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What changed in R F INDUSTRIES LTD's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of R F INDUSTRIES LTD's 2022 and 2023 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 2023 report.

+130 added−225 removedSource: 10-K (2024-01-29) vs 10-K (2023-01-24)

Top changes in R F INDUSTRIES LTD's 2023 10-K

130 paragraphs added · 225 removed · 76 edited across 4 sections

Item 1. Business

Business — how the company describes what it does

40 edited+30 added−133 removed75 unchanged
Biggest changeFurther, 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.
Biggest changeFurther, 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.
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.
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.
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.
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.
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.
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 loss of key management and technical personnel could have an adverse effect on our business, financial position and results of operations. 14 We have few patent rights in the technology employed in our products, which may limit our ability to compete.
The loss of key management and technical personnel could have an adverse effect on our business, financial position and results of operations. We have few patent rights in the technology employed in our products, which may limit our ability to compete.
In addition to the normal risks associated with purchasing a new business and operating at a new location, the Company’s recent acquisition of Microlab 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 Term Loan, including imposing a limit on the ratio of debt to earnings before interest, taxes, depreciation and amortization.
We funded $17 million of the cash purchase price from the funds obtained under the term loan it obtained from Bank of America, N.A.
We funded $17 million of the cash purchase price from the funds obtained under the term loan obtained from Bank of America, N.A.
Any cyclical downturn in the communications industry could have a material adverse effect on us. Because we sell our products to foreign customers, we are exposed to all of the risks associated with international sales, including foreign currency exposure.
Any cyclical downturn in the communications industry could have a material adverse effect on us. Because we sell our products to foreign customers, we are exposed to risks associated with international sales, including foreign currency exposure.
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; (ii) consolidated fixed charge coverage ratio of at least 1.25 to 1.00; and (iii) consolidated minimum EBITDA of at least $600,000 for the discrete quarter ending January 31, 2022.
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 average trading volume of our shares of common stock is relatively small. As a result, sales of a significant number of shares, or the perception that significant sales could occur, could result in a decline in our stock price.
As a smaller capitalized company, the average trading volume of our shares of common stock is relatively small. As a result, sales of a significant number of shares, or the perception that significant sales could occur, could result in a decline in our stock price.
The uncertain state of the global economy (including the current conflict between Russia and Ukraine and related economic and other retaliatory measures taken by the United States, European Union and others) continues to impact businesses around the world.
The uncertain state of the global economy (including the current conflict between Russia and Ukraine and related economic and other retaliatory measures taken by the United States, European Union and others, and more recently between Israel and Hamas) continues to impact businesses around the world.
Sales to customers located outside the United States, either directly or through U.S. and foreign distributors, accounted for approximately 12% and 4% of our net sales during the years ended October 31, 2022 and 2021, respectively.
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.
On February 25, 2022, we entered into a Loan Agreement with the Credit Facility Lender, which facility provides 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”).
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”).
In addition, we had outstanding options for the purchase of 686,962 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 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.
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, 2022, we had 10,193,287 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, 2023, we had 10,343,223 shares of common stock outstanding.
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.
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.
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, 2022, we experienced $0.2 million in foreign currency exchange loss at time of collection.
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.
The markets in which we operate are highly competitive and we expect that competition will increase in these markets. In particular, the wireless and telecommunications markets in which most of our products are sold are intensely competitive. A failure to effectively compete in these markets could result in an immediate and substantial loss of revenues and market share.
In particular, the wireless and telecommunications markets in which most of our products are sold are intensely competitive. A failure to effectively compete in these markets could result in an immediate and substantial loss of revenues and market share.
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 2022, 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 2023, we did not make any dividend distributions to our stockholders.
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.
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.
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.
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.
Any actual or perceived weaknesses and conditions that need to be addressed in the internal controls over financial reporting (including those weaknesses identified in periodic reports), or disclosure of management’s assessment of the internal controls over financial reporting may have an adverse impact on the price of our common stock. 15 As of October 31, 2022 and 2021, we determined that our internal control over financial reporting was effective.
Any actual or perceived weaknesses and conditions that need to be addressed in the internal controls over financial reporting (including those weaknesses identified in periodic reports), or disclosure of management’s assessment of the internal controls over financial reporting may have an adverse impact on the 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. Accordingly, the market prices of our common stock may be expected to experience significant fluctuations in the future.
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.
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.
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.
A material portion of our sales is dependent upon a few principal customers, the loss of whom could materially negatively affect our total sales. For the year ended October 31, 2022, a wireless carrier customer accounted for approximately 20% of total sales.
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.
Risks Related to Our Common Stock Volatility of trading prices of our stock could result in a loss on an investment in our stock. The market price of our common stock has varied greatly, and the trading volume of our common stock has fluctuated greatly as well. These fluctuations often occur independently of our performance or any of our announcements.
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.
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. 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.
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.
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.
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.
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 or otherwise defaults on its 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. 11 Our business strategy to expand through acquisitions of other businesses could increase operating costs and expose us to additional risks.
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 addition, we have previously disclosed that, as part of our growth strategy, we intend to make additional acquisitions of businesses in the future.
Such recent transactions include the purchase of our new C Enterprises and Schrofftech subsidiaries in 2019 and Microlab in 2022. In addition, we have previously disclosed that, as part of our growth strategy, we intend to make additional acquisitions of businesses in the future.
There could also be a number of other adverse follow-on effects on our business from a deterioration of economic conditions or from a credit crisis, including insolvency of certain key distributors, key suppliers, contract manufacturers and customers. 13 Because the markets in which we compete are highly competitive, a failure to effectively compete could result in an immediate and substantial loss of market share.
There could also be a number of other adverse follow-on effects on our business from a deterioration of economic conditions or from a credit crisis, including insolvency of certain key distributors, key suppliers, contract manufacturers and customers.
As of October 31, 2022, we also had 916,369 shares available for future grant as stock options or restricted shares, the issuance and sale of which could also impact our stock price.
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.
The same customer had accounts receivable balances that accounted for 14% of the total net accounts receivable balance at October 31, 2022. Another distributor customer accounted for less than 10% of total sales and for 19% of the total net accounts receivable.
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.
A reduction, delay, or cancellation of orders from these customers or the loss of these customers could significantly reduce our future revenues and profits. Difficult conditions in the global economy may adversely affect our business and results of operations.
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.
We could be required to evaluate the recoverability of goodwill or trade names prior to the annual assessment upon unexpected significant declines in operating results, the divestiture of a significant component of our business or other factors. 12 No assurance can be given that events or circumstances will not change regarding the carrying value of goodwill of the Cables Unlimited, Microlab, Rel-Tech, C-Enterprises and Schrofftech subsidiaries or the CompPro product line.
No assurance can be given that events or circumstances will not change regarding the carrying value of goodwill of the Cables Unlimited, Microlab, Rel-Tech, C-Enterprises and Schrofftech subsidiaries or the CompPro product line.
For the year ended October 31, 2021, the same wireless carrier accounted for approximately 21% of total sales, and a distributor accounted for 11% of total sales. These two customers’ accounts receivable balances each accounted for approximately 28% and 8% of the total net accounts receivable balance at October 31, 2021.
These two customers’ accounts receivable balances each accounted for approximately 14% and 19% of the total net accounts receivable balance at October 31, 2022.
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. We are heavily dependent upon wireless and broadband communications providers.
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.
As part of our plan to operate businesses that are profitable and that reflect the changing market, we from time to time sell unprofitable divisions and purchase new businesses. Such recent transactions include the purchase of our new C Enterprises and Schrofftech subsidiaries in 2019 and Microlab in 2022.
Our business strategy to expand through acquisitions of other businesses could increase operating costs and expose us to additional risks. As part of our plan to operate businesses that are profitable and that reflect the changing market, we from time to time sell unprofitable divisions and purchase new businesses.
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.
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.
Goodwill reviews are prepared using estimates of fair value based on the estimated present value of future discounted cash flows.
Goodwill reviews are prepared using estimates of fair value based on the estimated present value of future discounted cash flows. We could be required to evaluate the recoverability of goodwill or trade names prior to the annual assessment upon unexpected significant declines in operating results, the divestiture of a significant component of our business or other factors.
Removed
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.
Added
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.
Removed
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.
Added
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.
Removed
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.
Added
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.
Removed
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.
Added
Further, 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.
Removed
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.
Added
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.
Removed
Recent Events On March 1, 2022, we purchased 100% of the issued and outstanding membership interests of Microlab/FXR LLC, a New Jersey limited liability company (“Microlab”) from Wireless Telecom Group, Inc, a New Jersey corporation (the “Seller”) pursuant to the Membership Interest Purchase Agreement (the “Purchase Agreement”) dated December 16, 2021.
Added
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.
Removed
The consideration for the acquisition was $24,250,000, subject to certain post-closing adjustments as set forth in the Purchase Agreement. The purchase price was paid in cash at the closing.
Added
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.
Removed
The Company funded $17 million of the cash purchase price from the funds obtained under a $17 million term loan (the “Term Loan”) with Bank of America, N.A. and paid the remaining amount of the cash purchase price with cash on hand.
Added
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.
Removed
The Term Loan was issued as part of a loan agreement with Bank of America, N.A. which also provided the Company with a $3 million revolving credit facility (the “Revolving Credit Facility” and together with the Term Loan, the “Credit Facility”).
Added
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.
Removed
The primary interest rate for the Revolving Credit Facility is based on the Bloomberg Short-Term Bank Yield Index Rate plus a margin of 2.00%. The maturity date of the Revolving Credit Facility is March 1, 2024. The Term Loan may be drawn in one disbursement, at the election of the Company.
Added
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.
Removed
As described above, we drew down the entire amount of the Term Loan on March 1, 2022. The primary interest rate for Term Loan is 3.76% per annum. The maturity date of the Term Loan is March 1, 2027.
Added
The Credit Facility Lender may accelerate the payment terms of the Loan Agreement upon the occurrence of certain events of default set forth therein.
Removed
Borrowings under the Revolving Credit Facility are available for general working capital purposes and Borrowings under the Term Loan are available for the acquisition of Microlab. See, “Item 1.
Added
Any event that could require us to repay debt prior to its due date could have a material adverse impact on our financial condition and results of operations and may affect our ability to continue as a going concern. Further, any renegotiation, refinancing or additional indebtedness that we incur in the future may subject us to further covenants.
Removed
Business—Acquisition of Microlab/FXR LLC," below. 3 Microlab designs and manufactures a wide selection of RF components and integrated subsystems for signal conditioning and distribution in the wireless infrastructure markets as well as for use in medical devices. Microlab products are used in small cell deployments, distributed antenna systems, in-building wireless solutions and cellular base-stations.
Added
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.
Removed
Microlab’s portfolio includes RF components for ultra-wideband frequency ranges deployed in commercial wireless networks utilizing mid-band spectrum allocations for 5G mobile broadband. We believe Microlab components possess unique capabilities in the area of broadband frequency coverage, minimal loss and low passive intermodulation (“PIM”).
Added
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.
Removed
Microlab’s high performance components – such as power combiners, directional couplers, attenuators, terminators and filters – are used in broadband applications to support commercial in-building wireless networks, public safety networks, rail and transportation deployments, and global positioning system (“GPS”) signal distribution.
Added
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.
Removed
Microlab also produces and sells various other products, including a portfolio of GPS digital repeaters and splitters for cellular timing synchronization as well as a passive systems monitor for real-time diagnostics of an in-building distributed antenna system (“DAS”).
Added
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.
Removed
We have operated the Microlab business at Seller’s facilities in Hanover Township, Parsippany, New Jersey, pursuant to a sublease since closing of the acquisition. On October 19, 2022, we entered into two lease agreements for contiguous office and production space in Parsippany, New Jersey and will move the Microlab operations upon completion of certain improvements negotiated under the lease agreements.
Added
If cash from available sources is insufficient or cash is used for unanticipated needs, we may require additional capital sooner than anticipated.
Removed
We expect Microlab to occupy this space on or around our second quarter of fiscal year 2023.
Added
We believe that our existing sources of liquidity, including cash resources and cash provided by operating activities will provide sufficient resources to meet our working capital and cash requirements for at least the next twelve months; however, there can be no assurance that our cash resources will fund our operating plan for the period anticipated by us, especially if there is a material adverse impact on our business from unforeseen events or a desire to reduce our outstanding indebtedness.
Removed
The Microlab acquisition is in line with our previously announced strategy for driving revenue growth both organically and through the acquisition of companies that offer access to new products that can be sold to a growing customer base, including through an extensive distribution channel.
Added
Any such events could have an effect on our liquidity and our ability to continue as a going concern in the future, and result in a need to raise additional capital. Alternatively, we could decide to liquidate assets, raise capital or incur additional indebtedness to fund strategic initiatives or operating activities, particularly if we pursue additional acquisitions.
Removed
Microlab's products are known worldwide for their superior quality and performance and are considered the gold standard in RF and microwave distribution systems. We believe that there are significant growth opportunities in the small cell and DAS markets, and that Microlab's products will provide the Company with additional scale and opportunity for further revenue growth.
Added
In the event we are required, or elect, to raise additional funds, we may be unable to do so on favorable terms, or at all, and may incur expenses in raising the additional funds and increase our interest rate exposure, and any future indebtedness could adversely affect our operating results and severely limit our ability to plan for, or react to, changes in our business or industry.

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Item 2. Properties

Properties — owned and leased real estate

3 edited+1 added−1 removed0 unchanged
Biggest changeITEM 2. DESCRIPTION OF PROPERTY We currently lease our corporate headquarters and RF connector and cable assembly manufacturing facilities in San Diego, California. At that location, we lease three buildings, with a total of approximately 21,908 square feet of office, warehouse and manufacturing space, that house our corporate administration, sales and marketing, and engineering departments.
Biggest changeITEM 2. DESCRIPTION OF PROPERTY We currently lease 86,952 square feet of space for our corporate headquarters and RF connector and cable assembly manufacturing facilities in San Diego, California.
The table below shows a summary of the square footage of these locations as of October 31, 2022: Lease Location Square Footage Milford, CT 13,750 North Kingstown, RI 10,700 Parsippany, NJ 23,300 Vista, CA 24,014 Yaphank, NY 24,500 16
Additionally, 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
The buildings are also used for production and warehousing by our RF Connector segment. We recently entered into two lease agreements for adjacent office and commercial lab space in Parsippany, New Jersey, which will be used for the Microlab operations.
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.
Removed
Additionally, we lease spaces in four other locations in the United States that house the administration offices and manufacturing facilities for our Custom Cabling segment.
Added
On June 27, 2023, we entered into a Managed Client Agreement with RGN-MCA San Diego II, LLC (“IWG”) pursuant to which IWG agreed to provide managed services for flexible workspaces under the “Regus” brand for 39,979 square feet on the 1 st and 2 nd floor(s) of the adjacent and vacant office spaces of our corporate headquarters.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+2 added−4 removed1 unchanged
Biggest changeThere were no previously unreported sales of equity securities by us that were not registered under the Securities Act during fiscal 2022. Dividend Policy. Due to the current economic uncertainty, the COVID-19 pandemic, and other financial considerations, our Board terminated dividend payments. No assurance can be given if, or when the Board will resume dividend payments.
Biggest changeDue 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.
The declaration and amount of any actual cash dividend are in the sole discretion of the Board of Directors and are subject to numerous factors that ordinarily affect dividend policy, including the results of our operations and financial position, as well as general economic and business conditions.
The declaration and amount of any actual cash dividend are in the sole discretion of the Board and are subject to numerous factors that ordinarily affect dividend policy, including the results of our operations and financial position, as well as general economic and business conditions.
As of October 31, 2022, there were 260 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.” Repurchase of Securities.
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.
Removed
The following table sets forth information regarding the shares of common stock cancelled, and deemed to have been repurchased during the three months ended October 31, 2022 in connection with employee tax withholding for shares of restricted stock that vested under our 2020 Equity Incentive Plan.
Added
We 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.
Removed
Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs Approximate dollar value of shares that may yet be purchased under the plans or programs August 2022 - $ - - $ - September 2022 - $ - - $ - October 2022 329 $ 5.36 - $ - Recent Sales of Unregistered Securities.
Added
Accordingly, if and when any dividends will be declared in the future will be determined by our Board based on the Company’s future operations and on the Board’s decision regarding the use of any future earnings.
Removed
Accordingly, if and when any dividends will be declared in the future will be determined by our Board based on the Company’s future operations and on the Board’s decision regarding the use of any future earnings. 17 EQUITY COMPENSATION PLAN INFORMATION The following table provides information as of October 31, 2022 with respect to the shares of Company common stock that may be issued under the Company’s existing equity compensation plans: A B C Number of Securities Remaining Available for Future Issuance Under Equity Compensation Number of Securities to Weighted Average Plans (Excluding be Issued Upon Exercise Exercise Price of Securities Reflected in Plan Category of Outstanding Options Outstanding Options ($) Column A) 2010 Equity Incentive Plan 145,001 $ 6.94 – (1) 2020 Equity Incentive Plan 541,961 $ 5.58 916,369 Total 686,962 $ 5.05 916,369 (1) The RF Industries, Ltd. 2010 Stock Incentive Plan expired on March 8, 2020.
Removed
Accordingly, additional equity incentive awards cannot be granted under this plan.

Item 7. Management's Discussion & Analysis

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

30 edited+21 added−11 removed25 unchanged
Biggest changeMicrolab accounted for $3.3 million of the selling and general expenses and acquisition related expenses and other one-time charges (including attorney fees, due diligence, and broker fees) accounted for $1.5 million and additional rent expense of $529,000 (non-cash) related to lease accounting for fiscal 2022.
Biggest changeWe also incurred one-time charges totaling $0.9 million related to an additional rent expense of $444,000 (of which $387,000 was non-cash) related to lease accounting, $252,000 in facility move expenses, severance of $75,000, $63,000 in ERP system implementations, $50,000 in bank waiver amendment fees and $42,000 in bank covenant reviews in fiscal 2023 compared to acquisition related expenses and other one-time charges (including attorney fees, due diligence and broker fees) which accounted for $2.1 million in fiscal 2022.
All of our PPP Loans have been forgiven and are considered paid in full (including applicable interest). 19 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.
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.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 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”).
Since our goal is to continue to expand our operations and accelerate our growth through future acquisitions, we may use some of our current capital resources to fund any acquisitions we may undertake in the future.
Since our goal is to continue to expand our operations and accelerate our growth through future acquisitions, we may use some of our current capital resources to fund acquisitions we may undertake in the future.
Upon determination that the employer has complied with all of the conditions required to receive the credit, a receivable is recognized and the credit reduces salaries and wages. For the fiscal year ended October 31, 2021, we qualified and filed to claim the ERC and have recorded the credit as a receivable in Other Current Assets.
Upon determination that the employer has complied with all of the conditions required to receive the credit, a receivable is recognized and the credit reduces salaries and wages. For the fiscal year ended October 31, 2022, we qualified and filed to claim the ERC and have recorded the credit as a receivable in Other Current Assets.
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. We amortize our intangible assets with definite useful lives over their estimated useful lives and reviews these assets for impairment.
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. We amortize our intangible assets with definite useful lives over their estimated useful lives and review these assets for impairment.
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 two divisions while the Custom Cabling segment was comprised of four divisions.
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.
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 shipment delays and to cancellation from customers, although we have not historically experienced material cancellations of purchase orders.
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.
While the majority of the outbreak impacted our performance for the years ended October 31, 2021 and October 31, 2020, 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.
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.
As of October 31, 2022, we generated $2.9 million of cash in our operating activities.
As of October 31, 2023, we generated $4.2 million of cash in our operating activities.
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. 18 Income Taxes We record a tax provision for the anticipated tax consequences of the reported results of operations.
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.
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.
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.
Financial Condition The following table presents certain key measures of financial condition as of October 31, 2022 and 2021 (in thousands, except percentages): 2022 2021 Amount % Total Assets Amount % Total Assets Cash and cash equivalents $ 4,532 5.1 % $ 13,053 26.3 % Current assets 46,247 51.6 % 40,648 81.9 % Current liabilities 19,536 21.8 % 9,370 18.9 % Working capital 26,711 29.8 % 31,278 63.0 % Property and equipment, net 3,173 3.5 % 708 1.4 % Total assets 89,566 100.0 % 49,648 100.0 % Stockholders' equity 41,869 46.7 % 39,603 79.8 % Liquidity and Capital Resources Historically, we have been able to fund our liquidity and other capital requirements from funds we generated from operations.
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.
Results of Operations The following summarizes the key components of our consolidated results of operations for the fiscal years ended October 31, 2022 and 2021 (in thousands, except percentages): 2022 2021 Amount % of Net Sales Amount % of Net Sales Net sales $ 85,254 100.0 % $ 57,424 100.0 % Cost of sales 60,705 71.2 % 39,656 69.1 % Gross profit 24,549 28.8 % 17,768 30.9 % Engineering expenses 2,913 3.4 % 1,479 2.6 % Selling and general expenses 19,448 22.8 % 11,874 20.7 % Operating income 2,188 2.6 % 4,415 7.7 % Other (loss) income (601 ) -0.7 % 2,802 4.9 % Income before provision for income taxes 1,587 1.9 % 7,217 12.6 % Provision for income taxes 139 0.2 % 1,036 1.8 % Consolidated net income 1,448 1.7 % 6,181 10.8 % Net sales for the year ended October 31, 2022 (“fiscal 2022”) increased by $27.8 million (or 48%) to $85.3 million, as compared to net sales of $57.4 million for the year ended October 31, 2021 (“fiscal 2021”).
Results 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”).
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.
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.
As of October 31, 2022, we carried a $1.6 million the ERC receivable in Other Current Assets. In January 2023, we received a refund of $1.2 million related to the ERC.
As of October 31, 2023, we carried a $0.1 million ERC receivable in Other Current Assets.
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 63% 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 37% of total sales for fiscal 2022.
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.
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.
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.
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.
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.
This net inflow of cash is primarily related to our net income of $1.4 million, $1.7 million from depreciation and amortization and increased accrued expenses of $3.1 million, increases in right of use asset of $3.4 million, and increased trade accounts receivable of $1.5 million due to timing of collections.
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.
As of October 31, 2022, we also spent $2.7 million on capital expenditures, primarily related to lease hold improvements which were eligible for reimbursement (noted in other current assets), and $24.4 million on the purchase of Microlab offset by $17 million from the Term Loan as noted above which we have also paid $1.4 million down.
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.
In the past, we have purchased all additional equipment, or financed some of our equipment and furnishings requirements through leases. Currently, no additional capital equipment purchases have been identified that would require significant additional leasing or capital expenditures during the next twelve months.
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.
The cash used in operating activities and the amounts spent on capital expenditures were partially offset by $0.1 million of proceeds that we received from the exercise of stock options. 20 Our goal to expand and grow our business both organically and through acquisitions may require material additional capital equipment.
The cash used in operating activities and the amounts spent on capital expenditures were partially offset by $0.1 million of proceeds received from the exercise of stock options. As noted above, we also drew $1.0 million from the Revolving Credit Facility in fiscal 2023, primarily to fund leasehold improvements to the new corporate headquarters.
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.
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.
The increase was due to the RF Connector segment ($15.5 million or 99% increase from fiscal 2021), which includes Microlab which we acquired March 2022 (which contributed $14.4 million in sales). Net sales in the Custom Cabling segment increased by $12.3 million, or 29%, to $54.1 million compared to $41.8 million in fiscal 2021.
Net sales for fiscal 2023 at the RF Connector segment increased by $2.4 million, or 5.5%, to $45.9 million compared to $43.5 million in fiscal 2022. The increase was primarily the result of the Microlab acquisition on March 1, 2022.
Selling and general expenses increased by $7.6 million to $19.4 million (to 22.8% of sales) in fiscal 2022 compared to $11.9 million (20.7% of sales) in fiscal 2021 (excluding ERC, selling and general expenses would have been $12.4 million (21.6% of sales)).
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.
As of October 31, 2022, we had working capital of $26.7 million and a current ratio of approximately 2.4:1 with current assets of $46.2 million and current liabilities of $19.5 million. As of October 31, 2022, our backlog was $27.8 million compared to a backlog of $33.3 million as of October 31, 2021.
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.
Gross profit for fiscal 2022 increased by $6.8 million (excluding ERC from fiscal 2021, gross profit increased $9.4 million) to $24.5 million, and gross margins decreased to 28.8% of sales from 30.9% of sales in fiscal 2021 (excluding ERC from fiscal 2021, gross margin increased when compared to fiscal 2021, which was 26.4%).
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.
The change in effective tax rate for fiscal 2022 and 2021 was primarily driven by the disproportionate impact of various permanent book-tax differences with respect to our forecasted book income or loss in each period. 21 For fiscal 2022, net income was $1.4 million and fully diluted earnings per share was $0.14 per share as compared to net income of $6.2 million and fully diluted earnings per share of $0.61 per share for fiscal 2021.
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.
The foregoing cash provided was primarily offset by increased inventory purchases (which increased our inventory balance by $6.1 million), deferred income taxes of $1.4 million, other current assets of $2.9 million and accounts payable of $1.1 million.
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.
Removed
The five divisions that met the quantitative thresholds for segment reporting in the fiscal year ended October 31, 2021 were the RF Connector and Cable Assembly division, Cables Unlimited, Rel-Tech, C Enterprises, and Schrofftech. Microlab, which the Company acquired in the current fiscal year ending October 31, 2022, is part of the RF Connector segment.
Added
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.
Removed
On March 1, 2022, we acquired Microlab. The acquisition of Microlab has affected both our liquidity and our capital resources.
Added
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.
Removed
In order to acquire Microlab, we used $7.3 million of our cash on hand to pay a portion of the purchase price, thereby reducing the amount available for future acquisitions, for investments in the expansion of our existing businesses and assets, or as a reserve for unanticipated financial requirements.
Added
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.
Removed
In connection with the purchase of Microlab, we entered into the Credit Facility and borrowed the full $17 million amount available under the Term Loan.
Added
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.
Removed
We believe that our remaining and existing assets and the cash we expect to generate from operations and from our current backlog of unfulfilled orders, will be sufficient to fund our liquidity needs during the next twelve months from the date of this filing based on the following: As of October 31, 2022, we had a total of $4.5 million of cash and cash equivalents compared to a total of $13.1 million of cash and cash equivalents as of October 31, 2021.
Added
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.
Removed
The sales increase reflects the increase in project-based business that were primarily related to the sales of hybrid fiber cables used in the build out of 4G and 5G networks.
Added
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.
Removed
The improved gross margin and gross profit, which excluding the impact of ERC from fiscal 2021, was primarily a result of higher sales and a better product mix with the acquisition of Microlab. Engineering expenses increased $1.4 million to $2.9 million for fiscal 2022 compared to $1.5 million in fiscal 2021 (excluding ERC, engineering expense would have been $1.8 million).
Added
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.
Removed
The primary reason for the increase is due to Microlab engineering expenses of $1.0 million. Engineering expenses represent costs incurred relating to the ongoing research and development of new products.
Added
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.
Removed
Selling and general expenses also increased as a result of the increase in net sales during the current fiscal 2022. Other loss for fiscal 2022 is primarily interest expense of $0.4 million from the term loan and $0.2 million from foreign currency at time of collections.
Added
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.
Removed
In February 2021, all of the $2.8 million of PPP Loans were forgiven and considered paid in full (including applicable interest), which debt forgiveness is reflected as “Other Income”. The provision for income taxes was $0.1 million for an effective tax rate of 8.8% for fiscal 2022 and $1.0 million for an effective tax rate of 14.4% for fiscal 2021.
Added
Income Taxes We record a tax provision (benefit) for the anticipated tax consequences of the reported results of operations.
Removed
For fiscal 2022, the diluted weighted average shares outstanding was 10,242,417 as compared to 10,154,239 for fiscal 2021. Inflation and Rising Costs The cost to manufacture the Company’s products is influenced by the cost of raw materials and labor.
Added
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.
Added
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.
Added
As of October 31, 2023, we had $16.1 million of backlog, compared to $27.8 million as of October 31, 2022. The decrease in backlog relates primarily to shipments made against orders for our hybrid fiber cables.
Added
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.
Added
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.
Added
Engineering expenses increased by $0.3 million to $3.2 million for fiscal 2023 compared to $2.9 million in fiscal 2022. The increase was primarily due to engineering efforts associated with our integrated systems products and a full year of Microlab operations.
Added
Microlab, which was acquired on March 1, 2022, accounted for $4.9 million of the selling and general expenses, as compared to $3.3 million in fiscal 2022. The increase at Microlab was offset by decreases in variable compensation related to commissions and bonus as a result of the lower sales overall.
Added
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.
Added
The pretax loss at the Custom Cabling segment was primarily due to the decrease in sales of hybrid fiber cables to our wireless carrier customers and a decrease in sales of small cell products and systems to customers in the Tier-1 wireless ecosystem.
Added
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.
Added
The change in effective tax rate for fiscal 2023 and 2022 was primarily driven by stock-based compensation windfall/shortfalls, change in valuation allowance and the Company’s full year financial loss.

Other RFIL 10-K year-over-year comparisons