What changed in this filing

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Item 1. Financial Statements

2024-09-11 compared with 2024-06-10 · 212 added, 191 removed, 449 unchanged (47% of the section changed)

3 unchanged sentences

Current assets:

Trade accounts receivable, net of allowance for credit losses of $ 54,261 at April 30, 2024 and $ 71,189 at October 31, 2023

Trade accounts receivable, net of allowance for credit losses of $ 70,742 at July 31, 2024 and $ 71,189 at October 31, 2023

Income taxes refundable - current

20 unchanged sentences

Common stock, no par value, authorized 50,000,000 shares;

issued and outstanding 7,852,515 shares at April 30, 2024 and 7,893,681 shares at October 31, 2023

issued and outstanding 7,890,494 shares at July 31, 2024 and 7,893,681 shares at October 31, 2023

Retained earnings

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of goods sold

8 unchanged sentences

Income (loss) before income taxes

Income tax expense

Income tax expense (benefit)

Net income (loss)

4 unchanged sentences

Condensed Consolidated Statements of Shareholders’ Equity

Six Months Ended April 30, 2024

Nine Months Ended July 31, 2024

Shareholders’

4 unchanged sentences

Balances at April 30, 2024

Six Months Ended April 30, 2023

Share-based compensation, net

Balances at July 31, 2024

Nine Months Ended July 31, 2023

Shareholders’

4 unchanged sentences

Balances at April 30, 2023

Share-based compensation, net

Balances at July 31, 2023

See accompanying condensed notes to condensed consolidated financial statements.

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Six Months Ended

Nine Months Ended

Cash flows from operating activities:

10 unchanged sentences

Prepaid expenses and other assets

Income taxes refundable

Increase (decrease) in:

23 unchanged sentences

Condensed Notes to Condensed Consolidated Financial Statements

Six Months Ended April 30, 2024

Nine Months Ended July 31, 2024

The accompanying unaudited condensed consolidated financial statements of Optical Cable Corporation and its subsidiaries (collectively, the “Company” or “OCC®”) have been prepared in accordance with U.S.

3 unchanged sentences

In the opinion of management, all material adjustments considered necessary for a fair presentation have been included.

Operating results for the six months ended April 30, 2024 are not necessarily indicative of the results for the fiscal year ending October 31, 2024 because the following items, among other things, may impact those results:

Operating results for the nine months ended July 31, 2024 are not necessarily indicative of the results for the fiscal year ending October 31, 2024 because the following items, among other things, may impact those results:

changing macroeconomic conditions in various markets, supply chain and labor constraints impacting production volumes, any increased costs related to government and private industry mandates in the areas of the world in which we operate, changes in market conditions, seasonality, inflation and interest rates, changes in technology, competitive conditions, timing of certain projects and purchases by key customers, significant variations in sales resulting from high volatility and timing of large sales orders among a limited number of customers in certain markets, ability of management to execute its business plans, continued ability to maintain and/or secure future debt and/or equity financing to adequately finance ongoing operations;

3 unchanged sentences

Stock Incentive Plan and Other Share ‑ Based Compensation

As of April 30, 2024, there were approximately 397,000 remaining shares available for grant under the Optical Cable Corporation Stock Incentive Plan (“2017 Plan”).

Share-based compensation expense for employees, a consultant and non-employee Directors recognized in the condensed consolidated statements of operations for the three months and six months ended April 30, 2024 was $ 91,641 and $ 250,792 , respectively.

As of July 31, 2024, there were approximately 359,000 remaining shares available for grant under the Optical Cable Corporation Stock Incentive Plan, as amended (“2017 Plan”).

Share-based compensation expense for employees, a consultant and non-employee Directors recognized in the condensed consolidated statements of operations for the three months and nine months ended July 31, 2024 was $ 78,079 and $ 328,871 , respectively.

Share-based compensation expense for employees, a consultant and non-employee Directors recognized in the condensed consolidated statements of operations for the three months and nine months ended July 31, 2023 was $ 173,500 and $ 463,181 , respectively.

Share-based compensation expense is entirely related to expense recognized in connection with the vesting of restricted stock awards or other stock awards.

4 unchanged sentences

Condensed Notes to Condensed Consolidated Financial Statements

Six Months Ended April 30, 2024

Restricted stock award activity during the six months ended April 30, 2024 consisted of restricted shares forfeited totaling 842 shares and restricted shares withheld for taxes in connection with the vesting of restricted shares totaling 40,324 shares.

OCC restricted stock grants provide the participant with the option to surrender shares to pay for withholding tax obligations resulting from any vesting restricted shares, or to pay cash to the Company or taxing authorities in the amount of the withholding taxes owed on the value of any vesting restricted shares in order to avoid surrendering shares.

As of April 30, 2024, the estimated amount of compensation cost related to unvested equity-based compensation awards in the form of service-based and operational performance-based shares that the Company will recognize over a 1 year weighted-average period is approximately $ 262,000 .

On May 17, 2024, subsequent to the Company’s fiscal quarter end, the Company granted restricted stock awards totaling 39,960 shares to non-employee Directors under the 2017 Plan.

Nine Months Ended July 31, 2024

During the three months ended July 31, 2024, OCC granted restricted stock awards totaling 39,960 shares to non-employee Directors under the 2017 Plan.

The shares are subject to a one -year vesting period and are part of the non-employee Directors’ annual compensation for service on the Board of Directors.

Restricted stock award activity during the nine months ended July 31, 2024 consisted of stock grants totaling 39,960 shares, restricted shares forfeited totaling 842 shares and restricted shares withheld for taxes in connection with the vesting of restricted shares totaling 42,305 shares.

As of July 31, 2024, the estimated amount of compensation cost related to unvested equity-based compensation awards in the form of service-based and operational performance-based shares that the Company will recognize over a 1 year weighted-average period is approximately $ 294,000 .

On August 7, 2024, subsequent to the Company’s fiscal quarter end, restricted stock awards for employees under the 2017 Plan totaling 329,850 shares were approved by the Compensation Committee of the Board of Directors of the Company.

All of the restricted shares granted are operational performance-based shares vesting over approximately five years beginning on January 31, 2026 based on the achievement of certain quantitative operational performance goals.

The Company uses gross profit growth as its performance-based measure for restricted stock awards granted to employees.

Allowance for Credit Losses for Trade Accounts Receivable

A summary of changes in the allowance for credit losses for trade accounts receivable for the six months ended April 30, 2024 and 2023 follows:

Six Months Ended

A summary of changes in the allowance for credit losses for trade accounts receivable for the nine months ended July 31, 2024 and 2023 follows:

Nine Months Ended

Balance at beginning of period

1 unchanged sentence

Balance at end of period

Inventories as of April 30, 2024 and October 31, 2023 consist of the following:

Inventories as of July 31, 2024 and October 31, 2023 consist of the following:

Finished goods

2 unchanged sentences

Production supplies

Product Warranties

As of April 30, 2024 and October 31, 2023, the Company’s accrual for estimated product warranty claims totaled $ 75,000 and $ 80,000 , respectively, and is included in accounts payable and accrued expenses.

Warranty claims expense for the three months and six months ended April 30, 2024 totaled $ 39,078 and $ 44,266 , respectively.

Warranty claims expense for the three months and six months ended April 30, 2023 totaled $ 13,078 and $ 29,652 , respectively.

OPTICAL CABLE CORPORATION

Condensed Notes to Condensed Consolidated Financial Statements

Six Months Ended April 30, 2024

The following table summarizes the changes in the Company’s accrual for product warranties during the six months ended April 30, 2024 and 2023:

Six Months Ended

April 30, 2024

Nine Months Ended July 31, 2024

Product Warranties

As of July 31, 2024 and October 31, 2023, the Company’s accrual for estimated product warranty claims totaled $ 75,000 and $ 80,000 , respectively, and is included in accounts payable and accrued expenses.

Warranty claims expense for the three months and nine months ended July 31, 2024 totaled $ 9,153 and $ 53,419 , respectively.

Warranty claims expense for the three months and nine months ended July 31, 2023 totaled $ 26,048 and $ 55,700 , respectively.

The following table summarizes the changes in the Company’s accrual for product warranties during the nine months ended July 31, 2024 and 2023:

Nine Months Ended

Balance at beginning of period

8 unchanged sentences

Interest is computed on the aggregate principal balance outstanding at a rate equal to the Prime Rate, adjusted monthly on the fifth day of each calendar month in accordance with changes to the Prime Rate, provided, however, that the interest rate is never less than 8.5 % per annum on the basis of a 360-day year times the actual number of days elapsed.

The Prime Rate was 8.5 % per annum at April 30, 2024 and October 31, 2023.

The Prime Rate was 8.5 % per annum at July 31, 2024 and October 31, 2023.

The maturity date of the Virginia Real Estate Loan is May 5, 2026.

The Loan remains generally secured by a first lien deed of trust on the land and buildings at the Company’s headquarters and manufacturing facilities located in Roanoke, Virginia.

All other terms of the Virginia Real Estate Loan remain unaltered and remain in full force and effect.

The Company had an outstanding balance on its Virginia Real Estate Loan of $ 2.7 million, as of April 30, 2024 and October 31, 2023.

The Revolver with North Mill Capital LLC (now doing business as SLR Business Credit, “SLR”) provides the Company with one or more advances in an amount up to:

On October 31, 2023, OCC and Northeast Bank entered into an Omnibus Amendment of Loan Documents (the “Amendment”) to modify certain loan documents currently in effect between the parties related to the Virginia Real Estate Loan and a supplemental real estate term loan (the “North Carolina Real Estate Loan”).

The primary purpose of the Amendment was to:

(i) pay off the principal balance of the North Carolina Real Estate Loan;

(ii) pay down the principal balance on the Virginia Real Estate Loan;

(iii) extend the maturity date of the Virginia Real Estate Loan through May 5, 2026;

(iv) release the collateral of the North Carolina Real Estate Loan;

and (v) effective October 5, 2023, modify the interest rate of the Virginia Real Estate Loan to a variable rate equal to the Prime Rate, provided that the interest rate shall never be less than 8.5% per annum.

The Loan is secured by a first lien deed of trust on the land and buildings at the Company’s headquarters and manufacturing facilities located in Roanoke, Virginia.

OPTICAL CABLE CORPORATION

Condensed Notes to Condensed Consolidated Financial Statements

Nine Months Ended July 31, 2024

The Company had an outstanding balance on its Virginia Real Estate Loan of $ 2.6 million as of July 31, 2024 and $ 2.7 million as of October 31, 2023.

On June 27, 2024, OCC entered into a Modification Agreement with North Mill Capital LLC (now doing business as SLR Business Credit, “SLR”) to modify the existing Loan and Security Agreement (“Loan Agreement”) dated July 24, 2020.

In addition to certain other modifications to the Loan Agreement as set forth in the Modification Agreement, the Modification Agreement provides a two -year extension of the initial term of the Loan Agreement to July 24, 2027, and increases the eligible inventory maximum from $ 5,000,000 to $ 7,000,000 .

The Revolver with SLR provides the Company with one or more advances in an amount up to:

(a) 85 % of the aggregate outstanding amount of eligible accounts (the “eligible accounts loan value”);

3 unchanged sentences

Interest accrues on the daily balance at the per annum rate of 1.5 % above the Prime Rate in effect from time to time, but not less than 4.75 % (the “Applicable Rate”).

As a result, the Revolver accrued interest at a 10.0 % rate at April 30, 2024 and October 31, 2023.

As a result, the Revolver accrued interest at a 10.0 % rate at July 31, 2024 and October 31, 2023.

In the event of a default, interest may become 6.0 % above the Applicable Rate.

The termination date of the Revolver is July 24, 2025 and the loan may be extended in one year periods subject to the agreement of SLR.

OPTICAL CABLE CORPORATION

Condensed Notes to Condensed Consolidated Financial Statements

Six Months Ended April 30, 2024

The Revolver is secured by all of the following assets:

properties, rights and interests in property of the Company whether now owned or existing, or hereafter acquired or arising, and wherever located;

The loan may be extended in one year periods subject to the agreement of SLR.

The Revolver is secured by all of the following assets, properties, rights and interests in property of the Company whether now owned or existing, or hereafter acquired or arising, and wherever located;

all accounts, equipment, commercial tort claims, general intangibles, chattel paper, inventory, negotiable collateral, investment property, financial assets, letter-of-credit rights, supporting obligations, deposit accounts, money or assets of the Company, which hereafter come into the possession, custody, or control of SLR;

2 unchanged sentences

and any other assets of the Company which may be subject to a lien in favor of SLR as security for the obligations under the Loan Agreement.

As of April 30, 2024, the Company had $ 8.0 million of outstanding borrowings on its Revolver and $ 2.0 million in available credit.

As of July 31, 2024, the Company had $ 7.3 million of outstanding borrowings on its Revolver and $ 2.2 million in available credit.

As of October 31, 2023, the Company had $ 8.3 million of outstanding borrowings on its Revolver and $ 2.6 million in available credit.

2 unchanged sentences

The Company has an operating lease agreement for approximately 36,000 square feet of warehouse space in Roanoke, Virginia.

During the first quarter of fiscal year 2023, the lease term was extended for an additional three years.

The new expiration date is April 30, 2026.

The lease term expires on April 30, 2026.

The Company also leases certain office equipment under operating leases with initial 60 month terms.

The lease terms expire in February and April of 2025.

OPTICAL CABLE CORPORATION

Condensed Notes to Condensed Consolidated Financial Statements

Nine Months Ended July 31, 2024

OCC leases printers that are used in the Roanoke, Virginia manufacturing facility.

10 unchanged sentences

The Company’s short term leases have month-to-month terms.

OPTICAL CABLE CORPORATION

Condensed Notes to Condensed Consolidated Financial Statements

Six Months Ended April 30, 2024

Operating lease right-of-use assets of $ 407,796 and $ 596,578 were included in other assets at April 30, 2024 and October 31, 2023, respectively.

Operating lease liabilities of $ 318,225 and $ 121,294 , respectively, were included in accounts payable and accrued expenses , and other noncurrent liabilities , at April 30, 2024.

Operating lease right-of-use assets of $ 310,932 and $ 596,578 were included in other assets at July 31, 2024 and October 31, 2023, respectively.

Operating lease liabilities of $ 242,591 and $ 91,983 respectively, were included in accounts payable and accrued expenses , and other noncurrent liabilities , at July 31, 2024.

Operating lease liabilities of $ 414,159 and $ 227,925 , respectively, were included in accounts payable and accrued expenses , and other noncurrent liabilities at October 31, 2023.

Operating lease expense recognized during the three months and six months ended April 30, 2024 totaled $ 109,144 and $ 218,288 , respectively.

Operating lease expense recognized during the three months and six months ended April 30, 2023 totaled $ 109,144 and $ 212,477 , respectively.

The weighted average remaining lease term was 16.5 months and the weighted average discount rate was 7.6 % as of April 30, 2024.

For the three months ended April 30, 2024 and 2023, cash paid for operating lease liabilities totaled $ 111,770 and $ 109,151 , respectively.

For the three months ended April 30, 2024 and 2023, there were no right-of-use assets obtained in exchange for new operating lease liabilities.

Finance lease right-of-use assets of $ 126,593 and $ 141,342 were included in other assets at April 30, 2024 and October 31, 2023, respectively.

Finance lease liabilities of $ 38,357 and $ 74,046 , respectively, were included in accounts payable and accrued expenses , and other noncurrent liabilities at April 30, 2024.

Operating lease expense recognized during the three months and nine months ended July 31, 2024 totaled $ 109,143 and $ 327,431 , respectively.

Operating lease expense recognized during the three months and nine months ended July 31, 2023 totaled $ 109,145 and $ 321,621 , respectively.

The weighted average remaining lease term was 14.9 months and the weighted average discount rate was 7.9 % as of July 31, 2024.

For the three months and nine months ended July 31, 2024, cash paid for operating lease liabilities totaled $ 112,670 and $ 335,628 , respectively.

For the three months and nine months ended July 31, 2023, cash paid for operating lease liabilities totaled $ 110,025 and $ 328,992 , respectively.

For the nine months ended July 31, 2024 and 2023, there were no right-of-use assets obtained in exchange for new operating lease liabilities.

Finance lease right-of-use assets of $ 119,219 and $ 141,342 were included in other assets at July 31, 2024 and October 31, 2023, respectively.

Finance lease liabilities of $ 38,814 and $ 64,169 , respectively, were included in accounts payable and accrued expenses , and other noncurrent liabilities at July 31, 2024.

Finance lease liabilities of $ 37,459 and $ 93,451 , respectively, were included in accounts payable and accrued expenses , and other noncurrent liabilities at October 31, 2023.

Interest expense related to the finance lease totaled $ 1,409 and $ 2,927 , respectively, for the three months and six months ended April 30, 2024.

Interest expense related to the finance lease totaled $ 1,840 and $ 3,784 , respectively, for the three months and six months ended April 30, 2023.

For the three months ended April 30, 2024 and 2023, amortization expense related to the finance lease totaled $ 7,374 .

For the six months ended April 30, 2024 and 2023, amortization expense related to the finance lease totaled $ 14,749 .

The remaining lease term for the finance lease is 28 months and the discount rate is 4.75 % as of April 30, 2024.

For the three months ended April 30, 2024, cash paid for the finance lease liability totaled $ 1,409 for interest and $ 9,309 for principal.

For the six months ended April 30, 2024, cash paid for the finance lease liability totaled $ 2,927 for interest and $ 18,507 for principal.

For the three months ended April 30, 2023, cash paid for the finance lease liability totaled $ 1,840 for interest and $ 8,878 for principal.

For the six months ended April 30, 2023, cash paid for the finance lease liability totaled $ 3,784 for interest and $ 17,652 for principal.

Interest expense related to the finance lease totaled $ 1,297 and $ 4,224 , respectively, for the three months and nine months ended July 31, 2024.

Interest expense related to the finance lease totaled $ 1,734 and $ 5,517 , respectively, for the three months and nine months ended July 31, 2023.

For the three months ended July 31, 2024 and 2023, amortization expense related to the finance lease totaled $ 7,374 .

For the nine months ended July 31, 2024 and 2023, amortization expense related to the finance lease totaled $ 22,123 .

OPTICAL CABLE CORPORATION

Condensed Notes to Condensed Consolidated Financial Statements

Six Months Ended April 30, 2024

Nine Months Ended July 31, 2024

The remaining lease term for the finance lease is 25 months and the discount rate is 4.75 % as of July 31, 2024.

For the three months ended July 31, 2024, cash paid for the finance lease liability totaled $ 1,297 for interest and $ 9,419 for principal.

For the nine months ended July 31, 2024, cash paid for the finance lease liability totaled $ 4,224 for interest and $ 27,927 for principal.

For the three months ended July 31, 2023, cash paid for the finance lease liability totaled $ 1,734 for interest and $ 8,983 for principal.

For the nine months ended July 31, 2023, cash paid for the finance lease liability totaled $ 5,517 for interest and $ 26,635 for principal.

The Company’s future payments due under leases reconciled to the lease liabilities are as follows:

2 unchanged sentences

Total lease liability

(1) Remaining six months of fiscal year 2024.

(1) Remaining three months of fiscal year 2024.

Fair Value Measurements

The carrying amounts reported in the condensed consolidated balance sheets as of April 30, 2024 and October 31, 2023 for cash, trade accounts receivable, income taxes refundable – current, other receivables, current installments of long-term debt, accounts payable and accrued expenses, accrued compensation and payroll taxes, and income taxes payable approximate fair value because of the short maturity of these instruments.

The carrying amounts reported in the condensed consolidated balance sheets as of July 31, 2024 and October 31, 2023 for cash, trade accounts receivable, income taxes refundable – current, other receivables, current installments of long-term debt, accounts payable and accrued expenses, accrued compensation and payroll taxes, and income taxes payable approximate fair value because of the short maturity of these instruments.

The carrying value of the Company’s note payable, revolver – noncurrent, and long-term debt, excluding current installments, approximates fair value because the interest rates vary with the market.

3 unchanged sentences

Diluted net income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the net income (loss) of the Company.

OPTICAL CABLE CORPORATION

Condensed Notes to Condensed Consolidated Financial Statements

Nine Months Ended July 31, 2024

The following is a reconciliation of the numerators and denominators of the net income (loss) per share computations for the periods presented:

Three months ended

Six months ended

Nine months ended

Net income (loss) (numerator)

1 unchanged sentence

Basic and diluted net income (loss) per share

Weighted average unvested shares for the three months and six months ended April 30, 2024 totaling 141,723 , while issued and outstanding, were not included in the computation of basic and diluted net loss per share for the three months and six months ended April 30, 2024 (because to include such shares would have been anti-dilutive, or in other words, to do so would have reduced the net loss per share for those periods).

OPTICAL CABLE CORPORATION

Condensed Notes to Condensed Consolidated Financial Statements

Six Months Ended April 30, 2024

Weighted average unvested shares for the three months and nine months ended July 31, 2024 totaling 145,739 and 124,101 , respectively, while issued and outstanding, were not included in the computation of basic and diluted net loss per share for the three months and nine months ended July 31, 2024 (because to include such shares would have been anti-dilutive, or in other words, to do so would have reduced the net loss per share for those periods).

Segment Information and Business and Credit Concentrations

2 unchanged sentences

The Company also manages exposure to credit risk through credit approvals, credit limits and monitoring procedures.

Management believes that credit risks as of April 30, 2024 have been adequately provided for in the condensed consolidated financial statements.

Management believes that credit risks as of July 31, 2024 have been adequately provided for in the condensed consolidated financial statements.

The Company includes all entities under common ownership for the purpose of calculating business concentrations.

For the three months and six months ended April 30, 2024, 16.3 % and 15.9 %, respectively, of consolidated net sales were attributable to one national distributor customer.

For the three months and six months ended April 30, 2023, 17.7 % and 16.3 %, respectively, of consolidated net sales were attributable to the same national distributor customer.

For the three months and nine months ended July 31, 2024, 18.7 % and 16.9 %, respectively, of consolidated net sales were attributable to one national distributor customer.

For the three months and nine months ended July 31, 2023, 16.1 % and 16.3 %, respectively, of consolidated net sales were attributable to the same national distributor customer.

The Company has a single reportable segment for purposes of segment reporting.

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Taxes assessed by governmental authorities and collected from the customer including, but not limited to, sales and use taxes and value-added taxes, are not included in the transaction price and are not included in net sales.

OPTICAL CABLE CORPORATION

Condensed Notes to Condensed Consolidated Financial Statements

Nine Months Ended July 31, 2024

The Company recognizes revenue at the point in time when products are shipped or delivered from its manufacturing facility to its customer, in accordance with the agreed-upon shipping terms.

1 unchanged sentence

The Company’s contract liability represents advance consideration received from customers prior to transfer of the product.

This liability was $ 180,431 as of April 30, 2024 and $ 110,336 as of October 31, 2023.

This liability was $ 150,467 as of July 31, 2024 and $ 110,336 as of October 31, 2023.

Sales to certain customers are made pursuant to agreements that provide price adjustments and limited return rights with respect to the Company’s products.

The Company maintains a reserve for estimated future price adjustment claims, rebates and returns as a refund liability.

The Company’s refund liability was $ 133,201 as of April 30, 2024 and $ 252,264 as of October 31, 2023.

OPTICAL CABLE CORPORATION

Condensed Notes to Condensed Consolidated Financial Statements

Six Months Ended April 30, 2024

The Company maintains a reserve for estimated future price adjustment claims, rebates and returns as a refund liability, and the Company excludes such amounts from net sales.

The Company’s refund liability was $ 193,908 as of July 31, 2024 and $ 252,264 as of October 31, 2023.

The Company offers standard product warranty coverage which provides assurance that its products will conform to contractually agreed-upon specifications for a limited period from the date of shipment.

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Disaggregation of Revenue

The following table presents net sales attributable to the United States and all other countries in total for the three months and six months ended April 30, 2024 and 2023:

The following table presents net sales attributable to the United States and all other countries in total for the three months and nine months ended July 31, 2024 and 2023:

Three months ended

Six months ended

Nine months ended

United States

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In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

OPTICAL CABLE CORPORATION

Condensed Notes to Condensed Consolidated Financial Statements

Nine Months Ended July 31, 2024

New Accounting Standards Not Yet Adopted

100 unchanged sentences

Optical Cable Corporation™, OCC®, Procyon®, Superior Modular Products™, SMP Data Communications™, Applied Optical Systems™, Centric Solutions™ and associated logos are trademarks of Optical Cable Corporation.

Summary of Company Performance for Second Quarter of Fiscal Year 2024

Consolidated net sales for the second quarter of fiscal year 2024 decreased 17.9% to $16.1 million, compared to $19.6 million for the same period last year, which we believe is consistent with weakness being experienced in our industry generally and in certain of our target markets.

Net sales for the second quarter of fiscal year 2024 increased 8.5% compared to $14.9 million for the first quarter of fiscal year 2024.

Gross profit decreased 40.5% to $4.0 million in the second quarter of fiscal year 2024, compared to $6.8 million for the second quarter of fiscal year 2023, while gross profit increased 8.8% compared to $3.7 million for the first quarter of fiscal year 2024.

Gross profit margin (gross profit as a percentage of net sales) was 25.1% during the second quarter of fiscal year 2024, compared to 34.6% for the second quarter of fiscal year 2023 and compared to 25.0% for the first quarter of fiscal year 2024.

SG&A expenses were $5.3 million during the second quarter of fiscal year 2024, compared to $5.7 million for the same period last year.

SG&A expenses as a percentage of net sales were 33.0% during the second quarter of fiscal year 2024, compared to 28.9% during the same period in fiscal year 2023 and compared to 34.3% during the first quarter of fiscal year 2024.

Net loss was $1.6 million, or $0.21 per share, during the second quarter of fiscal year 2024, compared to net income of $2.4 million, or $0.31 per share, for the comparable period last year.

Summary of Company Performance for Third Quarter of Fiscal Year 2024

Consolidated net sales for the third quarter of fiscal year 2024 decreased 4.2% to $16.2 million, compared to $16.9 million for the same period last year.

We believe this is consistent with weakness experienced in our industry generally and in certain of our target markets, which we believe we began to experience during the third quarter of fiscal year 2023.

Net sales for the third quarter of fiscal year 2024 sequentially increased slightly compared to $16.1 million for the second quarter of fiscal year 2024.

Gross profit decreased 23.4% to $3.9 million in the third quarter of fiscal year 2024, compared to $5.1 million for the third quarter of fiscal year 2023, and decreased slightly compared to $4.0 million for the second quarter of fiscal year 2024.

Gross profit margin (gross profit as a percentage of net sales) was 24.2% during the third quarter of fiscal year 2024, compared to 30.2% for the third quarter of fiscal year 2023 and compared to 25.1% for the second quarter of fiscal year 2024.

SG&A expenses were $5.2 million during the third quarter of fiscal year 2024, compared to $5.0 million for the same period last year.

SG&A expenses as a percentage of net sales were 32.3% during the third quarter of fiscal year 2024, compared to 29.3% during the same period in fiscal year 2023 and compared to 33.0% during the second quarter of fiscal year 2024.

Net loss was $1.6 million, or $0.20 per share, during the third quarter of fiscal year 2024, compared to net income of $101,000, or $0.01 per share, for the comparable period last year.

Results of Operations

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Three Months Ended

Six Months Ended

Nine Months Ended

SG&A expenses

1 unchanged sentence

Net income (loss)

Three Months Ended April 30, 2024 and 2023

Consolidated net sales for the second quarter of fiscal year 2024 decreased 17.9% to $16.1 million, compared to net sales of $19.6 million for the same period last year, and increased 8.5% compared to net sales of $14.9 million during the first quarter of fiscal year 2024.

We experienced a decrease in net sales in both our enterprise and specialty markets, including the wireless carrier market, in the second quarter of fiscal year 2024, compared to the same period last year.

We believe this is consistent with weakness being experienced in our industry generally and in certain of our target markets.

Net sales to customers in the United States decreased 17.7% and net sales to customers outside of the United States decreased 18.5% in the second quarter of fiscal year 2024, compared to the same period last year.

Three Months Ended July 31, 2024 and 2023

Consolidated net sales for the third quarter of fiscal year 2024 decreased 4.2% to $16.2 million, compared to net sales of $16.9 million for the same period last year, and increased slightly compared to net sales of $16.1 million during the second quarter of fiscal year 2024.

We experienced an increase in net sales in our enterprise market during the third quarter of fiscal year 2024, which was more than offset by decreases in net sales in our specialty markets, including the wireless carrier market.

Net sales to customers in the United States decreased 8.0%, while net sales to customers outside of the United States increased 15.6% in the third quarter of fiscal year 2024, compared to the same period last year.

We can experience fluctuations in sales from quarter to quarter in the various markets (both industries and geographies) in which we operate for various reasons.

The second quarter of fiscal year 2023 was positively impacted by our higher-than-typical sales order backlog/forward load of more than $11.0 million that existed at the end of the first quarter of fiscal year 2023, while our sales order backlog/forward load at the end of the first quarter of fiscal year 2024 had returned to more normal levels at approximately $5.0 million.

At the end of the second quarter of fiscal year 2024, our sales order backlog/forward load remains at a more typical level of approximately $5.6 million.

Additionally, net sales for the second quarter of fiscal year 2024 were negatively impacted by various macroeconomic pressures, risks and uncertainties in our industry—which we believe is consistent with weakness being experienced in our industry generally.

While certain of our markets continue to show signs of softness (including our enterprise and wireless carrier markets), we believe there are positive indicators in certain of our other markets.

Overall, we expect our net sales to begin to grow compared to the first half of fiscal year 2024.

Our gross profit was $4.0 million in the second quarter of fiscal year 2024, a decrease of 40.5% compared to gross profit of $6.8 million in the second quarter of fiscal year 2023, while gross profit during the second quarter of fiscal year 2024 increased 8.8% compared to $3.7 million for the first quarter of fiscal year 2024.

Gross profit margin, or gross profit as a percentage of net sales, was 25.1% in the second quarter of fiscal year 2024 compared to 34.6% in the second quarter of fiscal year 2023 and compared to 25.0% for the first quarter of fiscal year 2024.

Gross profit margin for the second quarter of fiscal 2024 when compared to the same period last year was negatively impacted by lower volumes, as fixed charges were spread over lower sales, as well as decreased plant efficiency, as fewer sales and lower backlog impacted the flow of products through our manufacturing facilities—the impact of operating leverage.

Net sales for the third quarter of fiscal year 2024 were negatively impacted by various macroeconomic pressures, risks and uncertainties in our industry—which we believe is consistent with weakness experienced in our industry generally and which we began to experience during the third quarter of fiscal year 2023.

While certain of our markets continue to show signs of softness, we believe there are positive indicators in certain of our markets.

Our quarterly sequential net sales have increased through the third quarter of fiscal 2024, although the growth has not been as robust as we initially anticipated.

Overall, we believe opportunities to improve net sales will continue into fiscal year 2025.

Our gross profit was $3.9 million in the third quarter of fiscal year 2024, a decrease of 23.4% compared to gross profit of $5.1 million in the third quarter of fiscal year 2023, and compared to $4.0 million for the second quarter of fiscal year 2024.

Gross profit margin, or gross profit as a percentage of net sales, was 24.2% in the third quarter of fiscal year 2024 compared to 30.2% in the third quarter of fiscal year 2023, and compared to 25.1% for the second quarter of fiscal year 2024.

Gross profit margin for the third quarter of fiscal 2024 when compared to the same period last year was negatively impacted by lower volumes, as fixed charges were spread over lower sales, as well as decreased plant efficiency, as fewer sales and lower backlog impacted the flow of products through our manufacturing facilities—the impact of operating leverage.

Additionally, our gross profit margin percentages are heavily dependent upon product mix on a quarterly basis and may vary based on changes in product mix.

While production volume decreased during the second quarter of fiscal year 2024 compared to the same period last year, we have not implemented reductions in production personnel like others in our industry have done—with various personnel reductions at manufacturers and distributors.

Our planned restraint in this regard is consistent with our view of expected opportunities as we continue fiscal year 2024, as well as considering the time it takes to train new production personnel in certain areas of our production operations.

While production volume decreased during the third quarter of fiscal year 2024 compared to the same period last year, we have not implemented reductions in production personnel like others in our industry have done—with various personnel reductions at manufacturers and distributors.

Our planned restraint in this regard is consistent with our view of expected opportunities as we prepare for fiscal year 2025, as well as considering the time it takes to train new production personnel in certain areas of our production operations.

Selling, General, and Administrative Expenses

SG&A expenses decreased to $5.3 million during the second quarter of fiscal year 2024, compared to $5.7 million during the second quarter of fiscal year 2023.

SG&A expenses as a percentage of net sales were 33.0% in the second quarter of fiscal year 2024, compared to 28.9% in the second quarter of fiscal year 2023, as fixed SG&A expenses were spread over lower net sales.

By comparison, SG&A expenses as a percentage of net sales were 34.3% during the first quarter of fiscal year 2024.

The decrease in SG&A expenses during the second quarter of fiscal year 2024 compared to the same period last year was primarily the result of decreases in employee and contracted sales personnel-related costs totaling $248,000 and shipping costs totaling $108,000.

Included in employee and contracted sales personnel-related costs are employee incentives and commissions which decreased due to decreased net sales and the financial results during the second quarter of fiscal year 2024.

Shipping costs decreased primarily due to the decrease in net sales.

SG&A expenses increased to $5.2 million during the third quarter of fiscal year 2024, compared to $5.0 million during the third quarter of fiscal year 2023, with no significant changes when comparing the two periods.

SG&A expenses as a percentage of net sales were 32.3% in the third quarter of fiscal year 2024, compared to 29.3% in the third quarter of fiscal year 2023, as fixed SG&A expenses were spread over lower net sales.

By comparison, SG&A expenses as a percentage of net sales were 33.0% during the second quarter of fiscal year 2024.

Royalty Income (Expense), Net

We recognized royalty expense, net of royalty income, totaling $7,000 during the second quarter of fiscal years 2024 and 2023.

We recognized royalty expense, net of royalty income, totaling $7,000 during the third quarter of fiscal years 2024 and 2023.

Royalty expense and/or income may fluctuate based on sales of related licensed products and estimates of amounts for non-licensed product sales, if any.

Amortization of Intangible Assets

We recognized $14,000 of amortization expense, associated with intangible assets, during the second quarter of fiscal years 2024 and 2023.

We recognized $14,000 of amortization expense, associated with intangible assets, during the third quarter of fiscal years 2024 and 2023.

Income (loss) from operations

We reported a loss from operations of $1.3 million for the second quarter of fiscal year 2024, compared to income from operations of $1.1 million for the second quarter of fiscal year 2023, and compared to a net loss from operations of $1.4 million for the first quarter of fiscal year 2024.

We reported a loss from operations of $1.3 million for the third quarter of fiscal year 2024, compared to income from operations of $138,000 for the third quarter of fiscal year 2023, and compared to a net loss from operations of $1.3 million for the second quarter of fiscal year 2024.

Other Income (Expense), Net

We recognized other expense, net in the second quarter of fiscal year 2024 of $293,000, compared to other income, net of $1.4 million in the second quarter of fiscal year 2023.

Other expense, net for the second quarter of fiscal year 2024 is comprised primarily of interest expense and other miscellaneous items.

The change in other expense, net during the second quarter of fiscal year 2024 compared to the same period last year was primarily due to gain on insurance proceeds received in the second quarter of fiscal year 2023 for damage to property and equipment totaling $1.7 million, partially offset by interest expense and other miscellaneous items, that did not recur in fiscal year 2024.

We recognized other expense, net in the third quarter of fiscal year 2024 of $213,000, compared to $39,000 in the third quarter of fiscal year 2023.

Other expense, net for the third quarter of fiscal years 2024 and 2023 is comprised primarily of interest expense and other miscellaneous items, partially offset by gain on insurance proceeds received for damage to property and equipment totaling $90,000 and $256,000, respectively.

Income (Loss) Before Income Taxes

We reported a loss before income taxes of $1.6 million for the second quarter of fiscal year 2024, compared to income before income taxes of $2.5 million for the second quarter of fiscal year 2023.

The change was primarily due to the decrease in gross profit of $2.7 million and gain on insurance proceeds received in the second quarter of fiscal year 2023 for damage to property and equipment of $1.7 million, partially offset by the decrease in SG&A expenses of $343,000.

We reported a loss before income taxes of $1.6 million for the third quarter of fiscal year 2024, compared to income before income taxes of $100,000 for the third quarter of fiscal year 2023.

The change was primarily due to the decrease in gross profit of $1.2 million and the increase in SG&A expenses of $280,000.

Income Tax Expense

Income tax expense totaled $7,000 in the second quarter of fiscal year 2024, compared to $75,000 in the second quarter of fiscal year 2023.

Our effective tax rate was less than negative one percent for the second quarter of fiscal year 2024 and 3.0% for the second quarter of fiscal year 2023.

Income tax expense totaled $7,000 in the third quarter of fiscal year 2024, compared to income tax benefit of $1,000 in the third quarter of fiscal year 2023.

Our effective tax rate was less than negative one percent for the third quarter of fiscal years 2024 and 2023.

Fluctuations in our effective tax rates are primarily due to permanent differences in U.S.

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Net Income (Loss)

Net loss for the second quarter of fiscal year 2024 was $1.6 million, or $0.21 per share, compared to net income of $2.4 million, or $0.31 per share, for the second quarter of fiscal year 2023.

This change was primarily due to the decrease in income before income taxes of $4.1 million, which includes a $1.7 million decrease in gain on insurance proceeds, net.

Six Months Ended April 30, 2024 and 2023

Consolidated net sales for the first half of fiscal year 2024 were $31.0 million, a decrease of 18.3% compared to net sales of $37.9 million for the same period last year.

We experienced a decrease in net sales in both our enterprise and specialty markets, including the wireless carrier market, in the first half of fiscal year 2024, compared to the same period last year.

We believe this is consistent with weakness being experienced in our industry generally and in certain of our target markets.

Net sales to customers in the United States decreased 17.8% and net sales to customers outside of the United States decreased 20.3% in the first half of fiscal year 2024, compared to the same period last year.

Net loss for the third quarter of fiscal year 2024 was $1.6 million, or $0.20 per share, compared to net income of $101,000, or $0.01 per share, for the third quarter of fiscal year 2023.

This change was primarily due to the decrease in income before income taxes of $1.7 million.

Nine Months Ended July 31, 2024 and 2023

Consolidated net sales for the first nine months of fiscal year 2024 were $47.2 million, a decrease of 14.0% compared to net sales of $54.8 million for the same period last year.

We experienced a decrease in net sales in both our enterprise and specialty markets, including the wireless carrier market, in the first nine months of fiscal year 2024, compared to the same period last year.

We believe this is consistent with weakness being experienced in our industry generally and in certain of our target markets, which we began to experience during the third quarter of fiscal year 2023.

Net sales to customers in the United States decreased 14.7% and net sales to customers outside of the United States decreased 10.8% in the first nine months of fiscal year 2024, compared to the same period last year.

We can experience fluctuations in sales from quarter to quarter in the various markets (both industries and geographies) in which we operate for various reasons.

The first half of fiscal year 2023 was positively impacted by our higher-than-typical sales order backlog/forward load of more than $12.0 million that existed at the end of fiscal year 2022, while our sales order backlog/forward load at the end of fiscal year 2023 had returned to more normal levels at approximately $5.4 million.

At the end of the first half of fiscal year 2024, our sales order backlog/forward load remains at a more typical level of approximately $5.6 million.

Additionally, net sales for the first half of fiscal year 2024 were negatively impacted by various macroeconomic pressures, risks and uncertainties in our industry—which we believe is consistent with weakness being experienced in our industry generally.

While certain of our markets continue to show signs of softness (including our enterprise and wireless carrier markets), we believe there are positive indicators in certain of our other markets.

Overall, we expect our net sales to begin to grow compared to the first half of fiscal year 2024.

Our gross profit was $7.8 million in the first half of fiscal year 2024, a decrease of 41.7% compared to gross profit of $13.3 million in the first half of fiscal year 2023.

Gross profit margin was 25.0% in the first half of fiscal year 2024 compared to 35.1% in the first half of fiscal year 2023.

Gross profit margin for the first half of fiscal 2024 was negatively impacted by lower volumes, as fixed charges were spread over lower sales, as well as decreased plant efficiency, as fewer sales and lower backlog impacted the flow of products through our manufacturing facilities—the impact of operating leverage.

The first nine months of fiscal year 2023 was positively impacted by our higher-than-typical sales order backlog/forward load of more than $12.0 million that existed at the end of fiscal year 2022, while our sales order backlog/forward load at the end of fiscal year 2023 had returned to more normal levels at approximately $5.4 million.

At the end of the first nine months of fiscal year 2024, our sales order backlog/forward load has increased to $6.5 million when compared to $5.6 million as of April 30, 2024 and $5.0 million as of January 31, 2024.

Additionally, net sales for the first nine months of fiscal year 2024 were negatively impacted by various macroeconomic pressures, risks and uncertainties in our industry—which we believe is consistent with weakness being experienced in our industry generally.

While certain of our markets continue to show signs of softness, we believe there are positive indicators in certain of our markets.

Our quarterly sequential net sales have increased through the third quarter of fiscal 2024, although the growth has not been as robust as we initially anticipated.

Overall, we believe opportunities to improve net sales will continue into fiscal year 2025.

Our gross profit was $11.7 million in the first nine months of fiscal year 2024, a decrease of 36.6% compared to gross profit of $18.4 million in the first nine months of fiscal year 2023.

Gross profit margin was 24.7% in the first nine months of fiscal year 2024 compared to 33.6% in the first nine months of fiscal year 2023.

Gross profit margin for the first nine months of fiscal 2024 was negatively impacted by lower volumes, as fixed charges were spread over lower sales, as well as decreased plant efficiency, as fewer sales and lower backlog impacted the flow of products through our manufacturing facilities—the impact of operating leverage.

Additionally, our gross profit margin percentages are heavily dependent upon product mix on a quarterly basis and may vary based on changes in product mix.

While production volume decreased during the first half of fiscal year 2024 compared to the same period last year, we have not implemented reductions in production personnel like others in our industry have done—with various personnel reductions at manufacturers and distributors.

While production volume decreased during the first nine months of fiscal year 2024 compared to the same period last year, we have not implemented reductions in production personnel like others in our industry have done—with various personnel reductions at manufacturers and distributors.

Selling, General, and Administrative Expenses

SG&A expenses decreased 6.3% to $10.4 million during the first half of fiscal year 2024, compared to $11.1 million for the same period last year.

SG&A expenses as a percentage of net sales were 33.6% in the first half of fiscal year 2024, compared to 29.3% in the first half of fiscal year 2023, as fixed SG&A expenses were spread over lower net sales.

The decrease in SG&A expenses during the first half of fiscal year 2024 compared to the same period last year was primarily the result of decreases in employee and contracted sales personnel-related costs totaling $459,000 and shipping costs totaling $215,000.

SG&A expenses decreased 2.6% to $15.7 million during the first nine months of fiscal year 2024, compared to $16.1 million for the same period last year.

SG&A expenses as a percentage of net sales were 33.2% in the first nine months of fiscal year 2024, compared to 29.3% in the first nine months of fiscal year 2023, as fixed SG&A expenses were spread over lower net sales.

The decrease in SG&A expenses during the first nine months of fiscal year 2024 compared to the same period last year was primarily the result of decreases in employee and contracted sales personnel-related costs totaling $410,000 and shipping costs totaling $213,000.

Shipping costs decreased primarily due to the decrease in net sales.

Royalty Income (Expense), Net

We recognized royalty expense, net of royalty income, totaling $13,000 during the first half of fiscal years 2024 and 2023.

We recognized royalty expense, net of royalty income, totaling $20,000 during the first nine months of fiscal years 2024 and 2023.

Royalty income and/or expense may fluctuate based on sales of related licensed products and estimates of amounts for non-licensed product sales, if any.

Amortization of Intangible Assets

We recognized $27,000 of amortization expense, associated with intangible assets, during the first half of fiscal years 2024 and 2023.

We recognized $41,000 of amortization expense, associated with intangible assets, during the first nine months of fiscal year 2024, compared to $40,000 during the first nine months of fiscal year 2023.

Income (loss) from operations

We reported a loss from operations of $2.7 million for the first half of fiscal year 2024, compared to income from operations of $2.1 million for the first half of fiscal year 2023.

We reported a loss from operations of $4.0 million for the first nine months of fiscal year 2024, compared to income from operations of $2.3 million for the first nine months of fiscal year 2023.

Other Income (Expense), Net

We recognized other expense, net in the first half of fiscal year 2024 of $311,000, compared to other income, net of $1.2 million in the first half of fiscal year 2023.

Other expense, net for the first half of fiscal year 2024 is comprised of gain on insurance proceeds totaling $219,000, partially offset by interest expense and other miscellaneous items.

The change in other expense, net during the first half of fiscal year 2024 compared to the same period last year was primarily due to a decrease in gain on insurance proceeds received in the first half of fiscal year 2023 for damage to property and equipment totaling $1.5 million.

We recognized other expense, net in the first nine months of fiscal year 2024 of $524,000, compared to other income, net of $1.2 million in the first nine months of fiscal year 2023.

Other expense, net for the first nine months of fiscal year 2024 is comprised of interest expense and other miscellaneous items, partially offset by gain on insurance proceeds totaling $309,000.

Other income, net for the first nine months of fiscal year 2023 is comprised primarily of the gain on insurance proceeds received for damage to property and equipment totaling $2.0 million, partially offset by interest expense and other miscellaneous items.

The change in other expense, net during the first nine months of fiscal year 2024 compared to the same period last year was primarily due to a decrease in gain on insurance proceeds received in the first nine months of fiscal year 2024 for damage to property and equipment totaling $1.6 million.

Income (Loss) Before Income Taxes

We reported a loss before income taxes of $3.0 million for the first half of fiscal year 2024, compared to income before income taxes of $3.3 million for the first half of fiscal year 2023.

We reported a loss before income taxes of $4.6 million for the first nine months of fiscal year 2024, compared to income before income taxes of $3.4 million for the first nine months of fiscal year 2023.

The change was primarily due to the decrease in gross profit of $6.7 million and the decrease in gain on insurance proceeds, net of $1.6 million, partially offset by the decrease in SG&A expenses of $425,000.

Income Tax Expense (Benefit)

Income tax expense totaled $14,000 in the first half of fiscal year 2024, compared to $107,000 in the first half of fiscal year 2023.

Our effective tax rate was less than negative one percent for the first half of fiscal year 2024 and 3.2% for the first half of fiscal year 2023.

Income tax expense totaled $21,000 in the first nine months of fiscal year 2024, compared to $106,000 in the first nine months of fiscal year 2023.

Our effective tax rate was less than negative one percent for the first nine months of fiscal year 2024 and 3.1% for the first nine months of fiscal year 2023.

Fluctuations in our effective tax rates are primarily due to permanent differences in U.S.

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Net Income (Loss)

Net loss for the first half of fiscal year 2024 was $3.0 million, or $0.39 per share, compared to net income of $3.2 million, or $0.41 per share, for the first half of fiscal year 2023.

Net loss for the first nine months of fiscal year 2024 was $4.6 million, or $0.59 per share, compared to net income of $3.3 million, or $0.42 per share, for the first nine months of fiscal year 2023.

This change was primarily due to the decrease in income before income taxes of $8.0 million, which includes the $1.6 million decrease in gain on insurance proceeds, net.

Financial Condition

Total assets decreased $4.0 million, or 9.1%, to $39.9 million at April 30, 2024, from $43.9 million at October 31, 2023.

This decrease was primarily due to a $430,000 decrease in trade accounts receivable, net, and a $2.3 million decrease in inventories.

The decrease in trade accounts receivable, net resulted from the decrease in net sales in the second quarter of fiscal year 2024 when compared to the fourth quarter of fiscal year 2023.

Total assets decreased $6.3 million, or 14.3%, to $37.6 million at July 31, 2024, from $43.9 million at October 31, 2023.

This decrease was primarily due to a $4.5 million decrease in inventories.

Inventories decreased largely as the result of the timing of certain raw material purchases as well as lower replenishment rates due to lower sales and the timing of sales of stock inventory.

Total liabilities decreased $1.1 million, or 5.8%, to $18.0 million at April 30, 2024, from $19.2 million at October 31, 2023.

The decrease in total liabilities was primarily due to a decrease in accounts payable and accrued expenses, including accrued compensation and payroll taxes, totaling $649,000, primarily resulting from the timing of certain vendor and payroll related payments, and net repayments on our Revolver totaling $278,000.

Total shareholders’ equity at April 30, 2024 decreased $2.9 million in the first half of fiscal year 2024 resulting primarily from a net loss of $3.0 million.

Total liabilities decreased $1.9 million, or 10.0%, to $17.2 million at July 31, 2024, from $19.2 million at October 31, 2023.

The decrease in total liabilities was primarily due to a decrease in accounts payable and accrued expenses, including accrued compensation and payroll taxes, totaling $786,000, primarily resulting from the timing of certain vendor and payroll related payments, and net repayments on our Revolver totaling $1.0 million.

Total shareholders’ equity at July 31, 2024 decreased $4.4 million in the first nine months of fiscal year 2024 resulting primarily from a net loss of $4.6 million.

Liquidity and Capital Resources

Our primary capital needs have been to fund working capital requirements through payments on our Revolver.

Our primary capital needs have been to fund working capital requirements through our Revolver.

Our primary source of capital for these purposes has been existing cash, cash provided by operations and borrowings under our Revolver (see “Credit Facilities” below).

Our cash totaled $1.1 million as of April 30, 2024, a decrease of $379,000 compared to $1.5 million as of October 31, 2023.

The decrease in cash for the six months ended April 30, 2024 primarily resulted from net cash used in financing activities of $474,000 (including a $278,000 net reduction in our Revolver) and capital expenditures of $236,000, partially offset by cash provided by operating activities of $113,000 and insurance proceeds, net totaling $219,000.

On April 30, 2024, we had working capital of $24.3 million compared to $27.3 million on October 31, 2023.

The ratio of current assets to current liabilities as of April 30, 2024 was 4.4 to 1.0, compared to 4.5 to 1.0 as of October 31, 2023.

The decrease in working capital and in the current ratio was primarily due to the decrease in cash of $379,000, the decrease in trade accounts receivable, net of $430,000, and the decrease in inventories of $2.3 million, partially offset by the decrease in accounts payable and accrued expenses, including accrued compensation and payroll taxes, totaling $649,000.

As of April 30, 2024 and October 31, 2023, we had outstanding loan balances under our Revolver totaling $8.0 million and $8.3 million, respectively.

As of April 30, 2024 and October 31, 2023, we had other outstanding bank loan balances, excluding our Revolver, totaling $2.7 million.

Net cash provided by operating activities was $113,000 in the first half of fiscal year 2024, compared to net cash used in operating activities of $1.5 million for the first half of fiscal year 2023.

Net cash provided by operating activities during the first half of fiscal year 2024 primarily resulted from certain adjustments to reconcile a net loss of $3.0 million to net cash provided by operating activities including depreciation and amortization of $431,000 and share-based compensation expense of $251,000.

Additionally, the cash flow impact of decreases in accounts receivable, net of $447,000 and decreases in inventories of $2.3 million further contributed to net cash provided by operating activities.

All of the aforementioned factors positively affecting cash provided by operating activities were partially offset by the cash flow impact of decreases in accounts payable and accrued expenses, including accrued compensation and payroll taxes, of $639,000 and an adjustment to reconcile a net loss of $3.0 million to net cash provided by operating activities for gain on insurance proceeds, net totaling $219,000.

Net cash used in operating activities during the first half of fiscal year 2023 primarily resulted from an increase in inventories totaling $3.7 million, the cash flow impact of increases in trade accounts receivable, net totaling $358,000, and an adjustment to reconcile net income of $3.2 million to net cash used in operating activities for the gain on insurance proceeds received for damage to property and equipment totaling $1.7 million, partially offset by certain other adjustments to reconcile net income of $3.2 million to net cash used in operating activities including depreciation and amortization of $497,000 and share-based compensation expense of $290,000.

Net cash used in investing activities totaled $17,000 in the first half of fiscal year 2024, compared to net cash provided by investing activities of $1.5 million in the first half of fiscal year 2023.

Net cash used in investing activities during the first half of fiscal year 2024 resulted primarily from purchases of property and equipment and deposits for the purchase of property and equipment totaling $236,000, partially offset by net insurance proceeds of $219,000.

Net cash provided by investing activities during the first half of fiscal year 2023 resulted primarily from the net insurance proceeds received for damage to property and equipment totaling $1.7 million, partially offset by purchases of property and equipment and deposits for the purchase of property and equipment totaling $230,000.

Net cash used in financing activities totaled $474,000 for the first half of fiscal year 2024, compared to net cash provided by financing activities of $1.7 million in the first half of fiscal year 2023.

Net cash used in financing activities in the first half of fiscal year 2024 resulted primarily from net repayments on our revolving line of credit totaling $278,000.

Net cash provided by financing activities in the first half of fiscal year 2023 resulted primarily from net proceeds on our revolving line of credit totaling $2.0 million, partially offset by principal payments on long-term debt totaling $168,000.

Our cash totaled $797,000 as of July 31, 2024, a decrease of $672,000 compared to $1.5 million as of October 31, 2023.

The decrease in cash for the nine months ended July 31, 2024 primarily resulted from net cash used in financing activities of $1.3 million (including a $1.0 million net reduction in our Revolver) and capital expenditures of $313,000, partially offset by cash provided by operating activities of $665,000 and insurance proceeds, net totaling $271,000.

On July 31, 2024, we had working capital of $22.2 million compared to $27.3 million on October 31, 2023.

The ratio of current assets to current liabilities as of July 31, 2024 was 4.2 to 1.0, compared to 4.5 to 1.0 as of October 31, 2023.

The decrease in working capital and in the current ratio was primarily due to the decrease in cash of $672,000 and the decrease in inventories of $4.5 million, partially offset by the decrease in accounts payable and accrued expenses, including accrued compensation and payroll taxes, totaling $786,000.

As of July 31, 2024 and October 31, 2023, we had outstanding loan balances under our Revolver totaling $7.3 million and $8.3 million, respectively.

As of July 31, 2024 and October 31, 2023, we had other outstanding bank loan balances, excluding our Revolver, totaling $2.6 million and $2.7 million, respectively.

Net cash provided by operating activities was $665,000 in the first nine months of fiscal year 2024, compared to net cash used in operating activities of $929,000 for the first nine months of fiscal year 2023.

Net cash provided by operating activities during the first nine months of fiscal year 2024 primarily resulted from certain adjustments to reconcile a net loss of $4.6 million to net cash provided by operating activities including depreciation and amortization of $644,000 and share-based compensation expense of $329,000.

Additionally, decreases in inventories of $4.5 million further contributed to net cash provided by operating activities.

All of the aforementioned factors positively affecting cash provided by operating activities were partially offset by the cash flow impact of decreases in accounts payable and accrued expenses, including accrued compensation and payroll taxes, of $790,000, and by an adjustment to reconcile a net loss of $4.6 million to net cash provided by operating activities for gain on insurance proceeds, net totaling $309,000.

Net cash used in operating activities during the first nine months of fiscal year 2023 primarily resulted from an increase in inventories totaling $5.5 million and an adjustment to reconcile net income of $3.3 million to net cash used in operating activities for the gain on insurance proceeds received for damage to property and equipment totaling $2.0 million, partially offset by the cash flow impact of decreases in trade accounts receivable, net totaling $1.7 million, and by certain other adjustments to reconcile net income of $3.3 million to net cash used in operating activities including depreciation and amortization of $716,000 and share-based compensation expense of $463,000.

Net cash used in investing activities totaled $43,000 in the first nine months of fiscal year 2024, compared to net cash provided by investing activities of $1.6 million in the first nine months of fiscal year 2023.

Net cash used in investing activities during the first nine months of fiscal year 2024 resulted primarily from purchases of property and equipment and deposits for the purchase of property and equipment totaling $313,000, partially offset by net insurance proceeds of $271,000.

Net cash provided by investing activities during the first nine months of fiscal year 2023 resulted primarily from the net insurance proceeds received for damage to property and equipment totaling $2.0 million, partially offset by purchases of property and equipment and deposits for the purchase of property and equipment totaling $371,000.

Net cash used in financing activities totaled $1.3 million for the first nine months of fiscal year 2024, compared to net cash provided by financing activities of $845,000 in the first nine months of fiscal year 2023.

Net cash used in financing activities in the first nine months of fiscal year 2024 resulted primarily from net repayments on our revolving line of credit totaling $1.0 million.

Net cash provided by financing activities in the first nine months of fiscal year 2023 resulted primarily from net proceeds on our revolving line of credit totaling $1.3 million, partially offset by principal payments on long-term debt totaling $253,000.

Credit Facilities

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Interest is computed on the aggregate principal balance outstanding at a rate equal to the Prime Rate, adjusted monthly on the fifth day of each calendar month in accordance with changes to the Prime Rate, provided, however, that the interest rate is never less than 8.5% per annum on the basis of a 360-day year times the actual number of days elapsed.

The Prime Rate was 8.5% per annum at April 30, 2024 and October 31, 2023.

The Prime Rate was 8.5% per annum at July 31, 2024 and October 31, 2023.

The maturity date of the Virginia Real Estate Loan is May 5, 2026.

The Loan remains generally secured by a first lien deed of trust on the land and buildings at our headquarters and manufacturing facilities located in Roanoke, Virginia.

All other terms of the Virginia Real Estate Loan remain unaltered and remain in full force and effect.

The Company had an outstanding balance on its Virginia Real Estate Loan of $2.7 million, as of April 30, 2024.

The Revolver with North Mill Capital LLC (doing business as SLR Business Credit, “SLR”) provides us with one or more advances in an amount up to:

The primary purpose of the Amendment was to:

(i) pay off the principal balance of the North Carolina Real Estate Loan;

(ii) pay down the principal balance on the Virginia Real Estate Loan;

(iii) extend the maturity date of the Virginia Real Estate Loan through May 5, 2026;

(iv) release the collateral of the North Carolina Real Estate Loan;

The Loan is secured by a first lien deed of trust on the land and buildings at our headquarters and manufacturing facilities located in Roanoke, Virginia.

The Company had an outstanding balance on its Virginia Real Estate Loan of $2.6 million, as of July 31, 2024.

On June 27, 2024, we entered into a Modification Agreement with North Mill Capital LLC (now doing business as SLR Business Credit, “SLR”) to modify the existing Loan and Security Agreement (“Loan Agreement”) dated July 24, 2020.

In addition to certain other modifications to the Loan Agreement as set forth in the Modification Agreement, the Modification Agreement provides a two-year extension of the initial term of the Loan Agreement to July 24, 2027 and increases eligible inventory maximum from $5,000,000 to $7,000,000.

The Revolver with SLR provides us with one or more advances in an amount up to:

(a) 85% of the aggregate outstanding amount of eligible accounts (the “eligible accounts loan value”);

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Interest accrues on the daily balance at the per annum rate of 1.5% above the Prime Rate in effect from time to time, but not less than 4.75% (the “Applicable Rate”).

As a result, the Revolver accrued interest at a 10.0% rate at April 30, 2024 and October 31, 2023.

As a result, the Revolver accrued interest at a 10.0% rate at July 31, 2024 and October 31, 2023.

In the event of a default, interest may become 6.0% above the Applicable Rate.

The termination date of the Revolver is July 24, 2025 and the loan may be extended in one year periods subject to the agreement of SLR.

The Revolver is secured by all of the following assets:

properties, rights and interests in property of the Company whether now owned or existing, or hereafter acquired or arising, and wherever located;

The loan may be extended in one year periods subject to the agreement of SLR.

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and any other assets of the Company which may be subject to a lien in favor of SLR as security for the obligations under the Loan Agreement.

As of April 30, 2024, we had $8.0 million of outstanding borrowings on our Revolver and $2.0 million in available credit.

As of July 31, 2024, we had $7.3 million of outstanding borrowings on our Revolver and $2.2 million in available credit.

Capital Expenditures

We did not have any material commitments for capital expenditures as of April 30, 2024.

We did not have any material commitments for capital expenditures as of July 31, 2024.

During our 2024 fiscal year budgeting process, we included an estimate for capital expenditures of $1.0 million for the fiscal year.

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While we believe seasonality may be a factor that impacts our quarterly net sales results, particularly when excluding the volatility of sales in the wireless carrier market, we are not able to reliably predict net sales based on seasonality because these other factors can also, and often do, substantially impact our net sales patterns during the year.

Furthermore, while we have seen some improvement in net sales in the third quarter of fiscal year 2024, it is not at a level that we are confident our typical seasonality pattern will materialize for the second half of fiscal year 2024.

Critical Accounting Policies and Estimates

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Note 1 to the consolidated financial statements filed with our Annual Report on Form 10-K for fiscal year 2023 provides a summary of our significant accounting policies.

Those significant accounting policies detailed in our fiscal year 2023 Form 10-K did not change during the period from November 1, 2023 through April 30, 2024.

Those significant accounting policies detailed in our fiscal year 2023 Form 10-K did not change during the period from November 1, 2023 through July 31, 2024.

New Accounting Standards

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements