What changed in this filing

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Item 1. Financial Statements

2023-06-14 compared with 2023-03-13 · 189 added, 130 removed, 343 unchanged (48% of the section changed)

4 unchanged sentences

(In thousands)

Three Months Ended January 31,

Six Months Ended April 30,

OPERATING ACTIVITIES:

Consolidated net loss

Consolidated net (loss) income

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

9 unchanged sentences

Right of use assets

Other long-term assets

Accounts payable

Accrued expenses

Deferred revenue

Income taxes payable

Net cash provided by operating activities

Net cash provided by (used in) 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 used in financing activities

Net (decrease) increase in cash and cash equivalents

Net cash (used in) provided by financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents, beginning of period

10 unchanged sentences

Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

In the opinion of management, all adjustments, which are normal and recurring, have been included in order to make the information not misleading.

Information included in the consolidated balance sheet as of October 31, 2022 has been derived from, and certain terms used herein are defined in, the audited consolidated financial statements of RF Industries, Ltd.

In the opinion of management, all adjustments, which are normal and recurring, have been included for a fair statement of the financial position.

Information included in the condensed consolidated balance sheet as of October 31, 2022 has been derived from, and certain terms used herein are defined in, the audited consolidated financial statements of RF Industries, Ltd.

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

Operating results for the six months ended April 30, 2023 are not necessarily indicative of the results that may be expected for the year ended 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.

7 unchanged sentences

(“Schrofftech”).

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

The unaudited condensed consolidated financial statements for the three and six months ended April 30, 2023 include the accounts of RF Industries, Ltd.

and our five wholly-owned subsidiaries:

6 unchanged sentences

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.

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.

11 unchanged sentences

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

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.

As of April 30, 2023 and October 31, 2022, the carrying amounts reflected in the accompanying unaudited condensed 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

5 unchanged sentences

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.

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

The acquisition closed 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.

9 unchanged sentences

Intangible assets

Non-interest bearing liabilities

Noninterest-bearing liabilities

Net assets acquired at fair value

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.

The following unaudited pro forma financial information presents the combined operating results of the Company and Microlab as if the acquisition 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.

1 unchanged sentence

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

Three Months Ended January 31,

Net (loss) income

Earnings per share

Three Months Ended April 30,

Six Months Ended April 30,

Net income (loss)

Earnings (loss) per share

Note 3 –

2 unchanged sentences

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.

At April 30, 2023, we had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $ 3.1 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

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.

For the three months ended April 30, 2023, a single wireless carrier customer accounted for 20 % of net sales and 24 % of total net accounts receivable balance.

For the six months ended April 30, 2023, the same wireless carrier customer accounted for 18 % of net sales and 24 % of total net accounts receivable balance;

for the three months ended April 30, 2022, it accounted for 24 % of net sales and 21 % of total net accounts receivable balance;

for the six months ended April 30, 2022, it accounted for 28 % of net sales and 21 % 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.

4 unchanged sentences

Inventories consist of the following (in thousands):

January 31, 2023

April 30, 2023

October 31, 2022

2 unchanged sentences

Finished goods

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.

For the three months ended April 30, 2023, two vendors accounted for 27 % and 12 % of inventory purchases.

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

For the six months ended April 30, 2023, one vendor accounted for 20 % of inventory purchases and one vendor accounted for 32 % of inventory purchases for the six months ended April 30, 2022.

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

2 unchanged sentences

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

January 31, 2023

April 30, 2023

October 31, 2022

2 unchanged sentences

Reimbursement for tenant improvements

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.

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

As of April 30, 2023, the remaining portion of the ERC that we have not yet received is included as other receivables in other current assets.

Note 6 –

1 unchanged sentence

Accrued expenses consist of the following (in thousands):

January 31, 2023

April 30, 2023

October 31, 2022

8 unchanged sentences

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, 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.

During the three months ended April 30, 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 755,229 and 420,223 shares for the three months ended April 30, 2023 and 2022, respectively, and 745,229 and 459,889 shares for the six months ended April 30, 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 January 31,

Three Months Ended April 30,

Six Months Ended April 30,

Weighted average shares outstanding for basic earnings per share

5 unchanged sentences

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

(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 12 equal quarterly installments over the next three years.

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

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

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 12 equal quarterly installments over the next three years.

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,

These options shall vest in five equal installments on each of the next five 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 and six months ended April 30, 2023 and 2022.

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

Six Months Ended April 30,

Risk-free interest rate

Dividend yield

Expected life of the option (years)

Expected life of the option (in years)

Volatility factor

7 unchanged sentences

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, 2022.

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:

Descriptions of our stock option plans are included in Note 9 to our audited financial statements included in 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 April 30, 2023 and the changes in options outstanding during the six months then ended is presented in the table that follows:

Exercise Price

3 unchanged sentences

Options cancelled

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.

Options outstanding at April 30, 2023

Options exercisable at April 30, 2023

Options vested and expected to vest at April 30, 2023

Weighted average remaining contractual life of options outstanding as of April 30, 2023:

Weighted average remaining contractual life of options exercisable as of April 30, 2023:

Weighted average remaining contractual life of options vested and expected to vest as of April 30, 2023:

Aggregate intrinsic value of options outstanding at April 30, 2023:

Aggregate intrinsic value of options exercisable at April 30, 2023:

Aggregate intrinsic value of options vested and expected to vest at April 30, 2023:

As of April 30, 2023, $ 987,788 and $ 652,629 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 2.67 and 1.29 years, respectively.

Stock option expense

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.

During the three months ended April 30, 2023 and 2022, stock-based compensation expense totaled $ 230,000 and $ 168,000 , respectively, and was classified in selling and general expense.

During the six months ended April 30, 2023 and 2022, stock-based compensation expense totaled $ 441,000 and $ 307,000 , respectively, and was classified in selling and general expenses.

Note 9 –

6 unchanged sentences

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

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

Based upon this evaluation, as of April 30, 2023, we had two reportable segments –

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

14 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 years ended January 31, 2023 and 2022 (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, 2023 and 2022 (in thousands):

Three Months Ended April 30,

Six Months Ended April 30,

United States

Foreign Countries:

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):

Net sales, income (loss) before provision (benefit) for income taxes and other related segment information for the three months ended April 30, 2023 and 2022 are as follows (in thousands):

Custom Cabling

1 unchanged sentence

Cable Assembly

Income (loss) before benefit for income taxes

(Loss) income before benefit for income taxes

Depreciation and amortization

1 unchanged sentence

Depreciation and amortization

Net sales, income (loss) before provision (benefit) for income taxes and other related segment information for the six months ended April 30, 2023 and 2022 are as follows (in thousands):

Custom Cabling

Manufacturing and

Cable Assembly

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 the 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 its quarterly provision (benefit) for income taxes.

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

We recorded income tax 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.

We recorded income tax (benefits) provisions of ($ 164,000 ) and $ 136,000 for the three months ended April 30, 2023 and 2022, respectively.

The effective tax rate was ( 39.3 %) for the three months ended April 30, 2023, compared to 21.3 % for the three months ended April 30, 2022.

For the six months ended April 30, 2023 and 2022, we recorded income tax (benefits) provisions of ($ 324,000 ) and $ 56,000 , respectively.

The effective tax rate was 35.8 % for the six months ended April 30, 2023, compared to 20.4 % for the six months ended April 30, 2022.

The change in effective tax rate for the six months ended April 30, 2023 compared to the six months ended April 30, 2022 was primarily driven by the increased benefit from research and development credits and the Company's full year forecasted financial loss.

We had $ 182,000 and $ 121,000 of unrecognized tax benefits, as of April 30, 2023 and October 31, 2022, respectively.

The unrecognized tax benefits, if recognized, would result in a net tax benefit of $ 178,000 as of April 30, 2023.

Note 11 –

1 unchanged sentence

Intangible assets consist of the following (in thousands):

January 31, 2023

April 30, 2023

October 31, 2022

13 unchanged sentences

Non-amortizable intangible assets:

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.

Amortization expense for the six months ended April 30, 2023 and the year ended October 31, 2022 was $ 857,000 and $ 1,282,000 , respectively.

As of April 30, 2023, the weighted-average amortization period for the amortizable intangible assets is 9.02 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, 2023 were as follows (in thousands):

The components of our facilities and equipment operating lease expenses for the period ended April 30, 2023 were as follows (in thousands):

Three Months Ended

January 31, 2023

Six Months Ended

April 30, 2023

Operating lease cost

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

January 31, 2023

April 30, 2023

October 31, 2022

6 unchanged sentences

Operating leases

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

Future minimum lease payments under non-cancellable leases as of April 30, 2023 were as follows:

Year ending October 31,

Operating Leases

2023 (excluding three months ended January 31, 2023)

2023 (excluding six months ended April 30, 2023)

Total future minimum lease payments

Less imputed interest

Reported as of January 31, 2023

Reported as of April 30, 2023

Operating Leases

1 unchanged sentence

Operating lease liabilities

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.

As of April 30, 2023, operating lease ROU asset was $ 12.4 million and operating lease liability totaled $ 16.2 million, of which $ 1.7 million is classified as current.

There were no finance leases as of April 30, 2023.

Note 13 –

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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.

Borrowings under the Credit Facility are secured by a security interest in certain assets of the Company and are subject to certain loan covenants.

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

1 unchanged sentence

(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.

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

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.

As of April 30, 2023, we have borrowed $ 14,374,000 under the Term Loan while we have not borrowed any amounts under the Revolving Credit Facility.

Subsequent to April 30, 2023, we have drawn $ 1.0 million from the Revolving Credit Facility for leasehold improvements.

Note 14 –

Cash dividend and declared dividends

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.

We did not pay any dividends during the three or six months ended April 30, 2023, nor did we pay any dividends during the three or six months ended April 30, 2022.

Management ’

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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,”

“will,”

“should,”

“except,”

“plan,”

“anticipate,”

“believe,”

“estimate,”

“predict,”

“potential”

or “continue,”

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.

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Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

The preparation of these consolidated financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities.

The preparation of these unaudited condensed consolidated financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities.

We evaluate our estimates, including those related to bad debts, inventory reserves, earn-out liabilities, and contingencies on an ongoing basis.

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This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital.

As of April 30, 2023, we performed an impairment test analyses for Schrofftech.

As noted above, we test our goodwill, trademarks, and indefinite-lived intangible assets for impairment at least annually, which we have traditionally done in the fourth quarter, or on an interim basis when events or changes in circumstances suggest these assets may be impaired.

Impairment is measured as the excess of the carrying value of the goodwill or indefinite-lived intangible asset over its fair value.

Impairment may result from a number of factors, including performance deterioration, negative cash flows from operations and/or changes in anticipated future cash flows, changes in business plans, adverse economic or market conditions, or other factors beyond our control.

The amount of any impairment must be expensed as a charge to operations.

Schrofftech’s three- and six-months results ended April 30, 2023 triggered an impairment analysis.

Schrofftech was acquired on November 4, 2019 for a total purchase price of $5.3 million, consisting of cash consideration of $4.0 million and $1.3 million in earn-out, of which none was earned.

As of April 30, 2023, Schrofftech has a carrying value of $3.2 million, of which includes $1.1 million in goodwill, $0.5 million in non-amortizable intangible assets and $1.6 million in net amortizable intangible assets.

The analysis performed included a blend of the income approach (discounted cash flow method) and market approach (guideline public company method) to reach the fair value of equity of $4.2 million.

The fair value of equity is in excess of the fair value to the carrying amount.

The analysis performed in blending the income approach and the market approach incorporates several significant judgments and assumptions about projected revenue growth, future operating margins and discount rates.

There are inherent uncertainties related to these assumptions and our judgment in applying them to the impairment analysis.

Changes in certain events or circumstances could result in changes to our estimated fair values, and may result in future write-downs to the carrying values of these assets.

Impairment charges could adversely affect our financial results, financial ratios and could limit our ability to obtain financing in the future.

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

Income taxes are accounted for under the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards.

Deferred tax assets and liabilities are measured using the currently enacted tax rates as of the date of the financial statements that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled.

Deferred tax assets and liabilities are measured using the currently enacted tax rates as of the date of the unaudited condensed consolidated financial statements that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled.

We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

6 unchanged sentences

RF Industries, Ltd.

(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.

(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.

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.

4 unchanged sentences

The Custom Cabling segment designs, manufactures, markets and distributes custom copper and fiber cable assemblies, complex hybrid fiber optic and power solution cables, electromechanical wiring harnesses, wiring harnesses for a broad range of applications in a diverse set of end markets, energy-efficient cooling systems for wireless base stations and remote equipment shelters and custom designed, pole-ready 4G and 5G small cell integrated enclosures.

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.

For the six months ended April 30, 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 56% 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 44% of total sales for the six months ended April 30, 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.

Accordingly, the Custom Cabling segment is more dependent upon larger orders and its revenues can therefore be 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.

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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.

Subsequent to April 30, 2023, we have drawn $1 million from the Revolving Credit Facility for leasehold improvements to the new corporate headquarters.

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.

As of April 30, 2023, we had a total of $4.3 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 April 30, 2023, we had working capital of $25.1 million and a current ratio of approximately 2.6:1 with current assets of $41.0 million and current liabilities of $15.9 million.

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 April 30, 2023, we had $18.9 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.

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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, 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.

In the six months ended April 30, 2023, we generated $2.2 million of cash in our operating activities.

This net inflow of cash is primarily related to an increase in other current assets of $4.0 million, the collections of accounts receivable of $0.2 million, $1.2 million from depreciation and amortization, and $0.4 million from stock-based compensation expense.

The cash usage was primarily due to accrued expenses of $3.4 million and our net loss of $0.6 million.

The cash generated by other current assets represents $4.0 million which primarily consists of $2.8 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.

During the six months ended April 30, 2023, we also spent $1.3 million on capital expenditures, and $1.2 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.

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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.

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.

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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.

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 acquisitions we may undertake in the future.

Results of Operations

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”).

Three Months Ended April 30, 2023 vs.

Three Months Ended April 30, 2022

Net sales for the three months ended April 30, 2023 (the “fiscal 2023 quarter”) increased by 3.7%, or $0.8 million, to $22.3 million as compared to the three months ended April 30, 2022 (the “fiscal 2022 quarter”).

Net sales for the fiscal 2023 quarter at the Custom Cabling segment decreased by $0.4 million, or 2.9%, to $13.6 million, compared to $14.0 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.

Net sales for the fiscal 2023 quarter at the RF Connector segment increased by $1.2 million, or 16.0%, to $8.7 million as compared to $7.5 million in the fiscal 2022 quarter, primarily due to a full period of Microlab being included in fiscal 2023 quarter, compared to fiscal 2022 quarter.

Gross profit for the fiscal 2023 quarter remained consistent and was $6.1 million in both the fiscal 2023 quarter and fiscal 2022 quarter.

While our gross profit remained relatively consistent, Microlab products contributed positively to our gross profit which was offset by the decrease related to our small cell and direct air cooling products in fiscal 2023 quarter compared to fiscal 2022 quarter.

Engineering expenses remained flat and were $0.9 million in both the fiscal 2023 quarter and the fiscal 2022 quarter.

We also incurred additional engineering expenses during the fiscal 2023 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.

Selling and general expenses increased by $0.2 million to $4.7 million (21.3% of sales) compared to $4.5 million (20.8% of sales) in the second quarter last year.

This was primarily due to a full quarter of Microlab compared to two months in the second quarter last year.

We also incurred a one-time expense related to the facility move of $70,000 and ERP system upgrades of $20,000 in the fiscal 2023 quarter.

For the fiscal 2023 quarter, the Custom Cabling segment had pretax income of $812,000 while the RF Connector segment had a pretax loss of $306,000, as compared to $807,000 income and $577,000 of income, respectively, for the comparable quarter last year.

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

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The benefit for income taxes was (39.3%) and 21.3% 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.

The change in the effective tax rate from the fiscal 2022 quarter to fiscal 2023 quarter was primarily driven by the increased benefit from research and development credits and the Company's full year forecasted financial loss.

For the fiscal 2023 quarter, net income was $0.6 million and fully diluted earnings per share was $0.06 per share, compared to a net income of $0.5 million and fully diluted earnings per share of $0.05 per share for the fiscal 2022 quarter.

For the fiscal 2023 quarter, the diluted weighted average shares outstanding was 10,327,271 as compared to 10,243,636 for the fiscal 2022 quarter.

Six Months Ended April 30, 2023 vs.

Six Months Ended April 30, 2022

Net sales for the six months ended April 30, 2023 (the “fiscal 2023 six-month period”) of $40.6 million increased by 5.7%, or $2.2 million, compared to the six months ended April 30, 2022 (the “fiscal 2022 six-month period”).

The increase in net sales is attributable to the RF Connector segment, which increased by $6.3 million, or 55.3%, to $17.7 million compared to $11.4 million in the fiscal 2022 six-month period, primarily a result of the Microlab acquisition.

Net sales for the fiscal 2023 six-month period at the Custom Cabling segment decreased by $4.1 million, or 15.2%, to $22.9 million compared to $27.0 million in the fiscal 2022 six-month period.

The decrease was primarily in our project-based business relating to small cell and direct air cooling products which resulted from the downturn in carrier spending in the fiscal 2023 six-month period.

Gross profit for the fiscal 2023 six-month period increased by $1.0 million to $11.2 million and gross margins increased to 27.6% of sales from 26.5% of sales in the fiscal 2022 six-month period.

The increases in gross profit and gross margins primarily related to the overall increase in sales.

Engineering expenses increased $0.5 million to $1.8 million for the fiscal 2023 six-month period compared to $1.3 million in the fiscal 2022 six-month period.

The increase was primarily due to additional engineering expenses during the fiscal 2023 six-month period related to the engineering efforts associated with our integrated systems products and two full quarters of Microlab.

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

Selling and general expenses increased by $1.5 million to $10.0 million (24.7% of sales) compared to $8.5 million (22.0% of sales) in the six-month period last year.

Microlab accounted for $2.3 million of the selling and general expenses.

We also incurred a one-time expense related to severance of $50,000, additional rent expense of $444,000 (of which $387,000 was non-cash) related to lease accounting, $70,000 in facility move expenses and $20,000 in ERP system upgrades in fiscal 2023 six-month period.

Selling and general expenses also increased as a result of the increase in net sales during the current fiscal 2023 six-month period.

For the fiscal 2023 six-month period, pretax loss for the Custom Cabling segment and the RF Connector segment was $109,000 and $60,000, respectively, as compared to $1.1 million and $633,000 of income, respectively, for the comparable six-month period last year.

For the fiscal 2023 and 2022 six-month periods, we recorded income tax (benefit) provision of ($324,000) and $56,000, respectively.

The effective tax rate was 35.8% for the fiscal 2023 six-month period, compared to 20.4% for the fiscal 2022 six-month period.

The change in effective tax rate for the fiscal 2023 and 2022 six-month periods was primarily driven by the increased benefit from research and development credits and the Company's full year forecasted financial loss.

For the fiscal 2023 six-month period, net loss was $0.6 million and fully diluted loss per share was ($0.06) per share as compared to a net income of $0.2 million and fully diluted earnings per share of $0.02 per share for the fiscal 2022 six-month period.

For the fiscal 2023 six-month period, the diluted weighted average shares outstanding was 10,256,158 as compared to 10,229,704 for the fiscal 2022 six-month period.

Quantitative and Qualitative Disclosures about Market Risk

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

What changed 10-Q

Item 1. Financial Statements