What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-06-14 compared with 2022-03-17 · 378 added, 203 removed, 349 unchanged (62% of the section changed)

4 unchanged sentences

(In thousands)

Three Months Ended January 31,

Six Months Ended April 30,

OPERATING ACTIVITIES:

Consolidated net loss

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

Consolidated net income

$ 4,442  

Adjustments to reconcile net income to net cash used in operating activities:

Bad debt expense

1 unchanged sentence

Stock-based compensation expense

Amortization of debt issuance cost  

Tax payments related to shares cancelled for vested restricted stock awards

( 16 )  

Deferred income taxes

PPP Loan and interest forgiveness

Changes in operating assets and liabilities:

Trade accounts receivable

( 3,987 )  

Other current assets

( 1,026 )  

Right of use assets

( 25 )  

Other long-term assets

( 363 )  

Accounts payable

( 1,579 )  

Accrued expenses

Income tax payable

Other current liabilities

Income taxes payable

Other long-term liabilities

Net cash provided by (used in) operating activities

Net cash used in operating activities  

( 1,639 )  

INVESTING ACTIVITIES:

Capital expenditures

( 268 )  

Purchase of Microlab, net of cash acquired ($ 33 )  

( 24,217 )  

Net cash used in investing activities

( 24,485 )  

FINANCING ACTIVITIES:

Proceeds from exercise of stock options

Debt issuance cost  

( 32 )  

Term Loan payments  

( 202 )  

17,000  

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

16,823  

Net decrease in cash and cash equivalents

( 9,301 )  

Cash and cash equivalents, beginning of period

13,053  

15,797  

Cash and cash equivalents, end of period

$ 3,752  

$ 14,762  

Supplemental cash flow information –

6 unchanged sentences

Unaudited interim condensed consolidated financial statements

Our accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10 -Q.

Our accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10 -Q.

Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

2 unchanged sentences

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

Operating results for the six months ended April 30, 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.

Principles of consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of RF Industries, Ltd.

The accompanying unaudited condensed consolidated financial statements for the periods ended on or before January 31, 2022 include the accounts of include the accounts of RF Industries, Ltd.

and our four wholly-owned subsidiaries:

3 unchanged sentences

(“C Enterprises”), and Schroff Technologies International, Inc.

(“Schrofftech”).

All references to the “Company”

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

(“Schrofftech”). 

The unaudited condensed consolidated financial statements for the three and six months ended April 30, 2022 include the accounts of RF Industries, Ltd.

and our five wholly-owned subsidiaries:

Cables Unlimited, Inc.

(“Cables Unlimited”), Rel-Tech Electronics, Inc.

(“Rel-Tech”), C Enterprises, Inc.

(“C Enterprises”), Schroff Technologies International, Inc.

(“Schrofftech”), and Microlab/FXR LLC (“Microlab”). 

Microlab is a wholly-owned subsidiary that RF Industries, Ltd.

acquired effective March 01, 2022. 

For periods on or before January 31, 2022, references herein to the “Company”

shall refer to RF Industries, Ltd., Cables Unlimited, Rel-Tech, C Enterprises, and Schrofftech and for all periods after January 31, 2022, reference to the “Company”

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

All intercompany balances and transactions have been eliminated in consolidation.

4 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 three months ended January 31, 2022.

The outbreak impacted our performance for the six months ended April 30, 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 Coronavirus Aid, Relief, and Economic Security Act, H.R.

748 ("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 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.

2 unchanged sentences

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.

As of April 30, 2022, the ERC in other receivable classified in other current assets were $ 1.7 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 April 30, 2022.

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.

Fair value measurement

1 unchanged sentence

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.

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.

3 unchanged sentences

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

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.

As of April 30, 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 5 for discussion on the fair value of other current liabilities.

14 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 January 31, 2022 or October 31, 2021.

The adoption of the standard did not result in an impairment charge as of April 30, 2022 or October 31, 2021.

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

5 unchanged sentences

Note 2 –

Business acquisition

On March 1, 2022, the Company completed its purchase (the “Purchase Transaction”) of 100 % of the issued and outstanding membership interests of Microlab, 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 (as defined in Note 13 ) and paid the remaining amount of the cash purchase price with cash on hand.

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.

Microlab designs and manufactures high-performance RF and Microwave products enabling signal distribution and deployment of in-building DAS (distributed antenna systems), wireless base stations and small cell networks.

The Microlab acquisition further diversifies and strengthens the portfolio of products that we offer to the market and allows us to provide a more complete solution to our customers in key market segments.

All manufacturing operations are performed at Microlab’s facilities in New Jersey.

Closing occurred on March 1, 2022, accordingly, subsequent to March 1, 2022, Microlab’s financial results have been included in the results of the RF Connector and Cable Assembly (“RF Connector”) segment as well as in the consolidated statements of operations.

The Company expects the goodwill recorded to be deductible for income tax purposes.

Acquired amortizable intangible assets are being amortized on a straight-line basis over their estimated useful lives ranging from one to ten years.

Total costs, as of April 30, 2022, related to the acquisition of Microlab were approximately $ 1.2 million and have been expensed as incurred and categorized in selling and general expenses.

The following table summarizes the components of the purchase price at fair values at March 1, 2022:

Cash consideration paid

$ 24,250,000  

Total consideration transferred

$ 24,250,000  

The following table summarizes the allocation of the preliminary purchase price at fair value at March 1, 2022:

Current assets

$ 6,924,000  

Property and equipment

198,000  

Intangible assets

13,840,000  

4,990,000  

Non-interest bearing liabilities

( 1,702,000 )

Net assets acquired at fair value

$ 24,250,000  

The current purchase price allocation is preliminary.

The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair value of certain tangible and intangible assets acquired and liabilities assumed, and residual goodwill.

The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition dates during the measurement periods.

Any adjustments to the preliminary purchase price allocation identified during the measurement period, which will not exceed one year from the acquisition date, will be accounted for prospectively.

The following unaudited pro forma financial information presents the combined operating results of the Company and Microlab as if both acquisitions had occurred as of the beginning of the earliest period presented.

Pro forma data is subject to various assumptions and estimates and is presented for informational purposes only.

This pro forma data does not purport to represent or be indicative of the consolidated operating results that would have been reported had the transaction been completed as described herein, and the data should not be taken as indicative of future consolidated operating results.

Unaudited pro forma financial information assuming the acquisition of Microlab as of November 1, 2021 is presented in the following table:

Three Months Ended April 30,

Six Months Ended April 30,

$ 22,559  

$ 14,869  

$ 44,527  

$ 27,988  

Earnings per share

$ 0.04  

$ 0.52  

$ 0.07  

$ 0.47  

$ 0.04  

$ 0.51  

$ 0.07  

$ 0.46  

Note 3 –

Inventories and major vendors

1 unchanged sentence

Cost has been determined using the weighted average cost method.

Inventories consist of the following (in thousands): 

January 31, 2022

Inventories consist of the following (in thousands):

April 30, 2022

October 31, 2021

Raw materials and supplies

$ 12,676  

$ 6,422  

Work in process

Finished goods

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.

$ 19,168  

$ 11,179  

For the three months ended April 30, 2022, one vendor accounted for 35 % of inventory purchases, while one vendor accounted for 15 % of inventory purchases for the three months ended April 30, 2021.

For the six months ended April 30, 2022, one vendor accounted for 32 % of inventory purchases and no vendor accounted for more than 10 % of inventory purchases for the six months ended April 30, 2021.

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

Note 4 –

1 unchanged sentence

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

January 31, 2022

April 30, 2022

October 31, 2021

Employee retention credit ("ERC")

$ 1,685  

$ 1,774  

Prepaid taxes

Prepaid expense

Totals  

$ 3,926  

$ 2,893  

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. 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.

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

As of April 30, 2022, the remaining portion of the ERC that we have not yet received is included as other receivables in other current assets.

Note 5 –

Accrued expenses and other current liabilities

Accrued expenses

Accrued expenses consist of the following (in thousands):

January 31, 2022

April 30, 2022

October 31, 2021

Wages payable

$ 2,323  

$ 2,607  

Accrued receipts

Other accrued expenses

$ 8,097  

$ 5,034  

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

5 unchanged sentences

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

January 31, 2021

The following table summarizes the changes to the Level 3 liabilities measured at fair value for the six months ended April 30, 2022 and 2021 (in thousands):

April 30, 2022

April 30, 2021

Beginning balance

1 unchanged sentence

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 6 –

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.

Earnings per share

Basic earnings per share is computed by dividing net income 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 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.

Potentially issuable securities totaling 420,223 and 321,338 shares for the three months ended April 30, 2022 and 2021, respectively, and 459,889 and 331,338 shares for the six months ended April 30, 2022 and 2021, respectively, 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 January 31,

Weighted average shares outstanding for basic loss per share

Three Months Ended April 30,

Six Months Ended April 30,

Weighted average shares outstanding for basic earnings per share

10,107,687  

9,963,291  

10,087,309  

9,927,776  

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

Weighted average shares outstanding for diluted loss per share

135,949  

166,181  

142,395  

169,140  

Weighted average shares outstanding for diluted earnings per share

10,243,636  

10,129,472  

10,229,704  

10,096,916  

Note 7 –

10 unchanged sentences

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 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,

No other shares or options were granted to company employees during the three and six months ended April 30, 2022 and 2021.

The weighted average fair value of employee stock options that were granted during the six months ended April 30, 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:

Six Months Ended April 30,

Risk-free interest rate

2 unchanged sentences

0.00 %  

Expected life of the option (in years)

Expected life of the option (in years)

Volatility factor

6 unchanged sentences

expected life.

The dividend yield is based upon the historical dividend yield.

Company stock option plans

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 January 31, 2022 and the changes in options outstanding during the three 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 April 30, 2022 and the changes in options outstanding during the six months then ended is presented in the table that follows:

Exercise Price

6 unchanged sentences

Options exercised

( 22,927 )  

$ 2.45  

Options cancelled

Options outstanding at January 31, 2022

Options outstanding at April 30, 2022

701,932  

$ 5.70  

Options exercisable at January 31, 2022

Options exercisable at April 30, 2022

354,141  

$ 6.18  

Options vested and expected to vest at January 31, 2022

Options vested and expected to vest at April 30, 2022

700,081  

$ 5.70  

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.

Weighted average remaining contractual life of options outstanding as of April 30, 2022:

Weighted average remaining contractual life of options exercisable as of April 30, 2022:

Weighted average remaining contractual life of options vested and expected to vest as of April 30, 2022:

Aggregate intrinsic value of options outstanding at April 30, 2022:

Aggregate intrinsic value of options exercisable at April 30, 2022:

Aggregate intrinsic value of options vested and expected to vest at April 30, 2022:

As of April 30, 2022, $ 779,000 and $ 523,000 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 2.52 and 1.36 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.

12 unchanged sentences

Stock option expense

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.

During the three months ended April 30, 2022 and 2021, stock-based compensation expense totaled $ 168,000 and $ 137,000 , respectively, and was classified in selling and general expenses.

During the six months ended April 30, 2022 and 2021, stock-based compensation expense totaled $ 307,000 and $ 260,000 , respectively, and was classified in selling and general expenses.

Note 8 –

2 unchanged sentences

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

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.

At April 30, 2022, we had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $ 2.9  million.

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

Three Months Ended January 31,

Three Months Ended April 30,

Six Months Ended April 30,

Wireless provider

Distributor A

Distributor B

* Less than 10%

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.

For the six months ended April 30, 2022, one wireless carrier customer accounted for 28 % of net sales and 21 % of total net accounts receivable balance.

Two customers, both distributors, accounted for approximately 14 % and 11 % of net sales and had accounts receivable balances that accounted for 13 % and 14 %, respectively, of the total net accounts receivable balance for the six months ended April 30, 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.

8 unchanged sentences

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

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.

Based upon this evaluation, as of April 30, 2022, we had two segments –

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

The RF Connector segment consisted of two divisions and the Custom Cabling segment was composed of four divisions. The six 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, Schrofftech, and Microlab.

While each segment has similar products and services, there was little overlapping of these services to their customer base.

3 unchanged sentences

These strategic business units offer products and services to different markets in accordance with their customer base and product usage.

For segment reporting purposes, the RF Connector division constitutes the RF Connector segment, and the Cables Unlimited, Rel-Tech, C Enterprises, and Schrofftech divisions constitute the Custom Cabling segment.

For segment reporting purposes, the RF Connector and Microlab divisions constitutes the RF Connector segment, and the Cables Unlimited, Rel-Tech, C Enterprises, and Schrofftech divisions constitute the Custom Cabling segment.

As reviewed by our chief operating decision maker, we evaluate the performance of each segment based on income or loss before income taxes.

5 unchanged sentences

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 months ended January 31, 2022 and 2021 (in thousands):

Three Months Ended January 31,

The following table presents the sales by geographic area for the three and six months ended April 30, 2022 and 2021 (in thousands):

Three Months Ended April 30,

Six Months Ended April 30,

United States

$ 19,950  

$ 10,338  

$ 36,366  

$ 19,717  

Foreign Countries:

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): 

$ 21,505  

$ 11,057  

$ 38,423  

$ 21,059  

Net sales, income (loss) before provision (benefit) for income taxes and other related segment information for the three months ended April 30, 2022 and 2021 were as follows (in thousands): 

Custom Cabling

1 unchanged sentence

Cable Assembly

Income (loss) before benefit for income taxes

$ 7,510  

$ 13,995  

$ 21,505  

Income (loss) before provision for income taxes

( 745 )  

Depreciation and amortization

34,398  

26,812  

69,647  

$ 3,552  

$ 7,505  

$ 11,057  

Income (loss) before provision for income taxes

Depreciation and amortization

16,835  

18,469  

42,767  

Net sales, income (loss) before provision (benefit) for income taxes and other related segment information for the six months ended April 30, 2022 and 2021 were as follows (in thousands): 

Custom Cabling

Manufacturing and

Cable Assembly

$ 11,433  

$ 26,990  

$ 38,423  

Income (loss) before benefit from income taxes

( 1,472 )  

Depreciation and amortization

34,398  

26,812  

69,647  

$ 7,127  

$ 13,932  

$ 21,059  

Income (loss) before benefit from income taxes

Depreciation and amortization

16,835  

18,469  

42,767  

Note 10 –

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 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 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.         

We recorded income tax provisions of $ 136,000 and $ 648,000 for the three months ended April 30, 2022 and 2021, respectively.

The effective tax rate was 21 % for the three months ended April 30, 2022, compared to 24.2 % for the three months ended April 30, 2021.

For the six months ended April 30, 2022 and 2021, we recorded income tax provisions of $ 56,000 and $ 454,000 , respectively.

The effective tax rate was 20.4 % for the six months ended April 30, 2022, compared to 21.8 % for the six months ended April 30, 2021.

The change in effective tax rate for the six months ended April 30, 2022 compared to the six months ended April 30, 2021 was primarily driven by stock compensation windfall benefits.

We had $ 194,000 and $ 141,000 of unrecognized tax benefits, inclusive of interest and penalties, as of April 30, 2022 and October 31, 2021, respectively.

The unrecognized tax benefits, if recognized, would result in a net tax benefit of $ 189,000 as of April 30, 2022.

Note 11 –

Intangible assets

Intangible assets consist of the following (in thousands): 

January 31, 2022

Intangible assets consist of the following (in thousands):

April 30, 2022

October 31, 2021

2 unchanged sentences

Accumulated amortization

( 311 )  

Customer relationships (estimated lives 7 - 15 years)

Accumulated amortization

( 2,877 )  

Backlog (estimated life 1 - 2 years)

Accumulated amortization

( 290 )  

Patents (estimated life 10 - 14 years)

Accumulated amortization

( 127 )  

Proprietary Techology (estimated life 10 years)

11,100  

Accumulated amortization

( 215 )  

10,885  

$ 14,456  

$ 2,739  

Non-amortizable intangible assets:

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.

$ 2,874  

$ 1,174  

Amortization expense for the six months ended April 30, 2022 and the year ended October 31, 2022 was $ 423,000 and $ 442,000 , respectively.

As of April 30, 2022, the weighted-average amortization period for the amortizable intangible assets is 9.39 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 ending January 31, 2022 were as follows (in thousands):

The components of our facilities and equipment operating lease expenses for the period ended April 30, 2022 were as follows (in thousands):

Three Months Ended

January 31, 2022

Six Months Ended

April 30, 2022

Operating lease cost

1 unchanged sentence

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

January 31, 2022

April 30, 2022

October 31, 2021

Supplemental Cash Flows Information

Right of use assets obtained in exchange for lease obligations:

ROU assets obtained in exchange for lease obligations:

Operating leases

2 unchanged sentences

Weighted Average Remaining Lease Term

Operating leases (months)

Operating leases (in months)

Weighted Average Discount Rate

1 unchanged sentence

3.62 %  

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

Year ended October 31,

Future minimum lease payments under non-cancellable leases as of April 30, 2022 were as follows:

Year ending October 31,

Operating Leases

2022 (excluding three months ended January 31, 2022)

2022 (excluding six months ended April 30, 2022)

Total future minimum lease payments

1 unchanged sentence

$ 1,597  

Reported as of January 31, 2022

Reported as of April 30, 2022

Operating Leases

Other current liabilities

$ 1,073  

Operating lease liabilities

1 unchanged sentence

$ 1,597  

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.

As of April 30, 2022, operating lease ROU asset was $ 1.6 million and operating lease liability totaled $ 1.6 million, of which $ 1 million is classified as current.

There were no finance leases as of April 30, 2022.

Note 13 –

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”).

Term Loan, Line of credit and PPP loans

In February 2022, we entered into an agreement for a revolving line of credit (the “Revolving Credit Facility”) in the amount of $ 3.0 million and a $ 17.0 million term loan (the “Term Loan”, and together with the Revolving Credit Facility, the “Credit Facility”).

Amounts outstanding under the Revolving Credit Facility shall bear interest at a rate of 2.0 % plus the Bloomberg Short-Term Bank Yield Index Rate (“base interest rate”).

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

The Company drew down the entire amount of the Term Loan on March 1, 2022.

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 secured by a security interest in certain assets of the Company and contains certain loan covenants.

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.

As of April 30, 2022, we have borrowed $ 16,798,000 under the Term Loan while we have not borrowed any amounts under the Revolving Credit Facility.

In May 2020, we applied for and received loans under the PPP of the CARES Act totaling approximately $ 2.8 million.

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

3 unchanged sentences

Cash dividend and declared dividends

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.

We did not pay any dividends during the three or six months ended April 30, 2022.

Nor did we pay any dividends during the three or six months ended April 20, 2021.

Management ’

1 unchanged sentence

This report contains forward-looking statements.

These statements relate to future events or the Company ’

s future financial performance.

In some cases, you can identify forward-looking statements by terminology such as “

may, ”

will, ”

should, ”

except, ”

plan, ”

anticipate, ”

believe, ”

estimate, ”

predict, ”

potential ”

continue, ”

These statements relate to future events or the Company’s future financial performance.

In some cases, you can identify forward-looking statements by terminology such as “may,”

“will,”

“should,”

“except,”

“plan,”

“anticipate,”

“believe,”

“estimate,”

“predict,”

“potential,”

or “continue,”

the negative of such terms or other comparable terminology.

7 unchanged sentences

Readers are also urged to carefully review and consider the various disclosures made by the Company which attempt to advise interested parties of the factors which affect the Company ’

s business, including without limitation the disclosures made under the caption “

s business, including without limitation the disclosures made under the caption  “

Management ’

s Discussion and Analysis of Financial Condition and Results of Operations, ”

under the caption “

Risk Factors, ”

s Discussion and Analysis of Financial Condition and Results of Operations, ” 

under the caption  “

Risk Factors, ” 

and the audited consolidated financial statements and related notes included in the Company ’

8 unchanged sentences

Certain items in inventory may be considered obsolete or excess and, as such, we periodically review our inventories for excess and slow moving items and make provisions as necessary to properly reflect inventory value.

Because inventories have, during the past few years, represented up to one-fourth of our total assets, any reduction in the value of our inventories would require us to take write-offs that would affect our net worth and future earnings.

Allowance for Doubtful Accounts

We record an allowance for doubtful accounts based upon our assessment of various factors.

We consider historical experience, the age of the accounts receivable balance, credit quality of our customers, current economic conditions and other factors that may affect a customer’s ability to pay.

Long-Lived Assets Including Goodwill

9 unchanged sentences

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.

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

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.

15 unchanged sentences

“us,”

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.

or “our”) is a national manufacturer and marketer of interconnect products and systems, including high-performance components such as RF connectors and adapters, dividers, directional couplers and filters, coaxial cables, data cables, wire harnesses, fiber optic cables, custom cabling, energy-efficient cooling systems and integrated small cell enclosures.

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.

2 unchanged sentences

(i) the RF Connector and Cable Assembly (“RF Connector”) segment, and (ii) the Custom Cabling Manufacturing and Assembly (“Custom Cabling”) segment.

The RF Connector segment primarily designs, manufactures, markets and distributes a broad range of connector and cable products, including coaxial connectors and cable assemblies that are integrated with coaxial connectors, used in telecommunications and information technology OEM markets and other end markets.

The RF Connector segment primarily designs, manufactures, markets and distributes a broad range of RF connector, adapter, coupler, divider, and cable products, including coaxial passives and cable assemblies that are used in telecommunications and information technology, OEM markets and other end markets.

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 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 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.

For the six months ended April 30, 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 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 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 when compared to the Custom Cabling segment.

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.

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.

The outbreak impacted our performance in fiscal year 2021 and for the three and six months ended April 30, 2022.

5 unchanged sentences

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.

As of April 30, 2022, we carried a $1.7 million the ERC receivable in Other Current Assets.

Liquidity and Capital Resources

1 unchanged sentence

On March 1, 2022, we acquired Microlab.

The acquisition of Microlab has affected both our liquidity and our capital resources.

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.

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.

We believe that our remaining and existing assets and the cash we expect to generate from operations 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 April 30, 2022, we had a total of $3.8 million of cash and cash equivalents with access to $3.0 million under the Revolving Credit Facility.

As of April 30, 2022, we had working capital of $27 million and a current ratio of approximately 3:1 with current assets of $41.6 million and current liabilities of $14.6 million.

As of April 30, 2022, we had $27.6 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 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.

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.

In the six months ended April 30, 2022, we used $1.7 million of cash in our operating activities despite our net income of $0.2 million.

The net outflow of cash was due in part to increased inventory purchases (which increased our inventory balance by $4.0 million), and cash used for other current assets.

The cash used for other current assets represents of ($1.1 million) which consists of ($0.3 million) in application of prepaid taxes, ($0.6 million) in prepaid expenses and ($0.3 million) in deposits for inventory purchases.

During the six months ended April 30, 2022, we also spent $0.3 million on capital expenditures, and $24.2 million on the purchase of Microlab offset by $17 million from the Term Loan as noted above.

The cash used in operating activities and the amounts spent on capital expenditures were partially offset by $0.1 million of proceeds that we received from the exercise of stock options.

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.

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

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

1 unchanged sentence

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.

Conversely, we may undertake the disposition of a division or product line due to changes in our business strategy or market conditions. Acquisitions may require the outlay of cash, which may reduce our liquidity and capital resources while dispositions may increase our cash position, liquidity and capital resources.

Conversely, we may undertake the disposition of a division or product line due to changes in our business strategy or market conditions. 

Acquisitions may require the outlay of cash, which may reduce our liquidity and capital resources while dispositions may increase our cash position, liquidity and capital resources.

Since our goal is to continue to expand our operations and accelerate our growth through future acquisitions, we may use some of our current capital resources to fund any acquisitions we may undertake in the future.

Results of Operations

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 $1.3 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.

Three Months Ended April 30, 2022 vs.

Three Months Ended April 30, 2021

Net sales for the three months ended April 30, 2022 (the “fiscal 2022 quarter”) increased by 94%, or $10.4 million, to $21.5 million as compared to the three months ended April 30, 2021 (the “fiscal 2021 quarter”) due to an increase in net sales at the Custom Cabling segment and a $3.4 million increase as a result of our consolidation of the results of Microlab, which we acquired in March 2022.

Net sales in the Custom Cabling segment increased by $6.5 million, or 86%, to $14 million, compared to $7.5 million in the fiscal 2021 quarter primarily because of increased sales of products to wireless carriers, primarily related to hybrid 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 $3.9 million, or 109%, to $7.5 million as compared to $3.6 million in the fiscal 2021 quarter, due primarily to the acquisition of Microlab whose results are included in the RF Connector segment.

Gross profit for the fiscal 2022 quarter increased by $1.3 million to $6.1 million and gross margins decreased to 28.3% of sales compared to 43.1% of net sales in the fiscal 2021 quarter due primarily to the ERC that the Company was eligible to claim for the production employees in fiscal quarter 2021.

The ERC refundable employee tax credit reduced our labor costs and thereby increased our gross profits in fiscal quarter 2021 compared to fiscal quarter 2022.

Excluding the benefit of the ERC, our gross profits for the fiscal 2021 quarter would have been $3.0 million with gross margins of 27.1%.

Engineering expenses increased by $0.7 million to $0.9 million in the fiscal 2022 quarter compared to $0.2 million in the fiscal 2021 quarter due primarily to the additional engineering expenses of $0.4 million from Microlab and to the ERC of $0.2 million the Company was eligible to claim for engineering employees in fiscal 2021 quarter.

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

Selling and general expenses increased by $2.6 million to $4.5 million (21% of sales) compared to $1.9 million (17% 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).

Microlab accounted for $0.6 million of the selling and general expenses and acquisition related expenses and other one-time charges (including attorney fees and broker fees) accounted for $0.6 million for the fiscal 2022 quarter.

Selling and general expenses also increased as a result of the increase in net sales during the current fiscal 2022 quarter.

For the fiscal 2022 quarter, the Custom Cabling segment and the RF Connector segment had pretax income of $0.8 million and $0.6 million, respectively, as compared to $1.2 million and $1.5 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.

For the fiscal 2022 and 2021 quarters, we recorded income tax provisions of $136,000 and $648,000, respectively.

The effective tax rate was 21% for the fiscal 2022 quarter, compared to 24.2% for the fiscal 2021 quarter.

The change in effective tax rate for the fiscal 2022 and 2021 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 2022 quarter, net income was $0.5 million and fully diluted earnings per share was $0.05 per share, compared to a net income of $4.8 million and fully diluted earnings per share of $0.48 per share for the fiscal 2021 quarter. 

For the fiscal 2022 quarter, the diluted weighted average shares outstanding was 10,243,636 as compared to 10,129,472 for the fiscal 2021 quarter.

Six Months Ended April 30, 2022 vs.

Six Months Ended April 30, 2021

Net sales for the six months ended April 30, 2022 (the “fiscal 2022 six-month period”) of $38.4 million increased by 82%, or $17.4 million, compared to the six months ended April 30, 2021 (the “fiscal 2021 six-month period”) due to a stronger fiscal 2022 first quarter and the acquisition of Microlab in March 2022.

The increase in net sales is attributable to the Custom Cabling segment, which increased by $13.1 million, or 94%, to $27.0 million compared to $13.9 million in the fiscal 2021 six-month period.

The increase was primarily in our project-based business which resulted from the upturn in carrier spending in the fiscal 2022 six-month period.

Net sales for the fiscal 2022 six-month period at the RF Connector segment increased by $4.3 million, or 61%, to $11.4 million compared to $7.1 million in the fiscal 2021 six-month period of which $3.4 million was a result of the Microlab acquisition.

Gross profit for the fiscal 2022 six-month period increased by $2.8 million to $10.2 million and gross margins decreased to 26.5% of sales from 35.0% of sales in the fiscal 2021 six-month period.

The increase in gross profit primarily related to the overall increase in sales and decrease in gross margins was primarily due to the ERC the Company was eligible to claim for production employees for the fiscal 2021 six-month period.

Excluding the benefit of the ERC, our gross profits for the fiscal 2021 six-month period would have been $5.6 million and gross margins would have been 26.6%.

Engineering expenses increased $0.7 million to $1.3 million for the fiscal 2022 six-month period compared to $0.6 million in the fiscal 2021 six-month period primarily due to the ERC the Company was eligible to claim for engineering employees in fiscal 2021 quarter as well as the acquisition of Microlab in March 2022.

Excluding the benefit of the ERC, engineering expenses would have been $0.9 million, which is a increase of $0.4 million compared to the fiscal 2022 six-month period which includes $0.4 million from Microlab.

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

Selling and general expenses increased by $3.9 million to $8.5 million (22% of sales) compared to $4.6 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 $3.2 million compared to the fiscal 2022 six-month period.

Microlab accounted for $0.6 million of the selling and general expenses and acquisition related expenses and other one-time charges (including attorney fees, due diligence and broker fees) accounted for $1.4 million for the fiscal 2022 six-month period.

Selling and general expenses also increased as a result of the increase in net sales during the current fiscal 2022 quarter.

For the fiscal 2022 six-month period, pretax income for the Custom Cabling segment and the RF Connector segment was $1.1 million and $0.6 million, respectively, as compared to $0.1 million and $1.9 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.

For the fiscal 2022 and 2021 six-month periods, we recorded income tax provisions of $56,000 and $454,000, respectively.

The effective tax rate was 20.4% for the fiscal 2022 six-month period, compared to 21.8% for the fiscal 2021 six-month period.

The change in effective tax rate for the fiscal 2022 and 2021 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 2022 six-month period, net income was $0.2 million and fully diluted income per share was $0.02 per share as compared to a net income of $4.4 million and fully diluted earnings per share of $0.44 per share for the fiscal 2021 six-month period. 

For the fiscal 2022 six-month period, the diluted weighted average shares outstanding was 10,229,704 as compared to 10,096,916 for the fiscal 2021 six-month period.

Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Nothing to report.

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