What changed in this filing

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Item 1. Financial Statements

2022-03-17 compared with 2021-09-13 · 213 added, 391 removed, 339 unchanged (64% of the section changed)

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(In thousands)

Nine Months Ended July 31,

Three Months Ended January 31,

OPERATING ACTIVITIES:

Consolidated net income (loss)

$ 5,368  

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

Consolidated net loss

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Bad debt expense

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Tax payments related to shares cancelled for vested restricted stock awards

( 13 )  

Deferred income taxes

PPP Loan and interest forgiveness

( 2,807 )  

Changes in operating assets and liabilities:

Trade accounts receivable

( 4,874 )  

( 1,814 )  

Other current assets

( 3,311 )  

Right of use assets

( 24 )  

Other long-term assets

Accounts payable

Accrued expenses

Income taxes payable

( 43 )  

Income tax payable

Other current liabilities

Other long-term liabilities

( 370 )  

Net cash (used in) provided by operating activities

( 3,592 )  

Net cash provided by (used in) operating activities

INVESTING ACTIVITIES:

Capital expenditures

( 194 )  

Purchase of Schrofftech, net of cash acquired ($99)

Net cash used in investing activities

( 194 )  

FINANCING ACTIVITIES:

Proceeds from exercise of stock options

Dividends paid

Proceeds from PPP Loan

Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

( 3,219 )  

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

15,797  

12,540  

Cash and cash equivalents, end of period

$ 12,578  

$ 15,628  

Supplemental cash flow information –

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as of October 31, 2021 included in our Annual Report on Form 10 -K (“Form 10 -K”) for the year ended October 31, 2021 that was previously filed with the Securities and Exchange Commission (“SEC”).

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.

Operating results for the three months ended January 31, 2022 are not necessarily indicative of the results that may be expected for the year ending October 31, 2022.

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.

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All references to the “Company”

“we,”

“us,”

or “our”

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

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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 for the nine months ended July 31, 2021.

The outbreak impacted our performance for the three months ended January 31, 2022.

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”).

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 Coronavirus Aid, Relief, and Economic Security Act, H.R.

748 ("CARES Act") totaling approximately $ 2.8 million (“PPP Loans”).

See Note 12 on discussions of the PPP Loans.

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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.

For the fiscal year ended October 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 January 31, 2022, the ERC in other receivable classified in other current assets were $ 1.8 million.

We considered the impact of the COVID- 19 related economic slowdown on our evaluation of goodwill and non-amortizable intangibles impairment indicators as of January 31, 2022.

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

Fair value measurement

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Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.

The accounting principles generally accepted in the United States of America (“GAAP”) specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable.

The accounting principles generally accepted in the United States of America ("GAAP") specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable.

Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions.

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

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.

As of January 31, 2022 and October 31, 2021, the carrying amounts reflected in the accompanying condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, and accounts payable approximated their carrying value due to their short-term nature.

See Note 4 for discussion on the fair value of other current liabilities.

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Recently issued accounting pronouncements adopted:

In February 2016, the FASB issued ASU No.

2016 - 02, Leases.

This ASU requires lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under the current GAAP.

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.

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

Finance leases are included in finance ROU assets, other current liabilities, and finance lease liabilities on our consolidated balance sheet.

ROU assets represent our right to use an underlying asset for the duration of the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The operating lease ROU asset also includes any lease payments made and excludes lease incentives.

Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Lease expense for lease payments is recognized on a straight-line basis over the lease term and is recognized on the consolidated statements of operations.

The adoption of the standard resulted in a material recognition of additional ROU assets and lease liabilities of approximately $ 2.3 million and $ 2.4 million, respectively, as of November 1, 2019, but did not materially affect our consolidated net loss.

In January 2017, the FASB issued ASU No.

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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 July 31, 2021.

Note 2 –

Business acquisition

On November 4, 2019, we purchased the business of Schrofftech, a Rhode Island-based manufacturer and marketer of intelligent thermal control systems used by telecommunications companies across the U.S.

and Canada, and shrouds for small cell integration and installation.

At the closing, in consideration for the Schrofftech business, we paid the sellers $ 4 million in cash, and, if certain financial targets are met by Schrofftech over a two -year period, agreed to pay additional cash earn-out payments of up to $ 2.4 million.

The acquisition was accounted for as an acquisition of a business in accordance with the acquisition method of accounting.

The acquired assets and assumed liabilities have been recorded at their estimated fair values.

We determined the estimated fair values with the assistance of appraisals or valuations performed by an independent third -party specialist.

Schrofftech serves the high growth wireless, telecom and cable markets.

The Schrofftech business allows us to diversify the types of services provided for our customers in these markets.

All manufacturing operations are performed at Schrofftech’s facilities in Rhode Island.

Although the closing occurred on November 4, 2019, the acquisition of Schrofftech is deemed to have become effective for financial accounting purposes as of November 1, 2019.

Accordingly, subsequent to November 1, 2019, Schrofftech’s financial results have been included in the results of the Custom Cabling Manufacturing and Assembly segment (“Custom Cabling segment”) as well as in the consolidated statements of operations.

Total costs related to the acquisition of Schrofftech were approximately $ 151,000 and have been expensed as incurred and categorized in selling and general expenses during periods prior to November 1, 2020.

The following table summarizes the components of the purchase price at fair values at November 1, 2019:

Cash consideration paid

$ 4,000,000  

Earn-out liability

1,249,000  

Total purchase price

$ 5,249,000  

The following table summarizes the allocation of the purchase price at fair value at November 1, 2019:

Current assets

$ 1,168,000  

58,000  

Intangible assets

3,299,000  

1,127,000  

Non-interest bearing liabilities

$ 5,249,000  

The adoption of the standard did not result in an impairment charge as of January 31, 2022 or October 31, 2021.

In December 2019, the FASB issued ASU 2019 - 12,  Income Taxes (Topic 740 ):

Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The new ASU also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates.

These changes aim to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures.

The guidance was effective for the Company beginning on November 1, 2021 and prescribes different transition methods for the various provisions.

The adoption of this standard had no material impact on the Company’s financial statements or related disclosures.

Note 2 –

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Inventories consist of the following (in thousands): 

July 31, 2021

January 31, 2022

October 31, 2021

Raw materials and supplies

$ 6,034  

$ 4,410  

Work in process

Finished goods

$ 10,400  

$ 8,586  

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.

For the three months ended January 31, 2022, two vendors accounted for 30 % and 10 % of inventory purchases.

No vendors accounted for more than 10% of inventory purchases for the three months ended January 31, 2021.

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

Note 3 –

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

July 31, 2021

January 31, 2022

October 31, 2021

Employee retention credit

$ 2,750  

Employee retention credit ("ERC")

Prepaid taxes

Prepaid expense

$ 4,124  

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

The period assessed for eligibility of the ERC is on a calendar year basis. As of January 31, 2022, the remaining portion of the ERC that we have not yet received is included as other receivables in other current assets.

Note 4 –

Accrued expenses

Accrued expenses and other current liabilities

Accrued expenses consist of the following (in thousands):

July 31, 2021

January 31, 2022

October 31, 2021

Wages payable

$ 1,838  

$ 1,506  

Accrued receipts

Other accrued expenses

$ 3,697  

$ 2,573  

Accrued receipts represent purchased inventory for which invoices have not been received.

The purchase agreement for the Schrofftech acquisition provides for earn-out payments of up to $ 2.4 million, which are earned through October 31, 2021.

The purchase agreement for the Schrofftech acquisition provided for earn-out payments of up to $ 2,400,000 , which were to be earned through October 31, 2021.

The initial earn-out liability was valued at its fair value using an option pricing based approach with a risk-neutral framework using Black Scholes due to the option-like nature of the earn-out payout structure.

The earn-out was and will continue to be revalued quarterly using a present value approach and any resulting increase or decrease will be recorded into selling and general expenses.

Any changes in the amount of the actual results and forecasted scenarios could impact the fair value.

Significant judgment is employed in determining the appropriateness of the assumptions used in calculating the fair value of the earn-out as of the acquisition date.

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.

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 July 31, 2021 ( in thousands):

Earn-out liability

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of October 31, 2020 ( in thousands):

Earn-out liability

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

The earn-out was revalued quarterly using a present value approach and any resulting increase or decrease was recorded into selling and general expenses.

Significant variances between actual and forecasted results or changes in the assumptions affected the amount of contingent consideration expense that we recorded from time to time.

In determining the fair value of the earn-out liability as of October 31, 2021, we used results through October 31, 2021.

We estimated 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).

At October 31, 2021, the fair value of the Schrofftech earn-out liability was zero, and since the earn-out obligation expired on October 31, 2021, no earn-out liability was recorded for the period ended January 31, 2022.

The following table summarizes the changes to the Level 3 liabilities measured at fair value for the three months ended January 31, 2022 and 2021 (in thousands):

January 31, 2022

October 31, 2020

January 31, 2021

Beginning balance

$ 1,249  

Change in value

( 296 )  

( 74 )  

Ending balance

The earn-out was revalued quarterly using a present value approach and the resulting decrease was recorded into selling and general expenses.

Note 5 –

Earnings (loss) per share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.

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 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.

Loss per share

Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is computed by dividing net income 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 months ended January 31, 2022 and 2021, 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.

Potentially issuable securities that are out-of-the-money totaled 459,889 and 331,338 shares for the three months ended January 31, 2022 and 2021, respectively, and 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 July 31,

Nine Months Ended July 31,

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

9,979,578  

9,714,700  

Three Months Ended January 31,

Weighted average shares outstanding for basic loss per share

10,067,186  

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Add effects of potentially dilutive securities-assumed exercise of stock options

170,818  

175,979  

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

10,150,396  

9,714,700  

Weighted average shares outstanding for diluted loss per share

10,067,186  

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Stock-based compensation and equity transactions

On December 6, 2019, one employee was granted 50,000 incentive stock options.

These options vested 10,000 on the date of grant, and the balance vests as to 10,000 shares per year thereafter on each of the next four anniversaries of December 6, 2019, and expire ten years from the date of grant.

On January 9, 2020, we granted the following equity awards to our managers and officers:

Stock grants for a total of 12,075 common shares to three employees.

We accounted for these shares as stock-based compensation totaling $77,000;

A total of 3,241 incentive stock options to two employees, all of which vested immediately on the date of grant;

A total of 38,500 shares of restricted stock and 77,000 incentive stock options to five employees.

On January 12, 2021, we granted a total of 33,500 shares of restricted stock and 67,000 incentive stock options to one manager and three officers.

The shares of restricted stock and incentive stock options vest over four years as follows:

(i) one -quarter of the restricted shares and options vested on January 9, 2021;

(i) one -quarter of the restricted shares and options shall vest on January 12, 2022;

and (ii) the remaining restricted shares and options shall vest in twelve equal quarterly installments over the next three years.

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

On June 30, 2020, one employee was granted 10,000 incentive stock options.

These options vested 2,500 on the date of grant, and the balance vests as to 2,500 shares per year thereafter on each of the next three anniversaries of June 30, 2020, and expire ten years from the date of grant.

On January 10, 2022, we granted a total of 39,666 shares of restricted stock and 106,001 incentive stock options to one manager and three officers.

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

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,

No other shares or options were granted to company employees during the three months ended January 31, 2022 and 2021.

The weighted average fair value of employee stock options that were granted during the three months ended January 31, 2022 and 2021 was estimated to be $ 3.84 and $ 2.46 , respectively, per share, using the Black-Scholes option pricing model with the following assumptions:

Three Months Ended January 31,

Risk-free interest rate

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0.00 %  

Expected life of the option (in years)

Expected life of the option (in years)

Volatility factor

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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, 2021.

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:

A summary of the status of the options granted under our stock option plans as of January 31, 2022 and the changes in options outstanding during the three months then ended is presented in the table that follows:

Exercise Price

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Options exercised

( 180,528 )  

$ 3.15  

Options cancelled

( 91,793 )  

$ 5.88  

Options outstanding at July 31, 2021

Options outstanding at January 31, 2022

724,859  

$ 5.59  

Options exercisable at July 31, 2021

Options exercisable at January 31, 2022

363,067  

$ 5.94  

Options vested and expected to vest at July 31, 2021

Options vested and expected to vest at January 31, 2022

723,008  

$ 5.60  

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.

For fiscal 2020, compensation payable to non-employee directors was prorated from November 1, 2019 through August 31, 2020.

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 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.

As compensation for services to be provided until the 2021 annual meeting of stockholders in September 2021, we granted each of our five non-employee directors 5,757 shares of restricted stock, which number was determined by dividing $ 25,000 by the 20 -day average closing stock price ($ 4.34 ).

On December 31, 2020, a new director joined the Board of Directors.

We granted the new director 3,334 shares of restricted stock as payment for the year ending with the 2021 annual meeting.

The number of restricted stock was determined by prorating $ 25,000 for the 8.5 months of service upon joining the Board of Directors through the 2021 annual meeting and dividing by the 20 -day average closing stock price ($ 5.31 ).

Non-employee directors who are also a chairperson of a committee of the Board receive additional compensation of $ 15,000 annually.

On June 5, 2020, the Board of Directors revised the committee chair compensation so that all future compensation from July 1, 2020 through the next annual meeting of the stockholders will be payable in shares of common stock rather than cash.

Shares issued as compensation will be valued at the closing common stock price on the last day of each quarter.

Accordingly, on July 31, 2020, each of the four committee chairpersons was awarded 279 shares at $ 4.47 per share.

We account for these shares as stock-based compensation.

On September 15, 2020, each of the four committee chairpersons was awarded 3,454 shares of restricted stock as payment for the $ 15,000 retainer payable to Chairpersons for the year ending with the 2021 annual meeting of stockholders.

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 ).

Weighted average remaining contractual life of options outstanding as of January 31, 2022:

Weighted average remaining contractual life of options exercisable as of January 31, 2022:

Weighted average remaining contractual life of options vested and expected to vest as of January 31, 2022:

Aggregate intrinsic value of options outstanding at January 31, 2022:

Aggregate intrinsic value of options exercisable at January 31, 2022:

Aggregate intrinsic value of options vested and expected to vest at January 31, 2022:

As of January 31, 2022, $ 865,000 and $ 605,000 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 2.72 and 1.42 years, respectively.

Under the compensation policies adopted by the Compensation Committee, directors who also are officers and/or employees of the Company do not receive any compensation for serving on the Board.

For their service as directors beginning in 2020 until the annual meeting of stockholders held in 2021, non-employee directors (i.e., directors who are not employed by the Company as officers or employees) were awarded $ 50,000 as Board fees, which amount was payable (a) one -half in cash ( $25,000 ), with payments made on a quarterly basis, and (b) one -half through the grant of restricted shares that vest on a quarterly basis.

In addition, the Chairman of the Board of Directors and the Chair of each committee of the Board of Directors received an annual retainer of $ 15,000 , also payable in restricted shares, that vests in four equal quarterly installments commencing on September 15, 2020 and ending on the earlier of September 15, 2021 or the next annual meeting of stockholders.

In each case, the equity portion of the award was calculated based on the 20 -day average trailing closing price of the Company's common stock from the date of grant ($ 4.34 );

and cash and stock payments were pro-rated for board members who served less than the entire service period during fiscal 2021.

On September 8, 2021, the Board of Directors determined that the compensation payable to directors as Board fees for the next year ending with the 2022 annual meeting of stockholders was the same as they received in 2021 (i.e., $ 50,000 ).

In addition, effective September 8, 2021, the Board determined that both Board fees and additional chair fees would be paid half in cash and half in restricted stock, and, in light of the additional work required by the chairs, revised the chair fees as follows, $ 25,000 for the Chairman of the Board, $ 25,000 for the Audit Committee Chair, $ 20,000 for the Compensation Committee Chair, $ 20,000 for the Strategic Planning and Capital Allocation Chair, and $ 10,000 for the Nominating & Governance Chair.

The cash and restricted stock fees vest in four equal quarterly installments commencing on December 8, 2021, with the restricted stock portion determined by dividing the amount of the fee by the 20 -day average trailing closing price of the Company’s common stock from the date of grant ($ 8.21 ).

Accordingly, on September 8, 2021, Mr.

Holdsworth was granted 5,785 shares of restricted stock;

Cefali, 4,871 shares;

Garland, 4,567 shares;

Fink, 3,044 shares.

Stock option expense

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.

During the three months ended January 31, 2022 and 2021, stock-based compensation expense totaled $ 139,000 and $ 123,000 , respectively, and was classified in selling and general expense.

Note 7 –

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

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.

At January 31, 2022, we had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $ 12.3 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,

Three Months Ended January 31,

Wireless provider

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* 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.

For the three months ended 

January 31, 2022, one wireless carrier customer accounted for 32 % of net sales and 37 % of total net accounts receivable balance.

Two customers, both distributors, accounted for approximately 16 % and 12 % of net sales and had accounts receivable balances that accounted for 15 % and 19 %, respectively, of the total net accounts receivable balance for the three months ended January 31, 2021.

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 July 31, 2021, we had two segments –

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

Based upon this evaluation, as of January 31, 2022, we had two segments –

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

The RF Connector segment consisted of one division and the Custom Cabling segment was composed of four divisions. The five divisions that met the quantitative thresholds for segment reporting are the RF Connector and Cable Assembly division (“RF Connector division”), Cables Unlimited, Rel-Tech, C Enterprises, and Schrofftech.

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We charge depreciation and amortization directly to each division within the segment.

Accounts receivable, inventory, property and equipment, ROU assets, goodwill and intangible assets are the only assets identified by segment.

Accounts receivable, inventory, property and equipment, right of use assets, goodwill and intangible assets are the only assets identified by segment.

Except as discussed above, the accounting policies for segment reporting are the same for the Company as a whole.

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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 nine months ended July 31, 2021 and 2020 (in thousands):

Three Months Ended July 31,

Nine Months Ended July 31,

The following table presents the sales by geographic area for the three months ended January 31, 2022 and 2021 (in thousands):

Three Months Ended January 31,

United States

$ 14,624  

$ 9,315  

$ 34,341  

$ 31,471  

Foreign Countries:

$ 15,257  

$ 9,544  

$ 36,316  

$ 32,348  

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): 

Net sales, income (loss) before benefit for income taxes and other related segment information for the three months ended January 31, 2022 and 2021 are as follows (in thousands): 

Custom Cabling

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Cable Assembly

$ 3,933  

$ 11,324  

$ 15,257  

Income before provision for income taxes

Income (loss) before benefit for income taxes

Depreciation and amortization

22,524  

16,702  

46,414  

$ 3,611  

$ 5,933  

$ 9,544  

Income (loss) before provision for income taxes

( 720 )  

Depreciation and amortization

15,539  

16,942  

40,894  

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

Manufacturing and

Cable Assembly

$ 11,060  

$ 25,256  

$ 36,316  

Income before provision for income taxes

Depreciation and amortization

22,524  

16,702  

46,414  

$ 10,568  

$ 21,780  

$ 32,348  

Income (loss) before benefit from income taxes

( 1,886 )  

Depreciation and amortization

15,539  

16,942  

40,894  

Note 9 –

We use an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate, to determine its quarterly provision (benefit) for income taxes.

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

The effective tax rate was 

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 

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.

We recorded income tax benefits of $ 80,000 and $ 194,000  for the three months ended January 31, 2022 and 2021, respectively.

The effective tax rate was 22.3 % for the three months ended January 31, 2022, compared to 32.4 % for the three months ended January 31, 2021.

The change in effective tax rate for the three months ended January 31, 2022 compared to the three months ended January 31, 2021 was primarily driven by stock compensation windfall benefits.

We had $ 174,000 and $ 141,000 of unrecognized tax benefits, inclusive of interest and penalties, as of January 31, 2022 and October 31, 2021, respectively.

The unrecognized tax benefits, if recognized, would result in a net tax benefit of $ 168,000 as of January 31, 2022.         

Note 10 –

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Intangible assets consist of the following (in thousands): 

July 31, 2021

January 31, 2022

October 31, 2021

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Accumulated amortization

( 278 )  

Customer relationships (estimated lives 7 - 15 years)

Accumulated amortization

( 2,635 )  

Backlog (estimated life 1 - 2 years)

Accumulated amortization

( 287 )  

Patents (estimated life 10 - 14 years)

Accumulated amortization

( 102 )  

$ 2,834  

$ 3,181  

Non-amortizable intangible assets:

$ 1,174  

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.

Amortization expense for the three months ended January 31, 2022 and the year ended October 31, 2021 was $ 95,000 and $ 442,000 , respectively.

As of January 31, 2022, the weighted-average amortization period for the amortizable intangible assets is 7.62 years.

Note 11 –

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We also have other operating leases for certain equipment.

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

The components of our facilities and equipment operating lease expenses for the period ending January 31, 2022 were as follows (in thousands):

Three Months Ended

Nine Months Ended

July 31, 2021

January 31, 2022

Operating lease cost

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

July 31, 2021

January 31, 2022

October 31, 2021

Supplemental Cash Flows Information

ROU assets obtained in exchange for lease obligations:

Right of use assets obtained in exchange for lease obligations:

Operating leases

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Weighted Average Remaining Lease Term

Operating leases (in months)

Operating leases (months)

Weighted Average Discount Rate

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3.54 %  

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

Year ending October 31,

Future minimum lease payments under non-cancellable leases as of January 31, 2022 were as follows:

Year ended October 31,

Operating Leases

2021 (excluding nine months ended July 31, 2021)

2022 (excluding three months ended January 31, 2022)

Total future minimum lease payments

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$ 1,243  

Reported as of July 31, 2021

Reported as of January 31, 2022

Operating Leases

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$ 1,243  

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.

As of January 31, 2022, operating lease ROU asset was $ 1.2 million and operating lease liability totaled $ 1.2 million, of which $ 698,000 is classified as current.

There were no finance leases as of January 31, 2022.

The Schrofftech facilities, consisting of two buildings for a total of 10,700 square feet, are leased by RF Industries, Ltd.

under two leases that were renewed effective February 1, 2022 for two years expiring January 31, 2024.

The aggregate monthly rental payment under the new leases currently is $ 6,720 per month.

Note 12 –

Line of credit and PPP loans

In November 2019, we entered into an agreement for a revolving line of credit (“LOC”) in the amount of $ 5.0 million.

Amounts outstanding under the LOC shall bear interest at a rate of 2.0 % plus LIBOR Daily Floating Rate (“base interest rate”), with interest payable on the first day of each month.

Borrowings under the LOC are secured by a security interest in certain assets of the Company.

The LOC contains certain loan covenants.

Failure to maintain the loan covenants may constitute an event of default, resulting in all outstanding amounts of principal and interest becoming immediately due and payable.

All outstanding principal and interest is due and payable on December 1, 2021.

On December 30, 2020, we closed the LOC with no amounts outstanding.

In May 2020 we applied for and received loans under the PPP of the CARES Act totaling approximately $ 2.8 million (“PPP Loans”).

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”).

The funds from the PPP Loans were used to retain employees, maintain payroll and benefits, and make lease and utility payments.

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

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

Without the PPP Loans, we would have made material reductions in our workforce (particularly at our New York facility).

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

Note 13 –

Cash dividend and declared dividends

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 . 

We did not pay any dividends during the three months ended January 31, 2022, nor did we pay any dividends during the three months ended January 31, 2021.

Note 14 –

Subsequent events

Lease Agreement

On February 1, 2022, the Company entered into an agreement with Sorrento West Properties, Inc., a Delaware corporation, to lease industrial and commercial space located at 16868 Via Del Campo Court, San Diego, California.

The lease provides for an initial term of ten years, commencing on or about December 1, 2022, at an initial monthly base rent of $ 139,123.20 , plus certain operating expenses.

Credit Facility

On February 25, 2022, the Company entered into a Loan Agreement providing for a $ 3 million revolving credit facility (the “Revolving Credit Facility”) and a $ 17 million term loan (the “Term Loan”, collectively with the “Revolving Credit Facility”, the “Credit Facility”) with Bank of America, N.A.

(the “Credit Facility Lender”).

The primary interest rate for the Revolving Credit Facility is based on the Bloomberg Short-Term Bank Yield Index Rate plus a margin of 2.00 %.

The maturity date of the Revolving Credit Facility is March 1, 2024.

The primary interest rate for Term Loan is 3.76 % per annum.

The maturity date of the Term Loan is March 1, 2027.

Acquisition of Microlab/FXR LLC

On March 1, 2022, the Company completed its purchase (the “Purchase Transaction”) of 100 % of the issued and outstanding membership interests of Microlab/FXR LLC, a New Jersey limited liability company, from Wireless Telecom Group, Inc, a New Jersey corporation (the “Seller”) pursuant to the Membership Interest Purchase Agreement (the “Purchase Agreement”) dated December 16, 2021, with the Seller.

The consideration for the Purchase Transaction was $ 24,250,000 , subject to certain post-closing adjustments as set forth in the Purchase Agreement.

The purchase price was paid in cash at the closing.

The Company funded $17 million of the cash purchase price from the funds obtained under the Term Loan and paid the remaining amount of the cash purchase price with cash on hand.

Management ’

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Earn-out Liability

The purchase agreement for the acquisition of Schrofftech provides for an earn-out payment of up to $2.4 million, which amount is earned through October 31, 2021.

The purchase agreement for the acquisition of Schrofftech provided for an earn-out payment of up to $2.4 million, which amount was earned through October 31, 2021.

Since the earn-out period has expired, no earn-out liability was required to be recorded for the fiscal quarter ended January 31, 2022.

The earn-out was and will continue to be revalued quarterly using a present value approach, and any resulting increase or decrease will be recorded into selling and general expenses.

Any changes in the amount of the actual results and forecasted scenarios could impact the fair value.

Significant judgment is employed in determining the appropriateness of the assumptions used in calculating the fair value of the earn-out as of the acquisition date.

The earn-out was revalued quarterly using a present value approach, and any resulting increase or decrease were recorded into selling and general expenses.

Changes in the amount of the actual results and forecasted scenarios resulted in an adjustment to the fair value.

Significant judgment was employed in determining the appropriateness of the assumptions used in calculating the fair value of the earn-out as of the acquisition date.

We record a tax provision for the anticipated tax consequences of the reported results of operations.

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or “our”) is a national manufacturer and marketer of interconnect products and systems, including coaxial and specialty cables and connectors, fiber optic cables and connectors, and electrical and electronic specialty cables and components.

Through our manufacturing and production facilities, we provide a wide selection of interconnect products and solutions primarily to telecommunications carriers and equipment manufacturers, wireless and network infrastructure carriers and manufacturers and to various original equipment manufacturers (“OEMs”) in several market segments.

Since the acquisition of Schrofftech in November 2019, we also manufacture and sell energy-efficient cooling systems and integrated small cell solutions and related components.

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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 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.

For the three months ended January 31, 2022, 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 77% 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 23% of total sales for the three months ended January 31, 2022.

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.

In March 2020, the World Health Organization (the “WHO”) declared coronavirus (“COVID-19”) a pandemic emergency.

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

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.

Many of our customers and vendors have likewise had temporary closures of their facilities and have otherwise been impacted by changes in their industries.

As a result, there has been some volatility in the overall demand for our products, and certain costs have increased.

We have taken measures to protect the health and safety of our employees, and we continue to work with our customers and vendors to minimize potential disruptions in addressing the challenges posed by this global pandemic.

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 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”).

The funds from the PPP Loans were used to retain employees, maintain payroll and benefits, and make lease and utility payments.

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

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

On March 1, 2022, the Company purchased Microlab/FXR LLC, a New Jersey limited liability company (“Microlab”), from Wireless Telecom Group, Inc.

for $24,250,000, subject to certain post-closing adjustments.

The purchase price was paid in cash at the closing.

The Company funded $17 million of the cash purchase price from the funds obtained under the term loan it obtained from Bank of America, N.A.

(the “Credit Facility Lender”) and paid the remaining amount of the cash purchase price with cash on hand.

The purpose of the acquisition is to acquire a synergistic business that is expected to both (i) be accretive to the financial performance of the Company and (ii) enhance our market position by providing a broader and deeper product portfolio, accelerating our product and innovation roadmap, expanding our production capabilities, and enhancing our customer relationships.

In order to fund the purchase of Microlab, on February 25, 2022, the Company entered into a Loan Agreement with the Credit Facility Lender, which facility provides the Company with a $3 million revolving credit facility (the “Revolving Credit Facility”) and a $17 million term loan (the “Term Loan”, collectively with the “Revolving Credit Facility”, the “Credit Facility”).

The primary interest rate for Term Loan is 3.76% per annum.

The maturity date of the Term Loan is March 1, 2027.

Borrowings under the Credit Facility are guaranteed by the Company and certain of its subsidiaries and secured by all personal property of the Company and certain of its subsidiaries.

The Credit Facility requires the maintenance of certain financial covenants, including:

(i) consolidated debt to EBITDA ratio not to exceed 3.00 to 1.00;

(ii) consolidated fixed charge coverage ratio of at least 1.25 to 1.00;

and (iii) consolidated minimum EBITDA of at least $600,000 for the discrete quarter ending January 31, 2022.

In addition, the Credit Facility contains customary affirmative and negative covenants.

The COVID-19 coronavirus pandemic, in its various strains, negatively affected both our operations and those of our customers.

The extent of the impact of the COVID-19 pandemic on our future 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 2021 and for the three months ended January 31, 2022.

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 Coronavirus Aid, Relief, and Economic Security Act, H.R.

748 (“CARES Act”)  totaling approximately $2.8 million (“PPP Loans”).

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 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.

For the fiscal year ended October 31, 2021, we qualified and filed to claim the ERC and have recorded the credit as a receivable in Other Current Assets.

As of January 31, 2022, we carried a $1.8 million the ERC receivable in Other Current Assets.

Liquidity and Capital Resources

Historically, we have been able to fund our liquidity and other capital requirements from funds we generated from operations.

While we still believe that our existing current assets, the amount of cash we anticipate will be generated from on-going operations, and funds we received from the PPP Loans collectively will be sufficient to fund our anticipated liquidity and capital resource needs for at least twelve months from the date of this filing, there are some uncertainties because of the unknown future impact of the COVID-19 pandemic on our business.

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 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.

On March 1, 2022, we acquired Microlab.

In connection with the purchase of Microlab, we entered into the Credit Facility and borrowed the full $17 million amount available under the Term Loan.

As of the date of this report, we have not borrowed any amounts under the Revolving Credit Facility.

We believe that our existing assets and the cash we expect to generate from operations (including those of Microlab) and 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 January 31, 2022, we had a total of $13.5 million of cash and cash equivalents compared to a total of $13.1 million of cash and cash equivalents as of October 31, 2021.

As of January 31, 2022, we had working capital of $31.3 million and a current ratio of approximately 4.2:1 with current assets of $41 million and current liabilities of $9.7 million.

On March 1, 2022 we used $7.3 million of our cash to fund a portion of the purchase price paid to acquire Microlab.

Nevertheless, we believe that the amount of cash remaining, plus the amount available to us under the Revolving Credit Facility, will be sufficient to fund our anticipated liquidity needs.

As of January 31, 2022, we had $27.9 million of backlog, compared to $33.3 million as of October 31, 2021.

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 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, $0.6 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 $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.

In the past, we have financed some of our equipment and furnishings requirements through capital leases.

No additional capital equipment purchases have been currently identified that would require significant additional leasing or capital expenditures during the next twelve months.

In November 2019, we entered into a $5.0 million revolving line of credit that bore interest at a rate of 2.0% plus LIBOR Daily Floating Rate.

We never used the line of credit and on December 30, 2020, we closed the line of credit.

Accordingly, we currently do not have a credit facility available to us should we need to borrow amounts to fund either our working capital needs or any future unplanned capital expenditures.

In the three months ended January 31, 2022, we generated $0.6 million of cash in our operating activities.

This net inflow of cash is primarily related to the collections of accounts receivable of $3.0 million, $0.2 million from depreciation and amortization and $0.1 million from stock-based compensation expense.

The cash usage was primarily due to an increase to our inventory purchases ($2.3 million) and our net loss ($0.3 million).

The cash used for other current assets represents of ($0.7 million) which consists of ($0.2 million) in application of prepaid taxes, ($0.3 million, of which $0.2 million related to Microlab) in prepaid expenses and ($0.2 million) in deposits for inventory purchases.

The acquisition of Microlab will affect both our liquidity and our capital resources in the near future.

In order to acquire Microlab, we used $7.3 million of our cash on hand to pay a portion of the purchase price, thereby reducing the amount available for future acquisitions, for investments in the expansion of our existing businesses and assets, or as a reserve for unanticipated financial requirements.

For example, during the three months ended January 31, 2022, we spent $103,000 on capital expenditures, of which $13,000 related to purchases in preparation of the Microlab.

We may be required to make additional future capital expenditures to integrate Microlab with our other operations or to relocate or consolidate the facilities of Microlab and one or more of other subsidiaries.

Also, in order to purchase Microlab, we borrowed $17 million under the Term Loan.

The future monthly payments of principal and interest will negatively impact our future cash available from operations and our liquidity.

Although the acquisition of Microlab is anticipated to be accretive and to generate positive cash flow, the actual impact of the acquisition of Microlab on our consolidated financial results, and the operating synergies that will actually be generated from the integration of Microlab with our other operations, are currently unknown.

In the event that the future operating and financial results of Microlab are less than anticipated, or if some of the anticipated synergies are not realized, our liquidity and capital resources may be further negatively impacted by the acquisition of that company.

Our goal to expand and grow our business both organically and through acquisitions may require material additional capital equipment.

In the past, we have purchased all additional equipment, or financed some of our equipment and furnishings requirements through capital leases.

Currently, no additional capital equipment purchases have been identified that would require significant additional leasing or capital expenditures during the next twelve months.

We also believe that based on our current financial condition, our current backlog of unfulfilled orders and our anticipated future operations, we would be able to finance our expansion, if necessary.

From time to time, we may undertake acquisitions of other companies or product lines in order to diversify our product and solutions offerings and customer base.

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Results of Operations

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 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 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.

Three Months Ended January 31, 2022 vs.

Three Months Ended January 31, 2021

Net sales for the three months ended January 31, 2022 (the “fiscal 2022 quarter”) increased by 69%, or $6.9 million, to $16.9 million as compared to the three months ended January 31, 2021 (the “fiscal 2021 quarter”).

Net sales for the fiscal 2022 quarter at the Custom Cabling segment increased by $6.6 million, or 102%, to $13.0 million, compared to $6.4 million in the fiscal 2021 quarter.

The increase was primarily the result of project-based wireless carrier macro and tower site business related to the sale of fiber optic cables used in the build out of 4G and 5G networks. 

Net sales for the fiscal 2022 quarter at the RF Connector segment increased by $0.3 million, or 10%, to $3.9 million as compared to $3.6 million in the fiscal 2021 quarter.

Gross profit for the fiscal 2022 quarter increased by $1.5 million to $4.1 million due to the increase in net sales, although gross margins decreased to 24.1% of sales compared to 26.1% of sales in the fiscal 2021 quarter.

Engineering expenses increased by $23,000 to $454,000 in the fiscal 2022 quarter compared to $431,000 in the fiscal 2021 quarter primarily due to the engineering efforts associated with the increase in sales, 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 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 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.

For the fiscal 2021 quarter, net income was $0.9 million and fully diluted earnings per share was $0.09 per share, compared to a net loss of $0.1 million and fully diluted loss per share of $0.01 per share for the fiscal 2020 quarter.

Selling and general expenses increased by $1.3 million to $4.0 million (24% of sales) compared to $2.8 million (28% of sales) in the first quarter last year primarily due to $0.7 million of acquisition related expenses and other one-time charges (including attorney fees and due diligence fees) related to the recent acquisition of Microlab.

Selling and general expenses also increased as a result of the increase in net sales during the current fiscal year period.

For the fiscal 2022 quarter, the Custom Cabling segment had a pretax income of $314,000 while the RF Connector segment had pretax income of $56,000, as compared to $1.0 million loss and $0.5 million of income, respectively, for the comparable first quarter last year.

The decrease in the pretax net income at the RF Connector segment was primarily due to decline in gross margin as well as an increase in selling and administrative expenses to support a higher sales number.

The increase in pretax income at the Custom Cabling segment was due primarily to the increase in sales of hybrid fiber to a tier-1 wireless customer.

The benefit for income taxes was 22% and 32% of loss before income taxes for the fiscal 2022 quarter and the fiscal 2021 quarter, respectively.

The change in the effective tax rate from the fiscal 2021 quarter to fiscal 2022 quarter 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 2022 quarter, net loss was $277,000 and fully diluted loss per share was $0.03 per share, compared to a net loss of $403,000 and fully diluted earnings per share of $0.04 per share for the fiscal 2021 quarter.

For the fiscal 2022 quarter, the diluted weighted average shares outstanding was 10,067,186 as compared to 9,864,689 for the fiscal 2021 quarter.

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 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.

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

Nothing to report.

Not applicable.

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