,913
|
|
|
|
|
|
|
|
|
|
|
Patents (estimated life 14 years)
|
|
|
142
|
|
|
|
142
|
|
Accumulated amortization
|
|
|
(27
|
)
|
|
|
(25
|
)
|
|
|
|
116
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
2,891
|
|
|
$
|
3,030
|
|
|
|
|
|
|
|
|
|
|
Non-amortizable intangible assets:
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
1,237
|
|
|
$
|
1,237
|
|
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.
|
|
(ii)
|
On June 25, 2017, the Comnet Telecom division entered into
an amendment to its lease for approximately 15,000 square feet in two suites located
in East Brunswick, New Jersey. Comnet’s current monthly rent expense under the
leases is $8,542 per month for these facilities. The amended lease expires in September
2022.
|
|
(iii)
|
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.
|
The aggregate monthly rental for all of the
Company’s facilities currently is approximately $53,000 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, 2018 and 2017 for a total of $176,000 per period.
Note 14 - Subsequent events
On March 8, 2018, the Board of Directors of
the Company declared a quarterly cash dividend of $0.02 per share to be paid on April 15, 2018 to stockholders of record on March
31, 2018.