RF INDUSTRIES, LTD. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 -– Unaudited interim condensed consolidated financial statements

TheOur accompanying unaudited condensed consolidated financial statements of RF Industries, Ltd. and its divisions and three wholly-owned subsidiaries (collectively, hereinafter the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of AmericaGAAP for complete financial statements. In the opinion of management, all adjustments, which are normal and recurring, have been included in order to makefor a fair statement of the information not misleading.financial position. Information included in the condensed consolidated balance sheet as of October 31, 20172023 has been derived from, and certain terms used herein are defined in, the audited consolidated financial statements of the CompanyRF Industries, Ltd. as of October 31, 20172023 included in the Company’sour Annual Report on Form 10-K (“Form 10-K”) for the year ended October 31, 20172023 that was previously filed with the Securities and Exchange Commission (“SEC”). Operating results for the three monthmonths ended January 31, 20182024 are not necessarily indicative of the results that may be expected for the year endingended October 31, 2018.2024. 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.

Our accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company’s Annual ReportCompany 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 three months ended January 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. The Company intends to continue to pursue additional continuous improvement and cost reduction measures, as well as organic growth in revenue and profitability.

As of January 31, 2024, the Company was in compliance with the covenants contained in the Loan Agreement, dated as of February 25, 2022 (as amended, the “Loan Agreement”), between the Company and Bank of America, N.A. (the “Bank”), under which the Bank had provided the Company with a $17 million term loan (the “Term Loan”) and a $3 million revolving credit facility (the “Revolving Credit Facility” and together with the Term Loan, the “Credit Facility”). In January 2024, given the economic conditions and the associated impact on Form 10-K forearnings, the year ended OctoberCompany entered into Amendment No.2 to the Loan Agreement to modify the financial covenants in order to avoid a potential covenant violation during the fiscal quarter ending January 31, 2017.2024. In February 2024, the Company entered into Amendment No. 3 to the Loan Agreement to further modify certain financial covenants in order to avoid potential violations. The amendments effect changes to certain provisions and covenants in the Loan Agreement as noted in Note 12.

On March 15, 2024, the Company entered into the EBC Credit Agreement (as defined below), pursuant to which proceeds from initial drawings under the EBC Credit Facilities (as defined below) were used to repay in full outstanding obligations under the Loan Agreement. The Loan Agreement was terminated upon entry into the EBC Credit Agreement.

Principles of consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of RF Industries, Ltd., Cables Unlimited, Inc. (“Cables Unlimited”), Comnet Telecom Supply, Inc. (“Comnet”), and Rel-Tech Electronics, Inc. (“Rel-Tech”), C Enterprises, Inc. (“C Enterprises”), Schroff Technologies International, Ltd. (“Schrofftech”), and Microlab/FXR LLC (“Microlab”), wholly-owned subsidiaries of RF Industries, Ltd. All intercompany balances and transactions have been eliminated in consolidation.

Revenue recognitionFair value measurement

Four basic criteria mustWe measure at fair value certain financial assets and liabilities. Fair value is defined as the price that would be met before revenue can be recognized: (1) persuasive evidencereceived to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. GAAP specifies a hierarchy of an arrangement exists; (2) delivery has occurredvaluation techniques based on whether the inputs to those valuation techniques are observable or services rendered; (3)unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs have created the fee is fixedfollowing fair-value hierarchy:

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 determinable;model-derived valuations in which all significant inputs and (4) collectability is reasonably assured. The Company recognizes revenuesignificant value drivers are observable in active markets; and

Level 3— Valuations derived from product sales after purchase ordersvaluation techniques in which one or more significant inputs or significant value drivers are received that contain a fixed priceunobservable.

As of January 31, 2024 and October 31, 2023, the carrying amounts reflected in the accompanying consolidated balance sheets for shipments with terms of FOB Shipping Point, revenue is recognized upon shipment, for shipments with terms of FOB Destination, revenue is recognized upon deliverycash and revenue from services is recognized when services are performed,cash equivalents, accounts receivable, and the recovery of the consideration is considered probable.accounts payable approximated their carrying value due to their short-term nature.

Recent accounting standards

Recently issued accounting pronouncements not yet adopted:

In FebruaryJune 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting StandardsStandard Update (“ASU”) No. 2016-02, Leases. This ASU requires lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases. The ASU also requires additional qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on its Consolidated (ASU) 2016-13, Financial Statements.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. This guidance will supersede Topic 605, Revenue Recognition, in addition to other industry-specific guidance, once effective. The new standardInstruments—Credit Losses, which requires a company to recognize revenue infinancial asset (or a manner that depicts the transfergroup of promised goods or services to customers in an amount that reflects the consideration to which the company expectsfinancial assets) measured at amortized cost basis to be entitled in exchangepresented at the net amount expected to be collected. The allowance for those goods and services.  In August 2015,credit losses is a valuation account that is deducted from the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferralamortized cost basis of the Effective Date, as a revisionfinancial asset(s) to ASU 2014-09, which revisedpresent the effective datenet carrying value at the amount expected to fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted but not prior to periods beginning after December 15, 2016 (i.e.,be collected on the original adoption date per ASU 2014-09). In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, which clarifies certain aspects of the principal-versus-agent guidance, including how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements, such as service transactions. The amendments also reframe the indicators to focus on evidence that an entity is acting as a principal rather than as an agent. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies how an entity should evaluate the nature of its promise in granting a license of intellectual property, which will determine whether it recognizes revenue over time or at a point in time. The amendments also clarify when a promised good or service is separately identifiable (i.e., distinct within the context of the contract) and allow entities to disregard items that are immaterial in the context of a contract. The Company continues to assess the impact this new standard may have on its ongoing financial reporting. The Company has identified its revenue streams both by contract and product type and is assessing each for potential impacts. For the revenue streams assessed, the Company does not anticipate a material impact in the timing or amount of revenue recognized. 

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles-Goodwill and Other, which simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test. Instead, if “the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.”asset. The guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted.In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic326), which pushes back the effective date for public business entities that are smaller reporting companies, as defined by the SEC, to fiscal years beginning after December 15, 2022. The guidance was effective for the Company is currently evaluating the impactbeginning on November 1, 2023 and the adoption of this new standard will havehad no material impact on its Consolidated Financial Statements.the Company’s condensed consolidated financial statements or related disclosures.

Recently issued accounting pronouncements not yet adopted:

In March 2016,November 2023, the FASB issued Accounting Standards Update No. 2016-09, Compensation – Stock Compensation. The newASU 2023-07, Segment Reporting (Topic 280): 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. We are currently evaluating the potential effect that the updated standard modified several aspects ofwill have on our financial statement disclosures.

In December 2023, the accounting and reporting for employee share-based payments and related tax accounting impacts, includingFASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures to expand the presentation in the statements of operations and cash flows of certain tax benefits or deficiencies and employee tax withholdings, as well as the accounting for award forfeitures over the vesting period. One provision within this pronouncement requires that excess income tax benefits and tax deficiencies related to share-based payments be recognized within income tax expense in the statement of income, rather than within additional paid-in capital on the balance sheet. The Company adopted this provision in the first quarter of fiscal 2018. The adoption of this provision was applied prospectively. The impact to the Company's results of operations related to this provision in the first quarter of fiscal 2018 was an increase in the benefitdisclosure requirements for income taxes, of $19,000, and a 3.5% lower effective tax rate than if the standard had not been adopted. The impact of this provision on the Company's future results of operations will depend in part on the market prices for the Company's shares on the dates there are taxable eventsspecifically related to share awards, butthe rate reconciliation and income taxes paid. ASU 2023-09 is not expected to be material. In connectioneffective for our annual periods beginning January 1, 2025, with another provision within this pronouncement,early adoption permitted. We are currently evaluating the Company has elected to account for forfeitures as they occur rather than estimate expected forfeitures, withpotential effect that the change being applied prospectively. The adoptionupdated standard will have on our financial statement disclosures.

Note 2 – Concentrations of this and other provisions within the pronouncement did not have a material impact on the Company’s financial statements.credit risk

Note 2 - Discontinued operationsFinancial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. We maintain our cash and cash equivalents with high-credit quality financial institutions. At January 31, 2024, we had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $3.7 million.

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

For the three months ended January 31, 2018 and January 31, 2017, the Company recognized approximately $0 and $62,0002024, no customers accounted for 10% or more of royalty income, respectively, for RadioMobile, which amount has been included within discontinued operations.

During March 2016, the Company announced the shutdown of its Bioconnect division, which comprised the entire operations of the Medical Cabling and Interconnect segment. The closure is part of the Company’s ongoing plan to close or dispose of underperforming divisions that are not part of the Company’s core operations.net sales. For the three months ended January 31, 2017, the Company recognized approximately $10,000 of income from sale of equipment for the Bioconnect division, which has been included within discontinued operations.

Note 3 - Inventories and major vendors

Inventories, consisting of materials, labor and manufacturing overhead, are stated at the lower of cost or market. Cost has been determined using the weighted average cost method. Inventories consist of the following (in thousands):

One vendor2023, one wireless carrier customer accounted for 23%15% of inventory purchasesnet sales and 16% of total net accounts receivable balance. For the three months ended January 31, 2024, we had two distributor customers whose sales were less than 10% of our net sales but for which we had 10% each of total net accounts receivable balance for both customers; for the three months ended January 31, 2018. No vendor2023, both customers accounted for greaterless than 10% of inventory purchases fornet sales and 7% each of total net account receivable balance. Although these customers have been significant customers of the three months ended January 31, 2017. The Company, has arrangementsthe written agreements with these vendors tocustomers do not have any minimum purchase product based on purchaseobligations and these customers could stop buying our products at any time and for any reason. A reduction, delay or cancellation of orders periodically issued byfrom these customers or the Company.loss of these customers could significantly reduce our future revenues and profits.

Note 3 – Inventories and major vendors

Inventories, consisting of materials, labor and manufacturing overhead, are stated at the lower of cost or net realizable value. Cost has been determined using the weighted average cost method. Inventories consist of the following (in thousands): 

For the three months ended January 31, 2024, no single vendor accounted for 10% or more of inventory purchases. For the three months ended January 31, 2023, two vendors accounted for 12% and 10% of inventory purchases. We have arrangements with this vendor to purchase products based on purchase orders that we periodically issue.

Note 4 -– Other current assets

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

Long-term portion of notes receivable of $0 and $21,000 is recorded in other assets at January 31, 2018 and October 31, 2017, respectively.

Note 5 -– Accrued expenses and other long-termcurrent liabilities

Accrued expenses consist of the following (in thousands):

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

The Company measures at fair value certain financial assets and liabilities. U. S. GAAP specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs have created the following fair-value hierarchy:

Level 1 - Quoted prices for identical instruments in active markets;

Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

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

The contingent consideration liability represents future earn-out liability that we may be required to pay in conjunction with the acquisition of Rel-Tech and Comnet. The Company estimates the fair value of the earn-out liability using a probability-weighted scenario of estimated qualifying earn-out gross profit related to Rel-Tech and EBITDA related to Comnet calculated at net present value (level 3 of the fair value hierarchy).

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of January 31, 2018 (in thousands):

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of October 31, 2017 (in thousands):

The following table summarizes the Level 3 transactions for the three months ended January 31, 2018 and for the year ended October 31, 2017 (in thousands):

Note 6 - Earnings– Loss per share

Basic earnings (loss)loss per share is computed by dividing net income (loss)loss by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) 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 ended January 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 dilutiveissuable securities totaling 771,973that are out-of-the-money totaled 1,068,022 and 1,024,188749,488 shares for the three months ended January 31, 20182024 and 2017,2023, 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:

Note 7 - Stock-based compensation and equity transactions

The Company’s current stock incentive plan provides for the granting of qualified and nonqualified options to the Company’s officers, directors and employees. The Company satisfies the exercise of options by issuing previously unissued common shares. On December 13, 2017, the Company granted 80,000 incentive stock options to an employee. These options vest 8,000 on the date of grant and 8,000 shares per year thereafter on each of the next nine anniversaries of December 13, 2017 and expire ten years from date of grant. No options were granted to Company employees during the three months ended January 31, 2017.

The weighted average fair value of employee and non-employee directors’ stock options granted by the Company during the three months ended January 31, 2018 and 2017 was estimated to be $2.44 and $1.50, respectively, per share, using the Black-Scholes option pricing model with the following assumptions:

Expected volatilities are based on historical volatility of the Company’s stock price and other factors. The Company used the historical method to calculate the expected life of the 2018 and 2017 option grants. The expected life represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on the U.S. Treasury rate with a maturity date corresponding to the options’ expected life. The dividend yield is based upon the historical dividend yield.

Company stock option plans

Descriptions of the Company’s stock option plans are included in Note 9 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2017. A summary of the status of the options granted under the Company’s stock option plans as of January 31, 2018 and the changes in options outstanding during the three months then ended is presented in the table that follows:

Weighted average remaining contractual life of options outstanding as of January 31, 2018: 4.63 years

Weighted average remaining contractual life of options exercisable as of January 31, 2018: 3.21 years

Weighted average remaining contractual life of options vested and expected to vest as of January 31, 2018: 4.62 years

Aggregate intrinsic value of options outstanding at January 31, 2018: $1,012,000

Aggregate intrinsic value of options exercisable at January 31, 2018: $736,000

Aggregate intrinsic value of options vested and expected to vest at January 31, 2018: $1,007,000

As of January 31, 2018, $418,000 of expense with respect to nonvested share-based arrangements has yet to be recognized but is expected to be recognized over a weighted average period of 5.04 years.

Non-employee directors receive $50,000 annually, which is paid one-half in cash and one-half through the grant of non-qualified stock options to purchase shares of the Company’s common stock. During the quarter ended January 31, 2018, the Company granted each of its five non-employee directors 37,927 options. The number of stock options granted to each director was determined by dividing $25,000 by the fair value of a stock option grant using the Black-Scholes model ($0.659 per share). These options vest ratably over fiscal year 2018.

Stock option expense

During the three months ended January 31, 2018 and 2017, stock-based compensation expense totaled $75,000 and $51,000, respectively. For the three months ended January 31, 2018 and 2017, stock-based compensation classified in cost of sales amounted to none and $3,000, respectively, and stock-based compensation classified in selling and general expense amounted to $75,000 and $48,000, respectively.

Note 8 - Concentrations of credit risk7 – Stock-based compensation and equity transactions

Financial instruments that potentially subjectOn January 11, 2023, we granted a total of 54,092 shares of restricted stock and 108,181 incentive stock options to one manager and three officers, respectively. The shares of restricted stock and incentive stock options vest over four years as follows: (i) one-quarter of the Companyrestricted shares and options vested on January 10, 2024 and (ii) the remaining restricted shares and options shall vest in 12 equal quarterly installments over the next three years. Also on January 11, 2023, we granted another manager 50,000 incentive stock options. As of October 31, 2023, the 50,000 incentive stock options granted to concentrationsthe manager were cancelled and forfeited as the manager was no longer employed. All incentive stock options expire 10 years from the date of credit risk consist primarilygrant.

On August 29, 2023, we granted one employee 10,000 incentive stock options. These options vested with respect to 2,500 shares on the date of grant, and the remaining shares vests in equal installments thereafter on each of the next three anniversaries of August 29, 2023. The options expire 10 years from the date of grant.

On November 1, 2023, we granted 15,202 shares of restricted stock to one officer in lieu of cash and cash equivalents and accounts receivable.compensation. The Company maintains its cash and cash equivalents with high-credit quality financial institutions. Atshares of restricted stock vest over one year as follows: (i) one-quarter of the restricted shares on January 31, 2018,2024 and (ii) the Company had cash and cash equivalent balancesremaining restricted shares shall vest in excess of federally insured limits in the amount of approximately $5.3 million.three equal quarterly installments.

One customer accounted for approximately 36%On January 11, 2024, we granted a total of 110,099 shares of restricted stock and 220,001 incentive stock options to one manager and three officers, respectively. The shares of restricted stock and incentive stock options vest over four years as follows: (i) one-quarter of the Company’s net sales forrestricted shares and options shall vest on January 11, 2025 and (ii) the three-month periodremaining 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 months ended January 31, 2018. At January 31, 2018, this customer’s accounts receivable balance accounted for approximately 32%2024 and 2023.

The weighted average fair value of employee stock options that were granted during the Company’s total net accounts receivable balance. Two customers accounted for approximately 15% and 10% of the Company’s net sales for the three-month periodthree months ended January 31, 2017. At2024 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:

Expected volatilities are based on historical volatility of our stock price and other factors. We used the historical method to calculate the expected life of the 2024 and 2023 option grants. The expected life represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on the U.S. Treasury rate with a maturity date corresponding to the options’ expected life. The dividend yield is based upon the historical dividend yield.

Company stock option plans

Descriptions of our stock option plans are included in Note 9 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 January 31, 2017, these customers’ accounts receivable balances accounted for approximately 15%2024 and 13%the changes in options outstanding during the three months then ended is presented in the table that follows:

Weighted average remaining contractual life of options outstanding as of January 31, 2024: 7.20 years

Weighted average remaining contractual life of options exercisable as of January 31, 2024: 5.85 years

Weighted average remaining contractual life of options vested and expected to vest as of January 31, 2024: 7.20 years

Aggregate intrinsic value of options outstanding at January 31, 2024: $82,980

Aggregate intrinsic value of options exercisable at January 31, 2024: $51,260

Aggregate intrinsic value of options vested and expected to vest at January 31, 2024: $82,242

As of January 31, 2024, $929,464 and $913,226 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 3.0 and 1.3 years, respectively.

Stock option expense

During the Company’s total net accounts receivable balance.  Although these customers have been on-going major customers of the Company, the written agreements with these customers do not have any minimum purchase obligationsthree months ended January 31, 2024 and they could stop buying the Company’s products at any time2023, stock-based compensation expense totaled $255,000 and for any reason. A reduction, delay or cancellation of orders from these customers or the loss of these customers could significantly reduce the Company’s future revenues$212,000, respectively, and profits.was classified in selling and general expense.

Note 9 -8 – Segment information

The Company aggregatesWe aggregate operating divisions into operatingtwo reporting segments that have similar economic characteristics primarily in the following areas: (1) the nature of the product and services; (2) the nature of the production process; (3) the type or class of customer for their products and services; (4) the methods used to distribute their products or services; and (5) if applicable, the nature of the regulatory environment. AsBased upon this evaluation, as of January 31, 2018, the Company2024, we had two segments: 1) reportable segments – RF Connector and Cable Assembly (“RF Connector”) segment and 2) Custom Cabling Manufacturing and Assembly based upon this evaluation.(“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. 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.

The RF Connector and Cable Assembly segment consistedconsists of one divisionthree divisions and the Custom Cabling Manufacturing and Assembly segment was composedconsists of three divisions. The foursix divisions that met the quantitative thresholds for segment reporting are the RF Connector and Cable Assembly division (“RF Connector division”), Cables Unlimited, ComnetRel-Tech, C Enterprises, Schrofftech, and Rel-Tech. The specific customers are different forMicrolab. While each division; however,segment has similar products and services, there is somewas little overlapping of these services to their customer base. The biggest difference in segments is in the channels of sales: sales or product and services for the RF Connector segment were primarily through the distribution channel, while the Custom Cabling segment sales were through a combination of distribution and direct to them. The methods used to distribute products are similar within each division aggregated.the end customer.

Management identifies the Company’s 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 Cable Assembly divisionMicrolab divisions constitutes the RF Connector and Cable Assembly segment, and the Cables Unlimited, ComnetRel-Tech, and Rel-TechSchrofftech divisions constitute the Custom Cabling Manufacturing and Assembly segment.

As reviewed by the Company’sour chief operating decision maker, the Company evaluateswe evaluate the performance of each segment based on income or loss before income taxes. The Company chargesWe charge depreciation and amortization directly to each division within the segment. Accounts receivable, inventory, property and equipment, right-of-use assets, goodwill and intangible assets are the only assets identified by segment. Except as discussed above, the accounting policies for segment reporting are the same for the Company as a whole.

Substantially all

All of the Company’sour operations are conducted in the United States; however, the Company deriveswe derive a portion of itsour revenue from export sales. The Company attributesWe attribute sales to geographic areas based on the location of the customers. The following table presents the sales of the Company by geographic area for the three months ended January 31, 20182024 and 20172023 (in thousands):

Net sales, income (loss) from continuing operations before provision (benefit) for income taxes and other related segment information for the three months ended January 31, 20182024 and 20172023 are as follows (in thousands):

Note 10 -9 – Income taxes

On December 22, 2017, the President signed the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act, among other things, lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. Consequently, we wrote down our net deferred tax liability as of October 31, 2017 by $41,000 to reflect the estimated impact of the Tax Act. While we have substantially completed our provisional analysis of the income tax effects of the Tax Act and recorded a reasonable estimate of such effects, the net one-time charge related to the Tax Act may differ, possibly materially, due to, among other things, further refinement of our calculations, changes in interpretations and assumptions that we have made, additional guidance that may be issued by the U.S. Government, and actions and related accounting policy decisions we may take as a result of the Tax Act. We will complete our analysis over a one-year measurement period ending December 22, 2018, and any adjustments during this measurement period will be included in net earnings from continuing operations as an adjustment to income tax expense in the reporting period when such adjustments are determined.

The Company usesuse 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 the Company operates,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.

The provision ( benefit) forWe recorded income taxes was 18%tax benefits of $831,000 and 30% of income (loss) before income taxes$160,000 for the three months ended January 31, 20182024 and 2017,2023, respectively. The decrease in the effective income tax rate from period to period was primarily driven by the reduction of the federal corporate income tax rate due to the Tax Act resulting in the recognition of a benefit of $41,000, recognition of a stock option windfall benefit of $19,000 related to the exercise of NQSOs and the benefit of R&D credits.The Company recorded income from discontinued operations, net of tax, as disclosed in Note 2.

The total amount of unrecognized tax benefits was $0 as of January 31, 2018 and October 31, 2017. The total balance of accrued interest and penalties related to uncertain tax positions was $0 as of January 31, 2018 and October 31, 2017. The Company recognizes interest and penalties related to uncertain tax positions, if any, as a component of income tax expense and the accrued interest and penalties, if any, are included in deferred and other long-term liabilities in the Company's condensed consolidated balance sheets. There were no material interest or penalties included in income tax expense37.6% for the three months ended January 31, 2018 or 2017.2024, compared to 12.3% for the three months ended January 31, 2023. The change in the effective tax rate is primarily due to the Company's full year forecasted financial loss.             

We had $245,000 and $178,000 of unrecognized tax benefits, as of January 31, 2024 and October 31, 2023, respectively. The unrecognized tax benefits, if recognized, would result in a net tax benefit of $226,000 as of January 31, 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 January 31, 2024. The Company has concluded that the positive evidence of indefinite lived nature of certain tax attributes on hand, and cumulative pre-tax book income on a rolling twelve-quarter basis outweigh the negative evidence of recent losses. Accordingly, the Company has not provided for additional valuation allowance as of January 31, 2024. The realization of the deferred tax assets is contingent upon the Company’s ability to generate sufficient future taxable income. In the event that negative evidence outweighs positive evidence in future periods, the Company may need to record additional valuation allowance, which could have a material impact on our financial position.

Note 11 -10 – Intangible assets

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

Amortization expense for the three months ended January 31, 2024 and the year ended October 31, 2023 was $422,000 and $1,701,000, respectively. As of January 31, 2024, the weighted-average amortization period for the amortizable intangible assets is 8.05 years.

Note 11 – Commitments

We adopted ASU 2016-02 on November 1, 2019, and elected the practical expedient modified retrospective method whereby the lease qualification and classification was carried over from the accounting for leases under ASC 840. The lease contracts for the corporate headquarters, RF Connector division manufacturing facilities, Cables Unlimited, Rel-Tech, and C Enterprises commenced prior to the effective date of November 1, 2019, and were determined to be operating leases. All other new contracts have been assessed for the existence of a lease and for the proper classification into operating leases. The rate implicit in the leases was undeterminable and, therefore, the discount rate used in all lease contracts is our incremental borrowing rate.

We have operating leases for corporate offices, manufacturing facilities, and certain storage units. Our leases have remaining lease terms of one year to ten years. A portion of our operating leases are leased from K&K Unlimited, a company controlled by Darren Clark, the former owner and current President of Cables Unlimited, to whom we make rent payments totaling $16,000 per month.

We also have other operating leases for certain equipment. The components of our facilities and equipment operating lease expenses for the periods ending January 31, 2024 and 2023 were as follows (in thousands):

Note 12 - CommitmentsOther information related to leases was as follows (in thousands):

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

As of January 31, 2024, operating lease right-of-use asset was $15.3 million and operating lease liability totaled $20.4 million, of which $1.3 million is classified as current. There were no finance leases as of January 31, 2024.

The Company currently leases its corporate headquarters and RF connector and cable assembly manufacturingSchrofftech facilities, in San Diego, California. On June 5, 2017, the Company entered into a fifth amendment to its leaseconsisting of one building for its facility in San Diego, California. As a result, the Company now leases a total of approximately 21,9087,000 square feet, of office, warehouse and manufacturing space at its San Diego location. The term of theis leased by RF Industries, Ltd. under a lease expires on Julythat was renewed effective February 1, 2024, for one year expiring January 31, 2022, and the rental payments under the lease currently are $22,721 per month. The San Diego lease also requires the payment of the Company’s pro rata share of real estate taxes and insurance, maintenance and other operating expenses related to the facilities.

2025. The aggregate monthly rental payment under the new lease currently is $4,607 per month.

Note 12 – Term Loan and Line of credit

In February 2022, we entered into a loan agreement (the “Loan Agreement”) providing for alla 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 Company’s facilities currentlyRevolving Credit Facility is approximately $53,000March 1, 2024. The Company drew down the entire amount of the Term Loan on March 1, 2022. The primary interest rate for Term Loan is 3.76% per month,annum. The maturity date of the Term Loan is March 1, 2027.

Borrowings under the Credit Facility are secured by a security interest in certain assets of the Company and are subject to certain loan covenants. The Credit Facility requires the maintenance of certain financial covenants, including: (i) consolidated debt to EBITDA ratio not to exceed 3.00 to 1.00 (the “Debt Test”); (ii) consolidated fixed charge coverage ratio of at least 1.25 to 1.00 (the “FCCR Test”); 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.

On September 12, 2023, we entered into Amendment No. 1 and Waiver to the Loan Agreement (“Loan Amendment No. 1”) with the Bank, which, among other matters, provided for a one-time waiver of our failure to comply with (i) the Debt Test for the period ended July 31, 2023 and (ii) the FCCR Test for the period ended July 31, 2023. Loan Amendment No. 1 also waived testing for compliance with the Debt Test and FCCR Test for the quarterly periods ending October 31, 2023, January 31, 2024, April 30, 2024 and July 31, 2024. Further, pursuant to Loan Amendment No. 1, we were required to maintain (i) (a) until September 21, 2023, minimum liquidity (week-end cash balance plus utilities, maintenanceavailability from the Revolving Credit Facility) of $4.0 million, and insurance.(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.

On January 26, 2024, we entered into Amendment No. 2 to the Loan Agreement (“Loan Amendment No. 2”) with the Bank, which, among other matters, eliminated the requirement to maintain minimum EBITDA of $500,000 for the quarter ending January 31, 2024. Under Loan Amendment No. 2, the line of credit available to the Company under the Revolving Credit Facility was lowered from $3.0 million to $500,000. Further, Loan Amendment No. 2 required that we maintain from September 22, 2023 and thereafter, liquidity of at least $2.0 million, rather than the greater of $4.0 million or 80% of the forecast liquidity as was required under Loan Amendment No. 1. Under Loan Amendment No. 2, the Company was required to pay an additional fee equal to 1% of the collective outstanding principal balances of the Revolving Credit Facility and Term Loan if the Credit Facility was not repaid in full on or before March 1, 2024. This additional fee, if applicable, would be due on March 2, 2024. Further, Loan Amendment No. 2 required that the Company make an additional principal payment of $1.0 million on the Term Loan on March 1, 2024, in addition to the existing monthly payments due on the Term Loan. In connection with Loan Amendment No. 2, we paid the Bank a $500,000 paydown on the Revolving Credit Facility, thereby reducing the outstanding balance from $1.0 million to $500,000.

On February 29, 2024, we entered into Amendment No. 3 to the Loan Agreement (“Loan Amendment No. 3”) with the Bank, which, among other matters, defers the requirement that the Company make an additional principal payment of $1.0 million on the Term Loan, from March 1, 2024, as was required under Loan Amendment No. 2, to April 1, 2024. Further, Loan Amendment No. 3 reduces the additional fee the Company is required to pay the Bank on March 2, 2024 from 1% of the collective outstanding principal balances of the Revolving Credit Facility and Term Loan as of March 1, 2024 as required under Loan Amendment No. 2, to 0.50% of the collective outstanding principal balances of the Revolving Credit Facility and Term Loan as of March 1, 2024. Additionally, Loan Amendment No. 3 requires the Company to pay the Bank a fee equal to 0.50% of the collective outstanding principal balances of the Revolving Credit Facility and Term Loan as of March 1, 2024, if the Credit Facility is not repaid in full on or before April 2, 2024 (the “April 2024 Fee”). The April 2024 Fee, if applicable, will be due on April 2, 2024. Under Loan Amendment No. 3, the Company must continue to maintain liquidity of at least $2.0 million and pay the current remaining outstanding balance of $500,000 on the Revolving Credit Facility by March 1, 2024, as required under Loan Amendment No. 2. As of January 31, 2024, we have borrowed $12,556,000 under the Term Loan and $500,000 from the Revolving Credit Facility.

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

Note 13 -– Cash dividend and declared dividends

The Company paidWe did not pay any dividends of $0.02 per share during the three months ended January 31, 2018 and 2017 for a total of $176,000 per period.2024, nor during the three months ended January 31, 2023.

Note 14 - Subsequent events

On March 8, 2018, the Board of Directors of the Company declared a quarterly cash dividend of $0.02 per share to be paid on April 15, 2018 to stockholders of record on March 31, 2018.

Item 2: Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations

This report contains forward-looking statements. These statements relate to future events or the Company’sour future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,“may,” “will,“will,” “should,“should,” “except,“except,” “plan,“plan,” “anticipate,“anticipate,” “believe,“believe,” “estimate,“estimate,” “predict,“predict,” “potential” or “continue,“potential” or “continue,” the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.

Although the Company believeswe believe that the expectations reflected in the forward-looking statements are reasonable, the Companywe cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Company, nor any other person, assumes responsibility for the accuracy and completeness of the forward-looking statements. The Company isWe are under no obligation to update any of the forward-looking statements after the filing of this Quarterly Report on Form 10-Q to conform such statements to actual results or to changes in its expectations.

The following discussion should be read in conjunction with the Company’sour unaudited condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this Form 10-Q. Readers are also urged to carefully review and consider the various disclosures made by the Company which attempt to advise interested parties of the factors which affect the Company’sour business, including without limitation the disclosures made under the caption “Management’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the caption “Risk “Risk Factors,” and the audited consolidated financial statements and related notes included in the Company’sour Annual Report filed on Form 10-K for the year ended October 31, 20172023 and other reports and filings made with the Securities and Exchange Commission.

Critical Accounting Policies

TheOur unaudited condensed consolidated financial statements of the Company 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 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

Inventories are stated at the lower of cost or market,net realizable value, with cost determined using the weighted average cost method of accounting. Certain items in inventory may be considered obsolete or excess and, as such, we periodically review our inventories for excess and slow moving items and make provisions as necessary to properly reflect inventory value. Because inventories have, during the past few years, represented up to one-fourth of our total assets, any reduction in the value of our inventories would require us to take write-offs that would affect our net worth and future earnings.

Allowance for Doubtful AccountsCredit Losses

The Company records itsOur accounts receivable arise primarily from sales on credit to customers. We establish an allowance for doubtfulcredit losses to present the net amount of accounts receivable expected to be collected. The allowance is determined by using the loss-rate method, which requires an estimation of loss rates based upon its assessmenthistorical loss experience adjusted for factors that are relevant to determining the expected collectability of various factors. The Company considersaccounts receivable. 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 age ofthree months ended January 31, 2024, we considered the accounts receivable balance, credit quality of the Company’s customers, current and expected future economic and market conditions and other factorsconcluded that may affect a customer’s abilityno material adjustment to pay.Credit Losses was required as of January 31, 2024.

Long-Lived Assets Including Goodwill

The Company assessesWe assess property, plant and equipment and intangible assets, which are considered definite-lived assets, for impairment. Definite-lived assets are reviewed when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If property and equipment and intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value.

The Company amortizes itsWe amortize our intangible assets with definite useful lives over their estimated useful lives and reviewsreview these assets for impairment.

We test our goodwill and trademarks and indefinite-lived assets for impairment at least annually or more frequently if events or changes in circumstances indicate these assets may be impaired. These events or circumstances requiresrequire significant judgment and could include a significant change in the business climate, legal factors, operating performance indicators, competition and sale or disposition of all or a portion of a division. 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.

Earn-out Liability

The purchase agreement for the Rel-Tech acquisition provides for earn-out payments of up to $800,000, payable through May 31, 2018. The fair value of the obligation under the earn-out purchase price arrangement for Rel-Tech was $206,000 as of January 31, 2018. The initial earn-out liability was valued at its fair value using the Monte Carlo simulation and is included as a component of the total purchase price. The earn-out was and will continue to be revalued quarterly using a present value approach and any resulting increase or decrease will be recorded into selling and general expenses. Any changes in the assumed timing and amount of the probability of payment scenarios could impact the fair value. Significant judgment is employed in determining the appropriateness of the assumptions used in calculating the fair value of the earn-out as of the acquisition date. Accordingly, significant variances between actual and forecasted results or changes in the assumptions can materially impact the amount of contingent consideration expense we record in future periods.

Income Taxes

The Company recordsWe record a tax provision (benefit) for the anticipated tax consequences of the reported results of operations. Income taxes are accounted for under the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates as of the date of the financial statements that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The Company recordsWe record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

If a deduction reported on a tax return for an equity-based incentive award exceeds the cumulative compensation cost for those instruments recognized for financial reporting purposes, any resulting realized tax benefit that exceeds the previously calculated deferred tax asset for those instruments is considered an excess tax benefit, and is recognized as additional paid-in capital. If the tax deduction is less than the cumulative book compensation cost, the tax effect of the resulting difference is charged first to additional paid-in capital, to the extent of the available pool of windfall tax benefits, with any remainder recognized in income tax expense.

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 the Company’sour financial condition and operating results.

Stock-based Compensation

The Company usesWe use the Black-Scholes model to value the stock option grants. This valuation is affected by the Company’sour stock price as well as assumptions regarding a number of inputs which involve significant judgments and estimates. These inputs include the expected term of employee stock options, the expected volatility of the stock price, the risk-free interest rate and expected dividends.

Overview

RF Industries, Ltd. (together with subsidiaries, the “Company”“Company,” “we”, “us”, or “our”) is a national manufacturer and marketer of interconnect products and systems, including high-performance components such as RF connectors and adapters, dividers, directional couplers and filters, coaxial and specialty cables, and connectors,data cables, wire harnesses, fiber optic cables, custom cabling, energy-efficient cooling systems and connectors, and electrical and electronic specialty cables and components.integrated small cell enclosures. Through its fourour manufacturing and production facilities, the Company provideswe provide a wide selection of interconnect products and solutions primarily to telecommunications carriers and equipment manufacturers, wireless and network infrastructure carriers and manufacturers Data Center and Co-location companies, and to various original equipment manufacturers (OEMs)(“OEMs”) in several market segments. We also design, engineer, manufacture and sell energy-efficient cooling systems and integrated small cell solutions and related components.

The Company operatesWe operate through two reporting segments: (i) the “RFRF Connector and Cable Assembly”Assembly (“RF Connector”) segment, and (ii) the “CustomCustom Cabling Manufacturing and Assembly”Assembly (“Custom Cabling”) segment. The RF Connector and Cable Assembly segment primarily designs, manufactures, markets and distributes a broad range of RF connector, adapter, coupler, divider, and cable products, including coaxial connectorspassives and cable assemblies that are integrated with coaxial connectors, used in telecommunications and information technology, OEM markets and other end markets. The Custom Cabling Manufacturing and Assembly segment designs, manufactures, markets and distributes custom copper and fiber cable assemblies, complex hybrid fiber optic and power solution cables, electromechanical wiring harnesses data center products, and wiring harnesses for a broad range of applications in a diverse set of end markets. The two segments were determined based on the aggregation of operating divisions that have similar economic characteristicsmarkets, energy-efficient cooling systems for wireless base stations and are similar in the majority of the following areas: (1) the nature of the productremote equipment shelters and services; (2) the nature of the production process; (3) the type or class of customer for their productscustom designed, pole-ready 4G and services; (4) the methods used to distribute their products or services; and (5) if applicable, the nature of the regulatory environment.5G small cell integrated enclosures.

For the quarterthree months ended January 31, 2018, most of the Company’s2024, revenues were generated from the Custom Cabling Manufacturing and Assembly segment were generated from the sale of fiber optics cable, copper cabling, custom patch cord assemblies, and wiring harnesses, transceivers/converters and other data center equipment (whichwhich collectively accounted for 75%35% of the Company’s total sales for the quarter ended January 31, 2018).sales. Revenues from the RF Connector and Cable Assembly segment were generated from the sales of RF connectorConnector products and connector cable assemblies and accounted for 25%65% of the Company’s total sales for the quarterthree months ended January 31, 2018.2024. The RF Connector segment mostly sells standardized products regularly used by customers and, therefore, has a more stable revenue stream. On the other hand, the Custom Cabling segment mostly designs, manufactures, and sells customized cabling and wireless-related equipment under larger purchase orders. Accordingly, the Custom Cabling segment is more dependent upon larger orders and its revenues can therefore be more volatile than the revenues of the RF Connector segment.

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

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Management believes that existing current assets and the amount of cash it anticipates it will generate from current operations will be sufficientHistorically, we have been able to fund the anticipatedour liquidity and other capital resource needs of the Company for at least twelve monthsrequirements from the date of this filing. Management believes that its existing assets and the cash expected to befunds we generated from operations, including its current backlog of unfulfilled orders, will be sufficientoperations. However, we have incurred an operating loss during the current fiscal year based onthree months ended January 31, 2024. During the following: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 January 31, 2018, the Company2024, we had a total of $5.9$4.5 million of cash and cash equivalents compared to a total of $6.0$4.9 million of cash and cash equivalents as of October 31, 2017.2023. As of January 31, 2018, the Company2024, we had working capital of $13.9$21.6 million and a current ratio of approximately 3.8:1.2.9:1 with current assets of $32.9 million and current liabilities of $11.3 million. We believe that the amount of cash remaining will be sufficient to fund our anticipated liquidity needs.

SubsequentAs of January 31, 2024, we had $16.2 million of backlog, compared to the fiscal year ended October 31, 2017, the Company has seen an increase in orders for its products in each of its four divisions. As a result of these increased orders, the Company’s backlog has increased from $4.0$16.1 million as of October 31, 20172023. Since purchase orders are submitted from customers based on the timing of their requirements, our ability to $20.2 million aspredict 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 January 31, 2018. A substantial amount of this backlog is expected to be filled in the upcoming quarter ending April 30, 2018 and the remaining amount of the current backlog largely filled by the end of the current fiscal year ending October 31, 2018.  Accordingly, the Company’s liquidity and available capital resources are also expected to materially increase in the current fiscal year.

purchase orders.

The Company used cash of $0.2 million duringIn the three months ended January 31, 2018 due largely2024, we generated $0.8 million of cash in our operating activities. This net inflow of cash is primarily related to the impactcollections of increased sales. As a resultaccounts receivable of the increased sales, accounts receivables ($1.5 million) and$2.0 million, $0.8 million from inventories, ($0.7 million) increased, which was partially offset by increased accounts payable ($0.7 million) and accrued expenses ($0.5 million). This net decrease in cash was partially offset by an increase in cash from net income of $0.5$0.6 million noncash credits of $0.2 million primarily from depreciation and amortization, related to the acquisitions of Comnet, Rel-Tech and CompPro,$0.3 million from stock-based compensation expense and $0.1 million from right of stock-based compensation expense. In addition, duringuse assets. The cash usage was primarily due to the quarternet loss of $1.4 million, deferred income taxes of $0.9 million and payments on accounts payable of $0.7 million.

During the Company received $0.2three months ended January 31, 2024, we also spent $0.1 million from the exercise of stock options and paid out $0.2on capital expenditures, $0.6 million in dividends.Term Loan payments and $0.5 million payments on the Revolving Credit Facility.

The Company does not anticipate needingOur goal to expand and grow our business both organically and through acquisitions may require material additional capital equipment in the next twelve months.equipment. In the past, the Company haswe have purchased all additional equipment, or financed some of itsour equipment and furnishings requirements through capital leases. NoAt this time, we have not identified any additional capital equipment purchases have been currently identified that would require significant additional leasing or capital expenditures during the next twelve12 months. ManagementWe also believesbelieve that based on the Company’sour current financial condition, itsour current backlog of unfulfilled orders, and itsour anticipated future operations, the Companywe would be able to finance itsour expansion, if necessary.

As part of its announced business plan, the Company may fromFrom time to time, acquirewe may undertake acquisitions of other companies or product lines in the future in order to diversify itsour product and solutions offerings and customer base. Any future acquisitionsConversely, we may undertake the disposition of a division or product line due to changes in our business strategy or market conditions. Acquisitions may require the Company to makeoutlay of cash, payments, which may reduce the Company’s futureour liquidity and capital resources while dispositions may increase our cash position, liquidity and capital resources. Since our goal is to continue to expand our operations and accelerate our growth through future acquisitions, we may use some of our current capital resources to fund acquisitions we may undertake in the future.

Results of Operations

Three Months Ended January 31, 20182024 vs. Three Months Ended January 31, 20172023

Net sales of $10.3 million increased by 56%, or $3.7 million, for the three months ended January 31, 20182024 (the “fiscal 20182024 quarter”) whendecreased by 26.2%, or $4.8 million, to $13.5 million as compared to the three months ended January 31, 20172023 (the “fiscal 20172023 quarter”). Net sales for the fiscal 20182024 quarter at the Company’s “CustomCustom Cabling Manufacturing and Assembly” segment (Custom Cabling) increased $3.6decreased by $1.9 million, or 89%28.8%, whento $4.7 million, compared to $6.6 million in the fiscal 2017 quarter from2023 quarter. The decrease was primarily the increased saleresult of a $2.5 million decrease in sales of hybrid fiber optics cable, copper cabling, custom patch cord assemblies, wiring harnesses, transceivers/converters and other data center equipment.cables to wireless customers at Cables Unlimited. Net sales for the fiscal 20182024 quarter at the RF Connector and Cable Assembly segment increaseddecreased by $0.1$2.9 million, or 4%24.8%, to $2.6$8.8 million as compared to $2.5$11.7 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 2017 quarter.

The Company’s2024 quarter decreased by $1.8 million to $3.3 million, and gross profit as a percentagemargins decreased to 24.5% of sales compared to 27.7% of sales in the fiscal 2018 quarter increased by 2% to 30% compared to 28%2023 quarter. The decreases in the fiscal 2017 quarter duegross profit and gross margins were primarily related to the increased revenues at the Custom Cabling division.overall decrease in sales.

Engineering expenses increased $0.1decreased by $0.2 million duringto $0.8 million in the fiscal 20182024 quarter to $0.3 million compared to $0.2$1.0 million forin the fiscal 2017 quarter due to increased salary expense related to engineering activities.2023 quarter. The decrease was the result of headcount reduction and 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 increaseddecreased by $0.2$0.7 million duringto $4.6 million (34.3% of sales) compared to $5.3 million (28.9% of sales) in the first 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 IT. We also incurred a one-time charge of $0.1 million relating to consulting spend and inventory appraisal in the fiscal 2018 quarter to $2.2 million from $2.0 million in the prior year. Selling and general as a percentage of sales declined to 21% for2024 quarter.

For the fiscal 20182024 quarter, the Custom Cabling segment had pretax loss of $0.3 million and the RF Connector segment had a pretax loss of $1.7 million, as compared to 30%$0.8 million loss and $0.1 million income, respectively, for the fiscal 2017 quarter.comparable quarter last year. The increasepretax loss at the Custom Cabling segment was due to the decrease in selling and general expensessales of hybrid fiber cables to wireless carrier customers. The decrease in the pretax net income at the RF Connector segment was primarily due to increased compensationthe decrease in sales related to lower levels of inventory being kept on hand at our distributor customers based on seasonality and the form of commissionslower carrier capital expenditure environment, and accrued bonuses.fewer carrier projects involving approved RF components.

For fiscal 2024 and 2023 quarters, we recorded income tax benefit of $831,000 and $160,000, respectively. The provision (benefit) for income taxeseffective tax rate was 18% and 30% of income (loss) before income taxes37.9% for the three months ended January 31, 2018 and 2017, respectively.fiscal 2024 quarter, compared to 12.1% for the fiscal 2023 quarter. The decreasechange in the effective income tax rate from periodthe fiscal 2024 quarter to periodfiscal 2023 quarter was primarily driven by the reduction of the federal corporate income tax rate due to the Tax Act and the benefit of R&D credits.

On December 22, 2017, the President signed the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act, among other things, lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. Consequently, we wrote down our net deferred tax liability as of October 31, 2017 by $41,000 to reflect the estimated impact of the Tax Act. While we have substantially completed our provisional analysis of the income tax effects of the Tax Act and recorded a reasonable estimate of such effects, the net one-time charge related to the Tax Act may differ, possibly materially, due to, among other things, further refinement of our calculations, changes in interpretations and assumptions that we have made, additional guidance that may be issued by the U.S. Government, and actions and related accounting policy decisions we may take as a result of the Tax Act. We will complete our analysis over a one-year measurement period ending December 22, 2018, and any adjustments during this measurement period will be included in net earnings from continuing operations as an adjustment to income tax expense in the reporting period when such adjustments are determined. All of the income from discontinued operations, net of tax, during the fiscal 2017 quarter was for royalty payments received under the agreement for the sale of the Company’s RadioMobile division. The period for earning royalties from RadioMobile has now expired.full year forecasted financial results.

For the fiscal 20182024 quarter, net incomeloss was $0.5$1.4 million and fully diluted EPS was $0.05loss per share aswas $0.13, compared to a net loss of $0.2$1.2 million and fully diluted of net loss of $0.02earnings per share of $0.11 for the fiscal 20172023 quarter. For the fiscal 2024 quarter, the diluted weighted average shares outstanding was 10,410,580 as compared to 10,222,540 for the fiscal 2023 quarter.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

NothingAs a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to report.provide the information required under this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintainsWe maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) that are designed to assure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

In designing and evaluating the disclosure controls and procedures, management recognizeswe recognize that any controls and procedures, no matter how well designed and operated, can provide reasonable assurance only of achieving the desired control objectives, and managementwe necessarily isare required to apply itsour judgment in weightingweighing the costs and benefits of possible new or different controls and procedures. Limitations are inherent in all control systems, so no evaluation of controls can provide absolute assurance that all control issues and any fraud have been detected. Because of the inherent limitations, we regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, and to maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this report, management,we, under the supervision and with the participation of our then Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, managementour Chief Executive Officer and Chief Financial Officer concluded that the Company’sour disclosure controls and procedures were effective at a reasonable assurance level as of that date.January 31, 2024.

Changes in Internal Control Over Financial Reporting

There has beenDuring the first quarter of fiscal 2024, there were no changechanges in the Company’s internal control over financial reporting duringas such term is defined in Rule 13a-15(f) of the quarter ended January 31, 2018Exchange Act, that has materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. As of the date of this report, we are not subject to any proceeding that is not in the ordinary course of business or that is material to the financial condition of our business.

Item 1A. Risk Factors

The discussionOur business, financial condition and operating results are affected by a number of factors, whether currently known or unknown, including risks specific to us or our businessindustry, as well as risks that affect businesses in general. In addition to the information and operations should be read together with the risk factors containedset forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A, of“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 31, 20172023, filed with the SEC which describe variouson January 29, 2024. The risks disclosed in such Annual Report and uncertainties to which we are or may become subject. These risks and uncertainties have the potential toin this Quarterly Report could materially adversely affect our business, financial condition, cash flows, or results of operations cash flows, strategies or prospects in a material and adverse manner. Therethus our stock price. We believe there have been no material changes from thein our risk factors previouslyfrom those disclosed in the above-mentioned periodic report.Annual Report. However, additional risks and uncertainties not currently known or which we currently deem to be immaterial may also materially adversely affect our business, financial condition, or results of operations.

These risk factors may be important to understanding other statements in this Quarterly Report and should be read in conjunction with the unaudited condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q. Because of such risk factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Nothing to report.Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

None.

Item 3. Defaults upon Senior Securities

Nothing to report.None.

Item 4. Mine Safety Disclosures

Nothing to report.Not applicable.

Item 5. Other Information

NotingAmendments to report.Loan Agreement

On January 26, 2024, we entered into Loan Amendment No. 2, which, among other matters, eliminated the requirement to maintain minimum EBITDA of $500,000 for the quarter ending January 31, 2024. Under Loan Amendment No. 2, the line of credit available to the Company under the Revolving Credit Facility was lowered from $3.0 million to $500,000. Further, Loan Amendment No. 2 required that we maintain from September 22, 2023 and thereafter, liquidity of at least $2.0 million, rather than the greater of $4.0 million or 80% of the forecast liquidity as was required under Loan Amendment No. 1. Under Loan Amendment No. 2, the Company was required to pay an additional fee equal to 1% of the collective outstanding principal balances of the Revolving Credit Facility and Term Loan if the Credit Facility was not repaid in full on or before March 1, 2024. This additional fee, if applicable, would be due on March 2, 2024. Further, Loan Amendment No. 2 requires that the Company make an additional principal payment of $1.0 million on the Term Loan on March 1, 2024, in addition to the existing monthly payments due on the Term Loan. In connection with Loan Amendment No. 2, we paid the Credit Facility Lender a $500,000 paydown on the Revolving Credit Facility, thereby reducing the outstanding balance from $1.0 million to $500,000.

On February 29, 2024, we entered into Loan Amendment No. 3, which, among other matters, defers the requirement that the Company make an additional principal payment of $1.0 million on the Term Loan, from March 1, 2024, as was required under Loan Amendment No. 2, to April 1, 2024. Further, Loan Amendment No. 3 reduces the additional fee the Company is required to pay the Bank on March 2, 2024 from 1% of the collective outstanding principal balances of the Revolving Credit Facility and Term Loan as of March 1, 2024 as required under Loan Amendment No. 2, to 0.50% of the collective outstanding principal balances of the Revolving Credit Facility and Term Loan as of March 1, 2024. Additionally, Loan Amendment No. 3 requires the Company to pay the Bank a fee equal to 0.50% of the collective outstanding principal balances of the Revolving Credit Facility and Term Loan as of March 1, 2024, if the Credit Facility is not repaid in full on or before April 2, 2024 (the “April 2024 Fee”). The April 2024 Fee, if applicable, will be due on April 2, 2024. Under Loan Amendment No. 3, the Company must continue to maintain liquidity of at least $2.0 million and pay the current remaining outstanding balance of $500,000 on the Revolving Credit Facility by March 1, 2024, as required under Loan Amendment No. 2.

EBC Credit Agreement

On March 15, 2024, the Company entered into a loan and security agreement (the “EBC Credit Agreement”), with each of the subsidiaries of the Company (together with the Company, the “Borrowers”), the lenders party thereto, and Eclipse Business Capital LLC, as administrative agent (the “Agent”). All obligations of the Borrowers under the EBC Credit Agreement are, subject to certain limited exceptions, secured by substantially all of the assets of the Company.

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

On March 15, 2024, the Borrowers borrowed the $11.9 million under the EBC Credit Facilities. Proceeds from the initial drawings under the EBC Credit Facilities were used to repay in full outstanding obligations under the Loan Agreement with Bank of America, N.A. (as defined above) and to pay fees, premiums, costs and expenses, including fees payable in connection with the EBC Credit Agreement. Borrowings under the EBC Revolving Loan Facility after the closing date may be used for working capital and general corporate purposes.

In the absence of an Event of Default (as defined in the EBC Credit Agreement) or certain other events (including the inability of the Agent to determine the secured overnight financing rate “SOFR”), borrowings under (a) the EBC Revolving Loan Facility accrue interest at a rate of the one-month term SOFR reference rate plus an adjustment of 0.11448% (“Adjusted Term SOFR”) plus 5.00%, and (b) the EBC Additional Line accrue interest at a rate of Adjusted term SOFR plus 6.50%, in each case subject to a floor of 2.00% for Adjusted Term SOFR. The Borrowers will be required to pay a commitment fee for the unused portion of the EBC Revolving Loan Facility of 0.50% per annum. In addition to the foregoing unused commitment fee, the Borrower is required to pay certain other administrative fees pursuant to the terms of the EBC Credit Agreement.

The Borrowers must maintain a minimum outstanding balance of $8.0 million under the EBC Credit Facilities. Any borrowing under the EBC Credit Facilities will generally be repaid to the extent that the outstanding amounts exceed the lesser of the maximum facility amount (less any applicable reserves) and the borrowing base. Any amounts repaid may be reborrowed, subject to borrowing base availability, until the maturity date on (i) with respect to the EBC Revolving Loan Facility, March 15, 2027 and (ii) with respect to the EBC Additional Line, June 13, 2024.

To the extent the Borrowers prepay the amount outstanding under the EBC Credit Facilities and terminate the EBC Credit Facilities prior to 30 days before the scheduled maturity date, such prepayment will be subject to a prepayment penalty between 1.00% and 3.00% of the then-outstanding committed amounts, depending on the timing of the prepayment.

The EBC Credit Agreement contains certain customary representations and warranties, and notice requirements for the occurrence of specific events such as the occurrence of any event of default or pending or threatened litigation. The EBC Credit Agreement contains certain customary restrictive covenants regarding indebtedness, liens, fundamental changes, investments, restricted payments, disposition of assets, transactions with affiliates, hedging transactions, certain prepayments of indebtedness, amendments to organizational documents and sale and leaseback transactions. In addition, the EBC Credit Agreement restricts the ability of the Borrowers to incur more than $2.5 million of capital expenditures in any 12-month period.

The EBC Credit Agreement contains certain customary events of default, which include (subject to grace periods in certain instances) the failure to make payments when due thereunder, the material inaccuracy of representations or warranties, failure to observe or perform certain covenants, cross-defaults, bankruptcy and insolvency-related events, certain judgments, certain ERISA-related events, failure of any lien created in connection with the EBC Credit Agreement to be valid and perfected (subject to certain exceptions) and effected, the uninsured loss of inventory, and the occurrence of a change in control of any of the Borrowers. If an event of default has occurred and continues beyond any applicable cure period, all outstanding obligations under the EBC Credit Agreement may be accelerated or the commitments may be terminated, among other remedies. Additionally, the lenders are not obligated to fund any new borrowing under the EBC Credit Agreement while an event of default is continuing.

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, which is attached as Exhibit 10.3 to this Quarterly Report on Form 10-Q and is incorporated by reference herein.

Upon the entry into the EBC Credit Agreement, the Loan Agreement was terminated.

Insider Trading Arrangements

During the quarterly period ended January 31, 2024, no director or officer adopted or terminated any Rule 10b5-1 trading arrangement, and/or any non-Rule 10b5-1 trading arrangement (as such terms are defined pursuant to Item 408(a) of Regulation S-K).  

Item 6. Exhibits