What changed in this filing

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Item 1. Financial Statements

2021-09-13 compared with 2021-06-14 · 160 added, 155 removed, 570 unchanged (36% of the section changed)

4 unchanged sentences

(In thousands)

Six Months Ended April 30,

Nine Months Ended July 31,

OPERATING ACTIVITIES:

20 unchanged sentences

Accounts payable

( 238 )  

Accrued expenses

1 unchanged sentence

( 43 )  

Other current liabilities

Other long-term liabilities

11 unchanged sentences

Dividends paid

Proceeds from PPP Loan

Net cash provided by financing activities

20 unchanged sentences

as of October 31, 2020 included in our Annual Report on Form 10 -K (“Form 10 -K”) for the year ended October 31, 2020 that was previously filed with the Securities and Exchange Commission (“SEC”).

Operating results for the six months ended April 30, 2021 are not necessarily indicative of the results that may be expected for the year ended October 31, 2021.

Operating results for the nine months ended July 31, 2021 are not necessarily indicative of the results that may be expected for the year ending October 31, 2021.

The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Form 10 -K.

8 unchanged sentences

All references to the “Company,”

“we,”

“us,”

or “our”

collectively refer to RF Industries, Ltd., Cables Unlimited, Rel-Tech, C Enterprises, and Schrofftech.

5 unchanged sentences

The extent of the impact of the COVID- 19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by domestic and international jurisdictions to prevent disease spread, all of which are uncertain and cannot be predicted.

The outbreak impacted our performance for the six months ended April 30, 2021.

During the periods covered by this report, the operations of our three subsidiaries in the Northeast were affected as many of our employees stayed at home and as local customers shut down or otherwise delayed, deferred or cancelled orders for our products.

The outbreak impacted our performance for the nine months ended July 31, 2021.

During the periods covered by this report, the operations at all locations were affected intermittently as some of our employee schedules were impacted, and as certain customers scaled back operations or otherwise delayed or deferred orders for our products.

Because of the impact that COVID- 19 had on our operations, in May 2020 we applied for and received loans under the Paycheck Protection Program (“PPP”) of the CARES Act totaling approximately $ 2.8 million (“PPP Loans”).

1 unchanged sentence

In March 2021, the Internal Revenue Service (“IRS”) released Notice 2021 - 20, which retroactively eliminated the restriction that prevented employers who received a PPP loan from qualifying for the Employee Retention Credit (“ERC”), which is a refundable tax credit against certain employment taxes.

Upon determination that the employer has complied with all of the conditions required to receive the credit, a receivable is recognized and the credit reduces salaries and wages. 

For the six months ended April 30, 2021, we qualified and filed to claim the ERC and have recorded this as an other receivable. 

We considered the impact of the COVID- 19 related economic slowdown on our evaluation of goodwill and non-amortizable intangibles impairment indicators as of April 30, 2021.

Upon determination that the employer has complied with all of the conditions required to receive the credit, a receivable is recognized and the credit reduces salaries and wages.

For the nine months ended July 31, 2021, we qualified and filed to claim the ERC and have recorded this as an other receivable classified in other current assets.

We considered the impact of the COVID- 19 related economic slowdown on our evaluation of goodwill and non-amortizable intangibles impairment indicators as of July 31, 2021.

Although no impairment indicators were identified, it is possible that impairments could emerge as the impact of the crisis becomes clearer, and those impairment losses could be material.

8 unchanged sentences

Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

As of April 30, 2021 and October 31, 2020, the carrying amounts reflected in the accompanying condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, and the current portion of the PPP Loans approximated their carrying value due to their short-term nature.

As of July 31, 2021 and October 31, 2020, the carrying amounts reflected in the accompanying condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, and the current portion of the PPP Loans approximated their carrying value due to their short-term nature.

See Note 5 for discussion on the fair value of other current liabilities.

12 unchanged sentences

Under ASU 2016 - 02, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients.

We adopted the standard as of November 1, 2019, the beginning of our fiscal 2020, applying the modified retrospective method. 

We elected the package of practical expedients permitted under the transition guidance with the new standard, which among other things, allows us to carryforward the historical lease classification. 

We elected the policy which allows us to combine the nonlease components with their related lease components rather than separating, and the policy election to keep leases with an initial term of 12 months or less off of the balance sheet. 

We adopted the standard as of November 1, 2019, the beginning of our fiscal 2020, applying the modified retrospective method.

We elected the package of practical expedients permitted under the transition guidance with the new standard, which among other things, allows us to carryforward the historical lease classification.

Operating leases are included in our consolidated balance sheet as operating lease right of use (“ROU”) assets, other current liabilities, and operating lease liabilities.

13 unchanged sentences

We adopted the standard as of November 1, 2020, the beginning of our fiscal 2021, applying this prospectively.

The adoption of the standard did not result in an impairment charge as of April 30, 2021.

The adoption of the standard did not result in an impairment charge as of July 31, 2021.

Note 2 –

33 unchanged sentences

Inventories consist of the following (in thousands): 

April 30, 2021

July 31, 2021

October 31, 2020

6 unchanged sentences

$ 8,586  

For the three months ended April 30, 2021, one vendor accounted for 15 % of inventory purchases, while no vendors accounted for more than 10% of inventory purchases for the three months ended April 30, 2020.

No vendors accounted for more than 10% of inventory purchases for the six months ended April 30, 2021 or 2020.

One vendor accounted for 27 % of inventory purchases for the three months ended July 31, 2021, and 17 % of inventory purchases for the nine months ended July 31, 2021.

Two vendors accounted for 12 % and 10 % of inventory purchases for the three months ended July 31, 2020, but no vendors accounted for more than 10% of inventory purchases for the nine months ended July 31, 2020.

We have arrangements with our vendors to purchase products based on purchase orders that we periodically issue.

2 unchanged sentences

Other current assets consist of the following (in thousands): 

April 30, 2021

July 31, 2021

October 31, 2020

5 unchanged sentences

Pursuant to the CARES Act, eligible employers are able to claim an ERC, which is a refundable tax credit against certain employment taxes.

If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may get an advance payment from the IRS. 

The period assessed for eligibility of the ERC is on a calendar year basis. 

For the first and second quarter of calendar year 2021, we were eligible to claim the ERC. 

As of April 30, 2021, the remaining portion of the ERC that we have not yet received is included as other receivables in other current assets.

If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may get an advance payment from the IRS.

The period assessed for eligibility of the ERC is on a calendar year basis.

For the first and second quarter of calendar year 2021, we were eligible to claim the ERC.

As of July 31, 2021, the remaining portion of the ERC that we have not yet received is included as other receivables in other current assets.

Note 5 –

1 unchanged sentence

Accrued expenses consist of the following (in thousands):

April 30, 2021

July 31, 2021

October 31, 2020

13 unchanged sentences

Accordingly, significant variances between actual and forecasted results or changes in the assumptions can materially impact the amount of contingent consideration expense we record in future periods.

In determining the fair value of the earn-out liability as of April 30, 2021, we used the most recent projections while giving consideration to actual results versus such projections subsequent to April 30, 2021.

We estimate the fair value of the earn-out liability using an option pricing based approach with a risk-neutral framework using Black Scholes related to Schrofftech calculated at net present value (Level 3 of the fair value hierarchy).

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of April 30, 2021 ( in thousands):

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of July 31, 2021 ( in thousands):

Earn-out liability

1 unchanged sentence

Earn-out liability

The following table summarizes the changes to the Level 3 liabilities measured at fair value for the three months ended April 30, 2021, January 31, 2021 and for the year ended October 31, 2020 ( in thousands):

The following table summarizes the changes to the Level 3 liabilities measured at fair value for the three months ended July 31, 2021, April 30, 2021, January 31, 2021 and for the year ended October 31, 2020 ( in thousands):

July 31, 2021

April 30, 2021

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Diluted earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding increased by the effects of assuming that other potentially dilutive securities (such as stock options) outstanding during the period had been exercised and the treasury stock method had been applied.

During the three and six months ended April 30, 2020, we reported a net loss and diluted loss per share is computed the same as basic loss per share as the effect of utilizing the fully diluted share count would have reduced the net loss per share which has an anti-dilutive effect. 

Therefore, all outstanding stock options are excluded from the computation of diluted loss per share. 

Potentially issuable securities that are out-of-the-money totaled 321,338 and 392,838 shares for the three months ended April 30, 2021 and 2020, respectively, and 331,338 and 392,838 shares for the six months ended April 30, 2021 and 2020, respectively.

During the three and nine months ended July 31, 2020, we reported a net loss and diluted loss per share is computed the same as basic loss per share as the effect of utilizing the fully diluted share count would have reduced the net loss per share which has an anti-dilutive effect.

Therefore, all outstanding stock options are excluded from the computation of diluted loss per share.

Potentially issuable securities that are out-of-the-money totaled 298,015 and 402,838 shares for the three months ended July 31, 2021 and 2020, respectively, and 371,338 and 402,838 shares for the nine months ended July 31, 2021 and 2020, respectively.

These shares were excluded from the calculation of diluted per share amounts because of their anti-dilutive effect.

The following table summarizes the computation of basic and diluted weighted average shares outstanding:

Three Months Ended April 30,

Six Months Ended April 30,

Weighted average shares outstanding for basic earnings (loss) per share

Three Months Ended July 31,

Nine Months Ended July 31,

Weighted average shares outstanding for basic earnings (loss) per share

9,979,578  

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All incentive stock options expire ten years from the date of grant.

No other shares or options were granted to company employees during the three and six months ended April 30, 2021 and 2020.

The weighted average fair value of employee stock options that were granted during the six months ended April 30, 2021 and 2020 was estimated to be $ 2.46 and $ 3.13 , respectively, per share, using the Black-Scholes option pricing model with the following assumptions:

Six Months Ended April 30,

On July 16, 2021, our Chief Executive Officer was granted incentive stock options to purchase 50,000 shares.

These options immediately vested on the date of grant, and expire ten years from the date of grant.

No other shares or options were granted to Company employees during the three and nine months ended July 31, 2021 and 2020.

The weighted average fair value of employee stock options that were granted during the nine months ended July 31, 2021 and 2020 was estimated to be $ 3.38 and $ 3.06 , respectively, per share, using the Black-Scholes option pricing model with the following assumptions:

Nine Months Ended July 31,

Risk-free interest rate

14 unchanged sentences

Descriptions of our stock option plans are included in Note 9 of our Annual Report on Form 10 -K for the year ended October 31, 2020.

A summary of the status of the options granted under our stock option plans as of April 30, 2021 and the changes in options outstanding during the six months then ended is presented in the table that follows:

A summary of the status of the options granted under our stock option plans as of July 31, 2021 and the changes in options outstanding during the nine months then ended is presented in the table that follows:

Exercise Price

11 unchanged sentences

$ 5.88  

Options outstanding at April 30, 2021

Options outstanding at July 31, 2021

633,858  

$ 5.26  

Options exercisable at April 30, 2021

Options exercisable at July 31, 2021

323,568  

$ 5.78  

Options vested and expected to vest at April 30, 2021

Options vested and expected to vest at July 31, 2021

633,522  

$ 5.27  

Weighted average remaining contractual life of options outstanding as of April 30, 2021:

Weighted average remaining contractual life of options exercisable as of April 30, 2021:

Weighted average remaining contractual life of options vested and expected to vest as of April 30, 2021:

Aggregate intrinsic value of options outstanding at April 30, 2021:

Aggregate intrinsic value of options exercisable at April 30, 2021:

Aggregate intrinsic value of options vested and expected to vest at April 30, 2021:

As of April 30, 2021, $ 648,000 and $ 385,000 of expenses with respect to nonvested stock options and restricted shares, respectively, has yet to be recognized but is expected to be recognized over a weighted average period of 3.71 and 1.31 years, respectively.

Weighted average remaining contractual life of options outstanding as of July 31, 2021:

Weighted average remaining contractual life of options exercisable as of July 31, 2021:

Weighted average remaining contractual life of options vested and expected to vest as of July 31, 2021:

Aggregate intrinsic value of options outstanding at July 31, 2021:

Aggregate intrinsic value of options exercisable at July 31, 2021:

Aggregate intrinsic value of options vested and expected to vest at July 31, 2021:

As of July 31, 2021, $ 587,000 and $ 311,000 of expenses with respect to nonvested stock options and restricted shares, respectively, has yet to be recognized but is expected to be recognized over a weighted average period of 2.86 and 1.37 years, respectively.

Non-employee directors receive a compensation package of $ 50,000 annually, which is paid one -half in cash and one -half through the grant of non-qualified awards.

1 unchanged sentence

On November 4, 2019, we granted each of our five non-employee directors 3,270 shares of restricted stock.

The number of restricted shares granted to each director was determined by prorating $ 25,000 for the ten months ending August 31, 2020 and dividing by the 20 -day average closing stock price ($ 6.36 ).

The number of restricted shares granted to each director was determined by prorating $ 25,000 for the ten months ended August 31, 2020 and dividing by the 20 -day average closing stock price ($ 6.36 ).

These restricted shares vested ratably through August 31, 2020.

10 unchanged sentences

The number of restricted shares granted to each chairperson was determined by dividing $ 15,000 by the 20 -day average closing stock price ($ 4.34 ).

One director was appointed as a chairperson of a new committee effective March 4, 2021, and was also appointed as the chairperson of another committee effective June 15, 2021. 

Since directors who service as chairpersons of any of the Board’s committees receive additional compensation, which compensation is payable in shares of restricted stock, for the appointment effective March 4, 2021, the director received 1,344 shares of restricted stock. 

The number of shares of restricted stock was determined by prorating $ 15,000 for the 6.5 months of service upon being appointed chairperson and dividing by the 20 -day average closing stock price ($ 6.04 ). 

For the appointment effective June 15, 2021, the director received 496 shares of restricted stock. 

The number of restricted stock was determined by prorating $ 15,000 for the three months of service upon being appointed chairperson and dividing by the 20 -day average closing stock price ($ 7.56 ).

Stock option expense

During the three months ended April 30, 2021 and 2020, stock-based compensation expense totaled $ 137,000 and $ 96,000 , respectively, and was classified in selling and general expenses.

During the six months ended April 30, 2021 and 2020, stock-based compensation expense totaled $ 260,000 and $ 283,000 , respectively, and was classified in selling and general expenses.

During the three months ended July 31, 2021 and 2020, stock-based compensation expense totaled $ 374,000 and $ 166,000 , respectively, and was classified in selling and general expenses.

During the nine months ended July 31, 2021 and 2020, stock-based compensation expense totaled $ 634,000 and $ 449,000 , respectively, and was classified in selling and general expenses.

Note 8 –

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We maintain our cash and cash equivalents with high-credit quality financial institutions.

At April 30, 2021, we had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $ 13.4 million.

Two customers, both distributors, accounted for approximately 12 % and 11 % of net sales for the three months ended April 30, 2 021, and 14 % and 11 %, respectively, of net sales for the six months ended April 30, 2 021. 

These distributors had accounts receivable balances that accounted for 14 % and 13 %, respectively, of the total net accounts receivable balance at April 30, 2021.

The two distributors also accounted for 17 % and 11 % of net sales for the three months ended April 30, 2 020, and 14 % and 11 %, respectively, of net sales for the six months ended April 3 0, 2020. 

In the same six -month period, another customer, a wireless carrier, accounted for 11 % of net sales.

The two distributors had accounts receivable balances that accounted for 19 % and 14 %, respectively, of the total net accounts receivable balance at April 30, 2020.

At July 31, 2021, we had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $ 12.9 million.

Sales from each customer that were 10% or greater of net sales were as follows:

Three Months Ended July 31,

Nine Months Ended July 31,

Wireless provider

Distributor A

Distributor B

* Less than 10%

The wireless provider had an accounts receivable balance that accounted for 36 % of the total net accounts receivable balance at July 31, 2021.

Distributor A and Distributor B had accounts receivable balances that accounted for 21 % and 14 %, respectively, of the total net accounts receivable balance at July 31, 2020.

Although these customers have been on-going major customers of the Company, the written agreements with these customers do not have any minimum purchase obligations and they could stop buying our products at any time and for any reason.

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and ( 5 ) if applicable, the nature of the regulatory environment.

Based upon this evaluation, as of April 30, 2021, we had two segments –

Based upon this evaluation, as of July 31, 2021, we had two segments –

RF Connector and Cable Assembly (“RF Connector segment”) and Custom Cabling segment.

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We attribute sales to geographic areas based on the location of the customers.

The following table presents the sales by geographic area for the three and six months ended April 30, 2021 and 2020 (in thousands):

Three Months Ended April 30,

Six Months Ended April 30,

The following table presents the sales by geographic area for the three and nine months ended July 31, 2021 and 2020 (in thousands):

Three Months Ended July 31,

Nine Months Ended July 31,

United States

8 unchanged sentences

$ 32,348  

Net sales, income (loss) before provision (benefit) for income taxes and other related segment information for the three months ended April 30, 2021 and 2020 are as follows (in thousands): 

Net sales, income (loss) before provision (benefit) for income taxes and other related segment information for the three months ended July 31, 2021 and 2020 are as follows (in thousands): 

Custom Cabling

18 unchanged sentences

40,894  

Net sales, income (loss) before provision (benefit) for income taxes and other related segment information for the six months ended April 30, 2021 and 2020 are as follows (in thousands): 

Net sales, income (loss) before provision (benefit) for income taxes and other related segment information for the nine months ended July 31, 2021 and 2020 are as follows (in thousands): 

Custom Cabling

21 unchanged sentences

Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter.

We recorded income tax provisions of $ 648,000 and $ 3,000 for the three months ended April 

30, 2021 and 2020, respectively.

We recorded income tax provisions (benefits) of $ 272,000 and ($ 137,000 ) for the three months ended July 31, 2021 and 2020, respectively.

The effective tax rate was 

24.2 % for the three months ended April 

30, 2021, compared to ( 1.4 %) for the three months ended April 

For the six months ended April 

30, 2021 and 2020, we recorded income tax provisions (benefits) of $ 454,000 and ($ 11,000 ), respectively.

22.7 % for the three months ended July 31, 2021, compared to ( 62.5 %) for the three months ended July 31, 2020.

For the nine months ended July 31, 2021 and 2020, we recorded income tax provisions (benefits) of $ 727,000 and ($ 148,000 ), respectively.

The effective tax rate was 

21.8 % for the six months ended April 

30, 2021, compared to 

6.7 % for the six months ended April 

The effective tax rates for the three and six months ended April 30, 2021 are excluding the PPP Loan forgiveness classified in Other Income.

The change in effective tax rate for the six months ended April 

30, 2021 compared to the six months ended April 30, 2020 was primarily driven by the disproportionate impact of various permanent book-tax differences with respect to our forecasted book income or loss in each period.

We had $ 127,000 and $ 107,000 of unrecognized tax benefits, inclusive of interest and penalties, as of April 30, 2021 and October 31, 2020, respectively.

The unrecognized tax benefits, if recognized, would result in a net tax benefit of $ 33,000 as of April 30, 2021.

22.1 % for the nine months ended July 31, 2021, compared to 

38.2 % for the nine months ended July 31, 2020.

The effective tax rates for the three and nine months ended July 31, 2021 are excluding the PPP Loan forgiveness classified in Other Income.

The change in effective tax rate for the nine months ended July 31, 2021 compared to the nine months ended July 31, 2020 was primarily driven by the disproportionate impact of various permanent book-tax differences with respect to our forecasted book income or loss in each period.

We had $ 126,000 and $ 107,000 of unrecognized tax benefits, inclusive of interest and penalties, as of July 31, 2021 and October 31, 2020, respectively.

The unrecognized tax benefits, if recognized, would result in a net tax benefit of $ 32,000 as of July 31, 2021.

Note 11 –

1 unchanged sentence

Intangible assets consist of the following (in thousands): 

April 30, 2021

July 31, 2021

October 31, 2020

17 unchanged sentences

$ 1,174  

Amortization expense for the six months ended April 30, 2021 and the year ended October 31, 2020 was $ 252,000 and $ 692,000 , respectively.

As of April 30, 2021, the weighted-average amortization period for the amortizable intangible assets is 5.66 years.

Amortization expense for the nine months ended July 31, 2021 and the year ended October 31, 2020 was $ 347,000 and $ 692,000 , respectively.

As of July 31, 2021, the weighted-average amortization period for the amortizable intangible assets is 5.66 years.

Note 12 –

3 unchanged sentences

We also have other operating leases for certain equipment.

The components of our facilities and equipment operating lease expenses for the period ended April 30, 2021 were as follows (in thousands):

The components of our facilities and equipment operating lease expenses for the period ended July 31, 2021 were as follows (in thousands):

Three Months Ended

Six Months Ended

April 30, 2021

Nine Months Ended

July 31, 2021

Operating lease cost

1 unchanged sentence

Other information related to leases was as follows (in thousands):

April 30, 2021

July 31, 2021

October 31, 2020

3 unchanged sentences

$ 1,482  

$ 1,421  

Weighted Average Remaining Lease Term

3 unchanged sentences

3.54 %  

Future minimum lease payments under non-cancellable leases as of April 30, 2021 were as follows:

Year ending October 31,

Future minimum lease payments under non-cancellable leases as of July 31, 2021 were as follows:

Year ending October 31,

Operating Leases

2021 (excluding six months ended April 30, 2021)

2021 (excluding nine months ended July 31, 2021)

Total future minimum lease payments

1 unchanged sentence

$ 1,546  

Reported as of April 30, 2021

Reported as of July 31, 2021

Operating Leases

3 unchanged sentences

$ 1,546  

As of April 30, 2021, operating lease ROU asset was $ 976,000 and operating lease liability totaled $ 1.0 million, of which $ 691,000 is classified as current.

There were no finance leases as of April 30, 2021.

As of July 31, 2021, operating lease ROU assets was $ 1.5 million and operating lease liability totaled $ 1.5 million, of which $ 848,000 is classified as current.

There were no finance leases as of July 31, 2021.

Note 13 –

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Without the PPP Loans, we would have made material reductions in our workforce (particularly at Cables Unlimited).

As of April 30, 2021, the full amount of the PPP Loans has been forgiven and considered paid in full (including applicable interest).

As of July 31, 2021, the full amount of the PPP Loans has been forgiven and considered paid in full (including applicable interest).

Note 14 –

Cash dividend and declared dividends

We did not pay any dividends during the three or six months ended April 30, 2021.

During the three and six months ended April 30, 2020, we paid dividends of $ 0.02 per share for a total of $ 195,000 and $ 388,000 , respectively. 

We did not pay any dividends during the three or nine months ended July 31, 2021, nor did we pay any dividends during the three months ended July 31, 2020.

During the nine months ended July 31, 2020, we paid dividends of $ 0.02 per share for a total of $ 388,000 . 

Management ’

79 unchanged sentences

The Custom Cabling segment designs, manufactures, markets and distributes custom copper and fiber cable assemblies, complex hybrid fiber optic and power solution cables, electromechanical wiring harnesses, wiring harnesses for a broad range of applications in a diverse set of end markets, energy-efficient cooling systems for wireless base stations and remote equipment shelters and custom designed, pole-ready 5G small cell integrated enclosures.

For the six months ended April 30, 2021, most of our revenues were generated from the Custom Cabling segment from the sale of fiber optics cable, copper cabling, custom patch cord assemblies, and wiring harnesses, which collectively accounted for 68% of the Company’s total sales. 

Revenues from the RF Connector segment were generated from the sales of RF connector products and cable assemblies and accounted for 32% of total sales for the six months ended April 30, 2021.

The RF Connector segment mostly sells standardized products regularly used by customers and, therefore, has a more stable revenue stream. 

On the other hand, the Custom Cabling segment mostly designs, manufactures, and sells customized cabling and wireless-related equipment under larger purchase orders. 

For the nine months ended July 31, 2021, most of our revenues were generated from the Custom Cabling segment from the sale of fiber optics cable, copper cabling, custom patch cord assemblies, and wiring harnesses, which collectively accounted for 70% of the Company’s total sales.

Revenues from the RF Connector segment were generated from the sales of RF connector products and cable assemblies and accounted for 30% of total sales for the nine months ended July 31, 2021.

The RF Connector segment mostly sells standardized products regularly used by customers and, therefore, has a more stable revenue stream.

On the other hand, the Custom Cabling segment mostly designs, manufactures, and sells customized cabling and wireless-related equipment under larger purchase orders.

Accordingly, the Custom Cabling segment is more dependent upon larger project orders, and its revenues are, therefore, more volatile than the revenues of the RF Connector segment.

1 unchanged sentence

The COVID-19 pandemic has negatively impacted regional and global economies, disrupted global supply chains, and created significant volatility and disruption of financial markets.

The global impact of the outbreak has been rapidly evolving and certain jurisdictions, including in regions where we or third parties on which we rely have manufacturing facilities, have also reacted by instituting quarantines, restrictions on travel, “shelter in place”

rules, social distancing protocols and restrictions on types of business that may continue to operate.

While we have been deemed an “essential”

business, and therefore continued our operations during the quarantines, the impact of the COVID-19 pandemic has affected both our operations and those of our vendors and customers.

While we have continued our operations during the pandemic, the impact of the COVID-19 pandemic has affected both our operations and those of our vendors and customers.

Our operations in both the 2020 and 2021 periods were negatively affected by partial shutdowns of our facilities (particularly in the Northeast), by changes that we had to make on our operating methods and procedures, and by a fluctuating workforce as at times, some of our employees stayed at home.

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The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by domestic and international jurisdictions to prevent disease spread, all of which are uncertain and cannot be predicted.

The outbreak impacted our performance in fiscal year 2020 and for the six months ended April 30, 2021.

The outbreak impacted our performance in fiscal year 2020 and for the nine months ended July 31, 2021.

Because of the impact that COVID-19 had on our operations, in May 2020 we applied for and received loans under the Paycheck Protection Program (“PPP”) of the CARES Act totaling approximately $2.8 million (“PPP Loans”).

1 unchanged sentence

Without the PPP Loans, we would have made material reductions in our workforce (particularly at Cables Unlimited).

In February 2021, the full $2.8 million of PPP Loans was forgiven and considered paid in full (including applicable interest) by the Small Business Administration (“SBA”).

In March 2021, the Internal Revenue Service (“IRS”) released Notice 2021-20, which retroactively eliminated the restriction that prevented employers who received a PPP loan from qualifying for the Employee Retention Credit (“ERC”). 

In February 2021, all of the $2.8 million of PPP Loans were forgiven and considered paid in full (including applicable interest) by the Small Business Administration (“SBA”).

In March 2021, the Internal Revenue Service (“IRS”) released Notice 2021-20, which retroactively eliminated the restriction that prevented employers who received a PPP loan from qualifying for the Employee Retention Credit (“ERC”).

This action enabled us to apply for the ERC.

The ERC is a refundable tax credit against certain employment wages.

Upon determination that the employer has complied with all of the conditions required to receive the credit, a receivable is recognized and the credit reduces salaries and wages. 

For the six months ended April 30, 2021, we qualified and filed to claim the ERC and have recorded this as an other receivable. 

The amount of ERC that we are eligible to receive is $2.4 million, which amount will reduce our labor costs during the six-month period.

Upon determination that the employer has complied with all of the conditions required to receive the credit, a receivable is recognized and the credit reduces salaries and wages.

For the nine months ended July 31, 2021, we qualified and filed to claim the ERC and have recorded this as an other receivable classified in other current assets.

As of July 31, 2021, the amount of the ERC that we were eligible to receive is $2.8 million, which amount reduced our labor costs during the nine-month period.

Liquidity and Capital Resources

2 unchanged sentences

Nevertheless, we believe that our existing assets and the cash we expect to generate from operations, including from our current backlog of unfulfilled orders, will be sufficient to fund our liquidity needs during the next twelve months from the date of this filing based on the following:

As of April 30, 2021, we had a total of $14.8 million of cash and cash equivalents compared to a total of $15.8 million of cash and cash equivalents as of October 31, 2020.

As of April 30, 2021, we had working capital of $29.2 million and a current ratio of approximately 6.7:1 with current assets of $34.3 million and current liabilities of $5.2 million.

As of April 30, 2021, we had $15.6 million of backlog, compared to $6.3 million as of October 31, 2020.

As of July 31, 2021, we had a total of $12.6 million of cash and cash equivalents compared to a total of $15.8 million of cash and cash equivalents as of October 31, 2020.

As of July 31, 2021, we had working capital of $30.6 million and a current ratio of approximately 5.4:1 with current assets of $37.6 million and current liabilities of $7.0 million.

As of July 31, 2021, we had $31.9 million of backlog, compared to $6.3 million as of October 31, 2020.

Since purchase orders are submitted from customers based on the timing of their requirements, our ability to predict orders in future periods or trends in future periods is limited.

Furthermore, purchase orders may be subject to cancellation from customers, although we have not historically experienced material cancellations of purchase orders.

In the six months ended April 30, 2021, we used $1.4 million of cash in our operating activities despite our net income of $4.5 million.

In the nine months ended July 31, 2021, we used $3.6 million of cash in our operating activities despite our net income of $5.4 million.

The net outflow of cash was due in part to increased inventory purchases (which increased our inventory balance by $1.8 million), and cash used for other current assets ($3.3 million).

The cash used for other current assets represents i) tax payments we made that we are expected to get refunded back of $0.7 million due to the impact of the passage of the Consolidated Appropriations Act (“CAA”) that allows for PPP loan expenses to be deducted on our tax return, and (ii) employee tax payments for which we will receive future tax credits of $2.8 million.

The foregoing cash usage was partially offset by an increase in cash from noncash credits of $0.8 million as a result of the passage of the CAA, $0.4 million from depreciation and amortization, $0.3 million from stock-based compensation expense, and $0.7 million from the collection in accounts receivable.

During the six months ended April 30, 2021, we also spent $0.2 million on capital expenditures.

The foregoing cash usage was partially offset by an increase in cash from noncash credits of $0.8 million as a result of the passage of the CAA, $0.6 million from depreciation and amortization, $0.6 million from stock-based compensation expense, and $4.9 million from the increase in accounts receivable as a result of the increase in sales.

During the nine months ended July 31, 2021, we also spent $0.2 million on capital expenditures.

The cash used in operating activities and the amounts spent on capital expenditures were partially offset by $0.6 million of proceeds that we received from the exercise of stock options.

As a result of the cash received from the exercise of stock options that partially offset our net cash used in operating and investing activities, our cash and cash equivalent balance decreased by $1.0 million during the April 30, 2021 six-month period.

As a result of the cash received from the exercise of stock options that partially offset our net cash used in operating and investing activities, our cash and cash equivalent balance decreased by $3.2 million during the July 31, 2021 nine-month period.

We do not anticipate making material additional capital equipment in the next twelve months.

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Results of Operations

Three Months Ended April 30, 2021 vs.

Three Months Ended April 30, 2020

Net sales for the three months ended April 30, 2021 (the “fiscal 2021 quarter”) increased by 6%, or $0.7 million, to $11.1 million as compared to the three months ended April 30, 2020 (the “fiscal 2020 quarter”) due to an increase in net sales at the Custom Cabling segment.

Three Months Ended July 31, 2021 vs.

Three Months Ended July 31, 2020

Net sales for the three months ended July 31, 2021 (the “fiscal 2021 quarter”) increased by 60%, or $5.7 million, to $15.3 million as compared to the three months ended July 31, 2020 (the “fiscal 2020 quarter”) due to an increase in net sales at the Custom Cabling segment.

Net sales in the Custom Cabling segment increased by $5.4 million, or 91%, to $11.3 million, compared to $5.9 million in the fiscal 2020 quarter primarily because of increased sales of products to wireless carriers, including fiber optic cables used in the build out of 4G and 5G networks.

Net sales for the fiscal 2021 quarter at the RF Connector segment decreased by $0.2 million, or 6%, to $3.6 million as compared to $3.8 million in the fiscal 2020 quarter due primarily to slower project-related deployments in locations like stadiums, large office buildings, and other public use venues.

Gross profit for the fiscal 2021 quarter increased by $2.2 million to $4.8 million and gross margins increased to 43.1% of sales compared to 24.9% of net sales in the fiscal 2020 quarter due primarily to the ERC that the Company was eligible to claim for the production employees. 

The ERC refundable employee tax credit reduced our labor costs and thereby increased our gross profits. 

Net sales for the fiscal 2021 quarter at the RF Connector segment increased by $0.3 million, or 9%, to $3.9 million as compared to $3.6 million in the fiscal 2020 quarter due primarily to the general recovery of spend in the wireless market including the return of certain project-related deployments in locations like stadiums, large office buildings, and other public use venues.

Gross profit for the fiscal 2021 quarter increased by $2.3 million to $5.1 million and gross margins increased to 33.1% of sales compared to 28.6% of net sales in the fiscal 2020 quarter due primarily to the ERC that the Company was eligible to claim for the production employees.

The ERC refundable employee tax credit reduced our labor costs and thereby increased our gross profits.

Excluding the benefit of the ERC, our gross profits for the fiscal 2021 quarter would have been $4.2 million, which is an increase of $1.5 million compared to the fiscal 2020 quarter, and gross margins would have been 27.7%.

The increase in gross margins is primarily due to the increase in sales at the Custom Cabling segment in the fiscal 2021 quarter.

Engineering expenses decreased by $0.3 million to $0.2 million in the fiscal 2021 quarter compared to $0.5 million in the fiscal 2020 quarter due to the ERC the Company was eligible to claim for engineering employees.

Excluding the benefit of the ERC, engineering expenses would have been $0.4 million, which is a decrease of $0.1 million compared to the fiscal 2020 quarter.

This decrease is due to a reduction in engineering marketing personnel, which costs are included in the engineering costs.

Engineering expenses remained flat between the fiscal 2021 and 2020 quarters at $0.4 million due to the ERC the Company was eligible to claim for engineering employees.

Excluding the benefit of the ERC, engineering expenses would have been $0.5 million, which is an increase of $0.1 million compared to the fiscal 2020 quarter.

This increase is due to the increased business at the Custom Cabling segment, which required added research and development costs to support the business growth.

Engineering expenses represent costs incurred relating to the ongoing research and development of new products.

Selling and general expenses decreased by $0.3 million to $1.9 million (17% of sales) compared to $2.2 million (22% of sales) in the second quarter last year due to the ERC the Company was eligible to claim for the general and administrative employees.

Excluding the benefit of the ERC, selling and general expenses would have been $2.5 million (23% of sales), which is an increase of $0.3 million compared to the fiscal 2020 quarter.

This increase is primarily due to hiring of additional sales people in the last half of the 2020 fiscal year and in the first quarter of fiscal 2021.

In February 2021, the full $2.8 million of PPP Loans were forgiven and considered paid in full (including applicable interest), which is reflected as “Other Income”.

For the fiscal 2021 quarter, the Custom Cabling segment and the RF Connector segment had pretax income of $1.2 million and $1.5 million, respectively, as compared to $0.9 million loss and $0.7 million of income, respectively, for the comparable second quarter last year.

The pretax income at both the Custom Cabling and RF Connector segments in the fiscal 2021 quarter was primarily due to the ERC the Company was eligible to claim and the PPP Loan forgiveness.

For the fiscal 2021 and 2020 quarters, we recorded income tax provisions of $648,000 and $3,000, respectively.

Selling and general expenses increased by $1.0 million to $3.5 million (23% of sales) compared to $2.5 million (26% of sales) in the third quarter last year primarily due to (i) $0.3 million valuation adjustment to the Schrofftech earn-out liability made in the third quarter last year that resulted in a reduction to selling and general expenses (no valuation adjustment was made during the current period), (ii) a non-cash expense resulting from the accelerated vesting of an officer’s unvested remaining options upon the renewal of his employment agreement ($0.2 million), and (iii) increase in commissions payable as a result of the increase in sales ($0.1 million).

The ERC the Company was eligible to claim for the general and administrative employees had minimal impact this quarter since most of the ERC for general and administrative employees were taken in our fiscal second quarter.

Excluding the benefit of the ERC, selling and general expenses would have been $3.4 million (22% of sales). 

This is lower than the selling and general expenses including the ERC as there were some credits included in our fiscal second quarter that were reallocated in the fiscal third quarter to cost of goods sold.

For the fiscal 2021 quarter, the Custom Cabling segment and the RF Connector segment had pretax income of $0.9 million and $0.3 million, respectively, as compared to $0.7 million loss and $0.5 million of income, respectively, for the comparable third quarter last year.

The pretax income at both the Custom Cabling and RF Connector segments in the fiscal 2021 quarter was primarily due to the increase in sales, and in part, to the ERC the Company was eligible to claim.

For the fiscal 2021 and 2020 quarters, we recorded income tax provisions (benefits) of $272,000 and ($137,000), respectively.

The effective tax rate was 22.7% for the fiscal 2021 quarter, compared to (62.5%) for the fiscal 2020 quarter.

The fiscal 2021 quarter’s effective tax rate for the three months ended April 30, 2021 is excluding the PPP Loan forgiveness classified in Other Income.

The change in effective tax rate for the fiscal 2021 and 2020 quarters was primarily driven by the disproportionate impact of various permanent book-tax differences with respect to our forecasted book income or loss in each period.

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For the fiscal 2021 quarter, the diluted weighted average shares outstanding was 10,150,396 as compared to 9,714,700 for the fiscal 2020 quarter.

Six Months Ended April 30, 2021 vs.

Six Months Ended April 30, 2020

Net sales for the six months ended April 30, 2021 (the “fiscal 2021 six-month period”) of $21.1 million decreased by 7%, or $1.7 million, compared to the six months ended April 30, 2020 (the “fiscal 2020 six-month period”) due to a weaker fiscal 2021 first quarter.

The decrease in net sales is attributable to a decrease in net sales at the Custom Cabling segment, which decreased by $1.9 million, or 12%, to $13.9 million compared to $15.8 million in the fiscal 2020 six-month period.

The decrease was primarily in our project-based business which resulted from the slowdown in carrier spending in the first quarter of fiscal 2021.

Net sales by the Custom Cabling segment increased in the second quarter of fiscal 2021 and such net sales are expected to continue to increase during the remainder of the current fiscal year.

Net sales for the fiscal 2021 six-month period at the RF Connector segment increased by $0.2 million, or 2%, to $7.1 million compared to $7.0 million in the fiscal 2020 six-month period.

Gross profit for the fiscal 2021 six-month period increased by $1.5 million to $7.4 million and gross margins increased to 35.0% of sales from 25.6% of sales in the fiscal 2020 six-month period.

The increase in gross profit and gross margins was primarily due to the ERC the Company was eligible to claim for production employees.

Nine Months Ended July 31, 2021 vs.

Nine Months Ended July 31, 2020

Net sales for the nine months ended July 31, 2021 (the “fiscal 2021 nine-month period”) of $36.3 million increased by 12%, or $4.0 million, compared to the nine months ended July 31, 2020 (the “fiscal 2020 nine-month period”) due primarily to an increase in sales at the Custom Cabling segment.

Net sales at the Custom Cabling segment increased by $3.5 million, or 16%, to $25.3 million compared to $21.8 million in the fiscal 2020 nine-month period.

The increase reflects the increase in sales to wireless carriers, including sales of fiber optic cables used in the build out of 4G and 5G networks.

Net sales for the fiscal 2021 nine-month period at the RF Connector segment increased by $0.5 million, or 5%, to $11.1 million compared to $10.6 million in the fiscal 2020 nine-month period.

Gross profit for the fiscal 2021 nine-month period increased by $3.9 million to $12.4 million and gross margins increased to 34.2% of sales from 26.5% of sales in the fiscal 2020 nine-month period.

The increase in gross profit and gross margins was primarily due to the ERC that the Company was eligible to claim for production employees.

The ERC refundable employee tax credit reduced our labor costs and thereby increased our gross profits.

Excluding the benefit of the ERC, our gross profits for the fiscal 2021 six-month period would have been $5.6 million, which is a decrease of $0.2 million compared to the fiscal 2020 six-month period, and gross margins would have been 26.6%.

Engineering expenses decreased $0.5 million to $0.6 million for the fiscal 2021 six-month period compared to $1.1 million in the fiscal 2020 six-month period primarily due to the ERC the Company was eligible to claim for engineering employees.

Excluding the benefit of the ERC, engineering expenses would have been $0.9 million, which is a decrease of $0.2 million compared to the fiscal 2020 six-month period.

Excluding the benefit of the ERC, our gross profits for the fiscal 2021 nine-month period would have been $9.8 million, which is an increase of $1.2 million compared to the fiscal 2020 nine-month period, and gross margins would have been 27.0%.

Engineering expenses decreased $0.6 million to $1.0 million for the fiscal 2021 nine-month period compared to $1.6 million in the fiscal 2020 nine-month period primarily due to the ERC the Company was eligible to claim for engineering employees.

Excluding the benefit of the ERC, engineering expenses would have been $1.3 million, which is a decrease of $0.2 million compared to the fiscal 2020 nine-month period.

This decrease is due to a reduction in engineering marketing personnel, which costs are included in the engineering costs.

Engineering expenses represent costs incurred relating to the ongoing research and development of new products.

Selling and general expenses decreased by $0.3 million to $4.6 million (22% of sales) compared to $4.9 million (22% of sales) in the six-month period last year due to the ERC the Company was eligible to claim on general and administrative employees.

Excluding the benefit of the ERC, selling and general expenses would have been $5.3 million (25% of sales), which is an increase of $0.4 million compared to the fiscal 2020 six-month period.

This increase is primarily due to the hiring of additional sales people in the last half of the 2020 fiscal year and in the first quarter of fiscal 2021.

In February 2021, the full $2.8 million of PPP Loans were forgiven and considered paid in full (including applicable interest), which is reflected as “Other Income”.

For the fiscal 2021 six-month period, pretax income for the Custom Cabling segment and the RF Connector segment was $0.1 million and $1.9 million, respectively, as compared to $1.2 million loss and $1.0 million of income, respectively, for the comparable six-month period last year.

The pretax income at the Custom Cabling and RF Connector segments in the six-month period of fiscal 2021 was primarily due to the ERC the Company was eligible to claim and the PPP Loan forgiveness.

For the fiscal 2021 and 2020 six-month periods, we recorded income tax provisions (benefits) of $454,000 and ($11,000), respectively.

The effective tax rate was 21.8% for the fiscal 2021 six-month period, compared to 6.7% for the fiscal 2020 six-month period.

The fiscal 2021 six-month period’s effective tax rate is excluding the PPP Loan forgiveness classified in Other Income.

The change in effective tax rate for the fiscal 2021 and 2020 six-month periods was primarily driven by the disproportionate impact of various permanent book-tax differences with respect to our forecasted book income or loss in each period.

For the fiscal 2021 six-month period, net income was $4.4 million and fully diluted income per share was $0.44 per share as compared to a net loss of $0.2 million and fully diluted loss per share of $0.02 per share for the fiscal 2020 six-month period.

For the fiscal 2021 six-month period, the diluted weighted average shares outstanding was 10,096,916 as compared to 9,633,935 for the fiscal 2020 six-month period.

Selling and general expenses increased by $0.7 million to $8.1 million (22% of sales) compared to $7.4 million (23% of sales) in the nine-month period last year primarily due to (i) smaller valuation adjustment to the Schrofftech earn-out liability ($0.4 million) compared to the valuation adjustment in the nine-month period last year ($0.7 million), (ii) the non-cash expense resulting from the accelerated vesting of an officer’s unvested remaining options ($0.2 million), and (iii) increase in commissions due to the increase in sales ($0.1 million).

The increase is also due in part to the hiring of additional sales people in the last half of the 2020 fiscal year and in the first quarter of fiscal 2021.

Excluding the benefit of the ERC, selling and general expenses would have been $8.7 million (24% of sales), which is an increase of $1.1 million compared to the fiscal 2020 nine-month period.

In February 2021, all of the $2.8 million of PPP Loans were forgiven and considered paid in full (including applicable interest), which debt forgiveness is reflected as “Other Income”.

For the fiscal 2021 nine-month period, pretax income for the Custom Cabling segment and the RF Connector segment was $1.1 million and $2.2 million, respectively, as compared to $1.9 million loss and $1.5 million of income, respectively, for the comparable nine-month period last year.

The pretax income at the Custom Cabling and RF Connector segments in the nine-month period of fiscal 2021 was primarily due to the ERC the Company was eligible to claim and the PPP Loan forgiveness.

For the fiscal 2021 and 2020 nine-month periods, we recorded income tax provisions (benefits) of $727,000 and ($148,000), respectively.

The effective tax rate was 22.1% for the fiscal 2021 nine-month period, compared to 38.2% for the fiscal 2020 nine-month period.

The fiscal 2021 nine-month period’s effective tax rate is excluding the PPP Loan forgiveness classified in Other Income.

The change in effective tax rate for the fiscal 2021 and 2020 nine-month periods was primarily driven by the disproportionate impact of various permanent book-tax differences with respect to our forecasted book income or loss in each period.

For the fiscal 2021 nine-month period, net income was $5.4 million and fully diluted income per share was $0.53 per share as compared to a net loss of $0.2 million and fully diluted loss per share of $0.02 per share for the fiscal 2020 nine-month period.

For the fiscal 2021 nine-month period, the diluted weighted average shares outstanding was 10,131,172 as compared to 9,661,054 for the fiscal 2020 nine-month period.

Quantitative and Qualitative Disclosures about Market Risk

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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