What changed in this filing

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Item 1. Financial Statements

2023-03-13 compared with 2022-09-14 · 171 added, 294 removed, 302 unchanged (61% 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

Consolidated net loss

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

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Deferred income taxes

PPP Loan and interest forgiveness

Changes in operating assets and liabilities:

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Right of use assets

Other long-term assets

Accounts payable

Accrued expenses

Deferred revenue

Income taxes payable

Other long-term liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

INVESTING ACTIVITIES:

Capital expenditures

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

Net cash used in investing activities

1 unchanged sentence

Proceeds from exercise of stock options

Debt issuance cost

Term Loan payments

Net cash provided by financing activities

Net decrease in cash and cash equivalents

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

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as of October 31, 2022 included in our Annual Report on Form 10-K (“Form 10-K”) for the year ended October 31, 2022 that was previously filed with the Securities and Exchange Commission (“SEC”).

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

Operating results for the three months ended January 31, 2023 are not necessarily indicative of the results that may be expected for the year ending October 31, 2023.

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

(“Schrofftech”). 

The unaudited condensed consolidated financial statements for the three and nine months ended July 31, 2022 include the accounts of RF Industries, Ltd.

(“Schrofftech”).

The unaudited condensed consolidated financial statements for the three months ended January 31, 2023 include the accounts of RF Industries, Ltd.

and our five wholly-owned subsidiaries:

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

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

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

acquired on March 1, 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. 

acquired on March 1, 2022.

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

Risks and uncertainties

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 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.

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

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

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

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

For the 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 July 31, 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 July 31, 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

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These two types of inputs have created the following fair-value hierarchy:

Level 1 –

Level 1—

Quoted prices for identical instruments in active markets;

Level 2 –

Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3 –

Level 2—

Level 3—

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

As of July 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 5 for discussion on the fair value of other current liabilities.

As of January 31, 2023 and October 31, 2022, the carrying amounts reflected in the accompanying consolidated balance sheets for cash and cash equivalents, accounts receivable, and accounts payable approximated their carrying value due to their short-term nature.

Recent accounting standards

Recently issued accounting pronouncements not yet adopted:

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses, which requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments —

Credit Losses , which requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset.

The guidance is effective for fiscal years beginning after December 15, 2019.

In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), which pushes back the effective date for public business entities that are smaller reporting companies, as defined by the SEC, to fiscal years beginning after December 15, 2022.

Early adoption is permitted.

We are currently evaluating the impact the adoption of this new standard will have on our consolidated financial statements.

Recently issued accounting pronouncements adopted:

In January 2017, the FASB issued ASU No.

2017-04, Intangibles—Goodwill and Other, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.

Under the amendments of this update, the goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount.

If the carrying amount of a reporting unit exceeds its fair value, an impairment loss should be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

The guidance also still gives entities the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

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, 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.

The guidance is effective for fiscal years beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, 

Financial Instruments —

Credit Losses (Topic  

326), which pushes back the effective date for public business entities that are smaller reporting companies, as defined by the SEC, to fiscal years beginning after December 15, 2022. Early adoption is permitted.

We are currently evaluating the impact the adoption of this new standard will have on our unaudited condensed consolidated financial statements.

Note 2 –

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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.

Microlab designs and manufactures high-performance radio frequency 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.

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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 July 31, 2022, related to the acquisition of Microlab were approximately $ 1.3 million and have been expensed as incurred and categorized in selling and general expenses.

Acquired amortizable intangible assets are being amortized on a straight-line basis over their estimated useful lives ranging from one to 15 years.

Total costs, as of October 31, 2022, related to the acquisition of Microlab were approximately $ 1.3 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:

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Net assets acquired at fair value

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.

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

Three Months Ended July 31,

Nine Months Ended July 31,

Three Months Ended January 31,

Net (loss) income

Earnings per share

Note 3 –

Concentrations of credit risk

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.

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

At January 31, 2023, we had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $ 2.6 million.

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

Three Months Ended January 31,

Wireless provider

For the three months ended January 31, 2023, one wireless carrier customer accounted for 15 % of net sales and 16 % of total net accounts receivable balance.

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.

Although this customer has been a significant customer of the Company, the written agreements with this customer do not have any minimum purchase obligations and this customer could stop buying our products at any time and for any reason.

A reduction, delay or cancellation of orders from this customer or the loss of this customer could significantly reduce our future revenues and profits.

Note 4 –

Inventories and major vendors

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Cost has been determined using the weighted average cost method.

Inventories consist of the following (in thousands): 

July 31, 2022

Inventories consist of the following (in thousands):

January 31, 2023

October 31, 2022

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Finished goods

For the three months ended July 31, 2022, one vendor accounted for 17 % of inventory purchases, while one vendor accounted for 27 % of inventory purchases for the three months ended July 31, 2021.

For the nine months ended July 31, 2022, one vendor accounted for 28 % of inventory purchases and one vendor accounted for 17 % of inventory purchases for the nine months ended July 31, 2021.

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

For the three months ended January 31, 2023, two vendors accounted for 12 % and 10 % of inventory purchases.

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

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

Note 5 –

Other current assets

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

July 31, 2022

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

January 31, 2023

October 31, 2022

Employee retention credit ("ERC")

Prepaid taxes

Prepaid expense

Reimbursement for tenant improvements

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

Pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“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 July 31, 2022, the remaining portion of the ERC that we have not yet received is included as other receivables in other current assets.

As of January 31, 2023, the remaining portion of the ERC that we have not yet received is included as other receivables in other current assets.

Note 6 –

Accrued expenses

Accrued expenses and other current liabilities

Accrued expenses consist of the following (in thousands):

July 31, 2022

January 31, 2023

October 31, 2022

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Other accrued expenses

Tenant improvements payable

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

Note 7 –

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.

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.

Potentially issuable securities totaling 471,464  and 298,015 shares for the three months ended July 31, 2022 and 2021, respectively, and 482,889  and 371,338 shares for the nine months ended July 31, 2022 and 2021, respectively, were excluded from the calculation of diluted per share amounts because of their anti-dilutive effect. 

During the three months ended January 31, 2023 and 2022, we reported a net loss, and in periods with a net loss, the basic loss per share equals the diluted loss per share as all common stock equivalents are excluded from the per share calculation due to their anti-dilutive effect.

Potentially issuable securities that are out-of-the-money totaled 749,488 and 459,889 shares for the three months ended January 31, 2023 and 2022, 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,

Three Months Ended January 31,

Weighted average shares outstanding for basic earnings per share

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(i) one -quarter of the restricted shares and options shall vest on January 10, 2023;

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 July 16, 2021, we granted our Chief Executive Officer 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.

and (ii) the remaining restricted shares and options shall vest in 12 equal quarterly installments over the next three years.

All incentive stock options expire 10  years from the date of grant.

On January 10, 2023, we granted a total of 54,092 shares of restricted stock and 108,181 incentive stock options to one manager and three officers.

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(i) one -quarter of the restricted shares and options shall vest on January 10, 2024;

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 May 2, 2022, we granted a total of 39,000 incentive stock options to the following:

One employee was granted 12,000 incentive stock options.

These options vested with respesct to 3,000 shares on the date of grant, and the remaining shares vests in equal installments thereafter on each of the next three anniversaries of May 2, 2022.

The options expire ten years from the date of grant.

Three employees were each granted 5,000 incentive stock options.

These options will vest in two equal installments on the first two anniversaries of May 2, 2022, and expire ten years from the date of grant.

Two employees were each granted 6,000 incentive stock options.

These options will vest in three equal installments on the first three anniversaries of May 2, 2022, 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, 2022 and 2021.

The weighted average fair value of employee stock options that were granted during the nine months ended July 31, 2022 and 2021 was estimated to be $ 3.77 and $ 3.38 , respectively, per share, using the Black-Scholes option pricing model with the following assumptions:

Nine Months Ended July 31,

and (ii) the remaining restricted shares and options shall vest in 12 equal quarterly installments over the next three years.

Also on January 10, 2023, we granted another manager 50,000 incentive stock options.

These options vested in five equal installments on the anniversaries of January 10, 2023.

All incentive stock options expire 10  years from the date of grant.

No other shares or options were granted to company employees during the three months ended January 31, 2023 and 2022.

The weighted average fair value of employee stock options that were granted during the three months ended January 31, 2023 and 2022 was estimated to be $ 3.21 and $ 3.84 , 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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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, 2022.

A summary of the status of the options granted under our stock option plans as of July 31, 2022 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, 2023 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 cancelled

Options outstanding at July 31, 2022

Options exercisable at July 31, 2022

Options vested and expected to vest at July 31, 2022

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

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

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

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

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

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

As of July 31, 2022, $ 778,000 and $ 442,000 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 2.39 and 1.32 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.

Options outstanding at January 31, 2023

Options exercisable at January 31, 2023

Options vested and expected to vest at January 31, 2023

Weighted average remaining contractual life of options outstanding as of January 31, 2023:

Weighted average remaining contractual life of options exercisable as of January 31, 2023:

Weighted average remaining contractual life of options vested and expected to vest as of January 31, 2023:

Aggregate intrinsic value of options outstanding at January 31, 2023:

Aggregate intrinsic value of options exercisable at January 31, 2023:

Aggregate intrinsic value of options vested and expected to vest at January 31, 2023:

As of January 31, 2023, $ 1,096,683 and $ 777,069 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 2.83 and 1.32 years, respectively.

Stock option expense

During the three months ended July 31, 2022 and 2021, stock-based compensation expense totaled $ 191,000 and $ 374,000 , respectively, and was classified in selling and general expenses.

During the nine months ended July 31, 2022 and 2021, stock-based compensation expense totaled $ 498,000 and $ 634,000, respectively, and was classified in selling and general expenses.

Note 8 –

Concentrations of credit risk

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.

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

At July 31, 2022, we had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $ 3.8 million.

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

Three Months Ended July 31,

Nine Months Ended July 31,

Wireless provider

Distributor A

Distributor B

* Less than 10%

For the nine months ended July 31, 2022, one wireless carrier customer accounted for 23 % of net sales and 19 % of total net accounts receivable balance.

Two customers, both distributors, accounted for approximately 12 % and 11 % of net sales and had accounts receivable balances that accounted for 8 % and 8 %, respectively, of the total net accounts receivable balance for the nine months ended July 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.

A reduction, delay or cancellation of orders from these customers or the loss of these customers could significantly reduce our future revenues and profits.

During the three months ended January 31, 2023 and 2022, stock-based compensation expense totaled $ 212,000 and $ 139,000 , respectively, and was classified in selling and general expense.

Note 9 –

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

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

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

The RF Connector segment consists of two divisions and the Custom Cabling segment consists 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.

Based upon this evaluation, as of January 31, 2023, we had two reportable segments –

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

The RF Connector segment consists of two divisions and the Custom Cabling segment consists 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.

The biggest difference in segments is in the channels of sales:

sales or product and services for the RF Connector segment were primarily through the distribution channel, while the Custom Cabling segment sales were through a combination of distribution and direct to the end customer.

sales or product and services for the RF Connector segment were primarily through the distribution channel, while the Custom Cabling segment sales were through a combination of distribution and direct to the end user.

Management identifies segments based on strategic business units that are, in turn, based along market lines.

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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.

We evaluate the performance of each segment based on income or loss before income taxes.

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

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

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

Three Months Ended July 31,

Nine Months Ended July 31,

The following table presents the sales by geographic area for the years ended January 31, 2023 and 2022 (in thousands):

Three Months Ended January 31,

United States

Foreign Countries:

Net sales, income (loss) before provision (benefit) for income taxes and other related segment information for the three months ended July 31, 2022 and 2021 were 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, 2023 and 2022 are as follows (in thousands):

Custom Cabling

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Cable Assembly

Income (loss) before provision for income taxes

Income (loss) before benefit for income taxes

Depreciation and amortization

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Depreciation and amortization

Net sales, income (loss) before provision (benefit) for income taxes and other related segment information for the nine months ended July 31, 2022 and 2021 were as follows (in thousands): 

Custom Cabling

Manufacturing and

Cable Assembly

Income (loss) before benefit from income taxes

Depreciation and amortization

Income (loss) before benefit from income taxes

Depreciation and amortization

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 our quarterly provision (benefit) for income taxes.

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 the 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 of $ 140,000 and $ 272,000 for the three months ended July 31, 2022 and 2021, respectively.

The effective tax rate was 15.4 % for the three months ended July 31, 2022, compared to 15.2 % for the three months ended July 31, 2021.

For the nine months ended July 31, 2022 and 2021, we recorded income tax provisions of $ 196,000 and $ 727,000 , respectively.

The effective tax rate was 16.4 % for the nine months ended July 31, 2022, compared to 22.1 % for the nine months ended July 31, 2021.

The change in effective tax rate for the nine months ended July 31, 2022 compared to the nine months ended July 31, 2021 was primarily driven by stock compensation windfall benefits and increased benefit from research and development tax credits.

We had $ 211,000 and $ 141,000 of unrecognized tax benefits, inclusive of interest and penalties, as of July 31, 2022 and October 31, 2021, respectively.

The unrecognized tax benefits, if recognized, would result in a net tax benefit of $ 206,000 as of July 31, 2022.

We recorded income tax benefits of $ 160,000  and $ 80,000  for the three months ended January 31, 2023 and 2022, respectively.

The effective tax rate was 12.3 % for the three months ended January 31, 2023, compared to 22.3 % for the three months ended January 31, 2022 was primarily driven by the increased benefit from research and development tax credits.

We had $ 199,000 and $ 121,000 of unrecognized tax benefits, inclusive of interest and penalties, as of January 31, 2023 and October 31, 2022, respectively.

The unrecognized tax benefits, if recognized, would result in a net tax benefit of $ 195,000 as of January 31, 2023.

Note 11 –

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Intangible assets consist of the following (in thousands):

July 31, 2022

January 31, 2023

October 31, 2022

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Non-amortizable intangible assets:

Amortization expense for the nine months ended July 31, 2022 and the year ended October 31, 2021 was $ 850,000 and $ 442,000 , respectively.

As of July 31, 2022, the weighted-average amortization period for the amortizable intangible assets is 9.72 years.

Amortization expense for the three months ended January 31, 2023 and the year ended October 31, 2022 was $ 431,000 and $ 1,282,000 , respectively.

As of January 31, 2023, the weighted-average amortization period for the amortizable intangible assets is 9.25 years.

Note 12 –

We have operating leases for corporate offices, manufacturing facilities, and certain storage units.

Our leases have remaining lease terms of 1 year to 10 years, some of which include options to extend the leases for up to 5 years.

Our leases have remaining lease terms of one year to three years, some of which include options to extend the leases for up to five years.

A portion of our operating leases are leased from K&K Unlimited, a company controlled by Darren Clark, the former owner and current President of Cables Unlimited, to whom we make rent payments totaling $ 16,000 per month.

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, 2022 were as follows (in thousands):

The components of our facilities and equipment operating lease expenses for the period ending January 31, 2023 were as follows (in thousands):

Three Months Ended

Nine Months Ended

July 31, 2022

January 31, 2023

Operating lease cost

Short-term lease cost

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

July 31, 2022

January 31, 2023

October 31, 2022

6 unchanged sentences

Operating leases

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

Future minimum lease payments under non-cancellable leases as of January 31, 2023 were as follows:

Year ending October 31,

Operating Leases

2022 (excluding nine months ended July 31, 2022)

2023 (excluding three months ended January 31, 2023)

Total future minimum lease payments

Less imputed interest

Reported as of July 31, 2022

Reported as of January 31, 2023

Operating Leases

1 unchanged sentence

Operating lease liabilities

Finance lease liabilities

As of July 31, 2022, operating lease ROU asset was $ 14 million and operating lease liability totaled $ 16.8 million, of which $ 1.6 million is classified as current.

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

The Cables and Connectors facilities, consisting of four buildings for a total of 21,908 square feet, are leased by RF Industries, Ltd.

We renewed the lease effective as of effective August 1, 2022, for 6 month term expiring on January 31, 2023.

The monthly rental payment under the new lease currently is $ 33,957.40 per month.

The Cables and Connectors and C Enterprises facilities will relocate and consolidate into one building consisting of a total 86,952 square feet, which is leased by RF Industries, Ltd.

The lease will commence December 1, 2022, for a 120 -month term expiring November 30, 2032.

The monthly rental payments under the lease will be $ 139,123 per month for the first year and will increase annually.

During the three months ended July 31, 2022, the Company obtained possession of the building to begin construction and renovation, which resulted in a lease liability of $ 15.6  million ($ 14.9 million in long-term and $ 726,000 in current lease liability), a right of use asset of $ 12.8 million and other receivables related to tenant improvement allowance of $ 2.7 million being recorded.

The discount rate used to calculate the lease liability was 3.76 %.

Further, as a result of the early possession, the Company recognized additional rent expense of $ 135,000 for the three months ended July 31, 2022.

As of January 31, 2023, operating lease ROU asset was $ 12.7 million and operating lease liability totaled $ 16.5 million, of which $ 1.7 million is classified as current.

There were no finance leases as of January 31, 2023.

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 13 –

Term Loan, Line of credit and PPP loans

Term Loan and Line of credit

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”).

2 unchanged sentences

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.

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.

3 unchanged sentences

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 July 31, 2022, we have borrowed $ 16,192,000 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.

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).

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

As of January 31, 2023, we have borrowed $ 14,980,000 under the Term Loan while we have not borrowed any amounts under the Revolving Credit Facility.

Note 14 –

Cash dividend and declared dividends

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

We did not pay any dividends during the three months ended January 31, 2023, nor did we pay any dividends during the three months ended January 31, 2022.

Management ’

1 unchanged sentence

This report contains forward-looking statements.

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

These statements relate to future events or our future financial performance.

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

12 unchanged sentences

Actual events or results may differ materially.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Moreover, neither the Company, nor any other person, assumes responsibility for the accuracy and completeness of the forward-looking statements.

The Company is under no obligation to update any of the forward-looking statements after the filing of this Quarterly Report on Form 10-Q to conform such statements to actual results or to changes in its expectations.

The following discussion should be read in conjunction with the Company ’

s unaudited condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this Form 10-Q.

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  “

We are under no obligation to update any of the forward-looking statements after the filing of this Quarterly Report on Form 10-Q to conform such statements to actual results or to changes in its expectations.

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this Form 10-Q.

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

Management ’

2 unchanged sentences

Risk Factors, ” 

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

s Annual Report filed on Form 10-K for the year ended October 31, 2021 and other reports and filings made with the Securities and Exchange Commission.

and the audited consolidated financial statements and related notes included in our Annual Report filed on Form 10-K for the year ended October 31, 2022 and other reports and filings made with the Securities and Exchange Commission.

Critical Accounting Policies

6 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

18 unchanged sentences

RF Industries, Ltd.

(together with subsidiaries, the “Company,”

“us,”

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.

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.

(together with subsidiaries, the “Company”, “we”, “us”, 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.

We also design, engineer, manufacture and sell energy-efficient cooling systems and integrated small cell solutions and related components.

We operate through two reporting segments:

1 unchanged sentence

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 nine months ended July 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 65% 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 70% of total sales for the nine months ended July 31, 2021.

The RF Connector segment mostly sells standardized products regularly used by customers and, therefore, has a more stable revenue stream 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 and nine months ended July 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”).

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 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 July 31, 2022, we carried a $1.7 million the ERC receivable in Other Current Assets.

For the three months ended January 31, 2023, approximately half 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 51% 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 49% of total sales for the three months ended January 31, 2023.

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.

We recently moved into new corporate headquarters located at 16868 Via Del Campo Court, Suite 200, San Diego, CA 92127.

Our phone number remains (858) 549-6340.

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.

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 July 31, 2022, we had a total of $5.1 million of cash and cash equivalents with access to $3.0 million under the Revolving Credit Facility.

As of July 31, 2022, we had working capital of $30.1 million and a current ratio of approximately 3:1 with current assets of $47.1 million and current liabilities of $17.0 million.

As of July 31, 2022, we had $30.6 million of backlog, compared to $33.3 million as of October 31, 2021.

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 12 months from the date of this filing based on the following:

As of January 31, 2023, we had a total of $3.8 million of cash and cash equivalents compared to a total of $4.5 million of cash and cash equivalents as of October 31, 2022.

As of January 31, 2023, we had working capital of $25.1 million and a current ratio of approximately 2.5:1 with current assets of $41.8 million and current liabilities of $16.7 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, 2023, we had $24.5 million of backlog, compared to $27.8 million as of October 31, 2022.

The decrease in backlog relates primarily to shipments made against orders for our hybrid fiber cables.

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, 2022, we generated $0.6 million of cash in our operating activities.

This net inflow of cash is primarily related to our net income of $0.9 million, $1.2 million from depreciation and amortization and $0.5 million from stock-based compensation expense, $1.5 million from accounts payable, and $1.3 million from accrued expenses.

The cash usage was primarily due to an increase to our inventory purchases ($4 million).

The cash used for other current assets represents ($1 million) which consists of ($0.2 million) in other receivables, ($0.5 million) in prepaid expenses and ($0.3 million) in deposits for inventory purchases.

During the nine months ended July 31, 2022, we also spent $0.4 million on capital expenditures, and $24.4 million on the purchase of Microlab offset by $17 million from the Term Loan as noted above.

In the three months ended January 31, 2023, we generated $0.9 million of cash in our operating activities.

This net inflow of cash is primarily related to an increase in other current assets of $2.7 million, the increase in deferred revenue of $1.1 million, the collections of accounts receivable of $0.8 million, $0.5 million from depreciation and amortization, and $0.2 million from stock-based compensation expense.

The cash usage was primarily due to accrued expenses of $3.2 million, payments made to our accounts payable $0.8 million and our net loss of $1.2 million.

The cash generated by other current assets represents $2.7 million which primarily consists of $1.5 million of reimbursement for tenant improvements and $1.2 million received from ERC.

During the three months ended January 31, 2023, we also spent $1.1 million on capital expenditures, and $0.6 million in Term Loan payments.

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 leases.

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

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

At this time, we have not identified any additional capital equipment purchases that would require significant additional leasing or capital expenditures during the next 12 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.

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 July 31, 2022 vs.

Three Months Ended July 31, 2021

Net sales for the three months ended July 31, 2022 (the “fiscal 2022 quarter”) increased by 56%, or $8.6 million, to $23.8 million as compared to the three months ended July 31, 2021 (the “fiscal 2021 quarter”) due to an increase in net sales at the Custom Cabling segment and a $6.5 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 $2 million, or 18%, to $13.3 million, compared to $11.3 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 $6.6 million, or 167%, to $10.5 million as compared to $3.9 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 $2.2 million to $7.2 million and gross margins decreased to 30.4% of sales compared to 33.2% 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 $4.2 million with gross margins of 27.7%.

Engineering expenses increased by $0.4 million to $0.8 million in the fiscal 2022 quarter compared to $0.4 million in the fiscal 2021 quarter due primarily to the additional engineering expenses of $0.3 million from Microlab and to the ERC of $0.5 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 $1.9 million to $5.4 million (23% of sales) compared to $3.5 million (23% of sales) in the third 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 $3.4 million (22% of sales).

The increase is largely due to (i) Microlab accounted for $1.4 million of the selling and general expenses and (ii) acquisition related expenses and other one-time charges (including professional fees, system implementation charges and severance) accounted for $114,000 and (iii) additional rent expense of $135,000 (non-cash) related to lease accounting 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 $0.6 million and $1.0 million, respectively, as compared to $0.9 million and $0.3 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 ERC the Company was eligible to claim.

For the fiscal 2022 and 2021 quarters, we recorded income tax provisions of $140,000 and $272,000, respectively.

The effective tax rate was 15.4% for the fiscal 2022 quarter, compared to 22.7% 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 $0.8 million and fully diluted earnings per share was $0.08 per share, compared to a net income of $0.9 million and fully diluted earnings per share of $0.09 per share for the fiscal 2021 quarter. 

Three Months Ended January 31, 2023 vs.

Three Months Ended January 31, 2022

Net sales for the three months ended January 31, 2023 (the “fiscal 2023 quarter”) increased by 8.4%, or $1.4 million, to $18.3 million as compared to the three months ended January 31, 2022 (the “fiscal 2022 quarter”).

Net sales for the fiscal 2023 quarter at the Custom Cabling segment decreased by $3.7 million, or 28.5%, to $9.3 million, compared to $13.0 million in the fiscal 2022 quarter.

The decrease was primarily the result of decreases in sales to customers in the Tier-1 wireless carrier ecosystem related to our small cell products and systems and our hybrid fiber cables compared to the prior year first quarter.

Net sales for the fiscal 2023 quarter at the RF Connector segment increased by $5.2 million, or 130.9%, to $9.1 million as compared to $3.9 million in the fiscal 2022 quarter, primarily due to the addition of Microlab which accounted for $5.1 million in sales.

Gross profit for the fiscal 2023 quarter increased by $1.0 million to $5.1 million due to the increase in net sales, and gross margins increased to 27.7% of sales compared to 24.1% of sales in the fiscal 2022 quarter.

This is primarily driven by the addition of Microlab.

Engineering expenses increased by $0.5 million to $1.0 million in the fiscal 2023 quarter compared to $0.5 million in the fiscal 2022 quarter primarily due to the addition of Microlab which accounted for $0.3 million of the increase.

We also incurred additional engineering expenses during the quarter related to the engineering efforts associated with our integrated systems products.

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

Selling and general expenses increased by $1.3 million to $5.3 million (28.9% of sales) compared to $4.0 million (23.6% of sales) in the first quarter last year primarily due to Microlab expenses of $1.3 million.

We also incurred a one-time expense related to severance of $50,000 and additional rent expense of $444,000 (of which $387,000 was non-cash) related to lease accounting in the fiscal 2023 quarter.

For the fiscal 2023 quarter, the Custom Cabling segment had a pretax loss of $921,000 while the RF Connector segment had pretax income of $246,000, as compared to $314,000 income and $56,000 of income, respectively, for the comparable first quarter last year.

The increase in the pretax net income at the RF Connector segment was primarily due to the acquisition of Microlab.

The decrease in pretax income at the Custom Cabling segment was due primarily to the decrease in sales of hybrid fiber cables to a tier-1 wireless customer and a decrease in sales of small cell products and systems to customers in the Tier-1 wireless ecosystem.

The benefit for income taxes was 12% and 22% of loss before income taxes for the fiscal 2023 quarter and the fiscal 2022 quarter, respectively.

The change in the effective tax rate from the fiscal 2022 quarter to fiscal 2023 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 2023 quarter, net loss was $1.2 million and fully diluted loss per share was $0.11 per share, compared to a net loss of $277,000 and fully diluted loss per share of $0.03 per share for the fiscal 2022 quarter.

For the fiscal 2023 quarter, the diluted weighted average shares outstanding was 10,222,540 as compared to 10,067,186 for the fiscal 2022 quarter.

Nine Months Ended July 31, 2022 vs.

Nine Months Ended July 31, 2021

Net sales for the nine months ended July 31, 2022 (the “fiscal 2022 nine-month period”) of $62.3 million increased by 72%, or $26 million, compared to the nine months ended July 31, 2021 (the “fiscal 2021 nine-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 $15 million, or 60%, to $40.3 million compared to $25.3 million in the fiscal 2021 nine-month period.

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

Net sales for the fiscal 2022 nine-month period at the RF Connector segment increased by $10.8 million, or 98%, to $21.9 million compared to $11.1 million in the fiscal 2021 nine-month period of which $9.9 million was a result of the Microlab acquisition.

Gross profit for the fiscal 2022 nine-month period increased by $5.0 million to $17.4 million and gross margins decreased to 28.0% of sales from 34.2% of sales in the fiscal 2021 nine-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 nine-month period.

Excluding the benefit of the ERC, our gross profits for the fiscal 2021 nine-month period would have been $9.8 million and gross margins would have been 27.0%.

Engineering expenses increased $1.1 million to $2.1 million for the fiscal 2022 nine-month period compared to $1.0 million in the fiscal 2021 nine-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 $1.3 million, which is an increase of $0.8 million compared to the fiscal 2022 nine-month period which includes $0.7 million from Microlab.

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

Selling and general expenses increased by $5.7 million to $13.8 million (22% of sales) compared to $8.1 million (22% of sales) in the nine-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 $8.7 million (24% of sales), which is an increase of $5.1 million compared to the fiscal 2022 nine-month period.

Microlab accounted for $2 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 $1.6 million for the fiscal 2022 nine-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 nine-month period, pretax income for the Custom Cabling segment and the RF Connector segment was $1.7 million and $1.6 million, respectively, as compared to $1.1 million and $2.2 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.

For the fiscal 2022 and 2021 nine-month periods, we recorded income tax provisions of $196,000 and $727,000, respectively.

The effective tax rate was 16.5% for the fiscal 2022 nine-month period, compared to 22.1% for the fiscal 2021 nine-month period.

The change in effective tax rate for the fiscal 2022 and 2021 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 2022 nine-month period, net income was $1 million and fully diluted income per share was $0.10 per share as compared to a net income of $5.4 million and fully diluted earnings per share of $0.53 per share for the fiscal 2021 nine-month period. 

For the fiscal 2022 nine-month period, the diluted weighted average shares outstanding was 10,233,209 as compared to 10,131,172 for the fiscal 2021 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