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What changed in R F INDUSTRIES LTD's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of R F INDUSTRIES LTD's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+246 added−132 removedSource: 10-K (2025-01-21) vs 10-K (2024-01-29)

Top changes in R F INDUSTRIES LTD's 2024 10-K

246 paragraphs added · 132 removed · 91 edited across 4 sections

Item 1. Business

Business — how the company describes what it does

53 edited+126 added−6 removed86 unchanged
Biggest changeFurther, Loan Amendment No. 1 requires that we maintain (i) (a) until September 21, 2023, minimum liquidity of $4.0 million, and (b) from September 22, 2023 and thereafter, liquidity equal to the greater of (1) $4.0 million or (2) 80% of the liquidity that was 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. 12 On January 26, 2024, we entered into Amendment No. 2 to the Loan Agreement (“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.
Biggest changeFurther, pursuant to Loan Amendment No. 1, we were required to maintain (i) (a) until September 21, 2023, minimum liquidity (week-end cash balance plus availability from the BofA Revolving Credit Facility) of $4.0 million, and (b) from September 22, 2023 and thereafter, liquidity equal to the greater of (1) $4.0 million or (2) 80% of the liquidity that had been forecast for this date at the fourth week of the forecast and (ii) minimum EBITDA of ($400,000), $500,000, $1.0 million, and $1.0 million for the quarters ending October 31, 2023, January 31, 2024, April 30, 2024, and July 31, 2024, respectively.
Accordingly, we will be subject to numerous risks associated with the acquisition of additional businesses, including: ● diversion of management’s attention; ● the effect on our financial statements of the amortization of acquired intangible assets; ● the cost associated with acquisitions and the integration of acquired operations; ● we may not be able to secure capital to finance future acquisitions to the extent additional debt or equity is needed; and ● assumption of unknown liabilities, or other unanticipated events or circumstances.
Accordingly, we will be subject to numerous risks associated with the acquisition of additional businesses, including: ● diversion of management’s attention; 13 ● the effect on our financial statements of the amortization of acquired intangible assets; ● the cost associated with acquisitions and the integration of acquired operations; ● we may not be able to secure capital to finance future acquisitions to the extent additional debt or equity is needed; and ● assumption of unknown liabilities, or other unanticipated events or circumstances.
Moreover, if our third-party contract manufacturers cannot consistently produce high-quality products that are free of defects, we may experience a higher rate of product returns, which would also reduce our profitability and may harm our reputation and brand. 13 Our third-party contract manufacturers are based in Asia. Recently, our third-party contract manufacturers have been subject to various supply chain disruptions.
Moreover, if our third-party contract manufacturers cannot consistently produce high-quality products that are free of defects, we may experience a higher rate of product returns, which would also reduce our profitability and may harm our reputation and brand. Our third-party contract manufacturers are based in Asia. Recently, our third-party contract manufacturers have been subject to various supply chain disruptions.
Our failure to successfully introduce new or enhanced products on a timely and cost-competitive basis could have a material adverse effect on the results of our operations and financial condition. 15 If the manufacturers of our coaxial connectors or other products discontinue the manufacturing processes needed to meet our demands or fail to upgrade their technologies, we may face production delays.
Our failure to successfully introduce new or enhanced products on a timely and cost-competitive basis could have a material adverse effect on the results of our operations and financial condition. If the manufacturers of our coaxial connectors or other products discontinue the manufacturing processes needed to meet our demands or fail to upgrade their technologies, we may face production delays.
Even if we are able to comply with all of the applicable covenants, the restrictions on our ability to manage our business in our sole discretion could adversely affect our business by, among other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate opportunities that we believe would be beneficial to us.
Even if we are able to comply with all of the applicable covenants and terms, the restrictions on our ability to manage our business in our sole discretion could adversely affect our business by, among other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate opportunities that we believe would be beneficial to us.
On September 12, 2023, we entered into Amendment No. 1 and Waiver to the Loan Agreement ( “Loan Amendment No. 1”), 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.
On September 12, 2023, we entered into Amendment No. 1 and Waiver to the BofA Loan Agreement (“Loan Amendment No. 1”) with BofA, 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.
The introduction of enhancements or new products by our competitors could render our existing and future products obsolete or unmarketable. 16 Many of our competitors have significantly greater financial and other resources. In certain circumstances, our customers or potential customers have internal or may in the future institute manufacturing capabilities with which we may compete.
The introduction of enhancements or new products by our competitors could render our existing and future products obsolete or unmarketable. Many of our competitors have significantly greater financial and other resources. In certain circumstances, our customers or potential customers have internal or may in the future institute manufacturing capabilities with which we may compete.
If we do not pay a cash dividend, our stockholders will not realize a return on their investment in the common stock except to the extent of any appreciation in the value of the common stock. Future sales of our common stock in the public market could cause our stock price to fall.
If we do not pay a cash dividend, our stockholders will not realize a return on their investment in the common stock except to the extent of any appreciation in the value of the common stock. 18 Future sales of our common stock in the public market could cause our stock price to fall.
Further, Loan Amendment No. 2 requires 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.
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 line of credit available to the Company under the Revolving Credit Facility was lowered from $3.0 million to $500,000.
Under Loan Amendment No. 2, the line of credit available to the Company under the BofA Revolving Credit Facility was lowered from $3.0 million to $500,000.
As of October 31, 2023 and 2022, we determined that our internal control over financial reporting was effective. However, no assurance can be given that there will not be failures in our internal controls in future periods.
As of October 31, 2024 and 2023, we determined that our internal control over financial reporting was effective. However, no assurance can be given that there will not be failures in our internal controls in future periods.
While we have in the past paid dividends, no assurance can be given that we will declare or pay cash dividends in the future. During fiscal 2023, we did not make any dividend distributions to our stockholders.
While we have in the past paid dividends, no assurance can be given that we will declare or pay cash dividends in the future. During fiscal 2024, we did not make any dividend distributions to our stockholders.
Further, under our Loan Agreement, we are limited by financial and other negative covenants in our credit arrangements. If we cannot raise funds on acceptable terms, we may be unable to continue as a going concern and may not be able to take advantage of future opportunities or respond to competitive pressures or unanticipated requirements.
Further, under the EBC Credit Agreement, we are limited by financial and other negative covenants in our credit arrangements. If we cannot raise funds on acceptable terms, we may be unable to continue as a going concern and may not be able to take advantage of future opportunities or respond to competitive pressures or unanticipated requirements.
Sales to customers located outside the United States, either directly or through U.S. and foreign distributors, accounted for approximately 9% and 12% of our net sales during the years ended October 31, 2023 and 2022, respectively.
Sales to customers located outside the United States, either directly or through U.S. and foreign distributors, accounted for approximately 9% and 9% of our net sales during the years ended October 31, 2024 and 2023, respectively.
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 ending January 31, 2022.
The BofA Credit 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”); (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, we had outstanding options for the purchase of 750,143 shares of common stock, the exercise of which would increase the number of common stock outstanding. The issuance and subsequent sale of the shares underlying these stock options could depress the trading price of our common stock.
In addition, we had outstanding options for the purchase of 874,816 shares of common stock, the exercise of which would increase the number of common stock outstanding. The issuance and subsequent sale of the shares underlying these stock options could depress the trading price of our common stock.
These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. As of October 31, 2023, we had 10,343,223 shares of common stock outstanding.
These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. As of October 31, 2024, we had 10,544,431 shares of common stock outstanding.
Difficult conditions in the global economy may adversely affect our business and results of operations. A prolonged economic downturn, both in the U.S. and worldwide, could lead to lower sales or reduced sales growth, reduced prices, lower gross margins, and increased bad debt risks, all of which could adversely affect our results of operations, financial condition and cash flows.
A prolonged economic downturn, both in the U.S. and worldwide, could lead to lower sales or reduced sales growth, reduced prices, lower gross margins, and increased bad debt risks, all of which could adversely affect our results of operations, financial condition and cash flows.
As of October 31, 2023, we also had 703,252 shares available for future grant as stock options or restricted shares, the issuance and sale of which could also impact our stock price. Provisions of our certificate of incorporation and bylaws and Nevada law may make a takeover more difficult.
As of October 31, 2024, we also had 1,299,269 shares available for future grant as stock options or restricted shares, the issuance and sale of which could also impact our stock price. Provisions of our certificate of incorporation and bylaws and Nevada law may make a takeover more difficult.
However, with the acquisition of Microlab, sales made to certain foreign customers were denominated in the currencies of the countries where sales are made and for the fiscal year ended October 31, 2023 and October 31, 2022, we recognized $0.1 million in foreign currency exchange gain and $0.2 million in foreign currency exchange loss at time of collection, respectively.
However, with the acquisition of Microlab, sales made to certain foreign customers were denominated in the currencies of the countries where sales are made and for the fiscal years ended October 31, 2024 and 2023, we recognized $33,000 in foreign currency exchange gain and $0.1 million in foreign currency exchange gain at time of collection, respectively.
International revenues are subject to a number of risks, including: ● longer accounts receivable payment cycles; ● difficulty in enforcing agreements and in collecting accounts receivable; ● tariffs and other restrictions on foreign trade; ● economic and political instability; and the ● burdens of complying with a wide variety of foreign laws.
International revenues are subject to a number of risks, including: ● longer accounts receivable payment cycles; ● difficulty in enforcing agreements and in collecting accounts receivable; ● tariffs and other restrictions on foreign trade; ● economic and political instability; and the ● burdens of complying with a wide variety of foreign laws. 16 Our foreign sales are also affected by general economic conditions in international markets.
The risks associated with our dependence upon third parties which develop and manufacture and assemble the Company’s products include: ● reduced control over delivery schedules and quality; ● risks of inadequate manufacturing yields and excessive costs; ● the potential lack of adequate capacity during periods of excess demand; and ● potential increases in prices due to raw material and/or labor costs.
The risks associated with our dependence upon third parties which develop and manufacture and assemble the Company’s products include: ● reduced control over delivery schedules and quality; ● risks of inadequate manufacturing yields and excessive costs; ● the potential lack of adequate capacity during periods of excess demand; and ● potential increases in prices due to raw material and/or labor costs. 14 These risks may lead to increased costs or delay product delivery, which would harm our profitability and customer relationships.
In challenging and uncertain economic environments such as the current one, we cannot predict whether or when such circumstances may improve or worsen, or what impact, if any, such circumstances could have on our business, financial condition and results of operations, or on the price of our common stock. 14 Recent inflationary pressures have increased the cost of energy and raw materials and may adversely affect our results of operations.
In challenging and uncertain economic environments such as the current one, we cannot predict whether or when such circumstances may improve or worsen, or what impact, if any, such circumstances could have on our business, financial condition and results of operations, or on the price of our common stock.
Accordingly, the market prices of our common stock may be expected to experience significant fluctuations in the future. 18 Failure to maintain an effective system of internal control over financial reporting or to remediate weaknesses could materially harm our revenues, erode stockholder confidence in our ability to pursue business and report our financial results/condition, and negatively affect the trading price of our common stock.
Failure to maintain an effective system of internal control over financial reporting or to remediate weaknesses could materially harm our revenues, erode stockholder confidence in our ability to pursue business and report our financial results/condition, and negatively affect the trading price of our common stock.
In addition, the stock market may, from time to time, experience extreme price and volume fluctuations, which may be unrelated to the operating performance of any specific company.
In addition, the stock market may, from time to time, experience extreme price and volume fluctuations, which may be unrelated to the operating performance of any specific company. Accordingly, the market prices of our common stock may be expected to experience significant fluctuations in the future.
In addition to the normal risks associated with purchasing a new business and operating at a new location, the Company’s acquisition of Microlab in 2022 reduced our cash on hand by over $7.3 million and we took on $17 million of indebtedness and related financial covenants under the Term Loan, including imposing a limit on the ratio of debt to earnings before interest, taxes, depreciation and amortization.
In addition to the normal risks associated with purchasing a new business and operating at a new location, the Company’s acquisition of Microlab in 2022 reduced our cash on hand by over $7.3 million and we took on $17 million of indebtedness and related financial covenants under the BofA Term Loan.
In addition, the Credit Facility contains customary affirmative and negative covenants.
In addition, the BofA Credit Facility contained customary affirmative and negative covenants.
Our ability to comply with covenants contained in the Loan Agreement, renegotiate terms of the Loan Agreement or refinance the Credit Facility may be affected by events beyond our control, including prevailing economic, financial and industry conditions.
Our ability to comply with terms contained in the EBC Credit Agreement may be affected by events beyond our control, including prevailing economic, financial and industry conditions.
In the event that we are unable to pay our obligations on the Credit Facility on a timely basis, maintain the financial covenants under the Loan Agreement, as amended, including the minimum liquidity and EBITDA requirements, or otherwise default on our obligations under the Loan Agreement, the Credit Facility Lender will have a right to foreclose on personal property of the Company and certain of its subsidiaries.
In the event that we are unable to pay our obligations on the EBC Credit Facilities on a timely basis, maintain the financial covenants under the EBC Credit Agreement, as amended, including the Excess Availability requirements and capital expenditure limitation, or otherwise default on our obligations under the EBC Credit Agreement, EBC will have a right to foreclose on personal property of the Company and certain of its subsidiaries.
We entered into a Loan Agreement to fund our acquisition of Microlab, which may expose us to additional risks, including risks associated with the inability to repay the loan on a timely basis.
We entered into a new credit facility, which replaced a L oan A greement we previously entered into to fund our acquisition of Microlab, which may expose us to additional risks, including risks associated with the inability to repay the loan on a timely basis.
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.
This additional fee, if applicable, would have been 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 BofA Term Loan on March 1, 2024, in addition to the existing monthly payments due on the BofA Term Loan.
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, with the Debt Test and FCCR Test to resume with the period ending October 31, 2024, and to continue thereafter on a trailing 12-month basis.
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.
In addition, we also sell connectors, cables and other products to companies that incorporate these products into their own wireless and broadband communications products. As a result, our business is heavily dependent upon the wireless and broadband markets. Demand for our products in these markets depends primarily on capital spending by operators for constructing, rebuilding or upgrading their telecommunication systems.
As a result, our business is heavily dependent upon the wireless and broadband markets. Demand for our products in these markets depends primarily on capital spending by operators for constructing, rebuilding or upgrading their telecommunication systems.
Under Loan Amendment No. 2, the Company will be charged an additional fee equal to 1% of the collective outstanding principal balances of the Revolving Credit Facility and Term Loan if the Credit Facility is not repaid in full on or before March 1, 2024. This additional fee, if applicable, will be due on March 2, 2024.
Under Loan Amendment No. 2, the Company would have been required to pay an additional fee equal to 1% of the collective outstanding principal balances of the BofA Revolving Credit Facility and BofA Term Loan if the BofA Credit Facility was not repaid in full on or before March 1, 2024.
Another distributor customer accounted for approximately 10% of total sales and for 11% of the total net accounts receivable. For the year ended October 31, 2022, the same wireless carrier accounted for approximately 20% of total sales, and a distributor accounted for less than 10% of total sales.
For the year ended October 31, 2024, a wireless carrier customer and a distributor customer both accounted for less than 10% of total sales, and approximately 15% and 10% of the total net accounts receivable balance, respectively.
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.
In connection with Loan Amendment No. 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 Accounting Standards Codification (“ASC”) 470, Debt.
If cash from available sources is insufficient or cash is used for unanticipated needs, we may require additional capital sooner than anticipated.
Our business requires capital that is not financed by trade creditors when our business is expanding. If cash from available sources is insufficient or cash is used for unanticipated needs, we may require additional capital sooner than anticipated.
A breach of any of the covenants could result in a default under the credit facility. Upon the occurrence of an event of default under the credit facility, the commercial bank could terminate all commitments to extend further credit and elect to declare amounts outstanding thereunder to be immediately due and payable.
Upon the occurrence of an event of default under the credit facility, the commercial bank could terminate all commitments to extend further credit and elect to declare amounts outstanding thereunder to be immediately due and payable. The credit facility is secured by a lien on substantially all personal property of the Company and certain of its subsidiaries.
We are heavily dependent upon wireless and broadband communications providers. Most of our revenues and profitability have in recent years been generated from products that we sell, directly or through our distributors, to the wireless and broadband communications industries.
Most of our revenues and profitability have in recent years been generated from products that we sell, directly or through our distributors, to the wireless and broadband communications industries. In addition, we also sell connectors, cables and other products to companies that incorporate these products into their own wireless and broadband communications products.
A material portion of our sales is dependent upon a few principal customers, the loss of whom could materially negatively affect our total sales. We generate much of our revenue from a limited number of customers. For the year ended October 31, 2023, a wireless carrier customer accounted for approximately 10% of total sales and had no accounts receivable.
A material portion of our sales is dependent upon a few principal customers, the loss of whom could materially negatively affect our total sales. We generate much of our revenue from a limited number of customers.
As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance its protective measures or to investigate and remediate any information security vulnerabilities. In addition, our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyberattacks and other related breaches.
As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance its protective measures or to investigate and remediate any information security vulnerabilities.
Risks Related to Our Common Stock Volatility of trading prices of our stock could result in a loss on an investment in our stock. As a company with a relatively small public float, we may experience greater stock price volatility, price run-ups, lower trading volume and less liquidity than large-capitalization companies.
As a company with a relatively small public float, we may experience greater stock price volatility, price run-ups, lower trading volume and less liquidity than large-capitalization companies. The market price of our common stock has varied greatly, and the trading volume of our common stock has historically fluctuated greatly as well.
The credit facility is secured by a lien on substantially all personal property of the Company and certain of its subsidiaries. Global economic conditions and any related impact on our supply chain and the markets where we do business could adversely affect our results of operations.
Global economic conditions and any related impact on our supply chain and the markets where we do business could adversely affect our results of operations.
There can be no assurance that the factors described above will not have an adverse material effect on our future international revenues and, consequently, on our financial condition, results of operations and business. Since sales made to foreign customers have historically been in U.S. dollars, previously we have not been exposed to the risks of foreign currency fluctuations.
A prolonged economic downturn in our foreign markets could have an adverse effect on our business. There can be no assurance that the factors described above will not have an adverse material effect on our future international revenues and, consequently, on our financial condition, results of operations and business.
These risks may lead to increased costs or delay product delivery, which would harm our profitability and customer relationships. An impairment in the carrying value of goodwill, trade names and other long-lived assets could negatively affect our consolidated results of operations and net worth.
An impairment in the carrying value of goodwill, trade names and other long-lived assets could negatively affect our consolidated results of operations and net worth.
A reduction, delay, or cancellation of orders from these customers or the loss of these customers could significantly reduce our future revenues and profits. Adverse events affecting our principal customers could also negatively affect our ability to retain their business and obtain new orders, which could adversely affect our revenue and results of operations.
Adverse events affecting our principal customers could also negatively affect our ability to retain their business and obtain new orders, which could adversely affect our revenue and results of operations. 15 Difficult conditions in the global economy may adversely affect our business and results of operations.
Further, even a positive resolution to our enforcement efforts may take time to conclude, which may reduce our revenues and cash resources available for other purposes, such as research and development, in the periods prior to conclusion. 17 Claims by other companies that we infringe their intellectual property could adversely affect our business Companies may assert patent, copyright or other intellectual property claims against our products or products using our technologies or other technologies used in our industry, which claims could result in our involvement in litigation.
Further, even a positive resolution to our enforcement efforts may take time to conclude, which may reduce our revenues and cash resources available for other purposes, such as research and development, in the periods prior to conclusion.
The Credit Facility Lender may accelerate the payment terms of the Loan Agreement upon the occurrence of certain events of default set forth therein.
Our failure to comply with the terms of the EBC Credit Agreement could result in a default under the agreement. EBC may accelerate the payment terms of the EBC Credit Agreement upon the occurrence of certain events of default set forth therein.
If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. In such case, the trading price of our common stock could decline and investors may lose all or part of their investment in our common stock. Risks Related to Our Business.
In such case, the trading price of our common stock could decline and investors may lose all or part of their investment in our common stock. 11 Risks Related to Our Business We are heavily dependent upon wireless and broadband communications providers.
ITEM 1.A RISK FACTORS Investors should carefully consider the risks described below and all other information in this Form 10-K. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business and operations.
The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business and operations. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected.
Due to the nature of our business, we need continued access to capital, which if not available to us or if not available on favorable terms, could harm our ability to operate or expand our business. Our business requires capital that is not financed by trade creditors when our business is expanding.
In addition, our obligations under the EBC Credit Agreement are secured, on a first-priority basis, and such security interests could be enforced by EBC in the event of default by us. 12 Due to the nature of our business, we need continued access to capital, which if not available to us or if not available on favorable terms, could harm our ability to operate or expand our business.
The market price of our common stock has varied greatly, and the trading volume of our common stock has historically fluctuated greatly as well. These fluctuations often occur independently of our performance or any of our announcements.
These fluctuations often occur independently of our performance or any of our announcements.
Borrowings under the Credit Facility are guaranteed by the Company and certain of its subsidiaries and secured by all personal property of the Company and certain of its subsidiaries.
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.
Removed
On February 25, 2022, we entered into a Loan Agreement with the Credit Facility Lender (the “Loan Agreement”), which facility provided the Company with a $3 million revolving credit facility (the “Revolving Credit Facility”) and a $17 million term loan (the “Term Loan”, collectively with the “Revolving Credit Facility”, the “Credit Facility”).
Added
ITEM 1. BUSINESS General RF Industries, Ltd. (together with subsidiaries, the “Company”, “we”, “us”, or “our”) is a national manufacturer and marketer of interconnect products and systems, including high-performance components such as RF connectors and adapters, dividers, directional couplers and filters, coaxial cables, data cables, wire harnesses, fiber optic cables, custom cabling, energy-efficient cooling systems and integrated small cell enclosures.
Removed
We borrowed the full $17 million amount available under the Term Loan in order to fund the purchase of Microlab. The maturity date of the Term Loan is March 1, 2027. The maturity date of the Revolving Credit Facility is March 1, 2024.
Added
Through our manufacturing and production facilities, we provide a wide selection of interconnect products and solutions primarily to telecommunications carriers and equipment manufacturers, wireless and network infrastructure carriers and manufacturers and to various original equipment manufacturers (“OEMs”) in several market segments. We also design, engineer, manufacture and sell energy-efficient cooling systems and integrated small cell solutions and related components.
Removed
In the event of noncompliance with these financial covenants, as updated through the recent amendments to the Loan Agreement, we will either have to obtain another waiver or otherwise renegotiate the terms of our Credit Facility or refinance the Credit Facility otherwise our failure to comply with these covenants could result in a default under the agreements governing the relevant indebtedness.
Added
We operate through two reporting segments: (i) the RF Connector and Cable Assembly (“RF Connector”) segment, and (ii) the Custom Cabling Manufacturing and Assembly (“Custom Cabling”) segment.
Removed
In addition, our obligations under the Loan Agreement are secured, on a first-priority basis, and such security interests could be enforced in the event of default by the collateral agent for the Loan Agreement.
Added
The RF Connector segment primarily designs, manufactures, markets and distributes a broad range of RF connector, adapter, coupler, divider, and cable products, including coaxial passives and cable assemblies that are used in telecommunications and information technology, OEM markets and other end markets.
Removed
These two customers’ accounts receivable balances each accounted for approximately 14% and 19% of the total net accounts receivable balance at October 31, 2022.
Added
The Custom Cabling segment designs, manufactures, markets and distributes custom copper and fiber cable assemblies, complex hybrid fiber optic and power solution cables, electromechanical wiring harnesses, wiring harnesses for a broad range of applications in a diverse set of end markets, energy-efficient cooling systems for wireless base stations and remote equipment shelters and custom designed, pole-ready 5G small cell integrated enclosures. 4 Recent Events In February 2022, we entered into a loan agreement (the “BofA Loan Agreement”) providing for a revolving line of credit (the “BofA Revolving Credit Facility”) in the amount of $3.0 million and a $17.0 million term loan (the “BofA Term Loan”, and together with the BofA Revolving Credit Facility, the “BofA Credit Facility”) with Bank of America, N.A.
Removed
Our foreign sales are also affected by general economic conditions in international markets. A prolonged economic downturn in our foreign markets could have an adverse effect on our business.
Added
(“BofA”). Amounts outstanding under the BofA Revolving Credit Facility bore interest at a rate of 2.0% plus the Bloomberg Short-Term Bank Yield Index Rate.
Added
All amounts outstanding pursuant to the BofA Credit Facility were repaid by us and the BofA Loan Agreement was terminated in connection with us entering into a new loan and security agreement (the “EBC Credit Agreement”) with Eclipse Business Capital, as administrative agent (“EBC”) on March 15, 2024.
Added
On January 26, 2024, we entered into Amendment No. 2 to the BofA Loan Agreement (“Loan Amendment No. 2”) with BofA, which, among other matters, eliminated the requirement to maintain minimum EBITDA of $500,000 for the quarter ending January 31, 2024.
Added
On February 29, 2024, we entered into Amendment No. 3 to the BofA Loan 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. 2, to April 1, 2024.
Added
Further, Loan Amendment No. 3 reduced the additional fee the Company was required to pay BofA on March 2, 2024 from 1% of the collective outstanding principal balances of the BofA Revolving Credit Facility and BofA 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 BofA Revolving Credit Facility and BofA Term Loan as of March 1, 2024.
Added
Additionally, Loan Amendment No. 3 required the Company to pay BofA a fee equal to 0.50% of the collective outstanding principal balances of the BofA Revolving Credit Facility and BofA Term Loan as of March 1, 2024, if the BofA Credit Facility was not repaid in full on or before April 2, 2024 (the “April 2024 Fee”).
Added
The April 2024 Fee, if applicable, would have been due on April 2, 2024. We were not required to pay the April 2024 Fee based on our repayment of the BofA Credit Facility prior to April 2, 2024.
Added
Under Loan Amendment No. 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. 2. Loan Amendment No. 3 was considered a modification under ASC 470, Debt.
Added
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.
Added
The BofA Loan Agreement was terminated upon entry into the EBC Credit Agreement and is no longer in effect. 5 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).
Added
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.
Added
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.
Added
In the absence of an Event of Default (as defined in the EBC Credit Agreement) or certain other events (including the inability of EBC 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 accrues 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.
Added
We will be required to pay a commitment fee of 0.50% per annum for the unused portion of the EBC Revolving Loan Facility. In addition to the foregoing unused commitment fee, we are required to pay certain other administrative fees pursuant to the terms of the EBC Credit Agreement.
Added
Borrowings under the EBC Credit Agreement are secured by a security interest in certain assets of the Company and are subject to certain loan covenants.
Added
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 12 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 Expenditure (as defined in the EBC Credit Agreement) to $2.5 million during any fiscal year.

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Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed2 unchanged
Biggest changeAdditionally, we lease spaces in three other locations in the United States that house the administration offices and manufacturing facilities for our Custom Cabling segment. The table below shows a summary of the square footage of these locations as of October 31, 2023: Lease Location Square Footage Milford, CT 13,750 North Kingstown, RI 10,700 Yaphank, NY 24,500
Biggest changeAdditionally, we lease spaces in three other locations in the United States that house the administration offices and manufacturing facilities for our Custom Cabling segment. The table below shows a summary of the square footage of these locations as of October 31, 2024: Lease Location Square Footage Milford, CT 13,750 North Kingstown, RI 7,000 Yaphank, NY 24,500 20
We occupy 46,973 square feet of office, warehouse and manufacturing space that house our corporate administration, sales and marketing, and engineering departments. The buildings are also used for production and warehousing by our RF Connector segment. We also lease 38,200 square feet of office and commercial lab space in Parsippany, New Jersey, where we operate the Micolab division.
We occupy 46,973 square feet of office, warehouse and manufacturing space that house our corporate administration, sales and marketing, and engineering departments. The buildings are also used for production and warehousing by our RF Connector segment. We also lease 38,200 square feet of office and commercial lab space in Parsippany, New Jersey, where we operate the Microlab division.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+0 added−0 removed3 unchanged
Biggest changeWe did not repurchase any of our equity securities during the fourth quarter of fiscal 2023. Recent Sales of Unregistered Securities. There were no previously unreported sales of equity securities by us that were not registered under the Securities Act during fiscal 2023. Dividend Policy.
Biggest changeWe did not repurchase any of our equity securities during the fourth quarter of fiscal 2024. Recent Sales of Unregistered Securities. There were no previously unreported sales of equity securities by us that were not registered under the Securities Act during fiscal 2024. Dividend Policy.
Due to the current economic uncertainty and other financial considerations, our Board did not issue any dividend payments in fiscal year 2023. In the past our Board has approved dividend payments, but no assurance can be given if, or when the Board will resume dividend payments.
Due to the current economic uncertainty and other financial considerations, our Board did not issue any dividend payments in fiscal year 2024. In the past our Board has approved dividend payments, but no assurance can be given if, or when the Board will resume dividend payments.
As of October 31, 2023, there were 251 holders of our common stock according to the records of our transfer agent, Continental Stock Transfer & Trust Company, New York, New York, not including holders who hold their stock in “street name.” Issuer Purchases of Equity Securities.
As of October 31, 2024, there were 250 holders of our common stock according to the records of our transfer agent, Continental Stock Transfer & Trust Company, New York, New York, not including holders who hold their stock in “street name.” Issuer Purchases of Equity Securities.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

33 edited+29 added−35 removed8 unchanged
Biggest changeResults of Operations The following summarizes the key components of our consolidated results of operations for the fiscal years ended October 31, 2023 and 2022 (in thousands, except percentages): 2023 2022 Amount % of Net Sales Amount % of Net Sales Net sales $ 72,168 100.0 % $ 85,254 100.0 % Cost of sales 52,631 72.9 % 60,705 71.2 % Gross profit 19,537 27.1 % 24,549 28.8 % Engineering expenses 3,151 4.4 % 2,913 3.4 % Selling and general expenses 20,183 28.0 % 19,448 22.8 % Operating income (3,797 ) -5.3 % 2,188 2.6 % Other (loss) income (453 ) -0.6 % (601 ) -0.7 % Income before provision for income taxes (4,250 ) -5.9 % 1,587 1.9 % Provision for income taxes (1,172 ) -1.6 % 139 0.2 % Consolidated net income (3,078 ) -4.3 % 1,448 1.7 % Net sales for the year ended October 31, 2023 (“fiscal 2023”) of $72.2 million decreased by 15.4%, or $13.1 million, compared to the year ended October 31, 2022 (“fiscal 2022”).
Biggest changeSince 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. 24 Results of Operations The following summarizes the key components of our consolidated results of operations for the fiscal years ended October 31, 2024 and 2023 (in thousands, except percentages): 2024 2023 Amount % of Net Sales Amount % of Net Sales Net sales $ 64,857 100.0 % $ 72,168 100.0 % Cost of sales 45,986 70.9 % 52,631 72.9 % Gross profit 18,871 29.1 % 19,537 27.1 % Engineering expenses 2,782 4.3 % 3,151 4.4 % Selling and general expenses 18,912 29.2 % 20,183 28.0 % Operating loss (2,823 ) -4.4 % (3,797 ) -5.3 % Other loss (980 ) -1.5 % (453 ) -0.6 % Loss before provision (benefit) from income taxes (3,803 ) -5.9 % (4,250 ) -5.9 % Provision (benefit) from income taxes 2,796 4.3 % (1,172 ) -1.6 % Consolidated net loss (6,599 ) -10.2 % (3,078 ) -4.3 % Net sales for the year ended October 31, 2024 of $64.9 million decreased by 10.1%, or $7.3 million, compared to the year ended October 31, 2023.
We aggregate our operating divisions into segments that have similar economic characteristics and are similar in the majority of 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.
We aggregate our operating divisions into two reportable segments that have similar economic characteristics and are similar in the majority of 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.
However, we have incurred operating losses in fiscal 2023. During this 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.
However, we have incurred operating losses in fiscal 2024. During this 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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 20 CRITICAL ACCOUNTING POLICIES AND ESTIMATES The consolidated financial statements and related disclosures have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING ESTIMATES The consolidated financial statements and related disclosures have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
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.
Impairment Assessment of Goodwill and Indefinite-lived Intangibles We test our goodwill and trademarks and indefinite-lived intangible assets for impairment at least annually or more frequently if events or changes in circumstances indicate these assets may be impaired.
We have two reportable segments – the RF Connector and Cable Assembly (“RF Connector”) segment and the Custom Cabling Manufacturing and Assembly (“Custom Cabling”) segment – based upon this evaluation. The RF Connector segment was comprised of three divisions while the Custom Cabling segment was comprised of three divisions.
Our two reportable segments are the RF Connector and Cable Assembly (“RF Connector”) segment and the Custom Cabling Manufacturing and Assembly (“Custom Cabling”) segment – based upon this evaluation. The RF Connector segment was comprised of three divisions while the Custom Cabling segment was comprised of three divisions.
We intend to continue to pursue additional improvement and cost reduction measures, as well as organic growth in revenue and profitability. As of October 31, 2023, we had a total of $4.9 million of cash and cash equivalents compared to a total of $4.5 million of cash and cash equivalents as of October 31, 2022.
We intend to continue to pursue additional improvement and cost reduction measures, as well as organic growth in revenue and profitability. As of October 31, 2024, we had a total of $0.8 million of cash and cash equivalents compared to a total of $4.9 million of cash and cash equivalents as of October 31, 2023.
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.
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. We test goodwill for impairment at the reporting unit level.
The preparation of these consolidated financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates, including those related to bad debts, inventory reserves and contingencies, on an ongoing basis.
The preparation of these consolidated financial statements requires us to make significant accounting estimates 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, allowances for slow-moving or obsolete inventory and contingencies, on an ongoing basis.
For fiscal 2023, we recorded a pretax income for the Custom Cabling segment of $0.6 million and a pretax loss for the RF Connector segment of $3.5 million, as compared to $4.1 million and $0.6 million of income, respectively, for fiscal 2022.
For fiscal 2024, we recorded a pretax income for the Custom Cabling segment of $1.1 million and a pretax loss for the RF Connector segment of $3.7 million, as compared to $1.5 million loss and $1.5 million loss, respectively, for fiscal 2023.
The Company may, from time to time, try to offset these cost increases by increasing the prices of its products. However, because the prices of certain of the Company’s products, particularly those under longer-term manufacturing contracts for communications related products, are fixed until the goods are manufactured and delivered, implementing price increases frequently is often not feasible.
However, because the prices of certain of the Company’s products, particularly those under longer-term manufacturing contracts for communications related products, are fixed until the goods are manufactured and delivered, implementing price increases frequently is often not feasible.
Inflation and Rising Costs The cost to manufacture the Company’s products is influenced by the cost of raw materials and labor. The Company has recently experienced higher costs as a result of the increasing cost of labor and the increasing cost of raw materials.
The Company has recently experienced higher costs as a result of the increasing cost of labor and the increasing cost of raw materials. The cost of raw materials is due in part to a shortage in the availability of certain products, the higher cost of shipping, and inflation.
Financial Condition The following table presents certain key measures of financial condition as of October 31, 2023 and 2022 (in thousands, except percentages): 2023 2022 Amount % Total Assets Amount % Total Assets Cash and cash equivalents $ 4,897 6.0 % $ 4,532 5.1 % Current assets 36,040 43.8 % 46,247 51.6 % Current liabilities 12,511 15.2 % 19,536 21.8 % Working capital 23,529 28.6 % 26,711 29.8 % Property and equipment, net 4,924 6.0 % 3,173 3.5 % Total assets 82,278 100.0 % 89,566 100.0 % Stockholders' equity 39,762 48.3 % 41,869 46.7 % Liquidity and Capital Resources Historically, we have been able to fund our liquidity and other capital requirements from funds we generated from operations.
Accordingly, the Custom Cabling segment is more dependent upon larger project orders, and its revenues, therefore, may be more volatile than the revenues of the RF Connector segment. 23 Financial Condition The following table presents certain key measures of financial condition as of October 31, 2024 and 2023 (in thousands, except percentages): 2024 2023 Amount % Total Assets Amount % Total Assets Cash and cash equivalents $ 839 1.2 % $ 4,897 6.0 % Current assets 29,113 41.0 % 36,040 43.8 % Current liabilities 18,090 25.5 % 12,511 15.2 % Working capital 11,023 15.5 % 23,529 28.6 % Property and equipment, net 4,813 6.8 % 4,924 6.0 % Total assets 71,046 100.0 % 82,278 100.0 % Stockholders' equity 34,066 47.9 % 39,762 48.3 % Liquidity and Capital Resources Historically, we have been able to fund our cash flow requirements for operations and other capital requirements from funds we generated from operations.
This net inflow of cash is primarily related to an increase in other current assets of $3.7 million, the collections of accounts receivable of $4.4 million, $2.4 million from depreciation and amortization, $2.3 million from inventories, $1.5 million from right of use assets, $0.9 million from stock-based compensation expense, and $0.1 million from bad debt expense.
This net inflow of cash is primarily related to an increase in inventories of $4.0 million as a result of better inventory management and supply chain conditions improving allowing us to carry less inventory on hand, $2.5 million from depreciation and amortization, $0.9 million from stock-based compensation expense, $0.7 million in other current assets, $0.6 million from change in accounts payable, $0.4 million from right-of-use assets and $0.1 million from amortization of debt issuance costs.
For fiscal 2023, net loss was $3.1 million and fully diluted loss per share was $0.30 as compared to a net income of $1.4 million and fully diluted earnings per share of $0.14 for fiscal 2022. For fiscal 2023, the diluted weighted average shares outstanding was 10,283,449 as compared to 10,242,417 for fiscal 2022.
For fiscal 2024, net loss was $6.6 million and fully diluted loss per share was $0.63 as compared to a net loss of $3.1 million and fully diluted loss per share of $0.30 for fiscal 2023.
The six divisions that met the quantitative thresholds for segment reporting in the fiscal year ended October 31, 2022 were the RF Connector and Cable Assembly division, Cables Unlimited, Rel-Tech, C Enterprises, Schrofftech, and Microlab. 22 Revenues generated from the Custom Cabling segment were from the sale of fiber optics cable, copper cabling, custom patch cord assemblies, and wiring harnesses, which collectively accounted for 64% of the Company’s total sales, and revenues from the RF Connector segment were generated from the sales of RF connector products and cable assemblies and accounted for 36% of total sales for fiscal 2023.
The six divisions that met the quantitative thresholds for segment reporting in the fiscal year ended October 31, 2024 were the RF Connector and Cable Assembly division, Cables Unlimited, Rel-Tech, C Enterprises, Schrofftech, and Microlab.
The cost of raw materials is due in part to a shortage in the availability of certain products, the higher cost of shipping, and inflation. Labor costs have risen recently as a result of increases in the minimum wage laws and an increased demand for workers.
Labor costs have risen recently as a result of increases in the minimum wage laws and an increased demand for workers. The Company may, from time to time, try to offset these cost increases by increasing the prices of its products.
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.
The increase in backlog relates primarily to the increase in Direct Air Cooling and small cell requirements. 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.
Acquisitions may require the outlay of cash, which may reduce our liquidity and capital resources while dispositions may increase our cash position, liquidity and capital resources.
Conversely, we may undertake the disposition of a division or product line due to changes in our business strategy or market conditions. Acquisitions may require the outlay of cash, which may reduce our liquidity and capital resources while dispositions may increase our cash position, liquidity and capital resources.
Engineering expenses represent costs incurred relating to the ongoing research and development of new products. 24 Selling and general expenses increased by $0.8 million to $20.2 million (28.0% of sales) compared to $19.4 million (22.8% of sales) in fiscal 2022.
Engineering expenses decreased by $0.4 million to $2.8 million for fiscal 2024 compared to $3.2 million in fiscal 2023. The decrease was primarily the result of advances in product development and other cost-savings initiatives. Engineering expenses represent costs incurred relating to the ongoing research and development of new products.
At this time, we have not identified any additional capital equipment purchases that would require significant additional leasing or capital expenditures during the next 12 months. We also believe that based on our current financial condition, our current backlog of unfulfilled orders, and our anticipated future operations, we would be able to finance our expansion, if necessary.
In the past, we have purchased all additional equipment, or financed some of our equipment and furnishings requirements through capital leases. At this time, we have not identified any additional capital equipment purchases that would require significant additional leasing or capital expenditures during the next 12 months.
Gross profit for fiscal 2023 decreased by $5.0 million to $19.5 million and gross margins decreased to 27.1% of sales from 28.8% of sales in fiscal 2022. The decreases in gross profit and gross margins were primarily related to the overall decrease in sales and the sales mix.
Gross profit for fiscal 2024 decreased by $0.6 million to $18.9 million and gross margins increased to 29.1% of sales from 27.1% of sales in fiscal 2023. The decrease in gross profit was primarily a result of the decrease in sales, while gross margins increased due to product mix and other cost-savings initiatives.
As of October 31, 2023, we had working capital of $23.5 million and a current ratio of approximately 2.9:1 with current assets of $36.0 million and current liabilities of $12.5 million. We believe that the amount of cash remaining will be sufficient to fund our anticipated liquidity needs.
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 October 31, 2024, we had $19.5 million of backlog, compared to $16.1 million as of October 31, 2023.
As of October 31, 2023, we performed an impairment test analysis for Microlab and as of July 31, 2023, we performed an impairment test analysis for Schrofftech.
As part of our goodwill impairment testing, as of October 31, 2024 and April 30, 2024, we performed a quantitative impairment test analysis for our Microlab reporting unit.
The cash generated by other current assets represents $3.7 million, which primarily consists of $2.8 million of reimbursement for tenant improvements and $1.5 million received from ERC, offset by $0.6 million of prepaid taxes. 23 As of October 31, 2023, we also spent $2.5 million on capital expenditures, and $2.4 million in Term Loan payments.
The cash generated by other current assets represents $0.7 million, which primarily consists of $0.4 million of prepaid taxes and $0.3 million of prepaid expenses. We also recorded a non-cash item of $2.7 million from deferred income taxes.
The cash usage was primarily due to accrued expenses of $4.2 million, payments on accounts payable of $2.5 million, income tax payable $0.8 million, deferred income taxes $0.7 million and our net loss of $3.1 million.
The cash usage was primarily due to the net loss of $6.6 million, the change in accounts receivable of $1.8 million resulting from a 16% increase in sales in Q4 2024 as compared to Q4 2023 and the change in accrued expenses of $0.3 million.
As of October 31, 2023, Schrofftech has a carrying value of $3.1 million, of which includes $1.1 million in goodwill, $0.5 million in non-amortizable intangible assets and $1.5 million in net amortizable intangible assets.
As of October 31, 2024, Microlab has a carrying value of $19.8 million, which includes $5.6 million in goodwill and $10.3 million in net amortizable intangible assets. 22 Valuation Allowance on Deferred Income Taxes We record a tax provision (benefit) for the anticipated tax consequences of the reported results of operations.
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. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS For recently issued accounting pronouncements that may affect us, see Note 1 of Notes to Consolidated Financial Statements.
The change in valuation allowance was an increase of $3.8 million and $0.1 million for fiscal 2024 and 2023, respectively. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS For recently issued accounting pronouncements that may affect us, see Note 1 of Notes to Consolidated Financial Statements.
From time to time, we may undertake acquisitions of other companies or product lines in order to diversify our product and solutions offerings and customer base. Conversely, we may undertake the disposition of a division or product line due to changes in our business strategy or market conditions.
We also believe that based on our current financial condition, our current backlog of unfulfilled orders, and our anticipated future operations, we would be able to finance our expansion, if necessary. From time to time, we may undertake acquisitions of other companies or product lines in order to diversify our product and solutions offerings and customer base.
The decrease in net sales is attributable to the Custom Cabling segment, which decreased by $15.5 million, or 37.2%, to $26.2 million compared to $41.7 million in fiscal 2022, primarily related to wireless carrier network deployment slowdowns across the industry in fiscal 2023 impacting both our hybrid fiber sales and our small cell and direct air cooling products.
Net sales for fiscal 2024 at the Custom Cabling segment increased by $0.8 million, or 3.1%, to $27.0 million compared to $26.2 million in fiscal 2023, primarily due to an increase in small cell deployment and Direct Air Cooling applications.
The decrease in the pretax net income at the RF Connector segment was primarily due to the decrease in sales related to carrier projects involving approved RF components. For fiscal 2023 and 2022, we recorded income tax (benefit) provision of ($1,172,000) and $139,000, respectively. The effective tax rate was 27.6% for fiscal 2023, compared to 8.8% for fiscal 2022.
The pretax income at the Custom Cabling segment was primarily due to the increase of Direct Air Cooling sales and margin along with cost saving initiatives realized throughout the year. The decrease in the pretax net income at the RF Connector segment was primarily due to the decrease in sales related to carrier DAS projects involving approved RF components.
As of October 31, 2023, we generated $4.2 million of cash in our operating activities.
Furthermore, purchase orders may be subject to cancellation from customers, although we have not historically experienced material cancellations of purchase orders. As of October 31, 2024, we generated $3.2 million of cash in our operating activities.
Our goal to expand and grow our business both organically and through acquisitions may require material additional capital equipment. In the past, we have purchased all additional equipment, or financed some of our equipment and furnishings requirements through capital leases.
As of October 31, 2024, we also spent $0.7 million on capital expenditures, $13.2 million in BofA Term Loan payments, $0.5 million of debt issuance cost, and drew $7.2 million on EBC Revolving Loan Facility. Our goal to expand and grow our business both organically and through acquisitions may require material additional capital equipment.
Removed
Revenue Recognition Revenue is recorded in an amount that reflects the consideration to which we expect to be entitled in exchange for goods or services promised to customers.
Added
Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our statement of operations and financial position.
Removed
In accordance with ASC (“Accounting Standards Codification”) 606, we follow a five-step model to: (1) identify the contract with our customer; (2) identify our performance obligations in our contract; (3) determine the transaction price for our contract; (4) allocate the transaction price to our performance obligations; and (5) recognize revenue when (or as) each performance obligation is satisfied.
Added
For the fiscal year ended October 31, 2024 the critical accounting estimates identified are described below: 21 Impairment Assessments of Finite-life Intangibles and Other Long-Lived Assets We assess property, plant and equipment and intangible assets, which are considered definite-lived assets, for impairment.
Removed
In accordance with this accounting principle, we recognize revenue using the output method at a point in time when finished goods have been transferred to the customer and there are no other obligations to customers after the title of the goods have transferred.
Added
The goodwill impairment guidance in US GAAP provides entities an option to perform a qualitative assessment to determine whether further impairment testing is necessary.
Removed
Title of goods are transferred based on shipping terms for each customer – for shipments with terms of FOB Shipping Point, title is transferred upon shipment; for shipments with terms of FOB Destination, title is transferred upon delivery.
Added
The qualitative assessment requires significant judgments by management about macro-economic conditions including our operating environment, industry and other market considerations, entity-specific events related to financial performance or loss of key personnel, and other events that could negatively impact the financial results and cash flows of the reporting unit.
Removed
Inventories Inventories are stated at the lower of cost or 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 makes provisions as necessary to properly reflect inventory value.
Added
If the qualitative assessment results in a conclusion that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, a quantitative impairment test is performed. The quantitative assessment compares the fair value of the reporting unit with its carrying value, including goodwill.
Removed
Because inventories have, during the past couple years, represented up to one-fourth of our total assets, any reduction in the value of our inventories would require us to take write-offs that would affect our net worth and future earnings. Allowance for Doubtful Accounts We record our allowance for doubtful accounts based upon our assessment of various factors.
Added
If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the amount by which the carrying value exceeds the fair value is recognized as an impairment loss. We estimate the fair value of our reporting units using the income approach based upon a discounted cash flow ("DCF") model.
Removed
We consider historical experience, the age of the accounts receivable balance, credit quality of our customers, current economic conditions and other factors that may affect a customer’s ability to pay. Long-Lived Assets Including Goodwill We assess property, plant and equipment and intangible assets, which are considered definite-lived assets, for impairment.
Added
The income approach requires the use of many assumptions and estimates including future revenues, expenses, capital expenditures, and working capital, as well as discount factors and income tax rates.
Removed
As noted above, we test our goodwill, trademarks, and indefinite-lived intangible assets for impairment at least annually, which we have traditionally done in the fourth quarter, or on an interim basis when events or changes in circumstances suggest these assets may be impaired.
Added
The discount rates used in the DCF model were based on a weighted-average cost of capital (“WACC”) determined from relevant market comparisons, adjusted for specific reporting unit risks (primarily the uncertainty of achieving forecasted operating cash flows).
Removed
Impairment is measured as the excess of the carrying value of the goodwill or indefinite-lived intangible asset over its fair value. Impairment may result from a number of factors, including performance deterioration, negative cash flows from operations and/or changes in anticipated future cash flows, changes in business plans, adverse economic or market conditions, or other factors beyond our control.
Added
A terminal value growth rate was applied to the final year of the forecasted period, which reflects our estimate of stable, perpetual growth in cash flows from the reporting unit. We then calculated a present value of the respective cash flows for each reporting unit to arrive at an estimate of fair value under the income approach.
Removed
The amount of any impairment must be expensed as a charge to operations. Microlab’s results for the fiscal year ended October 31, 2023 triggered an impairment analysis. Schrofftech’s three and nine-month results ended July 31, 2023 triggered an impairment analysis. Microlab was acquired in March 1, 2022 for a total purchase price of $24.5 million.
Added
Finally, we compared the total of our estimates of all reporting units fair values to our total market capitalization to assess the reasonableness of our reporting units fair value.
Removed
Schrofftech was acquired on November 4, 2019 for a total purchase price of $5.3 million, consisting of cash consideration of $4.0 million and $1.3 million in earn-out, of which none was earned. 21 As of October 31, 2023, Microlab has a carrying value of $17.2 million, of which includes $5.6 million in goodwill, $11.6 million in net amortizable intangible assets.
Added
Key assumptions of the cash flow forecast included in the DCF model are expected revenues, expenses, capital expenditures, and working capital, as well as discount factors and income tax rates as they are subject to a high degree of judgement and complexity.
Removed
The analyses performed included a blend of the income approach (discounted cash flow method) and market approach (guideline public company method) to reach a fair value of equity in excess of the fair value to the carrying amount.
Added
We make every effort to forecast future financial performance as accurately as possible with the information available to management at the time the forecast is developed.
Removed
The analysis performed in blending the income approach and the market approach incorporates several significant judgments and assumptions about projected revenue growth, future operating margins and discount rates. There are inherent uncertainties related to these assumptions and our judgment in applying them to the impairment analysis.
Added
There are inherent uncertainties in our cash flow forecast and it requires management to anticipate risks to the forecast such as execution of sales strategy, production execution, industry related make-buy decisions, and global market conditions. Changes in these estimates and assumptions could materially affect the future results of our tests for goodwill impairment.
Removed
Changes in certain events or circumstances could result in changes to our estimated fair values and may result in future write-downs to the carrying values of these assets. Impairment charges could adversely affect our financial results, financial ratios and could limit our ability to obtain financing in the future.
Added
We continuously monitor and evaluate relevant events and circumstances that could impact our significant assumptions used in testing goodwill, including macroeconomic conditions, industry and market considerations, financial performance and expectations of forecasted financial performance and cash flows, and changes in our stock price in relation to the carrying value of its reporting units, among other relevant factors.
Removed
Income Taxes We record a tax provision (benefit) for the anticipated tax consequences of the reported results of operations.
Added
It is possible that future changes in such circumstances, or in the inputs and assumptions used in estimating the fair value of our reporting units, could require us to perform an interim impairment assessment and record an impairment charge.
Removed
We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. We account for uncertain tax positions by determining if it is “more likely than not” that a tax position will be sustained by the appropriate taxing authorities upon examination based on the technical merits of the position.
Added
In addition to the DCF, we use also the market approach, which compares the reporting unit fair value to the fair value of publicly traded companies and recent sale transactions involving similar businesses.
Removed
An uncertain income tax position is not recognized if it has less than a 50% likelihood of being sustained. We recognize interest and penalties related to certain uncertain tax positions as a component of income tax expense and the accrued interest and penalties are included in deferred and income taxes payable in our consolidated balance sheets.
Added
In the DCF model, we utilized a discount rate that we believe represents the risks that our businesses face, considering their sizes, the current economic environment, and other industry data we believe is appropriate. The discount rates for Microlab were 17.0%, and 18.0% at October 31, 2024 and April 30, 2024, respectively.
Removed
See Note 8 to the Consolidated Financial Statements included in this Report for more information on our accounting for uncertain tax positions. The calculation of the tax provision involves significant judgment in estimating the impact of uncertainties in the application of GAAP and complex tax laws.
Added
We assigned a 75% weight to the indicated fair value under the DCF model and 25% weight to the indicated fair value under the market approach in deriving a fair value of $21.6 million and $23.4 million for the Microlab reporting unit at October 31, 2024 and April 30, 2024, respectively.
Removed
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 We use the Black-Scholes model to value our stock option grants. This valuation is affected by our stock price as well as assumptions regarding a number of inputs which involve significant judgments and estimates.
Added
These quantitative tests at October 31, 2024 and April 30, 2024 indicated that the Microlab reporting unit had an estimated fair value in excess of its carrying value of 8.9% and 8.6%, respectively, and no impairment was recorded.
Removed
Accordingly, the Custom Cabling segment is more dependent upon larger project orders, and its revenues, therefore, may be more volatile than the revenues of the RF Connector segment.
Added
We assess all positive and negative evidence in determining if a valuation allowance is required to be recorded against the deferred tax assets. Further, we evaluated future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.
Removed
The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by domestic and international jurisdictions to prevent disease spread, all of which are uncertain and cannot be predicted.
Added
In making such judgements, significant weight is given to evidence that can be objectively verified, which includes the recent trend of losses. As of October 31, 2024, we recorded a valuation allowance of $3.8 million against its federal and combined state deferred tax assets.
Removed
During the periods covered by this report, we generally saw a recovery to a more normal environment though the operations at all locations were affected intermittently as some of our employee schedules were impacted, and as certain macro-economic conditions persisted.
Added
Revenues generated from the Custom Cabling segment were from the sale of fiber optics cable, copper cabling, custom patch cord assemblies, and wiring harnesses, which collectively accounted for 42% of the Company’s total sales, and revenues from the RF Connector segment were generated from the sales of RF connector products and cable assemblies and accounted for 58% of total sales for fiscal 2024.
Removed
Because of the impact that COVID-19 had on our operations, in May 2020 we applied for and received loans under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act, H.R. 748 (“CARES Act”) totaling approximately $2.8 million (“PPP Loans”).
Added
As of October 31, 2024, we had working capital of $11.0 million and a current ratio of approximately 1.6:1 with current assets of $29.1 million and current liabilities of $18.1 million. The $12.5 million decrease in working capital is primarily the result of the change in debt classification resulting from the EBC Revolving Loan Facility.
Removed
All of our PPP Loans have been forgiven and are considered paid in full (including applicable interest). In March 2021, the Internal Revenue Service (“IRS”) released Notice 2021-20, which retroactively eliminated the restriction that prevented employers who received a PPP loan from qualifying for the Employee Retention Credit (“ERC”), which is a refundable tax credit against certain employment taxes.

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