Notes to Consolidated Financial Statements
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Operations
Elecsys Corporation (“the Company”) provides innovative machine to machine (“M2M”) communication technology solutions, data acquisition and management systems, and custom electronic equipment for critical industrial applications worldwide. The Company’s primary markets include energy production and distribution, agriculture, water management, transportation, and safety systems. The Company’s products and services encompass remote monitoring, industrial data communication, mobile data acquisition, and wireless communication technologies that are deployed wherever high quality and reliability are essential. The Company develops, manufactures, and supports proprietary M2M technology and products for multiple markets and applications under several premium brand names. In addition to its proprietary products, the Company designs and manufactures rugged and reliable custom solutions for original equipment manufacturers (“OEMs”) in a variety of industries.
The Company’s sales are made to customers within the United States and several international markets.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Elecsys International Corporation. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board (“FASB”) revised the authoritative guidance on reporting discontinued operations. The revised guidance specifies that a disposal of a component of an entity or a group of components of an entity is required to be reported in a discontinued operation if the disposal represents a strategic shift that has, or will have a major effect on an entity's operations and financial results. The guidance also changes the requirements for reporting discontinued operations which requires additional disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. The guidance is effective for us beginning in the first quarter of fiscal 2016. We are currently evaluating the impact this guidance may have on our financial position, results of operations and cash flows.
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers." This ASU is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This ASU is effective for annual reporting periods beginning after December 15, 2016 and early adoption is not permitted. Accordingly, we will adopt this ASU on May 1, 2017. Companies may use either a full retrospective or modified retrospective approach to adopt this ASU and we are currently evaluating which transition approach to use and the full impact this ASU will have on our future financial statements.
Cash
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The Company has not experienced any losses due to this.
Accounts Receivable
Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition and credit history, and considering current economic conditions. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received. The majority of the customer accounts are considered past due after the invoice becomes older than the customer’s credit terms (30 days for the majority of customers). Interest is not charged on past due accounts for the majority of the Company’s customers.
Concentration of Credit Risk and Financial Instruments
The Company grants credit to customers who meet the Company’s pre-established credit requirements. Credit risk is managed through credit approvals, credit limits, and monitoring procedures. Credit losses are provided for in the Company’s consolidated financial statements and historically have been within management’s expectations.
Total Company sales to the five largest customers were 53% of total sales in fiscal 2014 with sales to our three largest customers accounting for 21%, 13%, and 10% of total sales. As of April 30, 2014, amounts due from each of our three largest customers totaled approximately $285,000, $110,000, and $671,000, respectively. Sales to the five largest customers in fiscal 2013 totaled 53% of total sales which included sales to our two largest customers that amounted to 30% and 13% of total sales. As of April 30, 2013, amounts due from our two largest customers totaled approximately $654,000 for our largest customer and approximately $57,000 for our second largest customer. The loss of one or more of these major customers would have a material adverse effect on the Company’s business.
The carrying amount of financial instruments, including cash, accounts receivable, accounts payable, accrued expenses, and the current portion of long-term debt are at approximate fair value because of the short-term nature of these items.
The carrying value of the Company’s long-term debt approximates fair value as the Industrial Revenue Bonds include a variable interest rate component. The Industrial Revenue Bonds interest rate was reset in September 2011.
Shipping and Handling Costs
Shipping and handling costs that are billed to the Company’s customers are recognized as sales in the period that the product is shipped. Shipping and handling costs that are incurred by the Company are recognized as cost of products sold in the period that the product is shipped.
Revenue Recognition
The Company derives revenue from the manufacture of production units of electronic assemblies, liquid crystal displays, and its proprietary products including its remote monitoring equipment, industrial data communications equipment, and its mobile computing products. The Company also derives revenue from repairs and non-warranty services, engineering design services, remote monitoring services and maintenance contracts. Production and repaired units are billed to the customer when they are shipped. Remote monitoring services and maintenance contracts are billed and the revenue recognized at the end of the month the services are provided or maintenance periods are completed. Customers that utilize the Company’s engineering design services, the customer is billed and revenue is recognized when the design services or tooling have been completed. The Company requires its customers to provide a binding purchase order to verify the manufacturing services to be provided. Typically, the Company does not have any post-shipment obligations, including customer acceptance requirements. The Company does provide training and installation services to its customers and those services are billed and the revenue recognized at the end of the month after the services are completed, which is typically in the same period that the equipment is delivered. The Company also provides an extended warranty for additional purchase price to the customer. The Company recognizes the revenue from the extended warranties over the specific period of the warranty. Revenue recognized is net of any sales taxes, tariffs, or duties remitted to any governmental authority.
Inventories
Inventories are stated at the lower of cost, using the first-in, first-out (FIFO) method, or fair value. The Company’s industry is characterized by rapid technological change, short-term customer commitments and rapid changes in demand, as well as other market considerations. Provisions for estimated excess and obsolete inventory are based on quarterly reviews of inventory quantities on hand and the latest forecasts of product demand and production requirements from customers. Inventories are reviewed in detail on a quarterly basis utilizing multiple annual time horizons ranging from 24-months to 60-months. Individual part numbers that have not been used within each of the time horizons are examined by manufacturing personnel for obsolescence, excess and fair value. Parts that are not identified for common use or are unique to a former customer or application are categorized as obsolete and are allowed for as part of the quarterly inventory write-down. If actual market conditions or customers’ product demands are less favorable than those projected, additional inventory write-downs may be required.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the following estimated useful lives:
Description
|
Years
|
Building and improvements
|
|
39
|
|
Equipment
|
3
|
-
|
8
|
Goodwill
Goodwill is initially measured as the excess of the cost of an acquired business over the fair value of the identifiable net assets acquired. The Company does not amortize goodwill, but rather reviews its carrying value for impairment annually (January 31) and whenever an impairment indicator is identified. The goodwill impairment test involves a two-step approach. The first step is to identify whether potential impairment of goodwill exists by comparing the carrying value of each reporting unit with its fair value, as determined by its estimated cash flows and market cap. If impairment of goodwill is determined to exist, the second step of the goodwill impairment test measures the amount of the impairment using a fair value-based approach. Based on the first step noted above, as of January 31, 2014, goodwill was not impaired.
Intangible assets
Intangible assets consist of patents, trademarks, copyrights, customer relationships, and capitalized software. Intangible assets are amortized over their estimated useful lives using the straight-line method. The useful lives of the Company’s intangible assets range from 5 – 15 years.
Impairment of Long-Lived Intangible Assets
Long-lived assets, including amortizable intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans, or changes in anticipated future cash flows. If an impairment indicator is present, the Company evaluates recoverability by a comparison of the carrying amount of the assets to future undiscounted cash flows expected to be generated by the assets. If the sum of the expected future undiscounted cash flows is less than the carrying amount, the Company would recognize an impairment loss. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the long-lived assets and intangibles.
Income Taxes
The Company accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) Topic 740,
Income Taxes
. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the tax bases of assets and liabilities and their carrying amount for financial reporting purposes, as measured by the enacted tax rates which will be in effect when these differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred income tax assets, the Company considers whether it is “more likely than not,” according to the criteria of ASC Topic 740, that some portion or all of the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. ASC Topic 740 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense charged to operations amounted to approximately $48,000 and $28,000 for the years ended April 30, 2014 and 2013, respectively.
2. INTANGIBLE ASSETS AND GOODWILL
The Company’s total intangible assets consist of the following (in thousands):
|
|
|
|
|
April 30, 2014
|
|
|
April 30, 2013
|
|
Intangible Asset
Description
|
|
Estimated
Useful
Lives
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
Patents, trademarks and
copyrights
|
|
10
|
–
|
15
|
|
$
|
852
|
|
|
$
|
(473
|
)
|
|
$
|
852
|
|
|
$
|
(404
|
)
|
Customer relationships
|
|
5
|
–
|
15
|
|
|
1,040
|
|
|
|
(512
|
)
|
|
|
1,040
|
|
|
|
(449
|
)
|
Trade name
|
|
|
15
|
|
|
|
530
|
|
|
|
(236
|
)
|
|
|
530
|
|
|
|
(200
|
)
|
Technologies
|
|
13
|
–
|
15
|
|
|
475
|
|
|
|
(193
|
)
|
|
|
475
|
|
|
|
(159
|
)
|
|
|
|
|
|
|
$
|
2,897
|
|
|
$
|
(1,414
|
)
|
|
$
|
2,897
|
|
|
$
|
(1,212
|
)
|
Amortization expense of intangible assets for the years ended April 30, 2014 and 2013 was approximately $202,000 for both fiscal years. Estimated amortization expense for the next five fiscal years ending April 30 is as follows (in thousands):
Year
|
|
Amounts
|
|
2015
|
|
$
|
187
|
|
2016
|
|
|
166
|
|
2017
|
|
|
166
|
|
2018
|
|
|
166
|
|
2019
|
|
|
166
|
|
The carrying amount of the Company’s goodwill at April 30, 2014 and 2013 was approximately $1,942,000. There were no changes in the carrying amount of goodwill for the years ended April 30, 2014 and 2013.
The Company has evaluated the performance related contingent consideration provisions of the asset purchase agreement for its MBBS, S.A. (“MBBS”) acquisition in fiscal year 2010. As of April 30, 2014, the Company determined that based on the terms of the agreement and financial results, no contingent consideration was due in the MBBS transaction. The contingent consideration provision of the agreement expired at the conclusion of the 2014 fiscal year.
3. INVENTORIES
Inventories are stated at the lower of cost or fair value, using the first-in, first-out (FIFO) method. Inventories are summarized by major classification as follows (in thousands):
|
|
April 30, 2014
|
|
|
April 30, 2013
|
|
Raw material
|
|
$
|
4,057
|
|
|
$
|
3,077
|
|
Work-in-process
|
|
|
801
|
|
|
|
1,409
|
|
Finished goods
|
|
|
3,301
|
|
|
|
2,434
|
|
|
|
|
8,159
|
|
|
|
6,920
|
|
Reserves
|
|
|
(615
|
)
|
|
|
(682
|
)
|
|
|
$
|
7,544
|
|
|
$
|
6,238
|
|
The Company has entered into supplier arrangements with some of its larger customers that allows for the Company to produce finished goods for those customers based on their forecasted requirements. As of April 30, 2014 and 2013, finished goods inventory of approximately $852,000 and $467,000, respectively, was directly related to those customer agreements.
4. PLEDGED ASSETS, NOTES PAYABLE AND LONG-TERM DEBT
As of April 30, 2014, the Company had two credit agreements including an operating line of credit and Industrial Revenue Bonds that are secured by its production and headquarters facility in Olathe, Kansas.
The Company’s $6,000,000 operating line of credit provides the Company and its wholly-owned subsidiary with short-term financing for their working capital requirements. The line of credit’s borrowing capacity is calculated as a specified percentage of accounts receivable and inventory on a monthly basis and was amended on October 16, 2013 to extend the expiration date of the line of credit to October 30, 2015. The total amount of borrowing base for the line of credit as of April 30, 2014 was approximately $5,542,000, all of which was available. It is secured by accounts receivable and inventory and accrues interest at a performance-based rate that is based on the prime rate (3.25% at April 30, 2014) plus/minus 0.5%. The interest rate actually assessed is determined by the Company’s debt-to-tangible net worth ratio and was 2.75% on April 30, 2014. The loan agreement has various covenants, including a financial covenant pertaining to the maintenance of total tangible net worth and a required debt service coverage ratio. When an amount is outstanding, the borrowings on the line of credit are presented on the balance sheet as long-term in accordance with the terms of the line of credit.
The following table is a summary of the Company’s long-term debt and related current maturities (in thousands):
|
|
April 30, 2014
|
|
|
April 30, 2013
|
|
Industrial revenue bonds, Series 2006A, 5-year adjustable interest rate based on the yield on 5-year United States Treasury Notes, plus .45% (1.89% as of April 30, 2014), due in monthly principal and interest payments beginning October 1, 2006 through maturity on September 1, 2026, secured by real estate.
|
|
$
|
2,619
|
|
|
$
|
2,804
|
|
|
|
|
|
|
|
|
|
|
Operating line of credit, $6,000,000 limit on borrowing capacity, prime rate (3.25% at April 30, 2014) plus/minus 0.5% performance based interest, due in full on October 30, 2015, secured by accounts receivable and inventory. The interest rate as of April 30, 2014 was 2.75%.
|
|
|
-
|
|
|
|
-
|
|
|
|
|
2,619
|
|
|
|
2,804
|
|
Less current maturities
|
|
|
189
|
|
|
|
185
|
|
Total long-term debt
|
|
$
|
2,430
|
|
|
$
|
2,619
|
|
The approximate aggregate amount of principal to be paid on the long-term debt and line of credit during each of the next five years ending April 30 is as follows (in thousands):
Year
|
|
Amount
|
|
2015
|
|
$
|
189
|
|
2016
|
|
|
192
|
|
2017
|
|
|
196
|
|
2018
|
|
|
200
|
|
2019
|
|
|
204
|
|
Thereafter
|
|
|
1,638
|
|
|
|
$
|
2,619
|
|
5. SEGMENT REPORTING
The Company operates and measures the revenues and gross margins of two primary business segments, custom solutions for Original Equipment Manufacturers (“OEM”) and Proprietary M2M products (“Proprietary”). The OEM solutions business segment consists primarily of custom electronic assemblies, engineering services, liquid crystal displays and data communication technologies. The Proprietary products business segment is made up of remote monitoring hardware and data services, industrial data communication solutions, and ultra-rugged handheld computers, peripherals and maintenance contract revenues. The following table (in thousands) presents segment revenues and gross margins which the Company evaluates in determining overall operating performance and the allocation of resources. Other segment information such as components of the Statement of Operations below the gross margin total and assets or other balance sheet information are not presented. As the Company’s operations of the two segments are so intertwined, the Company’s chief operating decision maker (Elecsys International Corporation’s President) does not review that financial information at a segment reporting level and that information is also not readily available.
|
|
Year Ended April 30, 2014
|
|
|
|
EMS
|
|
|
Proprietary
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
14,923
|
|
|
$
|
15,561
|
|
|
$
|
30,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross margin
|
|
$
|
3,944
|
|
|
$
|
7,914
|
|
|
$
|
11,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
-
|
|
|
$
|
1,942
|
|
|
$
|
1,942
|
|
|
|
Year Ended April 30, 2013
|
|
|
|
EMS
|
|
|
Proprietary
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
14,741
|
|
|
$
|
10,624
|
|
|
$
|
25,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross margin
|
|
$
|
4,057
|
|
|
$
|
5,317
|
|
|
$
|
9,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
-
|
|
|
$
|
1,942
|
|
|
$
|
1,942
|
|
The following table reconciles total revenues to the products and services offered by the Company (in thousands).
|
|
Years Ended April 30,
|
|
|
|
2014
|
|
|
2013
|
|
Products and services:
|
|
|
|
|
|
|
OEM solutions
|
|
$
|
14,677
|
|
|
$
|
14,468
|
|
Remote monitoring solutions
|
|
|
11,847
|
|
|
|
6,076
|
|
Industrial data communications
|
|
|
1,019
|
|
|
|
832
|
|
Mobile data acquisition
|
|
|
2,257
|
|
|
|
3,352
|
|
Other services:
|
|
|
|
|
|
|
|
|
OEM related services
|
|
|
247
|
|
|
|
273
|
|
Proprietary product related services
|
|
|
437
|
|
|
|
364
|
|
Total sales
|
|
$
|
30,484
|
|
|
$
|
25,365
|
|
The Company had total export sales of approximately $2,555,000 and $1,401,000 for the years ended April 30, 2014 and 2013, respectively. The top three export markets for the Company’s products and services for the year ended April 30, 2014 were Saudi Arabia, South Africa, and Canada. The top three export markets for the year ended April 30, 2013 were South Africa, Canada and Thailand.
6. WARRANTY
The Company provides a limited warranty for a period of one year from the date of a customer’s receipt of its products, or one year from installation for some of our products, and will also provide an extended warranty for additional purchase price to the customer. The Company’s standard warranties require the Company to repair or replace defective products at no cost to the customer or refund the customer’s purchase price. The Company’s product warranty liability reflects management’s best estimate of probable liability under product warranties. Management determines the liability based on known product failures (if any), historical experience, and other currently available evidence.
The following table presents changes in the Company’s warranty liability, which is included in accrued expenses on the balance sheets (in thousands):
|
|
Years Ended April 30,
|
|
|
|
2014
|
|
|
2013
|
|
Warranty reserve balance at beginning of period
|
|
$
|
90
|
|
|
$
|
163
|
|
Expense accrued, including adjustments
|
|
|
137
|
|
|
|
8
|
|
Warranty costs incurred
|
|
|
(102
|
)
|
|
|
(81
|
)
|
Warranty reserve balance at end of period
|
|
$
|
125
|
|
|
$
|
90
|
|
The Company has an office equipment lease which will expire in March 2016. Rent expense under all operating leases was approximately $13,000 and $16,000 for the years ended April 30, 2014 and 2013, respectively. The Company’s future obligations for minimum lease payments are approximately $1,000 in each of the years ended April 30, 2015 and 2016.
8. NET INCOME PER SHARE
The following table presents the components of the calculation of basic and diluted income per share (in thousands):
|
|
Years Ended April 30,
|
|
|
|
2014
|
|
|
2013
|
|
Numerator:
|
|
|
|
|
|
|
Net income
|
|
$
|
2,467
|
|
|
$
|
1,683
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – basic
|
|
|
3,847
|
|
|
|
3,895
|
|
Effect of dilutive options outstanding
|
|
|
110
|
|
|
|
11
|
|
Weighted average common shares outstanding – diluted
|
|
|
3,957
|
|
|
|
3,906
|
|
Options to purchase 10,000 and 181,500 shares of common stock as of the years ended April 30, 2014 and 2013, respectively, were anti-dilutive and therefore were not included in the computation of diluted earnings per share.
At April 30, 2014, the Company had two equity-based compensation plans from which stock-based compensation awards are granted to eligible employees and consultants of the Company. These stock-based compensation plans include: (i) 1991 Stock Option Plan (the “1991 Plan”) and (ii) 2010 Equity Incentive Plan (the “2010 Plan”).
According to the terms of the Company’s original 1991 stock option plan for which the Company originally reserved 675,000 shares of common stock, both incentive stock options and non-qualified stock options to purchase common stock of the Company may be granted to key employees, directors and consultants to the Company, at the discretion of the Board of Directors. Incentive stock options were not granted at prices that are less than the fair market value on the date of grant. Non-qualified options may be granted at prices determined appropriate by the Board of Directors of the Company, but have not been granted at less than market value on the date of grant. Generally, these options become exercisable and vest over one to five years and expire within 10 years of the date of grant. The 1991 Plan also provides for accelerated vesting if there is a change in control of the Company. As of April 30, 2014, there were options remaining outstanding to acquire 91,000 shares of common stock under the 1991 Plan.
The 2010 Plan is an omnibus plan that allows for equity awards including stock options (including incentive stock options and non-qualified options), stock appreciation rights, restricted shares, restricted share units, performance shares, performance units, and other equity-based awards payable in cash or stock to officers, directors, key employees and other service providers. Under the 2010 Plan, the Company has the ability to grant up to 380,000 shares of common stock. The number of shares granted to eligible participants will be determined by the Board of Directors on an annual basis based on Company and individual performance and a Compensation Committee analysis. The awards under the 2010 Plan will include vesting provisions that will require participants (other than non-employee directors) to remain at the Company for a defined period of time. Options and stock appreciation rights will expire 10 years after the grant date. The 2010 Plan also includes a change of control provision which allows for accelerated vesting if there is a change of control of the Company. As of April 30, 2014, there were options outstanding to acquire 164,967 shares of common stock and 11,146 shares of common stock awards granted under the 2010 Plan and still subject to restriction.
The Company accounts for its stock-based compensation plans in accordance with ASC Topic 718,
Compensation-Stock Compensation.
ASC Topic 718 requires the measurement and recognition of compensation expense for all stock-based payment awards based on estimated fair value. It further requires companies to estimate the fair value of stock-based payment awards on the date of the grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model, which uses the following weighted-average assumptions for the indicted periods.
|
|
Year Ended April 30,
|
|
|
2014
|
|
2013
|
Risk-free interest rate
|
|
|
2.97%
|
|
|
|
2.97%
|
|
Expected life, in years
|
|
|
6
|
|
|
|
6
|
|
Expected volatility
|
|
82.59
|
–
|
83.23%
|
|
65.52
|
–
|
80.48%
|
Dividend yield
|
|
|
0.0%
|
|
|
|
0.0%
|
|
Forfeiture rate
|
|
|
11.40%
|
|
|
9.20
|
–
|
9.70%
|
The Company uses historical data to estimate option exercises and employee terminations used in the model. Expected volatility is based on monthly historical fluctuations of the Company’s common stock using the closing market value for the number of months of the expected term immediately preceding the grant. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for a bond with a similar expected term.
The Company receives a tax deduction for certain stock option exercises and disqualifying stock dispositions generally for the excess of the price at which the options are sold over the exercise prices of the options. In accordance with ASC Topic 718, the Company reports any tax benefit from the exercise of stock options as financing cash flows. For the year ended April 30, 2014 there were stock option exercises which triggered approximately $50,000 of tax benefits. For the year ended April 30, 2013, there were no exercises of stock options which triggered tax benefits.
At April 30, 2014, there was approximately $287,000 of unrecognized compensation cost related to share-based payments which is expected to be recognized over a weighted-average period of 1.7 years.
The following tables represent equity award activity for the years ended April 30, 2014 and 2013:
|
|
Number
of
Shares
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average
Remaining
Contract Life (Years)
|
|
Outstanding options at April 30, 2012
|
|
|
234,250
|
|
|
$
|
3.78
|
|
|
|
|
Granted
|
|
|
49,000
|
|
|
|
3.74
|
|
|
|
|
Exercised
|
|
|
(70,834
|
)
|
|
|
2.16
|
|
|
|
|
Forfeited
|
|
|
(6,916
|
)
|
|
|
-
|
|
|
|
|
Outstanding options at April 30, 2013
|
|
|
205,500
|
|
|
|
4.28
|
|
|
|
|
Granted
|
|
|
70,000
|
|
|
|
6.71
|
|
|
|
|
Exercised
|
|
|
(16,866
|
)
|
|
|
4.51
|
|
|
|
|
Forfeited
|
|
|
(2,667
|
)
|
|
|
-
|
|
|
|
|
Outstanding options at April 30, 2014
|
|
|
255,967
|
|
|
$
|
4.93
|
|
|
|
6.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding exercisable at April 30, 2014
|
|
|
138,300
|
|
|
$
|
4.29
|
|
|
|
4.63
|
|
|
|
Number
of
Shares
|
|
|
Weighted-Average
Price
|
|
Outstanding restricted stock awards at April 31, 2012
|
|
|
7,200
|
|
|
$
|
4.64
|
|
Granted
|
|
|
6,207
|
|
|
|
4.35
|
|
Exercised/Vested
|
|
|
(2,400
|
)
|
|
|
5.01
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Outstanding restricted stock awards at April 30, 2013
|
|
|
11,007
|
|
|
|
4.64
|
|
Granted
|
|
|
4,608
|
|
|
|
5.86
|
|
Exercised/Vested
|
|
|
(4,469
|
)
|
|
|
4.70
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Outstanding restricted stock awards at April 30, 2014
|
|
|
11,146
|
|
|
$
|
5.12
|
|
|
|
|
|
|
|
|
|
|
Outstanding vested at April 30, 2014
|
|
|
-
|
|
|
$
|
-
|
|
Shares available for future stock option grants to employees, officers, directors and consultants of the Company under the existing 1991 Plan and 2010 Plan were 27,000 and 189,651, respectively, at April 30, 2014. At April 30, 2014 the aggregate intrinsic value of options outstanding was approximately $2,320,000, and the aggregate intrinsic value of options exercisable was approximately $1,286,000. The Company recognized share-based compensation expense of $192,000 and $111,000 for the years ended April 30, 2014 and 2013, respectively.
During the year ended April 30, 2014, the Company granted 70,000 options that had a weighted average grant date fair value of $4.80 per share. The Company also granted 4,608 restricted stock awards whose average grant date fair value was $5.86 per restricted share. During the year ended April 30, 2013, the Company granted 49,000 options that had a weighted average grant date fair value of $2.67 per share. The Company also granted 6,207 restricted stock awards during the 2013 fiscal year whose average grant date fair value was $4.35 per restricted share.
The following table summarizes information about options outstanding at April 30, 2014:
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
Number Outstanding at
April 30, 2014
|
|
Weighted-Average Remaining Contractual Life (years)
|
|
Weighted-Average Exercise Price
|
|
|
Number Exercisable at
April 30, 2014
|
|
|
Weighted-Average Exercise Price
|
|
$3.01
|
-
|
$4.00
|
|
|
|
102,250
|
|
4.31
|
|
$
|
3.53
|
|
|
|
86,250
|
|
|
$
|
3.62
|
|
$4.01
|
-
|
$5.00
|
|
|
|
20,967
|
|
8.06
|
|
$
|
4.35
|
|
|
|
5,967
|
|
|
$
|
4.35
|
|
$5.01
|
-
|
$6.00
|
|
|
|
115,000
|
|
7.98
|
|
$
|
5.54
|
|
|
|
38,333
|
|
|
$
|
5.21
|
|
$7.01
|
-
|
$8.00
|
|
|
|
7,750
|
|
4.36
|
|
$
|
7.05
|
|
|
|
7,750
|
|
|
$
|
7.05
|
|
$10.01
|
-
|
$11.83
|
|
|
|
10,000
|
|
9.62
|
|
$
|
11.83
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
255,967
|
|
6.48
|
|
$
|
4.93
|
|
|
|
138,300
|
|
|
$
|
4.29
|
|
10. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at April 30, 2014 and 2013 are as follows (in thousands):
|
|
Years Ended April 30,
|
|
|
|
2014
|
|
|
2013
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Accrued expenses
|
|
|
157
|
|
|
|
172
|
|
Inventories
|
|
|
457
|
|
|
|
502
|
|
Other
|
|
|
30
|
|
|
|
15
|
|
Total deferred tax assets
|
|
|
644
|
|
|
|
689
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(519
|
)
|
|
|
(450
|
)
|
Other
|
|
|
(236
|
)
|
|
|
(187
|
)
|
Total deferred tax liabilities
|
|
|
(755
|
)
|
|
|
(637
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax (liability) asset
|
|
$
|
(111
|
)
|
|
$
|
52
|
|
|
|
Years Ended April 30,
|
|
|
|
2014
|
|
|
2013
|
|
Current tax expense
|
|
$
|
1,337
|
|
|
$
|
795
|
|
Deferred tax expense
|
|
|
163
|
|
|
|
215
|
|
|
|
$
|
1,500
|
|
|
$
|
1,010
|
|
The income tax expense differs from amounts computed at the statutory federal income tax rate as follows (in thousands):
|
|
Years Ended April 30,
|
|
|
|
2014
|
|
|
2013
|
|
Expense at federal statutory rate
|
|
$
|
1,349
|
|
|
$
|
912
|
|
Permanent tax differences
|
|
|
(48
|
)
|
|
|
(24
|
)
|
State tax expense, net of federal tax
|
|
|
198
|
|
|
|
134
|
|
Other
|
|
|
1
|
|
|
|
(12
|
)
|
|
|
$
|
1,500
|
|
|
$
|
1,010
|
|
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon the ultimate settlement with the relevant tax authority.
As of April 30, 2014 and 2013, the Company had no unrecognized tax benefits that, if recognized, would affect the effective tax rate.
The Company recognizes interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable tax settlements within tax expense.
It is reasonably possible that a significant change in the balance of unrecognized tax benefits may occur within the next 12 months. An estimate of the range of such gross changes cannot be made at this time. However, the Company does not expect the changes to have a significant impact on its effective tax rate or expected cash payments for income taxes within the next 12 months.
The Company files income tax returns in the U.S. federal and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With a few exceptions, we are no longer subject to Internal Revenue Service (IRS), state or local income tax examinations by tax authorities for the years before the fiscal year ended 2009. As of April 30, 2014, the Company is not currently under examination by any taxing jurisdiction.
11. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution employee benefit plan that covers substantially all full-time employees who have attained age 21 and completed three months of service. Qualified employees are entitled to make voluntary contributions to the plan of up to 50% of their annual compensation subject to Internal Revenue Code maximum limitations. The Company’s contribution matches the employee’s first 1% contribution plus an additional 50% of each employee's contribution up to the next 5% to a maximum of 6% of the employee's annual compensation. Participants in the plan may direct the Company’s contribution into mutual funds and money market funds. Additionally, the Company may make discretionary contributions to the plan. For the years ended April 30, 2014 and 2013, Company contributions to the plan amounted to approximately $173,000 and $162,000, respectively.