
Part I. FINANCIAL INFORMATION Item 1: Financial Statements Financial statements show decreased net sales and a net loss due to economic slowdown, though the balance sheet grew from an acquisition and operating cash flow improved Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | April 30, 2020 | October 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $14,076 | $12,540 | | Trade accounts receivable, net | $4,950 | $12,190 | | Inventories | $9,100 | $8,245 | | Goodwill | $2,697 | $1,340 | | TOTAL ASSETS | $39,412 | $37,700 | | Liabilities & Equity | | | | TOTAL CURRENT LIABILITIES | $5,736 | $6,080 | | TOTAL LIABILITIES | $7,719 | $6,167 | | TOTAL STOCKHOLDERS' EQUITY | $31,693 | $31,533 | - Total assets increased to $39.4 million from $37.7 million, primarily due to increases in Goodwill and Amortizable intangible assets resulting from the Schrofftech acquisition7 - Cash and cash equivalents increased by $1.5 million, while trade accounts receivable decreased significantly by $7.2 million, indicating strong collections7 Condensed Consolidated Statements of Operations Statement of Operations Summary (in thousands, except per share amounts) | Metric | Three Months Ended April 30, 2020 | Three Months Ended April 30, 2019 | Six Months Ended April 30, 2020 | Six Months Ended April 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $10,390 | $13,626 | $22,804 | $24,273 | | Gross profit | $2,586 | $4,094 | $5,839 | $7,240 | | Operating (loss) income | ($188) | $1,362 | ($187) | $2,149 | | Consolidated net (loss) income | ($184) | $1,061 | ($158) | $1,701 | | Diluted (loss) earnings per share | ($0.02) | $0.11 | ($0.02) | $0.17 | - For the three months ended April 30, 2020, net sales decreased by 23.7% year-over-year, leading to a consolidated net loss of $184,000 compared to a net income of $1.06 million in the prior-year period13 Condensed Consolidated Statements of Cash Flows Cash Flow Summary for the Six Months Ended April 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $5,465 | ($1,806) | | Net cash used in investing activities | ($3,964) | ($656) | | Net cash provided by (used in) financing activities | $35 | ($16) | | Net increase (decrease) in cash | $1,536 | ($2,478) | - Cash from operations was a positive $5.5 million for the six months ended April 30, 2020, a significant improvement from a use of $1.8 million in the prior year, driven primarily by a $7.5 million decrease in trade accounts receivable19 - Investing activities used $4.0 million, mainly for the purchase of Schrofftech, net of cash acquired19 Notes to Unaudited Condensed Consolidated Financial Statements - The COVID-19 pandemic negatively impacted operations, customer demand, and supply chains, though the company was deemed an "essential" business2324 - On November 4, 2019, the company acquired Schrofftech for $4 million in cash plus a potential earn-out of up to $2.4 million, which contributed $2.3 million in revenue for the six-month period3638 - The company has significant customer concentration, with two distributors accounting for 11% and 17% of net sales for the three months ended April 30, 202064 - As a subsequent event, the company received approximately $2.8 million in loans under the Paycheck Protection Program (PPP) on May 5, 202085 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 24% Q2 sales decline from reduced carrier spending and lower margins, but confirms liquidity is sufficient for the next year Overview and COVID-19 Impact - The company operates through two segments: RF Connector and Cable Assembly (31% of H1 2020 sales) and Custom Cabling Manufacturing and Assembly (69% of H1 2020 sales)102104 - The COVID-19 pandemic has negatively impacted operations through partial facility shutdowns, reduced workforce, and decreased customer demand105106 - Due to the severe impact of COVID-19, the company applied for and received a $2.8 million PPP loan in May 2020 to retain employees and maintain payroll106 Results of Operations Comparison of Results for the Three Months Ended April 30 | Metric | 2020 (Q2) | 2019 (Q2) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $10.4M | $13.6M | -24% | | Gross Profit | $2.6M | $4.1M | -37% | | Gross Margin | 24.9% | 30.0% | -5.1 p.p. | | Net (Loss) Income | ($0.2M) | $1.1M | - | Comparison of Results for the Six Months Ended April 30 | Metric | 2020 (H1) | 2019 (H1) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $22.8M | $24.3M | -6% | | Gross Profit | $5.8M | $7.2M | -19% | | Gross Margin | 25.6% | 29.8% | -4.2 p.p. | | Net (Loss) Income | ($0.2M) | $1.7M | - | - The decrease in sales and gross margin was primarily due to a slowdown in project-based business from carrier spending and a less favorable product mix115116 Liquidity and Capital Resources - As of April 30, 2020, the company had $14.1 million in cash and cash equivalents, an increase from $12.5 million at October 31, 2019, due to strong collection of accounts receivables108 - Working capital stood at $23.5 million with a current ratio of 5.1:1 as of April 30, 2020108 - The company secured a $5.0 million revolving line of credit in November 2019, which remained unused as of the report date113 - Management believes existing cash, anticipated cash from operations, and funds from the PPP loan will be sufficient to meet liquidity needs for at least the next twelve months108 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective while noting the ongoing integration of the recently acquired Schrofftech subsidiary - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective133 - The company is in the process of integrating the policies, processes, and internal controls of Schrofftech, which was acquired during the quarter ended January 31, 2020134 Part II. OTHER INFORMATION Item 1A. Risk Factors The company identifies the COVID-19 pandemic as a significant risk factor, citing potential disruptions to its workforce, customer demand, and financial results - The COVID-19 pandemic is identified as a major risk factor that has adversely impacted and poses ongoing, highly uncertain risks to the business139 - Specific risks include workforce inability to work effectively, volatility in customer demand, rising costs, and potential declines in accounts receivable collections139 - The pandemic could lead to an extended disruption of economic activity, which could materially impact the company's stock price, access to capital, and overall financial results139