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RF Industries(RFIL) - 2019 Q2 - Quarterly Report

Part I. FINANCIAL INFORMATION Financial Statements The company's unaudited statements show decreased sales and net income, driven by lower Custom Cabling segment performance Condensed Consolidated Balance Sheets Total assets grew to $34.4 million, driven by increased trade accounts receivable, while stockholders' equity also increased Balance Sheet Summary (in thousands) | Account | April 30, 2019 (Unaudited) | October 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $30,462 | $28,530 | | Cash and cash equivalents | $13,856 | $16,334 | | Trade accounts receivable, net | $7,938 | $4,255 | | Inventories | $7,932 | $7,113 | | Total Assets | $34,405 | $32,502 | | Total Current Liabilities | $4,658 | $4,719 | | Total Liabilities | $4,745 | $4,719 | | Total Stockholders' Equity | $29,660 | $27,783 | Condensed Consolidated Statements of Operations The company experienced a significant year-over-year decline in net sales and net income for both three and six-month periods Three Months Ended April 30, (in thousands, except per share data) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Net sales | $13,626 | $20,515 | -33.6% | | Gross profit | $4,094 | $7,648 | -46.5% | | Operating income | $1,362 | $3,960 | -65.6% | | Consolidated net income | $1,061 | $3,204 | -66.9% | | Diluted EPS | $0.11 | $0.34 | -67.6% | Six Months Ended April 30, (in thousands, except per share data) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Net sales | $24,273 | $28,482 | -14.8% | | Gross profit | $7,240 | $10,112 | -28.4% | | Operating income | $2,149 | $4,318 | -50.2% | | Consolidated net income | $1,701 | $3,658 | -53.5% | | Diluted EPS | $0.17 | $0.40 | -57.5% | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased by $1.9 million to $29.7 million, driven by net income and stock option exercises - Stockholders' equity grew from $27.8 million on November 1, 2018, to $29.7 million on April 30, 201913 Changes in Stockholders' Equity (Six Months Ended April 30, 2019, in thousands) | Description | Amount | | :--- | :--- | | Beginning Balance (Nov 1, 2018) | $27,783 | | Consolidated net income | $1,701 | | Exercise of stock options | $357 | | Stock-based compensation | $192 | | Dividends | ($373) | | Ending Balance (Apr 30, 2019) | $29,660 | Condensed Consolidated Statements of Cash Flows Net cash decreased by $2.5 million, with a notable shift to negative cash flow from operations due to increased receivables Cash Flow Summary (Six Months Ended April 30, in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash from operating activities | ($1,806) | $1,895 | | Net cash from investing activities | ($656) | ($44) | | Net cash from financing activities | ($16) | $53 | | Net (decrease) increase in cash | ($2,478) | $2,449 | - The negative operating cash flow in 2019 was largely driven by a $2.4 million increase in trade accounts receivable16 Notes to Financial Statements Key notes detail the adoption of ASC 606, the acquisition of C Enterprises, and significant customer concentration - On November 1, 2018, the Company adopted the new revenue recognition standard ASC 606, which did not have a material impact on revenue reporting2024 - On March 15, 2019, the Company acquired the business and assets of C Enterprises L.P. for $600,000 in cash, which contributed $1.7 million in revenue for the period2526 - The Company sold its subsidiary Comnet Telecom Supply, Inc. on October 31, 2018, and its prior period results are now classified as discontinued operations27 - For the six months ended April 30, 2019, two customers accounted for approximately 32% and 10% of net sales, compared to one customer accounting for 68% in the prior year period4344 Management's Discussion and Analysis (MD&A) Management discusses the sales decline, margin compression, strong liquidity, and the impact of the C Enterprises acquisition Business Overview The company operates through two segments, with the Custom Cabling segment accounting for 73% of total sales Sales Contribution by Segment (Six Months Ended April 30, 2019) | Segment | Percentage of Total Sales | | :--- | :--- | | Custom Cabling | 73% | | RF Connector | 27% | - The company provides interconnect products to telecommunications carriers, equipment manufacturers, and various OEMs76 Liquidity and Capital Resources The company maintains a strong liquidity position with $13.9 million in cash, no debt, and a $10 million backlog - The company had $13.9 million in cash and cash equivalents and $25.8 million in working capital as of April 30, 201980 - The company maintained a strong backlog of $10 million as of April 30, 2019, which is expected to support liquidity81 - The company has no outstanding indebtedness for borrowed funds88 Results of Operations Operational results were impacted by the Comnet sale and C Enterprises acquisition, with a sales decline from a non-recurring record order in the prior year - The sale of Comnet Telecom Supply, Inc. on October 31, 2018, has led to its results being reported as discontinued operations in prior period comparisons87 - The acquisition of C Enterprises on March 15, 2019, contributed to the results of operations for the second quarter of 201990 - The year-over-year decline in sales was primarily due to an exceptionally large series of orders received in the 2018 fiscal quarter that did not recur91 Part II. OTHER INFORMATION Legal Proceedings The company is not currently subject to any material legal proceedings outside the ordinary course of business - As of the report date, the company is not involved in any material legal proceeding outside the ordinary course of business114 Risk Factors No material changes have been made to the risk factors disclosed in the company's most recent Form 10-K - No material changes have occurred from the risk factors previously disclosed in the company's Form 10-K for the fiscal year ended October 31, 2018115 Other Items (Items 2, 3, 4, 5, 6) The company reports no unregistered sales of equity securities or defaults and lists filed exhibits, including officer certifications - The company had nothing to report for Items 2, 3, 4, and 5116117118119 - Item 6 lists the exhibits filed, including CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906120