UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
Form 10-Q
_____________________
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
☒ | Quarterly report pursuant to Section13 or 15(d) of the Securities Exchange Act of 1934 | |
For the quarterly period ended January 31, 2021 | ||
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterlytransition period ended January 31, 2020from ______________ to ________________.
Commission file number:000-13301
_______________________
RF INDUSTRIES, LTD.
(Exact name of registrant as specified in its charter)
Nevada | 88-0168936 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
7610 Miramar Road, Building 6000 | 92126 | |
(Address of principal executive offices) | (Zip Code) | |
(858)549-6340 | ||
(Registrant’s telephone number, including area code) | ||
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value per share | RFIL | NASDAQ Global Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx ☒ No¨ ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yesx ☒ No¨ ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨ ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨☐ No x☒
The number of shares of the issuer’s Common Stock, par value $0.01 per share, outstanding as of March 11, 202010, 2021 was 9,758,062.9,972,456.
Part I. FINANCIAL INFORMATION
RF INDUSTRIES, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
January 31, | October 31, | |||||||
2020 | 2019 | |||||||
(Unaudited) | (Note 1) | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 14,390 | $ | 12,540 | ||||
Trade accounts receivable, net of allowance for doubtful accounts of $39 and $23, respectively | 5,745 | 12,190 | ||||||
Inventories | 8,390 | 8,245 | ||||||
Other current assets | 721 | 685 | ||||||
TOTAL CURRENT ASSETS | 29,246 | 33,660 | ||||||
Property and equipment: | ||||||||
Equipment and tooling | 3,650 | 3,602 | ||||||
Furniture and office equipment | 1,060 | 998 | ||||||
4,710 | 4,600 | |||||||
Less accumulated depreciation | 3,843 | 3,761 | ||||||
Total property and equipment, net | 867 | 839 | ||||||
Operating lease right of use assets, net | 2,024 | - | ||||||
Goodwill | 2,753 | 1,340 | ||||||
Amortizable intangible assets, net | 3,700 | 1,092 | ||||||
Non-amortizable intangible assets | 1,174 | 657 | ||||||
Other assets | 68 | 112 | ||||||
TOTAL ASSETS | $ | 39,832 | $ | 37,700 |
See Notes to Unaudited Condensed ConsolidatedItem 1: Financial Statements.Statements
RF INDUSTRIES, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
January 31, | October 31, | |||||||
2020 | 2019 | |||||||
(Unaudited) | (Note 1) | |||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 1,220 | $ | 2,406 | ||||
Accrued expenses | 3,311 | 3,653 | ||||||
Income taxes payable | - | 21 | ||||||
Other current liabilities | 933 | - | ||||||
TOTAL CURRENT LIABILITIES | 5,464 | 6,080 | ||||||
Deferred tax liabilities | 18 | - | ||||||
Operating lease liabilities | 1,191 | - | ||||||
Other long-term liabilities | 1,215 | 87 | ||||||
TOTAL LIABILITIES | 7,888 | 6,167 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
Common stock - authorized 20,000,000 shares of $0.01 par value; 9,745,135 and 9,462,267 shares issued and outstanding at January 31, 2020 and October 31, 2019, respectively | 98 | 95 | ||||||
Additional paid-in capital | 22,524 | 21,949 | ||||||
Retained earnings | 9,322 | 9,489 | ||||||
TOTAL STOCKHOLDERS' EQUITY | 31,944 | 31,533 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 39,832 | $ | 37,700 |
January 31, | October 31, | |||||||
2021 | 2020 | |||||||
(Unaudited) | (Note 1) | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 15,489 | $ | 15,797 | ||||
Trade accounts receivable, net of allowance for doubtful accounts of $55 and $66, respectively | 5,155 | 5,669 | ||||||
Inventories | 9,019 | 8,586 | ||||||
Other current assets | 2,139 | 813 | ||||||
TOTAL CURRENT ASSETS | 31,802 | 30,865 | ||||||
Property and equipment: | ||||||||
Equipment and tooling | 3,916 | 3,819 | ||||||
Furniture and office equipment | 1,092 | 1,073 | ||||||
5,008 | 4,892 | |||||||
Less accumulated depreciation | 4,162 | 4,082 | ||||||
Total property and equipment, net | 846 | 810 | ||||||
Operating lease right of use assets, net | 1,184 | 1,421 | ||||||
Goodwill | 2,467 | 2,467 | ||||||
Amortizable intangible assets, net | 3,024 | 3,181 | ||||||
Non-amortizable intangible assets | 1,174 | 1,174 | ||||||
Deferred tax assets | 68 | 834 | ||||||
Other assets | 70 | 70 | ||||||
TOTAL ASSETS | $ | 40,635 | $ | 40,822 |
Item 1: Financial Statements (continued)
RF INDUSTRIES, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
January 31, | October 31, | |||||||
2021 | 2020 | |||||||
(Unaudited) | (Note 1) | |||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 1,510 | $ | 1,475 | ||||
Accrued expenses | 2,617 | 2,573 | ||||||
Current portion of PPP Loans | 2,103 | 1,699 | ||||||
Current portion of operating lease liabilities | 789 | 874 | ||||||
Income taxes payable | - | 43 | ||||||
Other current liabilities | 296 | - | ||||||
TOTAL CURRENT LIABILITIES | 7,315 | 6,664 | ||||||
Operating lease liabilities | 477 | 635 | ||||||
PPP Loans | 685 | 1,089 | ||||||
Other long-term liabilities | - | 370 | ||||||
TOTAL LIABILITIES | 8,477 | 8,758 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
Common stock - authorized 20,000,000 shares of $0.01 par value; 9,962,456 and 9,814,118 shares issued and outstanding at January 31, 2021 and October 31, 2020, respectively | 100 | 98 | ||||||
Additional paid-in capital | 23,441 | 22,946 | ||||||
Retained earnings | 8,617 | 9,020 | ||||||
TOTAL STOCKHOLDERS' EQUITY | 32,158 | 32,064 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 40,635 | $ | 40,822 |
See Notes to Unaudited Condensed Consolidated Financial Statements.
3 |
Item 1: Financial Statements (continued)
RF INDUSTRIES, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except share and per share amounts)
Three Months Ended January 31, | ||||||||
2020 | 2019 | |||||||
Net sales | $ | 12,414 | $ | 10,647 | ||||
Cost of sales | 9,161 | 7,502 | ||||||
Gross profit | 3,253 | 3,145 | ||||||
Operating expenses: | ||||||||
Engineering | 596 | 320 | ||||||
Selling and general | 2,656 | 2,039 | ||||||
Total operating expenses | 3,252 | 2,359 | ||||||
Operating income | 1 | 786 | ||||||
Other income | 11 | 22 | ||||||
Income before provision (benefit) for income taxes | 12 | 808 | ||||||
Provision (benefit) for income taxes | (14 | ) | 168 | |||||
Consolidated net income | $ | 26 | $ | 640 | ||||
Earnings per share | ||||||||
Basic | $ | 0.00 | $ | 0.07 | ||||
Diluted | $ | 0.00 | $ | 0.07 | ||||
Weighted average shares outstanding | ||||||||
Basic | 9,564,533 | 9,309,454 | ||||||
Diluted | 9,873,336 | 9,838,154 |
Three Months Ended January 31, | ||||||||
2021 | 2020 | |||||||
Net sales | $ | 10,002 | $ | 12,414 | ||||
Cost of sales | 7,396 | 9,161 | ||||||
Gross profit | 2,606 | 3,253 | ||||||
Operating expenses: | ||||||||
Engineering | 431 | 596 | ||||||
Selling and general | 2,764 | 2,656 | ||||||
Total operating expenses | 3,195 | 3,252 | ||||||
Operating (loss) income | (589 | ) | 1 | |||||
Other (expense) income | (8 | ) | 11 | |||||
(Loss) income before benefit for income taxes | (597 | ) | 12 | |||||
Benefit from income taxes | (194 | ) | (14 | ) | ||||
Consolidated net (loss) income | $ | (403 | ) | $ | 26 | |||
(Loss) earnings per share | ||||||||
Basic | $ | (0.04 | ) | $ | 0.00 | |||
Diluted | $ | (0.04 | ) | $ | 0.00 | |||
Weighted average shares outstanding | ||||||||
Basic | 9,864,689 | 9,564,533 | ||||||
Diluted | 9,864,689 | 9,873,336 |
See Notes to Unaudited Condensed Consolidated Financial Statements.
Item 1: Financial Statements (continued)
RF INDUSTRIES, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands, except share amounts)
2020 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common Stock | Paid-In | Retained | ||||||||||||||||||
Shares | Amount | Capital | Earnings | Total | ||||||||||||||||
Balance, November 1, 2019 | 9,462,267 | $ | 95 | $ | 21,949 | $ | 9,489 | $ | 31,533 | |||||||||||
Exercise of stock options | 215,943 | 2 | 389 | - | 391 | |||||||||||||||
Stock option compensation expense | - | - | 110 | - | 110 | |||||||||||||||
Issuance of restricted stock | 54,850 | 1 | (1 | ) | - | - | ||||||||||||||
Issuance of common shares | 12,075 | - | 77 | - | 77 | |||||||||||||||
Dividends | - | - | - | (193 | ) | (193 | ) | |||||||||||||
Net Income | - | - | - | 26 | 26 | |||||||||||||||
Balance, January 31, 2020 | 9,745,135 | $ | 98 | $ | 22,524 | $ | 9,322 | $ | 31,944 |
2019 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common Stock | Paid-In | Retained | ||||||||||||||||||
Shares | Amount | Capital | Earnings | Total | ||||||||||||||||
Balance, November 1, 2018 | 9,291,201 | $ | 93 | $ | 20,974 | $ | 6,716 | $ | 27,783 | |||||||||||
Exercise of stock options | 65,734 | 1 | 341 | - | 342 | |||||||||||||||
Stock-based compensation expense | - | - | 114 | - | 114 | |||||||||||||||
Dividends | - | - | - | (186 | ) | (186 | ) | |||||||||||||
Net Income | - | - | - | 640 | 640 | |||||||||||||||
Balance, January 31, 2019 | 9,356,935 | $ | 94 | $ | 21,429 | $ | 7,170 | $ | 28,693 |
For the Three Months ended January 31, 2021 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common Stock | Paid-In | Retained | ||||||||||||||||||
Shares | Amount | Capital | Earnings | Total | ||||||||||||||||
Balance, November 1, 2020 | 9,814,118 | $ | 98 | $ | 22,946 | $ | 9,020 | $ | 32,064 | |||||||||||
Exercise of stock options | 118,189 | 1 | 384 | - | 385 | |||||||||||||||
Stock-based compensation expense | - | - | 123 | - | 123 | |||||||||||||||
Issuance of restricted stock | 36,834 | 1 | (1 | ) | - | - | ||||||||||||||
Forfeiture of restricted stock | (4,318 | ) | - | - | - | - | ||||||||||||||
Tax withholding related to vesting of restricted stock | (2,367 | ) | - | (11 | ) | - | (11 | ) | ||||||||||||
Consolidated net loss | - | - | - | (403 | ) | (403 | ) | |||||||||||||
Balance, January 31, 2021 | 9,962,456 | $ | 100 | $ | 23,441 | $ | 8,617 | $ | 32,158 |
For the Three Months ended January 31, 2020 | ||||||||||||||||||||
Additional | ||||||||||||||||||||
Common Stock | Paid-In | Retained | ||||||||||||||||||
Shares | Amount | Capital | Earnings | Total | ||||||||||||||||
Balance, November 1, 2019 | 9,462,267 | $ | 95 | $ | 21,949 | $ | 9,489 | $ | 31,533 | |||||||||||
Exercise of stock options | 215,943 | 2 | 389 | - | 391 | |||||||||||||||
Stock-based compensation expense | - | - | 110 | - | 110 | |||||||||||||||
Issuance of restricted stock | 54,850 | 1 | (1 | ) | - | - | ||||||||||||||
Issuance of common shares | 12,075 | - | 77 | - | 77 | |||||||||||||||
Dividends | - | - | - | (193 | ) | (193 | ) | |||||||||||||
Consolidated net income | - | - | - | 26 | 26 | |||||||||||||||
Balance, January 31, 2020 | 9,745,135 | $ | 98 | $ | 22,524 | $ | 9,322 | $ | 31,944 |
See Notes to Unaudited Condensed Consolidated Financial Statements.
Item 1: Financial Statements (continued)
RF INDUSTRIES, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended January 31, | Three Months Ended January 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||
Consolidated net income | $ | 26 | $ | 640 | ||||||||||||
Consolidated net (loss) income | $ | (403 | ) | $ | 26 | |||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | ||||||||||||||||
Bad debt expense | 4 | 5 | (15 | ) | 4 | |||||||||||
Depreciation and amortization | 255 | 137 | 237 | 255 | ||||||||||||
Stock-based compensation expense | 187 | 114 | 123 | 187 | ||||||||||||
Tax payments related to shares cancelled for vested restricted stock awards | (11 | ) | - | |||||||||||||
Deferred income taxes | 62 | 11 | 766 | 62 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Trade accounts receivable | 6,711 | (1,383 | ) | 529 | 6,711 | |||||||||||
Inventories | 638 | (1,056 | ) | (433 | ) | 638 | ||||||||||
Other current assets | (20 | ) | 47 | (1,326 | ) | (20 | ) | |||||||||
Right of use assets | 101 | - | (6 | ) | 101 | |||||||||||
Accounts payable | (1,295 | ) | 402 | 35 | (1,295 | ) | ||||||||||
Accrued expenses | (921 | ) | (1,318 | ) | 44 | (921 | ) | |||||||||
Income tax payable | (21 | ) | - | (43 | ) | (21 | ) | |||||||||
Other current liabilities | 296 | - | ||||||||||||||
Other long-term liabilities | (121 | ) | - | (370 | ) | (121 | ) | |||||||||
Net cash provided by (used in) operating activities | 5,606 | (2,401 | ) | |||||||||||||
Net cash (used in) provided by operating activities | (577 | ) | 5,606 | |||||||||||||
INVESTING ACTIVITIES: | ||||||||||||||||
Capital expenditures | (53 | ) | (73 | ) | (116 | ) | (53 | ) | ||||||||
Purchase of Schrofftech, net of cash acquired ($99) | (3,901 | ) | - | - | (3,901 | ) | ||||||||||
Net cash used in investing activities | (3,954 | ) | (73 | ) | (116 | ) | (3,954 | ) | ||||||||
FINANCING ACTIVITIES: | ||||||||||||||||
Proceeds from exercise of stock options | 391 | 342 | 385 | 391 | ||||||||||||
Dividends paid | (193 | ) | (186 | ) | - | (193 | ) | |||||||||
Net cash provided by financing activities | 198 | 156 | 385 | 198 | ||||||||||||
Net increase (decrease) in cash and cash equivalents | 1,850 | (2,318 | ) | |||||||||||||
Net (decrease) increase in cash and cash equivalents | (308 | ) | 1,850 | |||||||||||||
Cash and cash equivalents of continuing operations, beginning of period | 12,540 | 16,334 | ||||||||||||||
Cash and cash equivalents, beginning of period | 15,797 | 12,540 | ||||||||||||||
Cash and cash equivalents, end of period | $ | 14,390 | $ | 14,016 | $ | 15,489 | $ | 14,390 | ||||||||
Supplemental cash flow information – income taxes paid | $ | 6 | $ | - |
See Notes to Unaudited Condensed Consolidated Financial Statements.
RF INDUSTRIES, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Unaudited interim condensed consolidated financial statements
Our accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, which are normal and recurring, have been included in order to make the information not misleading. Information included in the consolidated balance sheet as of October 31, 20192020 has been derived from, and certain terms used herein are defined in, the audited consolidated financial statements of RF Industries, Ltd. as of October 31, 20192020 included in our Annual Report on Form 10-K (“Form 10-K”) for the year ended October 31, 20192020 that was previously filed with the Securities and Exchange Commission (“SEC”). Operating results for the three months ended January 31, 20202021 are not necessarily indicative of the results that may be expected for the year ending October 31, 2020.2021. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended October 31, 2019.10-K.
Principles of consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of RF Industries, Ltd. and our four wholly-owned subsidiaries,subsidiaries: Cables Unlimited, Inc. (“Cables Unlimited”), Rel-Tech Electronics, Inc. (“Rel-Tech”), C Enterprises, Inc. (“C Enterprises”), and Schroff Technologies International, Inc. (“Schrofftech”). C Enterprises is a wholly-owned subsidiary that RF Industries, Ltd. acquired effective March 15, 2019. For periods on or before January 31, 2019, references herein to the “Company” shall refer to RF Industries, Ltd., Cables Unlimited, and Rel-Tech, and periods between January 31, 2019 and October 31, 2019, references to the “Company” shall refer to RF Industries, Ltd., Cables Unlimited, Rel-Tech, and C Enterprises. Schrofftech is a wholly-owned subsidiary that RF Industries, Ltd. acquired effective November 1, 2019. For periods after October 31, 2019,All references to the “Company” shallcollectively refer to RF Industries, Ltd., Cables Unlimited, Rel-Tech, C Enterprises, and Schrofftech. All intercompany balances and transactions have been eliminated in consolidation.
Risks and uncertainties
In March 2020, the World Health Organization (the “WHO”) declared coronavirus (“COVID-19”) a pandemic emergency. The COVID-19 pandemic has negatively impacted regional and global economies, disrupted global supply chains, and created significant volatility and disruption of financial markets. The global impact of the outbreak has been rapidly evolving and certain jurisdictions, including those where we have operations, have also reacted by instituting quarantines, restrictions on travel, “shelter in place” rules, social distancing protocols and restrictions on types of business that may continue to operate. While we have been deemed an “essential” business, and therefore have been permitted to continue our operations, the impact of the COVID-19 pandemic has affected both our operations and those of our customers. Our operations have been negatively affected by partial shutdowns of our facilities, by changes that we had to make on our operating methods and procedures, and by our reduced workforce as many of our employees stayed at home. Many of our customers and vendors have likewise had temporary closures of their facilities and have otherwise been impacted by changes in their industries. As a result, overall demand for our products has been reduced, and certain costs have increased. We have taken measures to protect the health and safety of our employees, and we continue to work with our customers and vendors to minimize potential disruptions in addressing the challenges posed by this global pandemic.
The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by domestic and international jurisdictions to prevent disease spread, all of which are uncertain and cannot be predicted. The outbreak impacted our performance for the three months ended January 31, 2021. We continue to expect the decline caused by the economic slowdown to persist through the second quarter of 2021. During the periods covered by this report, the operations of our three subsidiaries in the Northeast were affected as many of our employees stayed at home and as local customers shut down or otherwise delayed, deferred or cancelled orders for our products. Because of the impact that COVID-19 had on our operations, in May 2020 we applied for and received loans under the Paycheck Protection Program (“PPP”) of the CARES Act totaling approximately $2.8 million (“PPP Loans”). See Note 13 on discussions of the PPP Loans.
We considered the impact of the COVID-19 related economic slowdown on our evaluation of goodwill impairment indicators as of January 31, 2021. Although no goodwill impairment indicators were identified, it is possible that impairments could emerge as the impact of the crisis becomes clearer, and those impairment losses could be material.
Fair value measurement
We measure at fair value certain financial assets and liabilities. Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. 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 our 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.
As of January 31, 20202021 and October 31, 2019,2020, the carrying amounts reflected in the accompanying condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, and accounts payable, and the current portion of the PPP Loans approximated their carrying value due to their short-term nature. See Note 5 for discussion on the fair value of other long-termcurrent liabilities.
Recent accounting standards
Revenue recognitionRecently issued accounting pronouncements not yet adopted:
In accordance withJune 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ASU No. 2014-09, Revenue from Contacts with Customers (Topic 606) (“ASC 606”ASU”), we recognize revenue in an amount that reflects the consideration to 2016-13, Financial Instruments—Credit Losses, which we expectrequires a financial asset (or a group of financial assets) measured at amortized cost basis to be entitled in exchangepresented at the net amount expected to be collected. The allowance for goods or services promised to customers. We followcredit losses is a five-step model to: (1) identifyvaluation account that is deducted from 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, we recognize 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 titleamortized cost basis of the goodsfinancial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The guidance is effective for fiscal years beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), which pushes back the effective date for public business entities that are smaller reporting companies, as defined by the Securities and Exchange Commission, to fiscal years beginning after December 15, 2022. Early adoption is permitted. We are currently evaluating the impact the adoption of this new standard will 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.our consolidated financial statements.
LeasesRecently issued accounting pronouncements adopted:
In accordance withFebruary 2016, the FASB issued ASU No. 2016-02, Leases, we determine ifLeases. This ASU requires lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under the current GAAP. Under ASU 2016-02, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients. We adopted the standard as of November 1, 2019, the beginning of our fiscal 2020, applying the modified retrospective method. We elected the package of practical expedients permitted under the transition guidance with the new standard, which among other things, allows us to carryforward the historical lease classification. We elected the policy which allows us to combine the nonlease components with their related lease components rather than separating, and the policy election to keep leases with an arrangement is a lease at inception.initial term of 12 months or less off of the balance sheet. Operating leases are included in our consolidated balance sheet as operating lease right of use (“ROU”) assets, other current liabilities, and operating lease liabilities. Finance leases are included in finance ROU assets, other current liabilities, and finance lease liabilities on our consolidated balance sheet. ROU assets represent our right to use an underlying asset for the duration of the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term and is recognized on the consolidated statements of operations.
7
Recent accounting standards
Recently issued accounting pronouncements not yet adopted:
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. We are currently evaluating the impact the adoption of this new standard will have on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses, which requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. We are currently evaluating the impact the adoption of this new standard will have on our consolidated financial statements.
Recently issued accounting pronouncements adopted:
In February 2016, the FASB issued ASU No. 2016-02, Leases. This ASU requires lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under the current GAAP. Under ASU 2016-02, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients. We adopted the standard as of November 1, 2019, the beginning of our fiscal 2020, applying the modified retrospective method. We elected the package of practical expedients permitted under the transition guidance with the new standard, which among other things, allows us to carryforward the historical lease classification. We elected the policy which allows us to combine the nonlease components with its related lease components rather than separating, and the policy election to keep leases with an initial term of 12 months or less off of the balance sheet. We have recognized those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. The adoption of the standard resulted in a material recognition of additional right of use assets and lease liabilities of approximately $2.3 million and $2.4 million, respectively, as of November 1, 2019, but did not materially affect our consolidated net income.
In May 2014, the FASB issued ASC 606, which 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,January 2017, the FASB issued ASU 2015-14, RevenueNo. 2017-04, Intangibles—Goodwill and Other, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from Contractsthe goodwill impairment test. Under the amendments of this update, the goodwill impairment test is performed by comparing the fair value of a reporting unit with Customers: Deferralits carrying amount. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss should be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The guidance also still gives entities the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. We adopted the standard as of November 1, 2020, the beginning of our fiscal 2021, applying this prospectively. The adoption 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, we adopted ASC 606 applying the modified retrospective method. We performed a review of ASC 606 as compared to our previous accounting policies for product revenue andstandard did not identify any material impact to revenue. Therefore, there was no adjustment to retained earnings for a cumulative effect.result in an impairment charge as of January 31, 2021.
Note 2 – Business Acquisition
C Enterprises, Inc.
On March 15, 2019, through C Enterprises, Inc. (“C Enterprises”), its newly formed subsidiary, we purchased the business and assets of C Enterprises L.P., a California based designer and manufacturer of quality connectivity solutions to telecommunications and data communications distributors. In consideration for the C Enterprises business and assets, we paid $600,000 in cash and assumed certain liabilities. The acquisition was determined not to be material and was accounted for in accordance with the acquisition method of accounting. The acquired assets and assumed liabilities were recorded at their estimated fair values in accordance with ASC 805, Business Combinations. There were no intangible assets identified as part of the acquisition.
8
The results of C Enterprises’ operations subsequent to March 15, 2019 have been included in the results of the Custom Cabling Manufacturing and Assembly segment (“Custom Cabling segment”) as well as in the consolidated statements of operations. Costs related to the acquisition of C Enterprises were approximately $100,000 and have been expensed as incurred and categorized in selling and general expenses.
The following table summarizes the components of the purchase price at fair value at March 15, 2019:
Cash consideration paid | $ | 600,000 | ||
Total purchase price | $ | 600,000 |
The following table summarizes the allocation of the estimated purchase price at fair value at March 15, 2019:
Current assets | $ | 2,008,000 | ||
Fixed assets | 30,000 | |||
Other assets | 18,000 | |||
Non-interest bearing liabilities | (1,456,000 | ) | ||
Net assets | $ | 600,000 |
Schroff Technologies International, Inc.
On November 4, 2019, we purchased the business of Schroff Technologies International, Inc. (“Schrofftech”), a Rhode Island-based manufacturer and marketer of intelligent thermal control systems used by telecommunications companies across the U.S. and Canada, and shrouds for small cell integration and installation. At the closing, in consideration for the Schrofftech business, we paid the sellers $4 million in cash, and, if certain financial targets are met by Schrofftech over a two-year period, agreed to pay additional cash earn-out payments of up to $2.4 million.
The acquisition was accounted for as an acquisition of assetsa business in accordance with the acquisition method of accounting. The acquired assets and assumed liabilities have been recorded at their estimated preliminary fair values. We determined the estimated preliminary fair values with the assistance of appraisals or valuations performed by an independent third-party specialist. We expect to complete the valuation of the net assets in the second quarter of fiscal 2020. Schrofftech serves the high growth wireless, telecom and cable markets. All manufacturing operations are performed at Schrofftech’s facilities in Rhode Island. The Schrofftech business allows us to diversify the types of services provided for our customers in the cable industry.these markets. All manufacturing operations are performed at Schrofftech’s facilities in Rhode Island.
Although the closing occurred on November 4, 2019, the acquisition of Schrofftech is deemed to have become effective for financial accounting purposes as of November 1, 2019. Accordingly, subsequent to November 1, 2019, Schrofftech’s financial results have been included in the results of the Custom Cabling Manufacturing and Assembly segment for the three months ended January 31, 2020(“Custom Cabling segment”) as well as in the consolidated statements of operations. Total costs related to the acquisition of Schrofftech were approximately $136,000, of which $108,000 was incurred in fiscal 2019$151,000 and $28,000 was incurred in the three months ended January 31, 2020. All acquisition-related costs have been expensed as incurred and categorized in selling and general expenses. For the three months ended January 31, 2020, Schrofftech contributed revenue and pretax income of $1.1 million and $83,000, respectively.expenses during periods prior to November 1, 2020.
The following table summarizes the components of the purchase price at preliminary fair values at November 1, 2019:
Cash consideration paid | $ | 4,000,000 | $ | 4,000,000 | ||||
Earn-out | 1,249,000 | |||||||
Earn-out liability | 1,249,000 | |||||||
Total purchase price | $ | 5,249,000 | $ | 5,249,000 |
The following table summarizes the allocation of the estimated preliminary purchase price at fair value at November 1, 2019:
Current assets | $ | 1,168,000 | ||
Fixed assets | 58,000 | |||
Intangible assets | 3,299,000 | |||
Goodwill | 1,413,000 | |||
Non-interest bearing liabilities | (689,000 | ) | ||
Net assets | $ | 5,249,000 |
The following unaudited pro forma financial information presents the combined operating results of the Company, C Enterprises, and Schrofftech as if both acquisitions had occurred as of the beginning of the earliest period presented. Pro forma data is subject to various assumptions and estimates and is presented for informational purposes only. This pro forma data does not purport to represent or be indicative of the consolidated operating results that would have been reported had the transaction been completed as described herein, and the data should not be taken as indicative of future consolidated operating results.
9
Current assets | $ | 1,168,000 | ||
Fixed assets | 58,000 | |||
Intangible assets | 3,299,000 | |||
Goodwill | 1,127,000 | |||
Non-interest bearing liabilities | (403,000 | ) | ||
Net assets | $ | 5,249,000 |
Unaudited pro forma financial information assuming the acquisition of C Enterprises and Schrofftech as of November 1, 2018 is presented in the following table:
Three Months Ended January 31, | ||||||||
2020 | 2019 | |||||||
Revenue | $ | 12,414 | $ | 16,199 | ||||
Net income | 26 | 1,388 | ||||||
Earnings per share | ||||||||
Basic | $ | 0.00 | $ | 0.15 | ||||
Diluted | $ | 0.00 | $ | 0.14 |
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, 2021 | October 31, 2020 | |||||||||||||||
January 31, 2020 | October 31, 2019 | |||||||||||||||
Raw materials and supplies | $ | 3,949 | $ | 3,576 | $ | 4,668 | $ | 4,410 | ||||||||
Work in process | 489 | 791 | 278 | 196 | ||||||||||||
Finished goods | 3,952 | 3,878 | 4,073 | 3,980 | ||||||||||||
Totals | $ | 8,390 | $ | 8,245 | $ | 9,019 | $ | 8,586 |
No vendors accounted for more than 10% of inventory purchases for the three months ended January 31, 2021 or 2020. For the three months ended January 31, 2019, two vendors each accounted for 17% of inventory purchases. We have arrangements with theseour vendors to purchase products based on purchase orders that we periodically issue.
Note 4 – Other current assets
Other current assets consist of the following (in thousands):
January 31, 2021 | October 31, 2020 | |||||||||||||||
January 31, 2020 | October 31, 2019 | |||||||||||||||
Prepaid taxes | $ | 65 | $ | - | $ | 924 | $ | - | ||||||||
Prepaid expense | 523 | 346 | 591 | 393 | ||||||||||||
Other | 133 | 339 | 624 | 420 | ||||||||||||
Totals | $ | 721 | $ | 685 | $ | 2,139 | $ | 813 |
Note 5 – Accrued expenses and other long-termcurrent liabilities
Accrued expenses consist of the following (in thousands):
January 31, 2021 | October 31, 2020 | |||||||||||||||
January 31, 2020 | October 31, 2019 | |||||||||||||||
Wages payable | $ | 1,176 | $ | 1,591 | $ | 1,383 | $ | 1,506 | ||||||||
Accrued receipts | 1,068 | 1,683 | 823 | 518 | ||||||||||||
Warranty liability | 200 | - | ||||||||||||||
Deferred revenue | 404 | - | ||||||||||||||
Other accrued expenses | 463 | 379 | 411 | 549 | ||||||||||||
Totals | $ | 3,311 | $ | 3,653 | $ | 2,617 | $ | 2,573 |
Accrued receipts represent purchased inventory for which invoices have not been received.
We recognize an accrued warranty liability for the estimated claims to remedy potential deficiencies of quality or performance of our products in the Schrofftech division within the Custom Cabling segment. The product warranties extend over various periods, depending upon the product subject to the warranty. We record a provision for estimated future warranty claims based upon the historical relationship of warranty claims to sales, any specifically identified warranty issues and current trends and knowledge. We base our estimates in part on historical experience and on assumptions that are believed to be reasonable under the circumstances and revise our estimates, as appropriate, when events or changes in circumstances indicate that revisions may be necessary. Although these estimates are based on management’s knowledge of and experience with past and current events and on management’s assumptions about future events, it is reasonably possible that they may ultimately differ materially from actual results, including in the case of a significant product failure. Warranty related expenses have not been material and were not material for the period ended January 31, 2020. Warranty liabilities were $200,000 as of January 31, 2020.
10
The purchase agreement for the Schrofftech acquisition provides for earn-out payments of up to $2,400,000,$2.4 million, which isare earned through October 31, 2022 and payable on October 31, 2022.2021. The initial earn-out liability was valued at its fair value using an option pricing based approach with a risk-neutral framework using Black Scholes due to the option-like nature of the earn-out payout structure. The earn-out was and will continue to be revalued quarterly using a present value approach and any resulting increase or decrease will be recorded into selling and general expenses. Any changes in the amount of the actual results and forecasted scenarios could impact the fair value. Significant judgment is employed in determining the appropriateness of the assumptions used in calculating the fair value of the earn-out as of the acquisition date. Accordingly, significant variances between actual and forecasted results or changes in the assumptions can materially impact the amount of contingent consideration expense we record in future periods. In determining the fair value of the earn-out liability as of January 31, 2021, we used the most recent projections while giving consideration to actual results versus such projections subsequent to January 31, 2021.
The contingent consideration liability represents future earn-out liability that we may be required to pay in conjunction with the acquisition of Schrofftech. We estimate the fair value of the earn-out liability using an option pricing based approach with a risk-neutral framework using Black Scholes related to Schrofftech calculated at net present value (level(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, 2021 (in thousands):
Description | Level 3 | |||
Earn-out liability | $ | 296 |
The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of October 31, 2020 (in thousands):
Description | Level 1 | Level 2 | Level 3 | |||||||||
Earn-out liability | $ | - | $ | - | $ | 1,215 |
There were no financial assets or liabilities measured at fair value as of October 31, 2019.
Description | Level 3 | |||
Earn-out liability | $ | 370 |
The following table summarizes the changes to the Level 3 transactionsliabilities measured at fair value for the three months ended January 31, 2020:2021 and for the year ended October 31, 2020 (in thousands):
Level 3 | ||||||||
January 31, 2020 | October 31, 2019 | |||||||
Beginning balance | $ | 1,249 | $ | - | ||||
Payments | - | - | ||||||
Change in value | (34 | ) | - | |||||
Ending Balance | $ | 1,215 | $ | - |
Level 3 | ||||||||
January 31, 2021 | October 31, 2020 | |||||||
Beginning balance | $ | 370 | $ | 1,249 | ||||
Change in value | (74 | ) | (879 | ) | ||||
Ending balance | $ | 296 | $ | 370 |
As of January 31, 2020,2021, the full amount of the $1.2 million$296,000 earn-out was classified as other long-termcurrent liabilities.
Note 6 – (Loss) earnings per share
Note 6 – Earnings per share
Basic (loss) earnings per share is computed by dividing net (loss) 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. During the three months ended January 31, 2021, we reported a net loss and diluted loss per share is computed the same as basic loss per share as the effect of utilizing the fully diluted share count would have reduced the net loss per share which has an anti-dilutive effect. Therefore, all outstanding stock options are excluded from the computation of diluted loss per share. Potentially issuable securities totalingthat are out-of-the-money totaled 331,338 and 392,838 and 93,000 shares for the three months ended January 31, 2021 and 2020, respectively, and 2019, 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, | ||||||||
2020 | 2019 | |||||||
Weighted average shares outstanding for basic earnings per share | 9,564,533 | 9,309,454 | ||||||
Add effects of potentially dilutive securities-assumed exercise of stock options | 308,803 | 528,700 | ||||||
Weighted average shares outstanding for diluted earnings per share | 9,873,336 | 9,838,154 | ||||||
Three Months Ended January 31, | ||||||||
2021 | 2020 | |||||||
Weighted average shares outstanding for basic (loss) earnings per share | 9,864,689 | 9,564,533 | ||||||
Add effects of potentially dilutive securities-assumed exercise of stock options | - | 308,803 | ||||||
Weighted average shares outstanding for diluted (loss) earnings per share | 9,864,689 | 9,873,336 |
11
Note 7 – Stock-based compensation and equity transactions
On December 3, 2018, two employees were each granted 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 ten years from the date of grant. Also on December 3, 2018, one employee was granted 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 ten years from the date of grant.
On March 8, 2019, one employee was granted 25,000 incentive stock options. These options vested 5,000 on the date of grant, and the balance vests as to 5,000 shares per year thereafter on each of the next four anniversaries of March 8, 2019, and expire ten years from the date of grant.
On December 6, 2019, one employee was granted 50,000 incentive stock options. These options vested 10,000 on the date of grant, and the balance vests as to 10,000 shares per year thereafter on each of the next four anniversaries of December 6, 2019, and expire ten years from the date of grant.
On January 9, 2020, we granted the following equity awards to our managers and officers:
● | Stock grants for a total of 12,075 common shares to three employees. We accounted for these shares as stock-based compensation totaling $77,000; |
● | A total of 3,241 incentive stock options to two employees, all of which vested immediately on the date of grant; and |
● | A total of 38,500 shares of restricted stock and 77,000 incentive stock options to five employees. The shares of restricted stock and incentive stock options vest over four years as follows: (i) one-quarter of the restricted shares and options |
On June 30, 2020, one employee was granted 10,000 incentive stock options. These options vested 2,500 on the date of grant, and the balance vests as to 2,500 shares per year thereafter on each of the next three anniversaries of June 30, 2020, and expire ten years from the date of grant.
On January 12, 2021, we granted a total of 33,500 shares of restricted stock and 67,000 incentive stock options to one manager and three officers. The shares of restricted stock and incentive stock options vest over four years as follows: (i) one-quarter of the restricted shares and options shall vest on January 12, 2022; and (ii) the remaining restricted shares and options shall vest in twelve equal quarterly installments over the next three years. All incentive stock options expire ten years from the date of grant.
No other shares or options were granted to company employees during the three months ended January 31, 20202021 and 2019.2020.
The weighted average fair value of employee stock options that were granted during the three months ended January 31, 20202021 and 20192020 was estimated to be $3.13$2.46 and $4.14,$3.13, respectively, per share, using the Black-Scholes option pricing model with the following assumptions:
Three Months Ended January 31, | Three Months Ended January 31, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Risk-free interest rate | 1.57 | % | 2.98 | % | 0.39 | % | 1.57 | % | ||||||||
Dividend yield | 1.23 | % | 0.94 | % | 0.00 | % | 1.23 | % | ||||||||
Expected life of the option | 6.47 years | 5.76 years | ||||||||||||||
Expected life of the option (in years) | 7.00 | 6.47 | ||||||||||||||
Volatility factor | 49.14 | % | 55.64 | % | 51.94 | % | 49.14 | % |
Expected volatilities are based on historical volatility of our stock price and other factors. We used the historical method to calculate the expected life of the 20202021 and 20192020 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 our stock option plans are included in Note 109 of our Annual Report on Form 10-K for the year ended October 31, 2019.2020. A summary of the status of the options granted under our stock option plans as of January 31, 20202021 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, 2019 | 890,147 | $ | 3.62 | |||||
Options granted | 130,241 | $ | 6.53 | |||||
Options exercised | (215,943 | ) | $ | 1.81 | ||||
Options outstanding at January 31, 2020 | 804,445 | $ | 4.58 | |||||
Options exercisable at January 31, 2020 | 417,279 | $ | 4.24 | |||||
Options vested and expected to vest at January 31, 2020 | 803,409 | $ | 4.59 |
Weighted | ||||||||
Average | ||||||||
Shares | Exercise Price | |||||||
Outstanding at November 1, 2020 | 789,179 | $ | 4.66 | |||||
Options granted | 67,000 | $ | 4.98 | |||||
Options exercised | (118,189 | ) | $ | 3.26 | ||||
Options cancelled | (91,793 | ) | $ | 5.88 | ||||
Options outstanding at January 31, 2021 | 646,197 | $ | 4.78 | |||||
Options exercisable at January 31, 2021 | 298,781 | $ | 4.85 | |||||
Options vested and expected to vest at January 31, 2021 | 645,861 | $ | 4.78 |
Weighted average remaining contractual life of options outstanding as of January 31, 2020: 5.732021: 6.30 years
Weighted average remaining contractual life of options exercisable as of January 31, 2020: 3.722021: 4.54 years
12
Weighted average remaining contractual life of options vested and expected to vest as of January 31, 2020: 5.722021: 6.30 years
Aggregate intrinsic value of options outstanding at January 31, 2020: $1,474,0002021: $1,077,000
Aggregate intrinsic value of options exercisable at January 31, 2020: $886,0002021: $531,000
Aggregate intrinsic value of options vested and expected to vest at January 31, 2020: $1,464,0002021: $1,069,000
As of January 31, 2020, $765,0002021, $708,000 and $313,000$461,000 of expenses with respect to nonvested stock options and restricted shares, respectively, has yet to be recognized but is expected to be recognized over a weighted average period of 4.643.92 and 1.501.30 years, respectively.
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 awards. For fiscal 2020, compensation payable to non-employee directors will bewas prorated from November 1, 2019 through August 31, 2020. On November 4, 2019, we granted each of our five non-employee directors 3,270 shares of restricted stock. The number of restricted shares granted to each director was determined by prorating $25,000 for the 10 months ending August 31, 2020 and dividing by the 20-day average RFILclosing stock price ($6.36). These restricted shares vestvested ratably through August 31, 2020. As compensation for services to be provided until the 2021 annual meeting of stockholders in September 2021, we granted each of our five non-employee directors 5,757 shares of restricted stock, which number was determined by dividing $25,000 by the 20-day average closing stock price ($4.34). On December 31, 2020, a new director joined the Board. We granted the new director 3,334 shares of restricted stock as payment for the year ending with the 2021 annual meeting. The number of restricted stock was determined by prorating $25,000 for the 8.5 months of service upon joining the Board through the 2021 annual meeting and dividing by the 20-day average closing stock price ($5.31).
Non-employee directors who are also a chairperson of a committee of the Board receive additional compensation of $15,000 annually. On June 5, 2020, the Board of Directors revised the committee chair compensation so that all future compensation from July 1, 2020 through the next annual meeting of the stockholders will be payable in shares of common stock rather than cash. Shares issued as compensation will be valued at the closing common stock price on the last day of each quarter. Accordingly, on July 31, 2020, each of the four committee chairpersons was awarded 279 shares at $4.47 per share. We account for these shares as stock-based compensation. On September 15, 2020, each of the four committee chairpersons was awarded 3,454 shares of restricted stock as payment for the $15,000 retainer payable to Chairpersons for the year ending with the 2021 annual meeting of stockholders. The number of restricted shares granted to each chairperson was determined by dividing $15,000 by the 20-day average closing stock price ($4.34).
Stock option expense
During the three months ended January 31, 20202021 and 2019,2020, stock-based compensation expense totaled $187,000$123,000 and $114,000,$187,000, respectively, and was classified in selling and general expense.
Note8 – Concentrations of credit risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. We maintain our cash and cash equivalents with high-credit quality financial institutions. At January 31, 2020,2021, we had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $13.1$14.3 million.
For the three months ending January 31, 2020,2021, two customers, both distributors, accounted for approximately 16% and 12% of net sales and had accounts receivable balances that accounted for 15% and 19%, respectively, of the total net accounts receivable balance at January 31, 2021. These same two distributors each accounted for approximately 11% of net sales for the three months ending January 31, 2020, while one other customer, a wireless carrier, accounted for approximately 17% of net sales.sales for the three months ending January 31, 2020. The two distributors had accounts receivable balances that each accounted for 12% of the total net accounts receivable balance at January 31, 2020. For the three months ending January 31, 2019, two customers, a distributor and a wireless carrier, accounted for approximately 38% and 14%, respectively, of net sales. At January 31, 2019, these two customers’ accounts receivable balances accounted for approximately 30% and 22%, respectively, of the 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 our 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 our future revenues and profits.
Note 9 – Segment information
We aggregate operating divisions into two reporting 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; and (5) if applicable, the nature of the regulatory environment. Based upon this evaluation, as of January 31, 2020,2021, we 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 four divisions. The five divisions that met the quantitative thresholds for segment reporting are the RF Connector and Cable Assembly division (“RF Connector division”), Cables Unlimited, Rel-Tech, C Enterprises, and Schrofftech. While each segment has similar products and services, there was little overlapping of these services to their customer base. The biggest difference in segments is in the channels of sales: 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 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, Rel-Tech, C Enterprises, and Schrofftech divisions constitute the Custom Cabling segment.
As reviewed by our chief operating decision maker, we evaluate the performance of each segment based on income or loss before income taxes. We charge depreciation and amortization directly to each division within the segment. Accounts receivable, inventory, property and equipment, right of use assets, 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.
13
Substantially allAll of our operations are conducted in the United States; however, we derive a portion of our revenue from export sales. We attribute sales to geographic areas based on the location of the customers. The following table presents the sales by geographic area for the three months ended January 31, 20202021 and 20192020 (in thousands):
Three Months Ended January 31, | ||||||||
2021 | 2020 | |||||||
United States | $ | 9,379 | $ | 12,173 | ||||
Foreign Countries: | ||||||||
Canada | 525 | 116 | ||||||
Mexico | - | 5 | ||||||
All Other | 98 | 120 | ||||||
623 | 241 | |||||||
Totals | $ | 10,002 | $ | 12,414 |
Three Months Ended January 31, | ||||||||
2020 | 2019 | |||||||
United States | $ | 12,173 | $ | 10,470 | ||||
Foreign Countries: | ||||||||
Canada | 116 | 165 | ||||||
Mexico | 5 | - | ||||||
All Other | 120 | 12 | ||||||
241 | 177 | |||||||
Totals | $ | 12,414 | $ | 10,647 |
Net sales, income (loss) before provision (benefit) for income taxes and other related segment information for the three months ended January 31, 20202021 and 20192020 are as follows (in thousands):
RF Connector | Custom Cabling | |||||||||||||||
and | Manufacturing and | |||||||||||||||
| Cable Assembly | Assembly | Corporate | Total | ||||||||||||
2021 | ||||||||||||||||
Net sales | $ | 3,575 | $ | 6,427 | $ | - | $ | 10,002 | ||||||||
Income (loss) before benefit for income taxes | 453 | (1,042 | ) | (8 | ) | (597 | ) | |||||||||
Depreciation and amortization | 35 | 202 | - | 237 | ||||||||||||
Total assets | 7,667 | 15,202 | 17,766 | 40,635 | ||||||||||||
2020 | ||||||||||||||||
Net sales | $ | 3,189 | $ | 9,225 | $ | - | $ | 12,414 | ||||||||
Income (loss) before provision for income taxes | 282 | (281 | ) | 11 | 12 | |||||||||||
Depreciation and amortization | 42 | 213 | - | 255 | ||||||||||||
Total assets | 7,496 | 17,158 | 15,178 | 39,832 |
RF Connector | Custom Cabling | |||||||||||||||
and | Manufacturing and | |||||||||||||||
Cable Assembly | Assembly | Corporate | Total | |||||||||||||
2020 | ||||||||||||||||
Net sales | $ | 3,189 | $ | 9,225 | $ | - | $ | 12,414 | ||||||||
Income (loss) before provision for income taxes | 282 | (281 | ) | 11 | 12 | |||||||||||
Depreciation and amortization | 42 | 213 | - | 255 | ||||||||||||
Total assets | 7,496 | 17,158 | 15,178 | 39,832 | ||||||||||||
2019 | ||||||||||||||||
Net sales | $ | 3,258 | $ | 7,389 | $ | - | $ | 10,647 | ||||||||
Income 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 |
Note10 – Income taxes
We use 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 we operate, 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.
During the first quarter of fiscal 2021, the Consolidated Appropriations Act was passed which allows for PPP loan expenses to be deducted on the Company’s tax return. This resulted in a decrease to our deferred tax asset and income taxes payable of $0.7 million. The provision (benefit)or benefit for income taxes was 32% and (120%) and 21% of (loss) income before income taxes for the three months ended January 31, 2021 (the “fiscal 2021 quarter”) and 2020 and 2019,(the “fiscal 2020 quarter”), respectively. The change in the effective tax rate from the fiscal 20192020 quarter to fiscal 20202021 quarter was primarily driven by the tax-effectdisproportionate impact of our year-to-date income adjusted forvarious permanent book-tax differences which has a rate impact comparedwith respect to our forecasted book income for the year.or loss in each period.
We had $123,000$134,000 and $80,000$107,000 of unrecognized tax benefits, inclusive of interest and penalties, as of January 31, 20202021 and October 31, 2019,2020, respectively. The unrecognized tax benefits, if recognized, would result in a net tax benefit of $28,000$35,000 as of January 31, 2020.
14
2021.
Note11 – Intangible assets
Intangible assets consist of the following (in thousands):
January 31, 2020 | October 31, 2019 | January 31, 2021 | October 31, 2020 | |||||||||||||
Amortizable intangible assets: | ||||||||||||||||
Non-compete agreement (estimated life 5 years) | $ | 423 | $ | 200 | $ | 423 | $ | 423 | ||||||||
Accumulated amortization | (211 | ) | (200 | ) | (256 | ) | (245 | ) | ||||||||
212 | - | 167 | 178 | |||||||||||||
Customer relationships (estimated lives 7 - 15 years) | $ | 5,058 | $ | 2,879 | 5,058 | 5,058 | ||||||||||
Accumulated amortization | (2,005 | ) | (1,884 | ) | (2,483 | ) | (2,367 | ) | ||||||||
3,053 | 995 | 2,575 | 2,691 | |||||||||||||
Backlog (estimated life 1 - 2 years) | 287 | 134 | 287 | 287 | ||||||||||||
Accumulated amortization | (167 | ) | (134 | ) | (287 | ) | (266 | ) | ||||||||
120 | - | - | 21 | |||||||||||||
Patents (estimated life 10 - 14 years) | 368 | 142 | 368 | 368 | ||||||||||||
Accumulated amortization | (53 | ) | (45 | ) | (86 | ) | (77 | ) | ||||||||
315 | 97 | 282 | 291 | |||||||||||||
Totals | $ | 3,700 | $ | 1,092 | $ | 3,024 | $ | 3,181 | ||||||||
Non-amortizable intangible assets: | ||||||||||||||||
Trademarks | $ | 1,174 | $ | 657 | $ | 1,174 | $ | 1,174 |
Amortization expense for the three months ended January 31, 20202021 and the year ended October 31, 20192020 was $173,000$157,000 and $275,000,$692,000, respectively. As of January 31, 2020,2021, the weighted-average amortization period for the amortizable intangible assets is 8.395.66 years.
Note12 – Commitments
We currently lease ourhave operating leases for corporate headquarters and RF connector and cable assemblyoffices, manufacturing facilities, in San Diego, California. At that location, weand certain storage units. Our leases have remaining lease three buildings with a totalterms of approximately 21,908 square feet1 year to 3 years, some of office, warehouse and manufacturing space, that houses our corporate administration, sales and marketing, and engineering departments. The buildings also are usedwhich include options to extend the leases for production and warehousing by the RF Connector division. The term of the lease expires on July 31, 2022, and the rental payments under the lease currently are $26,176 per month. The San Diego lease also requires the paymentup to 5 years. A portion of our pro rata share of real estate taxes and insurance, maintenance and other operating expenses related to the facilities.
| ||
15
Additionally, on January 1, 2020, the Cables Unlimited division began making rental payments for various storage units located at the Yaphank facility. Monthly rental payments are approximately $1,000 and made to K&K Unlimited, the company owned by Darren Clark, former owner and current President of Cables Unlimited. Upon inception of this arrangement, it was determined that there was no physically distinct identified asset and therefore, the arrangement does not constitute a lease. The rentalUnlimited, to whom we make rent payments however, remain as rental expense.
For the three months ended January 31, 2020, the aggregate monthly rental payments for all of our facilities was approximately $83,000totaling $14,000 per month, plus utilities, maintenance and insurance.
Upon adoption of ASU 2016-02 on November 1, 2019, we adopted the practical expedient whereby the lease qualification and classification was carried over from the accounting for leases under ASC 840. The lease contracts for the corporate headquarters, RF Connector division manufacturing facilities, Cables Unlimited, Rel-Tech, and C Enterprises had commenced prior to the effective date of November 1, 2019. These contracts, therefore, were determined to contain leases. All other new contracts have been assessed for the existence of a lease and for the proper classification into operating leases. The rate implicit in the leases was undeterminable, and therefore, the discount rate used in all lease contracts is our incremental borrowing rate.month.
We also have other operating leases for certain equipment. The components of our facilities and equipment operating lease expenses for the period ending January 31, 2021 were as follows (in thousands):
Three Months Ended | ||||
January 31, 2020 | ||||
Operating lease cost | $ | 254 |
Three Months Ended | ||||
January 31, 2021 | ||||
Operating lease cost | $ | 247 | ||
Short-term lease cost | - |
Other information related to leases was as follows (in thousands):
Three Months Ended | ||||||||||||
January 31, 2020 | January 31, 2021 | October 31, 2020 | ||||||||||
Supplemental Cash Flows Information | ||||||||||||
Right of use assets obtained in exchange for lease obligations: | ||||||||||||
Operating leases | $ | 2,024 | $ | 1,184 | $ | 1,421 | ||||||
Weighted Average Remaining Lease Term | ||||||||||||
Operating leases | 30.49 months | |||||||||||
Operating leases (in months) | 20.78 | 22.94 | ||||||||||
Weighted Average Discount Rate | ||||||||||||
Operating leases | 3.54 | % | 3.54 | % | 3.54 | % |
Future minimum lease payments under non-cancellable leases as of January 31, 20202021 were as follows:
Year ended October 31, | Operating Leases | Operating Leases | ||||||
2020 (excluding three months ended January 31, 2020) | $ | 719 | ||||||
2021 | 854 | |||||||
2021 (excluding three months ended January 31, 2021) | $ | 667 | ||||||
2022 | 507 | 532 | ||||||
2023 | 166 | 166 | ||||||
2024 | - | - | ||||||
2025 | - | |||||||
Thereafter | - | - | ||||||
Total future minimum lease payments | 2,246 | 1,365 | ||||||
Less imputed interest | (122 | ) | (99 | ) | ||||
Total | $ | 2,124 | $ | 1,266 |
Reported as of January 31, 2020 | Operating Leases | |||
Other current liabilities | $ | 933 | ||
Operating lease liabilities | 1,191 | |||
Finance lease liabilities | - | |||
Total | $ | 2,124 |
Reported as of January 31, 2021 | Operating Leases | |||
Other current liabilities | $ | 789 | ||
Operating lease liabilities | 477 | |||
Finance lease liabilities | - | |||
Total | $ | 1,266 |
As of January 31, 2020,2021, operating lease ROU asset was $2.0$1.2 million and operating lease liability totaled $2.1$1.3 million, of which $933,000$789,000 is classified as current. There were no finance leases as of January 31, 2020. We have additional operating leases that have not yet commenced as of January 31, 2020 of $178,000. These operating leases will commence in February 2020 with lease terms of 24 months.
16
2021.
Note13 – Line of credit and PPP loans
In November 2019, we entered into an agreement for a revolving line of credit (“LOC”) in the amount of $5.0 million. Amounts outstanding under the LOC shall bear interest at a rate of 2.0% plus LIBOR Daily Floating Rate (“base interest rate”), with interest payable on the first day of each month. Borrowings under the LOC are secured by a security interest in certain assets of the Company. The LOC contains certain loan covenants. Failure to maintain the loan covenants may constitute an event of default, resulting in all outstanding amounts of principal and interest becoming immediately due and payable. All outstanding principal and interest is due and payable on December 1, 2021. On December 30, 2020, we closed the line of credit with no amounts outstanding.
In May 2020 we applied for and received loans under the Paycheck Protection Program (“PPP”) of the CARES Act totaling approximately $2.8 million (“PPP Loans”). The funds from the PPP Loans were used to retain employees, maintain payroll and benefits, and make lease and utility payments. Without the PPP Loans, we would have made material reductions in our workforce (particularly at Cables Unlimited). We anticipate that most of the PPP Loans will be eligible for forgiveness in accordance with the provisions of the CARES Act. To the extent not forgiven, the PPP Loans have a two-year term, a fixed interest rate of 1%, and principal and interest payments are deferred for six months. As of January 31, 2020, we are2021, the full amount of the PPP Loans was applied for forgiveness. Subsequent to January 31, 2021, the full amount of the PPP Loans has been forgiven and considered paid in compliance with allfull (including applicable interest).
Future minimum loan covenants. Additionally,payments as of January 31, 2020, no amounts2021 were outstanding under the line of credit.as follows:
Year ended October 31, | PPP Loans | |||
2021 (excluding three months ended January 31, 2021) | $ | 1,575 | ||
2022 | 1,213 | |||
Total future minimum payments | $ | 2,788 |
Note14 – Cash dividend and declared dividends
We paiddid not pay any dividends of $0.02 per share during the three months ended January 31, 2021. During the three months ended January 31, 2020, and 2019we paid dividends of $0.02 per share for a total of $193,000 and $186,000, respectively.$193,000.
Note15 – Subsequent events
OnIn February 1, 2020,2021, the two leases forfull $2.8 million of PPP Loans was forgiven and considered paid in full (including applicable interest) by the Schrofftech facilities were renewed effective February 1, 2020 for two years expiring January 31, 2022. The aggregate monthly rental payments under the new leases are $6,525 per month.Small Business Administration.
On February 15, 2020, the RF Connector division entered into a lease agreement for an approximately 625 square foot office facility located in Towson, Maryland that expires on February 28, 2022. The rental payments under the lease currently are $1,016 per month, plus estimated monthly payments of $143 for common area maintenance fees.
On March 5, 2020, the BoardItem 2:Management’s Discussion and Analysis of Directors declared a quarterly cash dividendFinancial Condition and Results of $0.02 per share payable on April 15, 2020 to stockholders of record on March 31, 2020.Operations
17
This report contains forward-looking statements. These statements relate to future events or the Company’sCompany’s future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,“may,” “will,“will,” “should,“should,” “except,“except,” “plan,“plan,” “anticipate,“anticipate,” “believe,“believe,” “estimate,“estimate,” “predict,“predict,” “potential”“potential” or “continue,“continue,” the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Company, nor any other person, assumes responsibility for the accuracy and completeness of the forward-looking statements. The Company is under no obligation to update any of the forward-looking statements after the filing of this Quarterly Report on Form 10-Q to conform such statements to actual results or to changes in its expectations.
The following discussion should be read in conjunction with the Company’sCompany’s unaudited condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this Form 10-Q. Readers are also urged to carefully review and consider the various disclosures made by the Company which attempt to advise interested parties of the factors which affect the Company’sCompany’s business, including without limitation the disclosures made under the caption “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the caption “Risk“Risk Factors,” and the audited consolidated financial statements and related notes included in the Company’sCompany’s Annual Report filed on Form 10-K for the year ended October 31, 20192020 and other reports and filings made with the Securities and Exchange Commission.
Critical Accounting Policies
Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates, including those related to bad debts, inventory reserves, earn-out liabilities, and contingencies on an ongoing basis. We base our estimates on historical experience and on various other assumptions that are believed to be appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Additionally, on November 1, 2018, we 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, we follow 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, we recognize 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. We 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. On November 1, 2019, we adopted ASU No. 2016-02, Leases, applying the modified retrospective method. In accordance with ASU No. 2016-02, Leases, we determine if an arrangement is a lease at inception. Operating leases are included in operating lease right of use (“ROU”) assets and operating lease liabilities on our consolidated balance sheet. Finance leases are included in finance ROU assets, other current liabilities, and operating lease liabilities on our consolidated balance sheet. ROU assets represent our right to use an underlying asset for the duration of the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term and is recognized on the consolidated statements of operations.
Inventories
Inventories are stated at the lower of cost or net realizable value, with cost determined using the weighted average cost method of accounting. Certain items in inventory may be considered obsolete or excess and, as such, we periodically review our inventories for excess and slow moving items and make provisions as necessary to properly reflect inventory value. Because inventories have, during the past few years, represented up to one-fourth of our total assets, any reduction in the value of our inventories would require us to take write-offs that would affect our net worth and future earnings.
Allowance for Doubtful Accounts
We record an allowance for doubtful accounts based upon our assessment of various factors. We consider historical experience, the age of the accounts receivable balance, credit quality of our customers, current economic conditions and other factors that may affect a customer’s ability to pay.
18
Long-Lived Assets Including Goodwill
We assess property, plant and equipment and intangible assets, which are considered definite-lived assets, for impairment. Definite-lived assets are reviewed when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If property and equipment and intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value.
We amortize our intangible assets with definite useful lives over their estimated useful lives and review these assets for impairment.
We test our goodwill and trademarks and indefinite-lived assets for impairment at least annually or more frequently if events or changes in circumstances indicate these assets may be impaired. These events or circumstances requiresrequire significant judgment and could include a significant change in the business climate, legal factors, operating performance indicators, competition and sale or disposition of all or a portion of a division. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital.
Warranty Reserve
We recognize an accrued warranty liability for the estimated claims to remedy potential deficiencies of quality or performance of our products in the Schrofftech division within the Custom Cabling and Manufacturing Assembly segment. The product warranties extend over various periods, depending upon the product subject to the warranty. We record a provision for estimated future warranty claims based upon the historical relationship of warranty claims to sales, any specifically identified warranty issues and current trends and knowledge. We base our estimates in part on historical experience and on assumptions that are believed to be reasonable under the circumstances and revise our estimates, as appropriate, when events or changes in circumstances indicate that revisions may be necessary. Although these estimates are based on management’s knowledge of and experience with past and current events and on management’s assumptions about future events, it is reasonably possible that they may ultimately differ materially from actual results, including in the case of a significant product failure.
Earn-out liabilityLiability
The purchase agreement for the acquisition of Schrofftech acquisition provides for an earn-out payment of up to $2,400,000,$2.4 million, which amount is earned through October 31, 2022 and payable on October 31, 2022.2021. The initial earn-out liability was valued at its fair value using an option pricing based approach with a risk-neutral framework using Black Scholes due to the option-like nature of the earn-out payout structure. The earn-out was and will continue to be revalued quarterly using a present value approach, and any resulting increase or decrease will be recorded into selling and general expenses. Any changes in the amount of the actual results and forecasted scenarios could impact the fair value. Significant judgment is employed in determining the appropriateness of the assumptions used in calculating the fair value of the earn-out as of the acquisition date. Accordingly, significant variances between actual and forecasted results or changes in the assumptions can materially impact the amount of contingent consideration expense we record in future periods.
Income Taxes
We record a tax provision for the anticipated tax consequences of the reported results of operations. Income taxes are accounted for under the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates as of the date of the financial statements that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The calculation of the tax provision involves significant judgment in estimating the impact of uncertainties in the application of GAAP and complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on our financial condition and operating results.
Stock-based Compensation
We use the Black-Scholes model to value the stock option grants. This valuation is affected by our stock price as well as assumptions regarding a number of inputs which involve significant judgments and estimates. These inputs include the expected term of employee stock options, the expected volatility of the stock price, the risk-free interest rate and expected dividends.
19
Overview
RF Industries, Ltd. (together with subsidiaries, the “Company,” we,” “us,” or “our”) is a national manufacturer and marketer of interconnect products and systems, including coaxial and specialty cables and connectors, fiber optic cables and connectors, and electrical and electronic specialty cables and components. Through our manufacturing and production facilities, we provide a wide selection of interconnect products and solutions primarily to telecommunications carriers and equipment manufacturers, wireless and network infrastructure carriers and manufacturers and to various original equipment manufacturers (OEMs) in several market segments. Since the acquisitionsacquisition of Schroff Technologies International, Inc.Schrofftech in November 2019, we also manufacture and sell energy-efficient cooling systems and integrated small cell enclosures.solutions and related components.
We operate through two reporting segments: (i) the RF Connector and Cable Assembly (“RF Connector”) segment, and (ii) the Custom Cabling Manufacturing and Assembly (“Custom Cabling”) segment. The RF Connector segment primarily designs, manufactures, markets and distributes a broad range of connector and cable products, including coaxial connectors and cable assemblies that are integrated with coaxial connectors, used in telecommunications and information technology OEM markets and other end markets. The Custom Cabling segment designs, manufactures, markets and distributes custom copper and fiber cable assemblies, complex hybrid fiber optic and power solution cables, electromechanical wiring harnesses, wiring harnesses for a broad range of applications in a diverse set of end markets, energy-efficient cooling systemsystems for wireless base stations and remote equipment shelters and custom designed, pole-ready 5G small cell integrated enclosures. The two segments were determined based on the aggregation of operating divisions that have similar economic characteristics and are similar in the majority of 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; and (5) if applicable, the nature of the regulatory environment.
For the three months ended January 31, 2020,2021, most of our revenues were generated from the Custom Cabling segment from the sale of fiber optics cable, copper cabling, custom patch cord assemblies, and wiring harnesses, which collectively accounted for 74%64% of the Company’s total sales for the three months ended January 31, 2020.sales. Revenues from the RF Connector segment were generated from the sales of RF connector products and connector cable assemblies and accounted for 26%36% of total sales for the three months ended January 31, 2020.2021. The RF Connector segment mostly sells standardized products regularly used by customers and, therefore, has a more stable revenue stream. On the other hand, the Custom Cabling segment mostly designs, manufactures, and sells customized cabling and wireless-related equipment under larger purchase orders. Accordingly, the Custom Cabling segment is more dependent upon larger orders, and its revenues are therefore, more volatile than the revenues of the RF Connector segment.
In March 2020, the World Health Organization (the “WHO”) declared coronavirus (“COVID-19”) a pandemic emergency. The COVID-19 pandemic has negatively impacted regional and global economies, disrupted global supply chains, and created significant volatility and disruption of financial markets. The global impact of the outbreak has been rapidly evolving and certain jurisdictions, including those where we have operations, have also reacted by instituting quarantines, restrictions on travel, “shelter in place” rules, social distancing protocols and restrictions on types of business that may continue to operate. While we have been deemed an “essential” business, and therefore have been permitted to continue our operations, the impact of the COVID-19 pandemic has affected both our operations and those of our customers. Our operations have been negatively affected by partial shutdowns of our facilities (particularly in the Northeast), by changes that we had to make on our operating methods and procedures, and by our reduced workforce as many of our employees stayed at home. Many of our customers and vendors have likewise had temporary closures of their facilities and have otherwise been impacted by changes in their industries. As a result, overall demand for our products has been reduced, and certain costs have increased. We have taken measures to protect the health and safety of our employees, and we continue to work with our customers and vendors to minimize potential disruptions in addressing the challenges posed by this global pandemic.
The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by domestic and international jurisdictions to prevent disease spread, all of which are uncertain and cannot be predicted. The outbreak impacted our performance for the three months ended January 31, 2021. We currently expect the decline caused by the economic slowdown to persist through at least the second quarter of 2021. The operations of our Cables Unlimited, Inc. subsidiary in Long Island, New York, was particularly affected as many employees stayed at home and as local customers shut down or otherwise delayed, deferred or cancelled orders for our products. Because of the impact that COVID-19 had on our Northeastern operations, in May 2020 we applied for and received loans under the Paycheck Protection Program (“PPP”) of the CARES Act totaling approximately $2.8 million (“PPP Loans”). The funds from the PPP Loans were used to retain employees, maintain payroll and benefits, and make lease and utility payments. Without the PPP Loans, we would have made material reductions in our workforce (particularly at Cables Unlimited). In February 2021, the full $2.8 million of PPP Loans was forgiven and considered paid in full (including applicable interest) by the Small Business Administration (“SBA”).
Liquidity and Capital Resources
WeHistorically, we have been able to fund our liquidity and other capital requirements from funds we generated from operations. While we still believe that our existing current assets, and the amount of cash we anticipate will be generated from on-going operations, and funds we received from the PPP Loans collectively will be sufficient to fund our anticipated liquidity and capital resource needs for at least twelve months from the date of this filing. Wefiling, there are some uncertainties because of the unknown future impact of the COVID-19 pandemic on our business. Nevertheless, we believe that our existing assets and the cash expectedwe expect to be generatedgenerate from operations, including itsfrom our current backlog of unfulfilled orders, will be sufficient to fund our liquidity needs during the current fiscal yearnext twelve months from the date of this filing based on the following:
As of January 31, 2020,2021, we had a total of $14.4$15.5 million of cash and cash equivalents compared to a total of $12.5$15.8 million of cash and cash equivalents as of October 31, 2019.2020. As of January 31, 2020,2021, we had working capital of $23.8$24.5 million and a current ratio of approximately 5.4:1. Our cash and cash equivalents increased from October 31, 2019 due to the timing of sales and the collection of outstanding accounts receivables, resulting in a decrease in the accounts receivable balance by $6.5 million, from $12.2 million as of October 31, 2019 to $5.7 million as of January 31, 2020. As of January 31, 2020, we had $29.2 million in4.4:1 with current assets of $31.8 million and $4.5 million in current liabilities.liabilities of $7.3 million.
As of January 31, 2020,2021, we had $5.0$7.1 million of backlog, compared to $6.1$6.3 million as of October 31, 2019.2020. Since purchase orders are submitted from customers based on the timing of their requirements, our ability to predict orders in future periods or trends in future periods is limited. Furthermore, purchase orders may be subject to cancellation from customers, although we have not historically experienced material cancellations of purchase orders.
We generated cash of $1.9 million duringIn the three months ended January 31, 20202021, we used $0.6 million of cash in our operating activities. This net outflow of cash is due largelyto our net loss ($0.4 million), inventory purchases resulting in an increase to our inventory balance ($0.4 million), and cash used for other current assets ($1.3 million), which expenditures included an increase of our income taxes receivable of $0.7 million due to the collectionimpact of accounts receivables ($6.7 million)the passage of the Consolidated Appropriations Act (“CAA”) that were outstanding as of October 31, 2019.allows for PPP loan expenses to be deducted on our tax return. The foregoing cash collected from our accounts receivablesusage was partially offset by the net cash used in the purchase of Schrofftech ($3.9 million). Net income of $26,000, with an added increase in cash from noncash credits of $0.3$0.7 million from the decrease of our deferred tax asset as a result of the passage of the CAA, $0.2 million from depreciation and amortization, and $0.2$0.1 million from stock-based compensation expense, was offset by a decreaseand $0.5 million from the collection in accounts payable ($1.3 million) and accrued expenses ($0.9 million) primarily due toreceivable.
During the payout of prior year bonuses. In addition, during the three monthsfiscal quarter ended January 31, 2020,2021, we also spent $0.1 million on capital expenditures, and received $0.4 million of proceeds from the exercise of stock options. As a result of the net cash used in operating and investing activities, and the cash received from the exercise of stock options, our cash and paid out $0.2cash equivalent balance decreased by $0.3 million in dividends.during the January 31, 2021 quarter.
We do not anticipate needing material additional capital equipment in the next twelve months. In the past, we have financed some of our equipment and furnishings requirements through capital leases. No additional capital equipment purchases have been currently identified that would require significant additional leasing or capital expenditures during the next twelve months. We also believe that based on our current financial condition, our current backlog of unfulfilled orders, and anticipated future operations, we would be able to finance our expansion, if necessary.
In November 2019, we entered into an agreement for a $5.0 million revolving line of credit (“LOC”) in the amount of $5.0 million. Amounts outstanding under the LOC shall bearthat bore interest at a rate of 2.0% plus LIBOR Daily Floating Rate (“base interest rate”), with interest payable onRate. We never used the first dayline of each month. Borrowings under the LOC are secured by a security interest in certain assets of the Company. The LOC contains certain loan covenants. Failure to maintain the loan covenants may constitute an event of default, which could result in all outstanding amounts of principalcredit and interest becoming immediately due and payable. All outstanding principal and interest is due and payable on December 1, 2021. As30, 2020, we closed the line of the date of this report,credit. Accordingly, we are in compliance with all loan covenants. Additionally, as of the date of this report,currently do not have a credit facility available to us should we have not used the LOC and accordingly, the entire amount of the LOC is currently available.need to borrow amounts to fund either our working capital needs or any future unplanned capital expenditures.
20
From time to time, we may undertake acquisitions of other companies or product lines in order to diversify our product and solutions offerings and customer base. Conversely, we may undertake the disposition of a division or product line due to changes in our business strategy or market conditions. Acquisitions may require the outlay of cash, which may reduce our liquidity and capital resources while dispositions may increase our cash position, liquidity and capital resources. On November 4, 2019, we purchased the business of Schroff Technologies International, Inc. (“Schrofftech”), a Rhode Island-based manufacturer and marketer of intelligent thermal control systems used by telecommunications companies across the U.S. and Canada, and shrouds for small cell integration and installation. At the closing, in consideration for Schrofftech, we paid the sellers $4 million in cash, and, if certain financial targets are met by Schrofftech over a two-year period, agreed to pay an additional cash earn-out payment of up to $2.4 million.
Results of Operations
Three Months Ended January 31, 20202021 vs. Three Months Ended January 31, 20192020
Net sales of $12.4 million increasedfor the three months ended January 31, 2021 (the “fiscal 2021 quarter”) decreased by 17%19%, or $1.8$2.4 million, forto $10.0 million as compared to the three months ended January 31, 2020 (the “fiscal 2020 quarter”) compared to the three months ended January 31, 2019 (the “fiscal 2019 quarter”). Net sales for the fiscal 20202021 quarter at the Custom Cabling segment increaseddecreased by $1.8$2.8 million, or 25%30%, to $6.4 million, compared to $9.2 million in the fiscal 2020 quarter. The decrease was primarily the result of lower project-based wireless carrier macro and tower site business where we continued to see a general slowdown which impacted our sales. In addition we experienced project delays with small cell deployments due to COVID-19 as there were difficulties gaining site zoning approvals for small cell installations, challenges with building and site access, and limited availability of work crews. Net sales for the fiscal 2021 quarter at the RF Connector segment increased by $0.4 million, or 12%, to $3.6 million as compared to $3.2 million in the fiscal 20192020 quarter. The increase is
Gross profit for the fiscal 2021 quarter decreased by $0.6 million to $2.6 million due to the $1.1 milliondecrease in net sales, although gross margins remained fairly consistent at 26.1% of sales contributed by the Schrofftech division and the $2.3 millioncompared to 26.2% of sales contributed by the C Enterprises division. We did not own either the Schrofftech or C Enterprises divisions in the fiscal 20192020 quarter. Excluding
Engineering expenses decreased by $0.2 million to $0.4 million in the additional sales provided by these new divisions, net sales for the continuing divisions declinedfiscal 2021 quarter compared to $0.6 million in the fiscal 2020 quarter primarily due to decreased salesthe reduction in engineering marketing personnel, which costs are included in the Custom Cabling segment. Sales in the Custom Cabling segment decreased primarily due to lower order of hybrid fiber cables by customers in the wireless market. Net sales for the fiscal 2020 quarter at the RF Connector segment decreased by $0.1 million, or 2%, to $3.2 million as compared to $3.3 million in the fiscal 2019 quarter.
Gross profit for the first fiscal 2020 quarter increased by $0.2 million to $3.3 million as a result of increased net sales while gross margins decreased to 26.2% of sales from 29.5% of sales in the first quarter last year. The decrease in gross margins was primarily due to product mix at the Custom Cabling segment. In addition, gross margins at C Enterprises are lower than the blended margins at the majority of the other Custom Cabling subsidiaries, and substantially lower than the margins at the RF Connector segment. The inclusion of C Enterprises in the fiscal 2020 quarter contributed to the reduction of the Company’s overall gross margins compared to the fiscal 2019 quarter, which quarter did not include C Enterprises. Furthermore, the cost of labor increased as we paid more to reward and retain our production workforce and, in some cases, to meet increased state mandated minimum wage requirements.
Engineering expenses increased $0.3 million to $0.6 million for the fiscal 2020 quarter compared to $0.3 million in the fiscal 2019 quarter primarily due to the inclusion of C Enterprises and Schrofftech results.engineering costs. Engineering expenses represent costs incurred relating to the ongoing research and development of new products.
Selling and general expenses increased $0.7by $0.1 million to $2.8 million (28% of sales) compared to $2.7 million (21% of sales) compared to $2.0 million (19% of sales) in the first quarter last year largelyprimarily due to hiring of additional sales people in the additionlast half of the selling2020 fiscal year and general expenses of the recently acquired C Enterprises and Schrofftech subsidiaries ($0.5 million and $0.3 million, respectively), which subsidiaries we did not own in the first quarter of fiscal 2019.2021 quarter.
For the fiscal 20202021 quarter, pretax income (loss) for the Custom Cabling segment andhad a pretax loss of $1.0 million while the RF Connector segment was ($0.3)had pretax income of $0.5 million, as compared to $0.3 million loss and $0.3 million of income, respectively, as compared to $0.5 million and $0.3 million for the comparable first quarter last year. The pretax loss at the Custom Cabling segment in the firstfiscal 2021 quarter of fiscal 2020 was primarily due to the decreaselower sales in net sales and the increaseproject-based business resulting from the slowdown in labor expenses during the fiscal 2020 quarter.carrier spending.
The provision (benefit)or benefit for income taxes was 32% and (120%) and 21% of (loss) income before income taxes for the fiscal 20202021 quarter and the fiscal 20192020 quarter, respectively. The change in the effective tax rate from the fiscal 20192020 quarter to fiscal 20202021 quarter was primarily driven by the tax-effectdisproportionate impact of the Company’s year-to-date income adjusted forvarious permanent book-tax differences which has a rate impact comparedwith respect to our forecasted book income for the year.or loss in each period.
For the fiscal 20202021 quarter, net loss was $0.4 million and fully diluted loss per share was $0.04 per share, compared to a net income wasof $26,000 and fully diluted earnings per share (EPS) wasof $0.00 per share as compared to a net income of $0.6 million and fully diluted EPS of $0.07 per share for the fiscal 20192020 quarter. For the fiscal 20202021 quarter, the diluted weighted average shares outstanding was 9,873,3369,784,760 as compared to 9,838,1549,873,336 for the fiscal 20192020 quarter.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Nothing to report.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) that are designed to assure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
21
In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide reasonable assurance only of achieving the desired control objectives, and we necessarily are required to apply our judgment in weightingweighing the costs and benefits of possible new or different controls and procedures. Limitations are inherent in all control systems, so no evaluation of controls can provide absolute assurance that all control issues and any fraud have been detected. Because of the inherent limitations, we regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, and to maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this report, we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, we concluded that our disclosure controls and procedures were effective as of that date.
As described throughout our quarterly report, duringDuring the first quarter ended January 31, 2020, we acquired Schrofftech, which is now a wholly owned subsidiary of RF Industries. We are currently integrating policies, processes, technology, and operations forfiscal 2021, there were no changes in the consolidated company and will continue to evaluate our internal control over financial reporting as we develop and execute our integration plans. Until we are fully integrated, we will maintainsuch term is defined in Rule 13a-15(f) of the operational integrity of each division’s internal control over financial reporting
Other than as described above, there has been no changes in our internal control over financial reporting during the quarter ended January 31, 2020exchange Act, that has materially affected, or isare reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. As of the date of this report, we are not subject to any proceeding that is not in the ordinary course of business or that is material to the financial condition of our business.
Item 1A. Risk Factors
The discussion of our business and operations should be read together with the risk factors contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended October 31, 20192020 filed with the SEC, which describe various risks and uncertainties to which we are or may become subject. Further, the current coronavirus (“COVID-19”) pandemic and actions taken to address the pandemic may exacerbate the risks described in our SEC reports. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner.
Uncertain ImpactThe COVID-19 pandemic has adversely impacted, and poses risks to, our business, the nature and extent of Covid-19 Coronaviruswhich are highly uncertain and unpredictable. . AsIn March 2020, the WHO characterized COVID-19 as a pandemic. This pandemic has resulted in a global health crisis that is adversely affecting broader economies, financial markets, and the business environment worldwide. We are monitoring the global impact of the date of this filing, we are unsure ofCOVID-19 pandemic and taking steps to mitigate the extent to whichaccompanying impact on our business willby working with our employees, customers, suppliers, and other stakeholders. The pandemic is adversely affecting, and is expected to continue to adversely affect, certain elements of our business. Portions of our workforce may be unable to work effectively due to illness and containment measures, including quarantines, illness precautions, travel restrictions, and other restrictions. We experienced volatility in customer demand as their businesses were impacted by the outbreakpandemic. If the pandemic continues and conditions worsen, we may experience additional adverse impacts on our operational and commercial activities, including rising costs, volatility in customer orders and purchases and declines in our collections of accounts receivable. Furthermore, the coronavirus (also known as COVID-19). We are dependent upon offshore manufacturerspandemic has impacted and may further impact the broader U.S. economy, including negatively impacting economic growth, the proper functioning of financial and capital markets and interest rates, all of which could lead to provide us with a significant portion ofdecline in our bulk materials and several have notified us of disruptions to their production and/or supply chain relatednet sales. Due to the virus outbreak. Additionally, we believe that a significant portionspeed with which the situation is developing, the breadth of its spread and the products that we purchase from our domestic suppliers are also manufactured, in whole or in part, offshorerange of governmental and therefore, may be subjectcommunity reactions thereto, there is uncertainty around its duration, ultimate impact and the timing of recovery. Therefore, the pandemic could lead to an extended disruption of economic activity and the same risks. Any business disruption or failure of these suppliers to meet delivery requirements and commitments may cause delays in future shipments and potential lost or delayed revenue. Furthermore, the extent any disruptions the outbreak has caused or may cause to our customers or our customers’ customers supply chains or purchasing patterns are not known and cannot be predicted and may cause delays in our shipments and potential lost or delayed revenue. As a result, at the time of this filing, we are unable to determine or predict the overall impact that the coronavirus will have on our business, liquidity, orstock price, access to capital, resources.consolidated results of operations, financial position and cash flows could be material.
Nothing to report.Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On July 31, 2020, the Company issued a total of 1,116 shares of common stock to the four directors serving as chairpersons on committees of the Company’s Board of Directors. The shares were issued in lieu of $5,000 of cash compensation for services otherwise payable to these directors. The shares were issued to the directors pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act since, among other things, the transactions did not involve a public offering.
The following table sets forth information regarding the shares of common stock cancelled, and deemed to have been repurchased, during the three months ended January 31, 2021 in connection with employee tax withholding for shares of restricted stock that vested under our 2020 Equity Incentive Plan.
Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Approximate dollar value of shares that may yet be purchased under the plans or programs | ||||||||||||
November 2020 | - | $ | - | - | $ | - | ||||||||||
December 2020 | - | $ | - | - | $ | - | ||||||||||
January 2021 | 2,367 | $ | 4.89 | - | $ | - |
Item 3. Defaults upon Senior Securities
Nothing to report.
Item 4. Mine Safety Disclosures
Nothing to report.
Item 5. Other Information
Nothing to report.
22
Item 6. Exhibits
101.INS | XBRL Instance Document. |
101.SCH | XBRL Taxonomy Schema. |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase. |
101.DEF | XBRL Taxonomy Extension Definition Linkbase. |
101.LAB | XBRL Taxonomy Extension Label Linkbase. |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase. |
23
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
RF INDUSTRIES, LTD. | ||
Date: March | By: | /s/ Robert Dawson |
Robert Dawson President and Chief Executive Officer (Principal Executive Officer) |
Date: March | By: | /s/ |
Chief Financial Officer (Principal Financial and Accounting Officer) |
24