What changed in this filing

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Item 1. Financial Statements

2024-09-16 compared with 2024-06-13 · 148 added, 138 removed, 365 unchanged (44% of the section changed)

4 unchanged sentences

(In thousands)

Six Months Ended April 30,

Nine Months Ended July 31,

OPERATING ACTIVITIES:

1 unchanged sentence

Adjustments to reconcile consolidated net loss to net cash provided by operating activities:

Bad debt expense

Allowance for credit losses

Depreciation and amortization

8 unchanged sentences

Right-of-use assets

Other long-term assets

Accounts payable

22 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 for a fair statement of the financial position.

In the opinion of management, all adjustments, which are normal and recurring and other items of gain (loss) and expense required in our view under Accounting Standards Codification (“ASC”) 270, Interim Reporting, have been included for a fair statement of the financial position.

Information included in the condensed consolidated balance sheet as of October 31, 2023 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, 2023 included in our Annual Report on Form 10-K (“Form 10-K”) for the year ended October 31, 2023 that was previously filed with the Securities and Exchange Commission (“SEC”).

Operating results for the six months ended April 30, 2024 are not necessarily indicative of the results that may be expected for the year ended October 31, 2024.

Operating results for the nine months ended July 31, 2024 are not necessarily indicative of the results that may be expected for the year ended October 31, 2024.

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.

1 unchanged sentence

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 three and six months ended April 30, 2024, we have implemented certain cost-cutting measures to reduce our operating expenses and to help drive positive operating cash flow and increase liquidity.

Although we have incurred operating losses during the three and nine months ended July 31, 2024, 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.

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Level 3— Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

As of April 30, 2024 and October 31, 2023, 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 July 31, 2024 and October 31, 2023, the carrying amounts reflected in the accompanying consolidated balance sheets for cash and cash equivalents, accounts receivable, and accounts payable approximated their carrying value due to their short-term nature.

Recent accounting standards

8 unchanged sentences

Improvements to Reportable Segment Disclosures , which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses.

ASU 2023-07 is effective for our annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted.

ASU 2023-07 is effective for our annual periods beginning November 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted.

We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid.

ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted.

Improvements to Income Tax Disclosures, to expand the disclosure requirements for income taxes, specifically related to the effective tax rate reconciliation and income taxes paid.

ASU 2023-09 is effective for our annual periods beginning November 1, 2025, with early adoption permitted.

We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.

2 unchanged sentences

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

At April 30, 2024, we had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $ 0.9 million.

At July 31, 2024, we had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $ 1.4 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,

Wireless provider

For the three months ended April 30, 2024, no customers accounted for 10% or more of net sales, and one wireless carrier and one distributor, whose sales were both less than 10% of total net sales, accounted for 15 % and 10 % of total net accounts receivable balance, respectively.

For the six months ended April 30, 2024, no customers accounted for 10 % or more of net sales, and the same wireless carrier and the same distributor, whose sales were both less than 10 % of total net sales, accounted for 15 % and 10 % of total net accounts receivable balance, respectively.

For the three months ended April 30, 2023, a different 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 accounted for 18 % of net sales and 24 % of total net accounts receivable balance.

Three Months Ended July 31,

Nine Months Ended July 31,

Wireless provider A

Wireless provider B

Distributor A

Distributor B

For the three months ended July 31, 2024, one wireless carrier and one distributor customer accounted for 11% and 13% or more of net sales, and accounted for 18 % and 10 % of total net accounts receivable balance, respectively.

For the nine months ended July 31, 2024, no customer accounted for 10 % or more of net sales, but the aforementioned wireless carrier and the same distributor customer accounted for 18 % and 10 % of total net accounts receivable balance, respectively.

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, while another distributor whose sales were less than 10% of total net sales, accounted for 11% of total net accounts receivable balance.

For the nine months ended July 31, 2023, a wireless carrier accounted for 13 % of net sales and less than 10 % of total net accounts 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.

4 unchanged sentences

Inventories consist of the following (in thousands):

April 30, 2024

July 31, 2024

October 31, 2023

2 unchanged sentences

Finished goods

For the three months ended April 30, 2024, no single vendor accounted for 10% or more of inventory purchases.

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

For the six months ended April 30, 2024, no single vendor accounted for 10% or more of inventory purchases and one vendor accounted for 20 % of inventory purchases for the six months ended April 30, 2023.

For the three months ended July 31, 2024, no single vendor accounted for 10% or more of inventory purchases.

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

For the nine months ended July, 2024, no single vendor accounted for 10% or more of inventory purchases and one vendor accounted for 17 % of inventory purchases for the nine months ended July 31, 2023.

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

1 unchanged sentence

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

April 30, 2024

July 31, 2024

October 31, 2023

3 unchanged sentences

Accrued expenses consist of the following (in thousands):

April 30, 2024

July 31, 2024

October 31, 2023

6 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, 2024, 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 1,152,513 and 755,229 shares for the three months ended April 30, 2024 and 2023, respectively, and 1,152,513 and 745,229 shares for the six months ended April 30, 2024 and 2023, respectively, and were excluded from the calculation of diluted per share amounts because of their anti-dilutive effect.

During the three months ended July 31, 2024, 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 846,889 and 814,154 shares for the three months ended July 31, 2024 and 2023, respectively, and 846,889 and 750,967 shares for the nine months ended July 31, 2024 and 2023, 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

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(i) one -quarter of the restricted shares and options shall vest on April 16, 2025 and (ii) the remaining restricted shares and options shall vest in 12 equal quarterly installments over the next three years.

No other shares or options were granted to Company employees during the three and six months ended April 30, 2024 and 2023.

The weighted average fair value of employee stock options that were granted during the six months ended April 30, 2024 and 2023 was estimated to be $ 1.76 and $ 3.21 , 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, 2024 and 2023.

The weighted average fair value of employee stock options that were granted during the nine months ended July 31, 2024 and 2023 was estimated to be $ 1.76 and $ 3.21 , respectively, per share, using the Black-Scholes option pricing model with the following assumptions:

Nine Months Ended July 31,

Risk-free interest rate

Dividend yield

Expected life of the option (in years)

Expected life of the option (years)

Volatility factor

7 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, 2023.

A summary of the status of the options granted under our stock option plans as of April 30, 2024 and the changes in options outstanding during the three months then ended is presented in the table that follows:

A summary of the status of the options granted under our stock option plans as of July 31, 2024 and the changes in options outstanding during the three months then ended is presented in the table that follows:

Exercise Price

3 unchanged sentences

Options cancelled

Options outstanding at April 30, 2024

Options exercisable at April 30, 2024

Options vested and expected to vest at April 30, 2024

Weighted average remaining contractual life of options outstanding as of April 30, 2024:

Weighted average remaining contractual life of options exercisable as of April 30, 2024:

Weighted average remaining contractual life of options vested and expected to vest as of April 30, 2024:

Aggregate intrinsic value of options outstanding at April 30, 2024:

Aggregate intrinsic value of options exercisable at April 30, 2024:

Aggregate intrinsic value of options vested and expected to vest at April 30, 2024:

As of April 30, 2024, $ 1,005,945 and $ 852,384 of expenses with respect to nonvested stock options and restricted shares, respectively, have yet to be recognized but are expected to be recognized over a weighted average period of 3.0 and 1.0 years, respectively.

Options outstanding at July 31, 2024

Options exercisable at July 31, 2024

Options vested and expected to vest at July 31, 2024

Weighted average remaining contractual life of options outstanding as of July 31, 2024:

Weighted average remaining contractual life of options exercisable as of July 31, 2024:

Weighted average remaining contractual life of options vested and expected to vest as of July 31, 2024:

Aggregate intrinsic value of options outstanding at July 31, 2024:

Aggregate intrinsic value of options exercisable at July 31, 2024:

Aggregate intrinsic value of options vested and expected to vest at July 31, 2024:

As of July 31, 2024, $ 913,175 and $ 703,899 of expenses with respect to nonvested stock options and restricted shares, respectively, have yet to be recognized but are expected to be recognized over a weighted average period of 3.0 and 2.6 years, respectively.

Stock option expense

During the three months ended April 30, 2024 and 2023, stock-based compensation expense totaled $ 248,000 and $ 229,000 , respectively, and was classified in selling and general expense.

During the six months ended April 30, 2024 and 2023, stock-based compensation expense totaled $ 503,000 and $ 441,000 , respectively, and was classified in selling and general expense.

During the three months ended July 31, 2024 and 2023, stock-based compensation expense totaled $ 241,000 and $ 246,000 , respectively, and was classified in selling and general expense.

During the nine months ended July 31, 2024 and 2023, stock-based compensation expense totaled $ 744,000 and $ 687,000 , respectively, and was classified in selling and general expense.

Note 8 – Segment information

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

Based upon this evaluation, as of April 30, 2024, we had two reportable segments – RF Connector and Cable Assembly (“RF Connector”) segment and Custom Cabling Manufacturing and Assembly (“Custom Cabling”) segment.

Based upon this evaluation, as of July 31, 2024, we had two reportable segments – RF Connector and Cable Assembly (“RF Connector”) segment and Custom Cabling Manufacturing and Assembly (“Custom Cabling”) segment.

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

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

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

On August 1, 2023, C Enterprises moved and transitioned its physical operations into the RF Connector office in San Diego, CA.

Given the synergies in consolidating both the operating divisions into one building, C Enterprises has now been included in the RF Connector segment.

Given the synergies in consolidating both the operating divisions into one building, C Enterprises has been included in the RF Connector segment since August 1, 2023.

Further, since the acquisition of C Enterprises in 2019, the customer base for the division has shifted more towards distribution as opposed to direct to end customer which is more aligned with the RF Connector segment.

The segment change of including C Enterprise as part of the RF Connector segment was made retroactive to the beginning of our fiscal year starting November 1, 2022 and reclassified for fiscal 2022 for comparative purposes.

Prior to the transition, C Enterprises was included in the Custom Cabling segment.

In annual and interim periods reported prior to the transition on August 1, 2023, C Enterprises was included in the Custom Cabling segment.

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

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

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

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

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

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

5 unchanged sentences

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

The following table presents the sales by geographic area for the three and six months ended April 30, 2024 and 2023 (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, 2024 and 2023 (in thousands):

Three Months Ended July 31,

Nine Months Ended July 31,

United States

Foreign Countries:

Net sales, (loss) income before provision (benefit) for income taxes and other related segment information for the three months ended April 30, 2024 and 2023 are as follows (in thousands):

Net sales to external customers, (loss) income before provision (benefit) for income taxes and other related segment information for the three months ended July 31, 2024 and 2023 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, 2024 and 2023 are as follows (in thousands):

Net sales to external customers, income (loss) before provision (benefit) for income taxes and other related segment information for the nine months ended July 31, 2024 and 2023 are as follows (in thousands):

Custom Cabling

6 unchanged sentences

Note 9 – 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.

We use an estimated annual effective tax rate, which is based on expected annual taxable income (loss), 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 provision (benefit) of $ 3,649,000 and ($ 164,000 ) for the three months ended April 30, 2024 and 2023, respectively.

The effective tax rate was ( 564.7 %) for the three months ended April 30, 2024, compared to ( 39.3 %) for the three months ended April 30, 2023.

For the six months ended April 30, 2024 and 2023, we recorded income tax provision (benefit) of $ 2,818,000 and ($ 324,000 ), respectively.

The effective tax rate was ( 99.3 %) for the six months ended April 30, 2024, compared to 35.8 % for the six months ended April 30, 2023.

The change in effective tax rate for the six months ended April 30, 2024 compared to the six months ended April 30, 2023 was primarily driven by the recording of a valuation allowance.

We had $ 211,000 and $ 178,000 of unrecognized tax benefits, as of April 30, 2024 and October 31, 2023, respectively.

The unrecognized tax benefits, if recognized, would result in a net tax benefit of $ 186,000 as of April 30, 2024.

The Company assesses all positive and negative evidence in determining if, based on the weight of such evidence, a valuation allowance is required to be recorded against the deferred tax assets as of April 30, 2024.

We recorded income tax provisions benefits of $ 52,000 and $ 482,000 for the three months ended July 31, 2024 and 2023, respectively.

The effective tax rate was 6.9 % for the three months ended July 31, 2024, compared to 22.7 % for the three months ended July 31, 2023.

For the nine months ended July 31, 2024 and 2023, we recorded income tax provisions (benefits) of $ 2,766,000 and ($ 806,000 ), respectively.

The effective tax rate was ( 76.9 %) for the nine months ended July 31, 2024, compared to 26.6 % for the nine months ended July 31, 2023.

The change in effective tax rate for the nine months ended July 31, 2024 compared to the nine months ended July 31, 2023 was primarily driven by the recording of a valuation allowance of $ 3.6 million on deferred tax assets during the quarter ended April 30, 2024.

We had $ 226,000 and $ 178,000 of unrecognized tax benefits, as of July 31, 2024 and October 31, 2023, respectively.

The unrecognized tax benefits, if recognized, would result in a net tax benefit of $ 203,000 as of July 31, 2024.

The Company has evaluated future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

In making such judgements, significant weight is given to evidence that can be objectively verified.

After analyzing all available evidence, including the recent trend of losses, the Company has determined that it is not more likely than not that all of its deferred tax assets will be realized, and therefore, has recorded a valuation allowance of $ 3,526,000 against its deferred tax assets as of April 30, 2024.

After analyzing all available evidence, including the recent trend of continued losses, the Company has determined that it is not more likely than not that all of its deferred tax assets will be realized, and therefore, has recorded a partial valuation allowance against its deferred tax assets.

The Company's valuation allowance was $ 3,573,000 and $ 124,000 as of July 31, 2024 and October 31, 2023, respectively.

Note 10 – Intangible assets

Intangible assets consist of the following as of April 30, 2024 and October 31, 2023 (in thousands):

April 30, 2024

Intangible assets consist of the following as of July 31, 2024 and October 31, 2023 (in thousands):

July 31, 2024

October 31, 2023

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Non-amortizable intangible assets:

Amortization expense for the six months ended April 30, 2024 and the year ended October 31, 2023 was $ 844,000 and $ 1,701,000 , respectively.

As of April 30, 2024, the weighted-average amortization period for the amortizable intangible assets is 8.08 years.

Amortization expense for the nine months ended July 31, 2024 and the year ended October 31, 2023 was $ 1,266,000 and $ 1,701,000 , respectively.

As of July 31, 2024, the weighted-average amortization period for the amortizable intangible assets is 7.85 years.

Note 11 – Commitments

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We also have other operating leases for certain equipment.

The components of our facilities and equipment operating lease expenses for the periods ending April 30, 2024 and 2023 were as follows (in thousands):

Three Months Ended April 30,

Six Months Ended April 30,

The components of our facilities and equipment operating lease expenses for the periods ending July 31, 2024 and 2023 were as follows (in thousands):

Three Months Ended July 31,

Nine Months Ended July 31,

Operating lease cost

Short-term lease cost

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

April 30, 2024

July 31, 2024

October 31, 2023

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Operating leases

Future minimum lease payments under non-cancellable leases as of April 30, 2024 were as follows:

Future minimum lease payments under non-cancellable leases as of July 31, 2024 were as follows:

Year ending October 31,

Operating Leases

2024 (excluding three months ended April 30, 2024)

2024 (excluding nine months ended July 31, 2024)

Total future minimum lease payments

Less imputed interest

Reported as of April 30, 2024

Reported as of July 31, 2024

Operating Leases

1 unchanged sentence

Operating lease liabilities

As of April 30, 2024, operating lease right-of-use asset was $ 15.0 million and operating lease liability totaled $ 20.2 million, of which $ 1.4 million is classified as current.

There were no finance leases as of April 30, 2024.

One of the two buildings consisting of the Cables Unlimited facilities, for a total of 7,500 square feet, is leased by RF Industries, Ltd.

under a lease that was renewed effective May 1, 2024, for one year expiring April 30, 2025.

The aggregate monthly rental payment under the new lease currently is $ 7,725 per month.

As of July 31, 2024, operating lease right-of-use asset was $ 15.3 million and operating lease liability totaled $ 20.6 million, of which $ 1.5 million is classified as current.

There were no finance leases as of July 31, 2024.

Note 12 – Term Loan and Line of credit

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

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

The BofACredit Facility required the maintenance of certain financial covenants, including:

(i) consolidated debt to EBITDA ratio not to exceed 3.00 to 1.00 (the “Debt Test”);

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2, we paid BofA a $ 500,000 paydown on the BofA Revolving Credit Facility, thereby reducing the outstanding balance from $ 1.0 million to $ 500,000 .

Loan Amendment No.

2 was considered a modification under ASC 470, Debt.

On February 29, 2024, we entered into Amendment No.

3 to the BofA Loan Agreement (“Loan Amendment No.

3 to the BofALoan Agreement (“Loan Amendment No.

3”) with BofA, which, among other matters, deferred the requirement that the Company make an additional principal payment of $ 1.0 million on the BofA Term Loan, from March 1, 2024, as was required under Loan Amendment No.

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3, the Company was required to maintain liquidity of at least $ 2.0 million and pay the remaining outstanding balance of $ 500,000 on the BofA Revolving Credit Facility by March 1, 2024, as required under Loan Amendment No.

Loan Amendment No.

3 was considered a modification under ASC 470, Debt .

On March 15, 2024, we entered into the EBC Credit Agreement and used proceeds from the initial drawings under the EBC Credit Facilities (as defined below) to repay in full outstanding obligations under the BofA Loan Agreement and to pay fees, premiums, costs and expenses, including fees payable in connection with the EBC Credit Agreement.

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The EBC Credit Agreement provides for (i) a senior secured revolving loan facility of up to $ 15.0 million (the “EBC Revolving Loan Facility”) and (ii) a senior secured revolving credit facility of up to $ 1.0 million (the “EBC Additional Line” and, together with the EBC Revolving Loan Facility, the “EBC Credit Facilities”) (with a $ 3.0 million swingline loan sublimit).

On June 14, 2024, the parties entered into a First Amendment to the EBC Credit Agreement (the “First Amendment”) providing for a modified EBC Additional Line of $ 1.0 million through July 12, 2024, $ 666,666.67 from July 13, 2024 through August 11, 2024 and $ 333,333.34 from August 12, 2024 through September 10, 2024.

Availability of borrowings under the EBC Credit Facilities will be based upon a borrowing base formula and periodic borrowing base certifications valuing certain of our accounts receivable and inventories, as reduced by certain reserves, if any.

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The EBC Credit Facilities require the maintenance of certain financial covenants, including (i) Excess Availability (as defined in the EBC Credit Agreement) of at least, as of any date of determination, an amount equal to the greater of (a) $ 1.0 million and (b) 10 % of the Adjusted Borrowing Base (as defined in the EBC Credit Agreement), unless as of the last day of the most recent month for which the monthly financial statements and the related compliance certificate have been or are required to have been delivered to EBC, the Fixed Charge Coverage Ratio (as defined in the EBC Credit Agreement) for the twelve consecutive calendar month period then ended is greater than 1.10 to 1.00;

and (ii) a capital expenditure limitation limiting the aggregate cost of all Capital Expenditures (as defined in the EBC Credit Agreement) to $ 2.5 million during any fiscal year.

and (ii) a capital expenditure limitation limiting the aggregate cost of all Capital Expenditure (as defined in the EBC Credit Agreement) to $ 2.5 million during any fiscal year.

In addition, the EBC Credit Facilities contain customary affirmative and negative covenants.

The foregoing description of the EBC Credit Agreement does not purport to be complete and is qualified in its entirety to the full text of the EBC Credit Agreement.

We filed the EBC Credit Agreement as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended January 31, 2024 and it is incorporated by reference herein.

The foregoing description of the EBC Credit Agreement does not purport to be complete and is qualified in its entirety to the full text of the EBC Credit Agreement and First Amendment.

We filed the EBC Credit Agreement as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended January 31, 2024 and the First Amendment is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q for the quarter ended July 31, 2024 and each is incorporated by reference herein.

Debt issuance costs related to the EBC Credit Agreement totaled $ 455,000 and were included as part of our other long term assets balance.

As of April 30, 2024, our outstanding borrowings under the EBC Credit Agreement were $ 10,460,000 .

As of July 31, 2024, our outstanding borrowings under the EBC Credit Agreement were $ 8,704,000 .

In accordance with ASC 470-10-45, Other Presentations Matters - General, we have classified the outstanding borrowings as part of current liabilities.

Note 13 – Cash dividend and declared dividends

We did not pay any dividends during the three or six months ended April 30, 2024, nor during the three or six months ended April 30, 2023.

We did not pay any dividends during the three or nine months ended July 31, 2024, nor during the three or nine months ended July 31, 2023.

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

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Readers are also urged to carefully review and consider the various disclosures made by the Company which attempt to advise interested parties of the factors which affect our business, including without limitation the disclosures made under the caption “ Management ’ s Discussion and Analysis of Financial Condition and Results of Operations, ” under the caption “ Risk Factors, ” and the audited consolidated financial statements and related notes included in our Annual Report filed on Form 10-K for the year ended October 31, 2023 and other reports and filings made with the Securities and Exchange Commission.

Critical Accounting Policies

Critical Accounting Estimates

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 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.

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

We base our estimates on historical experience and on various other assumptions that are believed to be appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

Inventories - allowance for excess and slow moving items

Inventories are stated at the lower of cost or net realizable value, with cost determined using the weighted average cost method of accounting.

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Some of these factors include macroeconomic conditions that correlate with historical loss experience, delinquency trends, aging behavior of receivables and credit and liquidity quality indicators for industry groups, customer classes or individual customers.

During the three months ended April 30, 2024, we considered the current and expected future economic and market conditions and concluded that no material adjustment to Credit Losses was required as of April 30, 2024.

Long-Lived Assets Including Goodwill

During the three months ended July 31, 2024, we considered the current and expected future economic and market conditions and concluded that no material adjustment to Credit Losses was required as of July 31, 2024 relative to October 31, 2023.

Impairment testing on Long-Lived Assets Including Goodwill

We assess property, plant and equipment and intangible assets, which are considered definite-lived assets, for impairment.

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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.

Valuation Allowance on Deferred Income Taxes

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

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

The calculation of the tax provision involves significant judgment in estimating the impact of uncertainties in the application of GAAP and complex tax laws.

Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on our financial condition and operating results.

Stock-based Compensation

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The Custom Cabling segment designs, manufactures, markets and distributes custom copper and fiber cable assemblies, complex hybrid fiber optic and power solution cables, electromechanical wiring harnesses 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, 2024, 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 37% 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 63% of total sales for the six months ended April 30, 2024.

For the nine months ended July 31, 2024, 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 39% 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 61% of total sales for the nine months ended July 31, 2024.

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

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

However, we have incurred an operating loss during the six months ended April 30, 2024.

However, we have incurred an operating loss during the nine months ended July 31, 2024.

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.

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

As of April 30, 2024, we had a total of $1.4 million of cash and cash equivalents compared to a total of $4.9 million of cash and cash equivalents as of October 31, 2023.

As of April 30, 2024, we had working capital of $10.9 million and a current ratio of approximately 1.6:1 with current assets of $30.2 million and current liabilities of $19.3 million.

As of July 31, 2024, we had a total of $1.8 million of cash and cash equivalents compared to a total of $4.9 million of cash and cash equivalents as of October 31, 2023.

As of July 31, 2024, we had working capital of $11.0 million and a current ratio of approximately 1.6:1 with current assets of $29.4 million and current liabilities of $18.4 million.

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

As of April 30, 2024, we had $18.0 million of backlog, compared to $16.1 million as of October 31, 2023.

As of July 31, 2024, we had $20.1 million of backlog, compared to $16.1 million as of October 31, 2023.

Since purchase orders are submitted from customers based on the timing of their requirements, our ability to predict orders in future periods or trends in future periods is limited.

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

In the six months ended April 30, 2024, we generated $1.0 million of cash in our operating activities.

This net inflow of cash is primarily related to $2.7 million from deferred income taxes, $2.4 million from inventories, $1.3 million from depreciation and amortization, $0.5 million from stock-based compensation expense, $0.3 million from right-of-use assets, $0.2 million from other current assets, $25,000 from debt issuance amortization and $14,000 from extinguishment of debt issuance costs.

The cash usage was primarily due to the net loss of $5.7 million, accrued expenses of $0.4 million, change in accounts receivable of $0.3 million, payments of accounts payable of $45,000 and bad debt expense of $8,000.

During the six months ended April 30, 2024, we also spent $0.3 million on capital expenditures, $13.2 million in BofA Term Loan payments, $0.5 million of debt issuance cost and drew $10.0 million on the EBC Revolving Loan Facility (used to pay down the BofATerm Loan).

In the nine months ended July 31, 2024, we generated $3.4 million of cash in our operating activities.

This net inflow of cash is primarily related to $3.7 million from inventories, $1.9 million from depreciation and amortization, $0.7 million from stock-based compensation expense, $0.4 million from right-of-use assets, $0.5 million from accrued expenses, $0.2 million from other current assets, $68,000 from debt issuance amortization and $14,000 from extinguishment of debt issuance costs.

The cash usage was primarily due to the net loss of $6.4 million, change in accounts receivable of $0.4 million and payments of accounts payable of $52,000.

We also recorded a non-cash item of $2.7 million from deferred income taxes.

During the nine months ended July 31, 2024, we also spent $0.6 million on capital expenditures, $13.2 million in BofA Term Loan payments, $0.5 million of debt issuance cost and drew $7.7 million on the EBC Revolving Loan Facility (used to pay down the BofATerm Loan).

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

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Results of Operations

Three Months Ended April 30, 2024 vs.

Three Months Ended April 30, 2023

Net sales for the three months ended April 30, 2024 (the “fiscal 2024 quarter”) decreased by 27.8%, or $6.2 million, to $16.1 million as compared to the three months ended April 30, 2023 (the “fiscal 2023 quarter”).

Net sales for the fiscal 2024 quarter at the Custom Cabling segment decreased by $3.5 million, or 36.1%, to $6.2 million, compared to $9.7 million in the fiscal 2023 quarter.

The decrease was primarily the result of a decrease in sales of hybrid fiber cables to wireless customers.

Net sales for the fiscal 2024 quarter at the RF Connector segment decreased by $2.7 million, or 21.4%, to $9.9 million as compared to $12.6 million in the fiscal 2023 quarter, primarily due to a decrease in sales related to lower levels of inventory being kept on hand at our distributor customers based on seasonality and the lower carrier capital expenditure environment, and fewer carrier projects involving approved RF components.

Gross profit for the fiscal 2024 quarter decreased by $1.3 million to $4.8 million, and gross margins increased to 29.9% of sales compared to 27.4% of sales in the fiscal 2023 quarter.

The decrease in gross profit and increase in gross margin was primarily result of increased efficiencies from facility consolidation, cost reduction initiatives and product mix.

Engineering expenses decreased by $0.2 million to $0.6 million in the fiscal 2024 quarter compared to $0.9 million in the fiscal 2023 quarter.

The decrease was the result of headcount reduction and other cost savings initiatives.

Three Months Ended July 31, 2024 vs.

Three Months Ended July 31, 2023

Net sales for the three months ended July 31, 2024 (the “fiscal 2024 quarter”) increased by 7.6%, or $1.1 million, to $16.8 million as compared to the three months ended July 31, 2023 (the “fiscal 2023 quarter”).

Net sales for the fiscal 2024 quarter at the Custom Cabling segment increased by $2.0 million, or 39.2%, to $7.1 million, compared to $5.1 million in the fiscal 2023 quarter.

The increase was primarily the result of an increase in sales of thermal cooling and small cell enclosures at Schrofftech and hybrid fiber cables to wireless customers.

Net sales for the fiscal 2024 quarter at the RF Connector segment decreased by $0.8 million, or 7.6%, to $9.7 million as compared to $10.5 million in the fiscal 2023 quarter.

This was primarily due to a decrease in sales to some of our distributor customers related to seasonality, lower levels of inventory kept on hand in the channel, and the significantly lower carrier capital expenditure environment, leading to fewer carrier projects involving approved RF components.

Gross profit for the fiscal 2024 quarter increased by $1.1 million to $5.0 million, and gross margins increased to 29.5% of sales compared to 24.4% of sales in the fiscal 2023 quarter.

The increase in gross profit and increase in gross margin was primarily the result of increased efficiencies from facility consolidation, cost reduction initiatives and product mix.

Engineering expenses decreased by $36,000 to $0.7 million in the fiscal 2024 quarter compared to $0.7 million in the fiscal 2023 quarter.

The decrease was the result of more concentrated engineering activities coupled with other cost-savings initiatives.

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

Selling and general expenses decreased by $0.1 million to $4.6 million (28.7% of sales) compared to $4.7 million (21.3% of sales) in the second quarter last year primarily due to a decrease in variable compensation related to commissions and bonuses as a result of the lower sales along with cost savings relating to reduced office and information technology spend.

We also incurred a one-time charge of $0.1 million relating to consulting spend and severance in the fiscal 2024 quarter.

For the fiscal 2024 quarter, the Custom Cabling segment had pretax income of $0.4 million and the RF Connector segment had a pretax loss of $0.7 million, as compared to $0.3 million income and $0.2 million income, respectively, for the comparable quarter last year.

Selling and general expenses decreased by $0.4 million to $4.7 million (28.1% of sales) compared to $5.1 million (32.9% of sales) in the third quarter last year, primarily due to restructuring of sales and marketing activities along with related cost savings initiatives.

We did not incur any one-time charges in the fiscal 2024 quarter.

For the fiscal 2024 quarter, the Custom Cabling segment had pretax income of $0.3 million and the RF Connector segment had a pretax loss of $0.7 million, as compared to $0.4 million loss and $1.4 million loss, respectively, for the comparable quarter last year.

The increase in pretax income at the Custom Cabling segment was due to a more favorable product mix.

The decrease in the pretax net income at the RF Connector segment was primarily due to the decrease in sales related to lower levels of inventory being kept on hand at our distributor customers and the lower carrier capital expenditure environment, and fewer carrier projects involving approved RF components.

For fiscal 2024 and 2023 quarters, we recorded income tax provision (benefit) of $3,649,000 and ($164,000), respectively.

The decrease in the pretax net income at the RF Connector segment was primarily due to decreased sales to some of our distributor customers based on lower levels of inventory kept on hand in the channel, and the lower carrier capital expenditure environment, leading to fewer carrier projects involving approved RF components.

For fiscal 2024 and 2023 quarters, we recorded income tax benefit of $52,000 and $482,000, respectively.

The effective tax rate was 6.9% for the fiscal 2024 quarter, compared to 22.7% for the fiscal 2023 quarter.

The change in the effective tax rate from the fiscal 2024 quarter to fiscal 2023 quarter was primarily driven by the recording of a valuation allowance on our deferred tax asset.

For the fiscal 2024 quarter, net loss was $4.3 million and fully diluted loss per share was $0.41, compared to a net income of $0.6 million and fully diluted earnings per share of $0.06 for the fiscal 2023 quarter.

The change in the effective tax rate from the fiscal 2024 quarter to fiscal 2023 quarter was primarily driven by the recording of a valuation allowance of $3.6 million on our deferred tax asset.

For the fiscal 2024 quarter, net loss was $0.7 million and fully diluted loss per share was $0.07, compared to a net loss of $1.6 million and fully diluted loss per share of $0.16 for the fiscal 2023 quarter.

For the fiscal 2024 quarter, the diluted weighted average shares outstanding were 10,495,082 as compared to 10,290,265 for the fiscal 2023 quarter.

Six Months Ended April 30, 2024 vs.

Six Months Ended April 30, 2023

Net sales for the six months ended April 30, 2024 (the “fiscal 2024 six-month period”) of $29.6 million decreased by 27.1%, or $11.0 million, compared to the six months ended April 30, 2023 (the “fiscal 2023 six-month period”).

The decrease in net sales is attributable mainly to the RF Connector segment, which decreased by $5.6 million, or 23%, to $18.7 million compared to $24.3 million in the fiscal 2023 six-month period, primarily due to a decrease in sales related to lower levels of inventory being kept on hand at our distributor customers based on seasonality and the lower carrier capital expenditure environment, and fewer carrier projects involving approved RF components and the Net sales for the fiscal 2024 six-month period at the Custom Cabling segment decreased by $5.4 million, or 33.1%, to $10.9 million compared to $16.3 million in the fiscal 2023 six-month period, primarily due to a decrease in sales of hybrid fiber cables to wireless customers at Cables Unlimited.

Gross profit for the fiscal 2024 six-month period decreased by $3.1 million to $8.1 million while gross margins remained relatively consistent at 27.5% of sales compared to 27.6% of sales in the fiscal 2023 six-month period.

The decrease in gross profit was primarily related to the overall decrease in sales while gross margins remained relatively consistent due to product mix.

Engineering expenses decreased $0.4 million to $1.4 million for the fiscal 2024 six-month period compared to $1.8 million in the fiscal 2023 six-month period.

The decrease was primarily the result of headcount reduction and other cost savings initiatives.

Nine Months Ended July 31, 2024 vs.

Nine Months Ended July 31, 2023

Net sales for the nine months ended July 31, 2024 (the “fiscal 2024 nine-month period”) of $46.4 million decreased by 17.6%, or $9.9 million, compared to the nine months ended July 31, 2023 (the “fiscal 2023 nine-month period”).

The decrease in net sales is attributable mainly to the RF Connector segment, which decreased by $6.5 million, or 18.6%, to $28.4 million compared to $34.9 million in the fiscal 2023 nine-month period, primarily due to decreased sales to some of our distributor customers based on lower levels of inventory kept on hand in the channel, and the lower carrier capital expenditure environment, leading to fewer carrier projects involving approved RF components.

The Net sales for the fiscal 2024 nine-month period at the Custom Cabling segment decreased by $3.4 million, or 15.9%, to $18.0 million compared to $21.4 million in the fiscal 2023 nine-month period, primarily due to a decrease in sales of hybrid fiber cables to wireless customers at Cables Unlimited.

Gross profit for the fiscal 2024 nine-month period decreased by $1.9 million to $13.1 million while gross margins increased to 28.2% of sales compared to 26.7% of sales in the fiscal 2023 nine-month period.

The decrease in gross profit was primarily a result of the decrease in sales while gross margins remained relatively consistent due to product mix and other cost-savings initiatives.

Engineering expenses decreased $0.4 million to $2.1 million for the fiscal 2024 nine-month period compared to $2.5 million in the fiscal 2023 nine-month period.

The decrease was primarily the result of headcount reduction, more concentrated engineering activities and other cost-savings initiatives.

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

Selling and general expenses decreased by $0.8 million to $9.2 million (31.3% of sales) compared to $10.0 million (24.7% of sales) in the six-month period last year primarily due to a decrease in variable compensation related to commissions and bonuses as a result of the lower sales along with cost savings relating to reduced office and IT.

We also incurred a one-time charges of $0.2 million relating to consulting spend, severance and inventory appraisal in fiscal 2024.

For the fiscal 2024 six-month period, pretax income for the Custom Cabling segment was $0.1 million and the pretax loss for the RF Connector segment was $2.4 million, as compared to $0.5 million loss and $0.4 million income, respectively, for the comparable six-month period last year.

For the fiscal 2024 and 2023 six-month periods, we recorded income tax provision (benefit) of $2,818,000 and ($324,000), respectively.

The effective tax rate was (99.3%) for the fiscal 2024 six-month period, compared to 35.8% for the fiscal 2023 six-month period.

The change in effective tax rate for the fiscal 2024 and 2023 six-month periods was primarily driven by the recording of a valuation allowance on our deferred tax asset.

For the fiscal 2024 six-month period, net loss was $5.7 million and fully diluted loss per share was ($0.54) per share as compared to a net loss of $0.6 million and fully diluted loss per share of $0.06 per share for the fiscal 2023 six-month period.

For the fiscal 2024 six-month period, the diluted weighted average shares outstanding were 10,452,597 as compared to 10,256,158 for the fiscal 2023 six-month period.

Selling and general expenses decreased by $1.3 million to $13.9 million (30.0% of sales) compared to $15.2 million (27.0% of sales) in the nine-month period last year primarily due to a decrease in variable compensation related to commissions and bonuses, resulting from lower sales.

We also realized cost savings from restructuring, coupled with reduced general office and IT expenses.

We incurred one-time charges of $0.2 million relating to consulting spend, severance, and an inventory appraisal in fiscal 2024.

For the fiscal 2024 nine-month period, pretax income for the Custom Cabling segment was $0.4 million and the pretax loss for the RF Connector segment was $3.1 million, as compared to $1.0 million loss and $1.0 million loss, respectively, for the comparable nine-month period last year.

For the fiscal 2024 and 2023 nine-month periods, we recorded income tax provision (benefit) of $2,766,000 and ($806,000), respectively.

The effective tax rate was (76.9%) for the fiscal 2024 nine-month period, compared to 26.6% for the fiscal 2023 nine-month period.

The change in effective tax rate for the fiscal 2024 and 2023 nine-month periods was primarily driven by the recording of a valuation allowance of $3.6 million on our deferred tax asset.

For the fiscal 2024 nine-month period, net loss was $6.4 million and fully diluted loss per share was ($0.61) per share as compared to a net loss of $2.2 million and fully diluted loss per share of $0.22 per share for the fiscal 2023 nine-month period.

For the fiscal 2024 nine-month period, the diluted weighted average shares outstanding were 10,466,862 as compared to 10,267,652 for the fiscal 2023 nine-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