What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-09-14 compared with 2023-06-14 · 181 added, 156 removed, 376 unchanged (47% of the section changed)

4 unchanged sentences

(In thousands)

Six Months Ended April 30,

Nine Months Ended July 31,

OPERATING ACTIVITIES:

Consolidated net (loss) income

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

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

Bad debt expense

12 unchanged sentences

Income taxes payable

Net cash provided by (used in) operating activities

Net cash provided by operating activities

INVESTING ACTIVITIES:

5 unchanged sentences

Debt issuance cost

Revolving credit facility

Term Loan payments

16 unchanged sentences

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 six months ended April 30, 2023 are not necessarily indicative of the results that may be expected for the year ended October 31, 2023.

Operating results for the nine months ended July 31, 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.

Our accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business.

The propriety of using the going-concern basis is dependent upon, among other things, the achievement of future profitable operations, the ability to generate sufficient cash from operations and potential other funding sources, in addition to cash on-hand along with the current Credit Facility (as defined below), to meet its obligations as they become due.

Although we have incurred operating losses during the nine months ended July 31, 2023, we have implemented certain cost-cutting measures to reduce our operating expenses and to help drive positive operating cash flow and increase liquidity.

Our plan includes consolidating facilities and recognizing the related operating efficiencies and synergies in our production operations.

The Company intends to continue to pursue additional continuous improvement and cost reduction measures, as well as organic growth in revenue and profitability.

Management believes that these actions will enable the Company to continue as a going concern through at least 12 months from the date these unaudited condensed consolidated financial statements are available to be issued.

Principles of consolidation

6 unchanged sentences

(“Schrofftech”).

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

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

and our five wholly-owned subsidiaries:

16 unchanged sentences

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;

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 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.

As of July 31, 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

Recently issued accounting pronouncements not yet adopted:

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

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.

17 unchanged sentences

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 condensed consolidated statements of operations.

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

15 unchanged sentences

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

Three Months Ended April 30,

Six Months Ended April 30,

Net income (loss)

Earnings (loss) per share

Three Months Ended July 31,

Nine Months Ended July 31,

Net (loss) income

(Loss) Earnings per share

Note 3 –

2 unchanged sentences

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

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.

At July 31, 2023, we had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $ 2.9 million.

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

Three Months Ended April 30,

Six Months Ended April 30,

Three Months Ended July 31,

Nine Months Ended July 31,

Wireless provider

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.

Distributor A

For the three months ended July 31, 2023, a distributor customer accounted for 12 % of net sales and 12 % of total net accounts receivable balance, and a wireless carrier customer accounted for less than 10% of net sales.

For the nine months ended July 31, 2023, the same wireless carrier customer accounted for 13 % of net sales and 4 % of total net accounts receivable balance;

for the three months ended July 31, 2022, it accounted for 16 % of net sales and 19 % of total net accounts receivable balance;

for the nine months ended July 31, 2022, it accounted for 23 % of net sales and 19 % of total net accounts receivable balance.

We also have another distributor customer whose sales were less than 10% of our net sales but for which we had an 11% of total net accounts receivable balance for both the three and nine months ended July 31,2023;

for the three and nine months ended July 31, 2022, it accounted for 5% of total net account receivable balance.

Although these customers have been significant customers of the Company, the written agreements with these customers do not have any minimum purchase obligations and these customers 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.

Note 4 –

3 unchanged sentences

Inventories consist of the following (in thousands):

April 30, 2023

July 31, 2023

October 31, 2022

2 unchanged sentences

Finished goods

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.

For the three months ended July 31, 2023, a single vendor accounted for 10 % of inventory purchases.

For the three months ended July 31, 2022, the same vendor accounted for 17% of inventory purchases.

For the nine months ended July 31, 2023, this vendor accounted for 17% of inventory purchases and it accounted for 28% of inventory purchases for the nine months ended July 31, 2022.

We have arrangements with this vendor to purchase products based on purchase orders that we periodically issue.

Note 5 –

1 unchanged sentence

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

April 30, 2023

July 31, 2023

October 31, 2022

Employee retention credit ("ERC")

Prepaid taxes

Prepaid expense

1 unchanged sentence

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.

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

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

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.

As of July 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 –

1 unchanged sentence

Accrued expenses consist of the following (in thousands):

April 30, 2023

July 31, 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 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.

During the three and nine months ended July 31, 2023 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 814,154 and 471,464 shares for the three months ended July 31, 2023 and 2022, respectively, and 750,967 and 482,889 shares for the nine months ended July 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 April 30,

Six Months Ended April 30,

Three Months Ended July 31,

Nine Months Ended July 31,

Weighted average shares outstanding for basic earnings per share

13 unchanged sentences

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

These options shall vest in five equal installments on each of the next five anniversaries of January 10, 2023.

These options shall vest in five equal installments on each of the next five anniversaries of January 10, 2023, the grant date.

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,

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

The weighted average fair value of employee stock options that were granted during the nine months ended July 31, 2023 and 2022 was estimated to be $ 3.21 and $ 3.77 , respectively, per share, using the Black-Scholes option pricing model with the following assumptions:

Nine Months Ended July 31,

Risk-free interest rate

11 unchanged sentences

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:

A summary of the status of the options granted under our stock option plans as of July 31, 2023 and the changes in options outstanding during the nine months then ended is presented in the table that follows:

Exercise Price

3 unchanged sentences

Options cancelled

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.

Options outstanding at July 31, 2023

Options exercisable at July 31, 2023

Options vested and expected to vest at July 31, 2023

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

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

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

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

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

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

As of July 31, 2023, $ 866,591 and $ 528,229 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 2.74 and 1.30 years, respectively.

Stock option 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.

During the three months ended July 31, 2023 and 2022, stock-based compensation expense totaled $ 246,000 and $ 191,000 , respectively, and was classified in selling and general expense.

During the nine months ended July 31, 2023 and 2022, stock-based compensation expense totaled $ 687,000 and $ 498,000 , 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 April 30, 2023, we had two reportable segments –

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

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

3 unchanged sentences

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 user.

sales of 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.

8 unchanged sentences

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

The following table presents the sales by geographic area for the three and six months ended April 30, 2023 and 2022 (in thousands):

Three Months Ended April 30,

Six Months Ended April 30,

The following table presents the sales by geographic area for the three and nine months ended July 31, 2023 and 2022 (in thousands):

Three Months Ended July 31,

Nine Months Ended July 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 April 30, 2023 and 2022 are as follows (in thousands):

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

Custom Cabling

5 unchanged sentences

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):

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

Custom Cabling

1 unchanged sentence

Cable Assembly

Loss before benefit from income taxes

(Loss) income before benefit from income taxes

Depreciation and amortization

2 unchanged sentences

Note 10 –

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

We recorded income tax (benefits) provisions of ($ 482,000 ) and $ 140,000 for the three months ended July 31, 2023 and 2022, respectively.

The effective tax rate was 22.7 % for the three months ended July 31, 2023, compared to 15.4 % for the three months ended July 31, 2022.

For the nine months ended July 31, 2023 and 2022, we recorded income tax (benefits) provisions of ($ 806,000 ) and $ 196,000 , respectively.

The effective tax rate was 26.6 % for the nine months ended July 31, 2023, compared to 16.4 % for the nine months ended July 31, 2022.

The change in effective tax rate for the nine months ended July 31, 2023 compared to the nine months ended July 31, 2022 was primarily driven by stock-based compensation windfall/shortfalls and the Company's full year forecasted financial loss.

We had $ 168,000 and $ 121,000 of unrecognized tax benefits, as of July 31, 2023 and October 31, 2022, respectively.

The unrecognized tax benefits, if recognized, would result in a net tax benefit of $ 164,000 as of July 31, 2023.

Note 11 –

1 unchanged sentence

Intangible assets consist of the following (in thousands):

April 30, 2023

July 31, 2023

October 31, 2022

13 unchanged sentences

Non-amortizable intangible assets:

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.

Amortization expense for the nine months ended July 31, 2023 and the year ended October 31, 2022 was $ 1,279,000 and $ 1,282,000 , respectively.

As of July 31, 2023, the weighted-average amortization period for the amortizable intangible assets is 8.78 years.

Note 12 –

3 unchanged sentences

We also have other operating leases for certain equipment.

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

Three Months Ended

Six Months Ended

April 30, 2023

The components of our facilities and equipment operating lease expenses for the periods ended July 31, 2023 and 2022 were as follows (in thousands):

Three Months Ended July 31,

Nine Months Ended July 31,

Operating lease cost

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

April 30, 2023

July 31, 2023

October 31, 2022

6 unchanged sentences

Operating leases

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

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

Year ending October 31,

Operating Leases

2023 (excluding six months ended April 30, 2023)

2023 (excluding nine months ended July 31, 2023)

Total future minimum lease payments

Less imputed interest

Reported as of April 30, 2023

Reported as of July 31, 2023

Operating Leases

1 unchanged sentence

Operating lease liabilities

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.

As of July 31, 2023, operating lease ROU asset was $ 12.0 million and operating lease liability totaled $ 15.7 million, of which $ 1.4 million is classified as current.

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

On July 11, 2023, we entered into a Third Amendment to Lease (the “Amendment”) with Sorrento West Properties (the “Lessor”), amending that certain AIRCRE Standard Industrial/Commercial Single-Tenant Lease - Net, dated as of December 28, 2021, between the Company and Lessor, under which we lease from Lessor industrial and commercial space located at 16868 Via Del Campo Court, San Diego, California (the “Premises”).

The Amendment provides for an increase in tenant improvements by an additional $ 1,000,000 (the “Additional TIA”) and requires funding of the Additional TIA beginning October 1, 2023, provided certain conditions are met as further set forth in the Amendment.

The primary purpose of the Additional TIA is to cover the costs and expenses for the construction, fit-out and furnishing of the adjacent vacant office spaces located at the Premises, which will be subject to the Managed Client Agreement with RGN-MCA San Diego II, LLC (the “Managed Client Agreement”) and managed services arrangement, as previously disclosed.

In consideration for the Additional TIA, the Amendment provides for an increase in monthly base rent, effective commencing as of October 1, 2023.

The conditions set forth in the Amendment include a finalized build-out budget.

The budget for the construction, fit-out and furnishings of the vacant office for RGN-MCA San Diego II, LLC has not been finalized, and we have a right to terminate the Managed Client Agreement should the budget exceed an amount agreed upon. Therefore, we have not reflected this Amendment in our financials as of July 31, 2023, or included it in our disclosure tables.

Note 13 –

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”).

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

In February 2022, we entered into a loan agreement (the “Loan Agreement”) providing 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”) with Bank of America, N.A.

(the “Bank”).

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

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

6 unchanged sentences

(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 ended 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 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.

As of July 31, 2023, we were not in compliance with the consolidated debt to EBITDA ratio nor were we in compliance with the consolidated fixed charge coverage ratio covenants (the “Defaults”).

On September 12, 2023, we entered into Amendment No.

1 and Waiver to the Loan Agreement (the “Loan Amendment”) with the Bank, which, among other matters, provided for a temporary waiver of (i) the Defaults, and (ii) compliance with the consolidated debt to EBITDA ratio and the consolidated fixed charge coverage ratio minimum covenants for the quarterly periods ending October 31, 2023, January 31, 2024, April 30, 2024 and July 31, 2024.

Further, pursuant to the Loan Amendment, we are required to maintain (i) (a) until September 21, 2023, minimum liquidity (week-end cash balance plus availability from the Revolving Credit Facility) of $ 4.0 million, and (b) from September 22, 2023 and thereafter, liquidity equal to the greater of (1) $ 4.0 million or (2) 80 % of the liquidity that had been forecast for this date at the fourth week of the forecast;

and (ii) minimum EBITDA of ($ 400,000 ), $ 500,000 , $ 1.0 million, and $ 1.0 million for the quarters ending October 31, 2023, January 31, 2024, April 30, 2024, and July 31, 2024, respectively.

As of July 31, 2023, we have borrowed $ 13,768,000 under the Term Loan and $ 1.0 million from the Revolving Credit Facility.

The foregoing summary description of the Loan Amendment is qualified in its entirety by reference to the complete text of the Loan Amendment, a copy of which is included as Exhibit 10.3 and is incorporated herein by reference.

Note 14 –

Cash dividend and declared dividends

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.

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

Management ’

3 unchanged sentences

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

may, ”

will, ”

should, ”

except, ”

plan, ”

anticipate, ”

believe, ”

estimate, ” 

predict, ”

may, ” “

will, ” “

should, ” “

except, ” “

plan, ” “

anticipate, ” “

believe, ” “

estimate, ” “

predict, ” “

potential ” 

35 unchanged sentences

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 of July 31, 2023, we performed an impairment test analysis 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.

2 unchanged sentences

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’s three and nine-months results ended July 31, 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.

As of July 31, 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 a fair value of equity 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.

21 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 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.

For the nine months ended July 31, 2023, revenues from the Custom Cabling segment were generated from the sale of fiber optics cable, copper cabling, custom patch cord assemblies, and wiring harnesses, which collectively accounted for 55% 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 45% of total sales for the nine months ended July 31, 2023.

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

1 unchanged sentence

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.

Our phone number remains (858) 549-6340.

Our corporate headquarters are located at 16868 Via Del Campo Court, Suite 200, San Diego, CA 92127.

Our phone number is (858) 549-6340.

Liquidity and Capital Resources

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

On March 1, 2022, we acquired Microlab.

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

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 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.

However, we have incurred operating losses during the three and nine months ended July 31, 2023.

During the period, we have implemented certain cost-cutting measures to reduce our operating expenses and to help drive positive operating cash flow and increase liquidity.

Our plan includes consolidating facilities and recognizing the related operating efficiencies and synergies in our production operations.

We intend to continue to pursue additional continuous improvement and cost reduction measures, as well as organic growth in revenue and profitability.

As of July 31, 2023, we had a total of $4.1 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 July 31, 2023, we had working capital of $22.8 million and a current ratio of approximately 2.9:1 with current assets of $34.8 million and current liabilities of $12.1 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.

As of July 31, 2023, we had $17.2 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.

1 unchanged sentence

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

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

In the nine months ended July 31, 2023, we generated $2.6 million of cash in our operating activities.

This net inflow of cash is primarily related to an increase in other current assets of $4.6 million, the collections of accounts receivable of $5.4 million, $1.8 million from depreciation and amortization, and $0.7 million from stock-based compensation expense.

1 unchanged sentence

The cash generated by other current assets represents $4.6 million, which primarily consists of $2.8 million of reimbursement for tenant improvements and $1.5 million received from ERC.

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.

During the nine months ended July 31, 2023, we also spent $2.3 million on capital expenditures, and $1.8 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 received from the exercise of stock options.

As noted above, we also drew $1.0 million from the Revolving Credit Facility as of July 31, 2023, primarily to fund leasehold improvements to the new corporate headquarters.

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

6 unchanged sentences

Results of Operations

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”).

Three Months Ended July 31, 2023 vs.

Three Months Ended July 31, 2022

Net sales for the three months ended July 31, 2023 (the “fiscal 2023 quarter”) decreased by 34%, or $8.1 million, to $15.7 million as compared to the three months ended July 31, 2022 (the “fiscal 2022 quarter”).

Net sales for the fiscal 2023 quarter at the Custom Cabling segment decreased by $5.4 million, or 40.6%, to $7.9 million, compared to $13.3 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 $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.

The decrease was primarily the result of a decrease in sales of hybrid fiber cables to wireless carrier customers and a decrease in sales of small cell products and systems to customers in the Tier-1 wireless ecosystem.

Net sales for the fiscal 2023 quarter at the RF Connector segment decreased by $2.7 million, or 25.7%, to $7.8 million as compared to $10.5 million in the fiscal 2022 quarter, primarily due to a decrease in sales related to carrier projects involving approved RF components.

Gross profit for the fiscal 2023 quarter decreased by $3.4 million to $3.8 million, and gross margins decreased to 24.4% of sales compared to 30.4% of sales in the fiscal 2022 quarter.

The decreases in gross profit and gross margins were primarily related to the overall decrease in sales.

Engineering expenses decreased by $0.1 million to $0.7 million in the fiscal 2023 quarter compared to $0.8 million in the fiscal 2022 quarter.

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

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.

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 (39.3%) and 21.3% of loss before income taxes for the fiscal 2023 quarter and the fiscal 2022 quarter, respectively.

Selling and general expenses decreased by $0.3 million to $5.1 million (32.9% of sales) compared to $5.4 million (22.5% of sales) in the third quarter last year primarily due to a decrease in variable compensation related to commissions and bonuses as a result of the lower sales.

We also incurred a one-time charge of $194,000 (related to the move of our C Enterprises and Microlab divisions, and including system implementation charges and severance) compared to acquisition-related expenses and a one-time charge of $114,000 (including professional fees, system implementation charges and severance).

For the fiscal 2023 quarter, the Custom Cabling segment had pretax loss of $0.7 million and the RF Connector segment had a pretax loss of $1.1 million, as compared to $0.6 million income and $1 million income, respectively, for the comparable quarter last year.

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

The decrease in the pretax net income at the RF Connector segment was primarily due to the decrease in Microlab sales related to carrier projects involving approved RF components.

For fiscal 2023 and 2022 quarters, we recorded income tax (benefit) provision of ($482,000) and $140,000, respectively.

The effective tax rate was 22.7% for the fiscal 2023 quarter, compared to 15.4% 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, net loss was $1.6 million and fully diluted loss per share was $0.16, compared to a net income of $0.8 million and fully diluted earnings per share of $0.08 for the fiscal 2022 quarter.

For the fiscal 2023 quarter, the diluted weighted average shares outstanding was 10,290,265 as compared to 10,238,932 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.

Nine Months Ended July 31, 2023 vs.

Nine Months Ended July 31, 2022

Net sales for the nine months ended July 31, 2023 (the “fiscal 2023 nine-month period”) of $56.3 million decreased by 9.6%, or $6.0 million, compared to the nine months ended July 31, 2022 (the “fiscal 2022 nine-month period”).

The decrease in net sales is attributable to the Custom Cabling segment, which decreased by $9.5 million, or 23.6%, to $30.8 million compared to $40.3 million in the fiscal 2022 nine-month period, primarily related to wireless carrier network deployment slowdowns across the industry in 2023 impacting both our hybrid fiber sales and our small cell and direct air cooling products.

Net sales for the fiscal 2023 nine-month period at the RF Connector segment increased by $3.6 million, or 16.4%, to $25.5 million compared to $21.9 million in the fiscal 2022 nine-month period.

The increase was primarily the result of the Microlab acquisition on March 1, 2022.

Gross profit for the fiscal 2023 nine-month period decreased by $2.4 million to $15.0 million and gross margins decreased to 26.7% of sales from 28.0% of sales in the fiscal 2022 nine-month period.

The decreases in gross profit and gross margins were primarily related to the overall decrease in sales.

Engineering expenses increased by $0.4 million to $2.5 million for the fiscal 2023 nine-month period compared to $2.1 million in the fiscal 2022 nine-month period.

The increase was primarily due to additional engineering expenses during the fiscal 2023 nine-month period related to the engineering efforts associated with our integrated systems products and three 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.

Selling and general expenses increased by $1.4 million to $15.2 million (27.0% of sales) compared to $13.8 million (22.2% of sales) in the nine-month period last year.

Microlab, which was acquired on March 1, 2022, accounted for $3.6 million of the selling and general expenses, as compared to $2.0 million for the same period last fiscal year.

The increase at Microlab was offset by decreases in variable compensation related to commissions and bonus as a result of the lower sales overall.

We also incurred one-time charges totaling $0.8 million related to an additional rent expense of $444,000 (of which $387,000 was non-cash) related to lease accounting, $213,000 in facility move expenses, severance of $75,000 and $45,000 in ERP system implementations in the fiscal 2023 nine-month period compared to acquisition related expenses and other one-time charges (including attorney fees, due diligence and broker fees) which accounted for $1.6 million for the fiscal 2022 nine-month period.

For the fiscal 2023 nine-month period, we recorded a pretax loss for the Custom Cabling segment of $0.8 million and a pretax loss for the RF Connector segment of $1.2 million, as compared to $1.7 million and $1.6 million of income, respectively, for the comparable nine-month period last year.

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

The decrease in the pretax net income at the RF Connector segment was primarily due to the decrease in sales related to carrier projects involving approved RF components.

For the fiscal 2023 and 2022 nine-month periods, we recorded income tax (benefit) provision of ($806,000) and $196,000, respectively.

The effective tax rate was 26.6% for the fiscal 2023 nine-month period, compared to 16.4% for the fiscal 2022 nine-month period.

The change in effective tax rate for the fiscal 2023 and 2022 nine-month periods was primarily driven by stock-based compensation windfall/shortfalls and the Company’s full year forecasted financial loss.

For the fiscal 2023 nine-month period, net loss was $2.2 million and fully diluted loss per share was $0.22 as compared to a net income of $1.0 million and fully diluted earnings per share of $0.10 for the fiscal 2022 nine-month period.

For the fiscal 2023 nine-month period, the diluted weighted average shares outstanding was 10,267,652 as compared to 10,223,209 for the fiscal 2022 nine-month period.

Quantitative and Qualitative Disclosures about Market Risk

1 unchanged sentence

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