R F Industries Ltd 10-Q for FY2023 Q3
R F Industries Ltd (RFIL)
About this 10-Q
R F Industries Ltd filed this 10-Q on September 14, 2023, covering the quarter ended July 31, 2023 (FY2023 Q3).
Headline figures
Quarter ended July 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $15.65M
- down 34.4% from $23.84M a year earlier
- Net loss
- $1.65M
- compared with net income of $771K a year earlier
- Diluted EPS
- -$0.16
- compared with $0.08 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number:
(Exact name of registrant as specified in its charter)
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Registrant’s telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ |
Accelerated filer ☐ |
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Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes
The number of shares of the issuer’s Common Stock, par value $0.01 per share, outstanding as of September 14, 2023 was
Part I. FINANCIAL INFORMATION
Item 1: Financial Statements
RF INDUSTRIES, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
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July 31, |
October 31, |
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2023 |
2022 |
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(Unaudited) |
(Note 1) |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
$ | $ | ||||||
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Trade accounts receivable, net of allowance for doubtful accounts of $ |
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Inventories |
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Other current assets |
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TOTAL CURRENT ASSETS |
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| Property and equipment: | ||||||||
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Equipment and tooling |
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Furniture and office equipment |
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Less accumulated depreciation |
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Total property and equipment, net |
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Operating lease right of use assets, net |
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Goodwill |
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Amortizable intangible assets, net |
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Non-amortizable intangible assets |
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Deferred tax assets |
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Other assets |
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TOTAL ASSETS |
$ | $ | ||||||
Item 1: Financial Statements (continued)
RF INDUSTRIES, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
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July 31, |
October 31, |
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2023 |
2022 |
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(Unaudited) |
(Note 1) |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES |
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Accounts payable |
$ | $ | ||||||
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Accrued expenses |
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Revolving credit facility |
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Current portion of Term Loan |
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Current portion of operating lease liabilities |
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Income taxes payable |
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TOTAL CURRENT LIABILITIES |
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Operating lease liabilities |
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Term Loan, net of current portion of debt issuance cost |
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TOTAL LIABILITIES |
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COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS’ EQUITY |
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Common stock - authorized |
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Additional paid-in capital |
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Retained earnings |
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TOTAL STOCKHOLDERS' EQUITY |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ | $ | ||||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
Item 1: Financial Statements (continued)
RF INDUSTRIES, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except share and per share amounts)
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Three Months Ended July 31, |
Nine Months Ended July 31, |
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2023 |
2022 |
2023 |
2022 |
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Net sales |
$ | $ | $ | $ | ||||||||||||
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Cost of sales |
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Gross profit |
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| Operating expenses: | ||||||||||||||||
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Engineering |
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Selling and general |
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Total operating expenses |
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Operating (loss) income |
( |
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Other expense |
( |
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(Loss) income before (benefit) provision for income taxes |
( |
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(Benefit) provision for income taxes |
( |
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Consolidated net (loss) income |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| (Loss) earnings per share: | ||||||||||||||||
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Basic |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
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Diluted |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Weighted average shares outstanding: | ||||||||||||||||
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Basic |
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Diluted |
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See Notes to Unaudited Condensed Consolidated Financial Statements.
Item 1: Financial Statements (continued)
RF INDUSTRIES, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands, except share amounts)
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For the Three Months Ended July 31, 2023 |
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Additional |
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Common Stock |
Paid-in |
Retained |
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Shares |
Amount |
Capital |
Earnings |
Total |
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Balance, May 1, 2023 |
$ | $ | $ | $ | ||||||||||||||||
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Stock-based compensation expense |
- | 246 | 246 | |||||||||||||||||
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Tax withholding related to vesting of restricted stock |
( |
) | - | ( |
) | - | ( |
) | ||||||||||||
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Consolidated net loss |
- | - | (1,645 | ) | ( |
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Balance, July 31, 2023 |
$ | $ | $ | $ | ||||||||||||||||
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For the Nine Months Ended July 31, 2023 |
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Additional |
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| Common Stock | Paid-in | Retained | ||||||||||||||||||
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Shares |
Amount |
Capital |
Earnings |
Total |
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Balance, November 1, 2022 |
$ | $ | $ | $ | ||||||||||||||||
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Exercise of stock options |
- | |||||||||||||||||||
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Stock-based compensation expense |
- | - | - | |||||||||||||||||
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Issuance of restricted stock |
- | 1 | ||||||||||||||||||
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Tax withholding related to vesting of restricted stock |
( |
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Consolidated net loss |
- | - | - | ( |
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Balance, July 31, 2023 |
$ | $ | $ | $ | ||||||||||||||||
Item 1: Financial Statements (continued)
RF INDUSTRIES, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands, except share amounts)
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For the Three Months ended July 31, 2022 |
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Additional |
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Common Stock |
Paid-In |
Retained |
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Shares |
Amount |
Capital |
Earnings |
Total |
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Balance, May 1, 2022 |
$ | $ | $ | $ | ||||||||||||||||
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Exercise of stock options |
- | |||||||||||||||||||
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Stock-based compensation expense |
- | - | - | |||||||||||||||||
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Tax withholding related to vesting of restricted stock |
( |
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) | - | ( |
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Consolidated net income |
- | - | - | |||||||||||||||||
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Balance, July 31, 2022 |
$ | $ | $ | $ | ||||||||||||||||
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For the Nine Months ended July 31, 2022 |
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Additional |
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Common Stock |
Paid-In |
Retained |
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Shares |
Amount |
Capital |
Earnings |
Total |
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Balance, November 1, 2021 |
$ | $ | $ | $ | ||||||||||||||||
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Exercise of stock options |
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Stock-based compensation expense |
- | |||||||||||||||||||
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Issuance of restricted stock |
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Tax withholding related to vesting of restricted stock |
( |
) | ( |
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Consolidated net income |
- | |||||||||||||||||||
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Balance, July 31, 2022 |
$ | $ | $ | $ | ||||||||||||||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
Item 1: Financial Statements (continued)
RF INDUSTRIES, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
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Nine Months Ended July 31, |
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2023 |
2022 |
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| OPERATING ACTIVITIES: | ||||||||
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Consolidated net (loss) income |
$ | ( |
) | $ | ||||
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Adjustments to reconcile consolidated net (loss) income to net cash provided by (used in) operating activities: |
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Bad debt expense |
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Depreciation and amortization |
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Stock-based compensation expense |
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Amortization of debt issuance cost |
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Tax payments related to shares cancelled for vested restricted stock awards |
( |
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Deferred income taxes |
( |
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| Changes in operating assets and liabilities: | ||||||||
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Trade accounts receivable |
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Inventories |
( |
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Other current assets |
( |
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Right of use assets |
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Other long-term assets |
( |
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Accounts payable |
( |
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Accrued expenses |
( |
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Income taxes payable |
( |
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Net cash provided by operating activities |
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| INVESTING ACTIVITIES: | ||||||||
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Capital expenditures |
( |
) | ( |
) | ||||
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Purchase of Microlab, net of cash acquired ($ |
( |
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Net cash used in investing activities |
( |
) | ( |
) | ||||
| FINANCING ACTIVITIES: | ||||||||
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Proceeds from exercise of stock options |
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Debt issuance cost |
( |
) | ||||||
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Revolving credit facility |
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Term Loan payments |
( |
) | ( |
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Term Loan |
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Net cash (used in) provided by financing activities |
( |
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Net decrease in cash and cash equivalents |
( |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
$ | $ | ||||||
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Supplemental cash flow information – income taxes paid |
$ | $ | ||||||
See Notes to Unaudited Condensed Consolidated Financial Statements.
RF INDUSTRIES, LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Unaudited interim condensed consolidated financial statements
Our accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, which are normal and recurring, have been included for a fair statement of the financial position. Information included in the condensed consolidated balance sheet as of October 31, 2022 has been derived from, and certain terms used herein are defined in, the audited consolidated financial statements of RF Industries, Ltd. as of October 31, 2022 included in our Annual Report on Form 10-K (“Form 10-K”) for the year ended October 31, 2022 that was previously filed with the Securities and Exchange Commission (“SEC”). Operating results for the nine months ended July 31, 2023 are not necessarily indicative of the results that may be expected for the year ended October 31, 2023. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Form 10-K.
Our accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business. The propriety of using the going-concern basis is dependent upon, among other things, the achievement of future profitable operations, the ability to generate sufficient cash from operations and potential other funding sources, in addition to cash on-hand along with the current Credit Facility (as defined below), to meet its obligations as they become due.
Although we have incurred operating losses during the nine months ended July 31, 2023, we have implemented certain cost-cutting measures to reduce our operating expenses and to help drive positive operating cash flow and increase liquidity. Our plan includes consolidating facilities and recognizing the related operating efficiencies and synergies in our production operations. The Company intends to continue to pursue additional continuous improvement and cost reduction measures, as well as organic growth in revenue and profitability.
Management believes that these actions will enable the Company to continue as a going concern through at least 12 months from the date these unaudited condensed consolidated financial statements are available to be issued.
Principles of consolidation
The accompanying unaudited condensed consolidated financial statements for the periods ended on or before January 31, 2022 include the accounts of RF Industries, Ltd. and our four wholly-owned subsidiaries: Cables Unlimited, Inc. (“Cables Unlimited”), Rel-Tech Electronics, Inc. (“Rel-Tech”), C Enterprises, Inc. (“C Enterprises”), and Schroff Technologies International, Inc. (“Schrofftech”). The unaudited condensed consolidated financial statements for the three and nine months ended July 31, 2023 include the accounts of RF Industries, Ltd. and our five wholly-owned subsidiaries: Cables Unlimited, Inc. (“Cables Unlimited”), Rel-Tech Electronics, Inc. (“Rel-Tech”), C Enterprises, Inc. (“C Enterprises”), Schroff Technologies International, Inc. (“Schrofftech”), and Microlab/FXR LLC (“Microlab”). Microlab is a wholly-owned subsidiary that RF Industries, Ltd. acquired on March 1, 2022. For periods on or before January 31, 2022, references herein to the “Company”, “we”, “us”, or “our” shall refer to RF Industries, Ltd., Cables Unlimited, Rel-Tech, C Enterprises, and Schrofftech and for all periods after January 31, 2022, reference to the “Company”, “we”, “us”, or “our” shall refer to RF Industries, Ltd., Cables Unlimited, Rel-Tech, C Enterprises, Schrofftech and Microlab. All intercompany balances and transactions have been eliminated in consolidation.
Fair value measurement
We measure at fair value certain financial assets and liabilities. Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. GAAP specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs have created the following fair-value hierarchy:
Level 1— Quoted prices for identical instruments in active markets;
Level 2— Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3— Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
As of July 31, 2023 and October 31, 2022, the carrying amounts reflected in the accompanying unaudited condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, and accounts payable approximated their carrying value due to their short-term nature.
Recent accounting standards
Recently issued accounting pronouncements not yet adopted:
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments—Credit Losses, which requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The guidance is effective for fiscal years beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), which pushes back the effective date for public business entities that are smaller reporting companies, as defined by the SEC, to fiscal years beginning after December 15, 2022. Early adoption is permitted. We are currently evaluating the impact the adoption of this new standard will have on our unaudited condensed consolidated financial statements.
Note 2 – Business acquisition
On March 1, 2022, the Company completed its purchase (the “Purchase Transaction”) of
The acquisition was accounted for with the acquisition method of accounting. The acquired assets and assumed liabilities have been recorded at their estimated fair values. We determined the estimated fair values with the assistance of appraisals or valuations performed by an independent third-party specialist. Microlab designs and manufactures high-performance radio frequency and microwave products enabling signal distribution and deployment of in-building DAS (distributed antenna systems), wireless base stations and small cell networks. The Microlab acquisition further diversifies and strengthens the portfolio of products that we offer to the market and allows us to provide a more complete solution to our customers in key market segments. All manufacturing operations are performed at Microlab’s facilities in New Jersey.
The acquisition closed on March 1, 2022, accordingly, subsequent to March 1, 2022, Microlab’s financial results have been included in the results of the RF Connector and Cable Assembly (“RF Connector”) segment as well as in the condensed consolidated statements of operations. The Company expects the goodwill recorded to be deductible for income tax purposes. Acquired amortizable intangible assets are being amortized on a straight-line basis over their estimated useful lives ranging from to
The following table summarizes the components of the purchase price at fair values at March 1, 2022:
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Cash consideration paid at closing |
$ | |||
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Post-closing adjustment |
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Total consideration transferred |
$ |
The following table summarizes the allocation of the preliminary purchase price at fair value at March 1, 2022:
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Current assets |
$ | |||
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Property and equipment |
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Intangible assets |
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Goodwill |
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Noninterest-bearing liabilities |
( |
) | ||
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Net assets acquired at fair value |
$ |
The following unaudited pro forma financial information presents the combined operating results of the Company and Microlab as if the acquisition had occurred as of the beginning of the earliest period presented. Pro forma data is subject to various assumptions and estimates and is presented for informational purposes only. This pro forma data does not purport to represent or be indicative of the consolidated operating results that would have been reported had the transaction been completed as described herein, and the data should not be taken as indicative of future consolidated operating results.
Unaudited pro forma financial information assuming the acquisition of Microlab as of November 1, 2021 is presented in the following table:
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Three Months Ended July 31, |
Nine Months Ended July 31, |
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2023 |
2022 |
2023 |
2022 |
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Revenue |
$ | $ | $ | $ | ||||||||||||
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Net (loss) income |
( |
) | ( |
) | ||||||||||||
| (Loss) Earnings per share | ||||||||||||||||
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Basic |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
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Diluted |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
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Basic |
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Diluted |
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Note 3 – Concentrations of credit risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. We maintain our cash and cash equivalents with high-credit quality financial institutions. At July 31, 2023, we had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $
Sales from each customer that were 10% or greater of net sales were as follows:
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Three Months Ended July 31, |
Nine Months Ended July 31, |
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2023 |
2022 |
2023 |
2022 |
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Wireless provider |
* | % | % | % | ||||||||||||
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Distributor A |
% | * | * | * | ||||||||||||
For the three months ended July 31, 2023, a distributor customer accounted for
Note 4 – Inventories and major vendors
Inventories, consisting of materials, labor and manufacturing overhead, are stated at the lower of cost or net realizable value. Cost has been determined using the weighted average cost method. Inventories consist of the following (in thousands):
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July 31, 2023 |
October 31, 2022 |
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Raw materials and supplies |
$ | $ | ||||||
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Work in process |
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Finished goods |
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Totals |
$ | $ | ||||||
For the three months ended July 31, 2023, a single vendor accounted for
Note 5 – Other current assets
Other current assets consist of the following (in thousands):
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July 31, 2023 |
October 31, 2022 |
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Employee retention credit ("ERC") |
$ | $ | ||||||
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Prepaid taxes |
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Prepaid expense |
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Reimbursement for tenant improvements |
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Other |
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Totals |
$ | $ | ||||||
Pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), eligible employers are able to claim an ERC, which is a refundable tax credit against certain employment taxes. If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may get an advance payment from the Internal Revenue Service (IRS). The period assessed for eligibility of the ERC is on a calendar year basis. As of July 31, 2023, the remaining portion of the ERC that we have not yet received is included as other receivables in other current assets.
Note 6 – Accrued expenses and other current liabilities
Accrued expenses consist of the following (in thousands):
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July 31, 2023 |
October 31, 2022 |
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Wages payable |
$ | $ | ||||||
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Accrued receipts |
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Other accrued expenses |
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| Tenant improvements payable | ||||||||
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Totals |
$ | $ | ||||||
Accrued receipts represent purchased inventory for which invoices have not been received.
Note 7 – Loss per share
Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding increased by the effects of assuming that other potentially dilutive securities (such as stock options) outstanding during the period had been exercised and the treasury stock method had been applied. During the three and nine months ended July 31, 2023 we reported a net loss, and in periods with a net loss, the basic loss per share equals the diluted loss per share as all common stock equivalents are excluded from the per share calculation due to their anti-dilutive effect. Potentially issuable securities that are out-of-the-money totaled
The following table summarizes the computation of basic and diluted weighted average shares outstanding:
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Three Months Ended July 31, |
Nine Months Ended July 31, |
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2023 |
2022 |
2023 |
2022 |
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Weighted average shares outstanding for basic earnings per share |
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Add effects of potentially dilutive securities-assumed exercise of stock options |
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Weighted average shares outstanding for diluted earnings per share |
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Note 8 – Stock-based compensation and equity transactions
On January 10, 2022, we granted a total of
On January 10, 2023, we granted a total of
The weighted average fair value of employee stock options that were granted during the nine months ended July 31, 2023 and 2022 was estimated to be $
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Nine Months Ended July 31, |
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2023 |
2022 |
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Risk-free interest rate |
% | % | ||||||
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Dividend yield |
% | % | ||||||
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Expected life of the option (in years) |
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Volatility factor |
% | % | ||||||
Expected volatilities are based on historical volatility of our stock price and other factors. We used the historical method to calculate the expected life of the 2023 and 2022 option grants. The expected life represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on the U.S. Treasury rate with a maturity date corresponding to the options’ expected life. The dividend yield is based upon the historical dividend yield.
Company stock option plans
Descriptions of our stock option plans are included in Note 9 to our audited financial statements included in our Annual Report on Form 10-K for the year ended October 31, 2022. A summary of the status of the options granted under our stock option plans as of July 31, 2023 and the changes in options outstanding during the nine months then ended is presented in the table that follows:
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Weighted |
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Average |
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Shares |
Exercise Price |
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Outstanding at November 1, 2022 |
$ | |||||||
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Options granted |
$ | |||||||
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Options exercised |
( |
) | $ | |||||
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Options cancelled |
$ | - | ||||||
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Options outstanding at July 31, 2023 |
$ | |||||||
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Options exercisable at July 31, 2023 |
$ | |||||||
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Options vested and expected to vest at July 31, 2023 |
$ | |||||||
Weighted average remaining contractual life of options outstanding as of July 31, 2023:
Weighted average remaining contractual life of options exercisable as of July 31, 2023:
Weighted average remaining contractual life of options vested and expected to vest as of July 31, 2023:
Aggregate intrinsic value of options outstanding at July 31, 2023: $
Aggregate intrinsic value of options exercisable at July 31, 2023: $
Aggregate intrinsic value of options vested and expected to vest at July 31, 2023: $
As of July 31, 2023, $
Stock option expense
During the three months ended July 31, 2023 and 2022, stock-based compensation expense totaled $
Note 9 – Segment information
We aggregate operating divisions into reporting segments that have similar economic characteristics primarily in the following areas: (1) the nature of the product and services; (2) the nature of the production process; (3) the type or class of customer for their products and services; (4) the methods used to distribute their products or services; and (5) if applicable, the nature of the regulatory environment. Based upon this evaluation, as of July 31, 2023, we had reportable segments – RF Connector and Cable Assembly (“RF Connector”) segment and Custom Cabling Manufacturing and Assembly (“Custom Cabling”) segment.
The RF Connector segment consists of two divisions and the Custom Cabling segment consists of four divisions. The six divisions that met the quantitative thresholds for segment reporting are the RF Connector and Cable Assembly division (“RF Connector division”), Cables Unlimited, Rel-Tech, C Enterprises, Schrofftech, and Microlab. While each segment has similar products and services, there was little overlapping of these services to their customer base. The biggest difference in segments is in the channels of sales: sales of product and services for the RF Connector segment were primarily through the distribution channel, while the Custom Cabling segment sales were through a combination of distribution and direct to the end user.
Management identifies segments based on strategic business units that are, in turn, based along market lines. These strategic business units offer products and services to different markets in accordance with their customer base and product usage. For segment reporting purposes, the RF Connector and Microlab divisions constitutes the RF Connector segment, and the Cables Unlimited, Rel-Tech, C Enterprises, and Schrofftech divisions constitute the Custom Cabling segment.
We evaluate the performance of each segment based on income or loss before income taxes. We charge depreciation and amortization directly to each division within the segment. Accounts receivable, inventory, property and equipment, right of use assets, goodwill and intangible assets are the only assets identified by segment. Except as discussed above, the accounting policies for segment reporting are the same for the Company as a whole.
All of our operations are conducted in the United States; however, we derive a portion of our revenue from export sales. We attribute sales to geographic areas based on the location of the customers. The following table presents the sales by geographic area for the three and nine months ended July 31, 2023 and 2022 (in thousands):
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Three Months Ended July 31, |
Nine Months Ended July 31, |
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2023 |
2022 |
2023 |
2022 |
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United States |
$ | $ | $ | $ | ||||||||||||
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Foreign Countries: |
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Canada |
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Italy |
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Mexico |
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All Other |
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Totals |
$ | $ | $ | $ | ||||||||||||
Net sales, (loss) income before (benefit) provision for income taxes and other related segment information for the three months ended July 31, 2023 and 2022 are as follows (in thousands):
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RF Connector |
Custom Cabling |
|||||||||||||||
|
and |
Manufacturing and |
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|
Cable Assembly |
Assembly |
Corporate |
Total |
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| 2023 | ||||||||||||||||
|
Net sales |
$ | $ | $ | $ | ||||||||||||
|
(Loss) income before benefit for income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
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Depreciation and amortization |
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Total assets |
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2022 |
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Net sales |
$ | $ | $ | $ | ||||||||||||
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Income (loss) before provision for income taxes |
( |
) | ||||||||||||||
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Depreciation and amortization |
||||||||||||||||
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Total assets |
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Net sales, (loss) income before (benefit) provision for income taxes and other related segment information for the nine months ended July 31, 2023 and 2022 are as follows (in thousands):
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RF Connector |
Custom Cabling |
|||||||||||||||
|
and |
Manufacturing and |
|||||||||||||||
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|
Cable Assembly |
Assembly |
Corporate |
Total |
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| 2023 | ||||||||||||||||
|
Net sales |
$ | $ | $ | $ | ||||||||||||
|
(Loss) income before benefit from income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
|
Depreciation and amortization |
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Total assets |
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| 2022 | ||||||||||||||||
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Net sales |
$ | $ | $ | $ | ||||||||||||
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Income (loss) before benefit from income taxes |
( |
) | ||||||||||||||
|
Depreciation and amortization |
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Total assets |
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Note 10 – Income taxes
We use an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate, to determine its quarterly (benefit) provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter.
We recorded income tax (benefits) provisions of ($
We had $
Note 11 – Intangible assets
Intangible assets consist of the following (in thousands):
|
July 31, 2023 |
October 31, 2022 |
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| Amortizable intangible assets: | ||||||||
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Non-compete agreement (estimated life |
$ | $ | ||||||
|
Accumulated amortization |
( |
) | ( |
) | ||||
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Customer relationships (estimated lives |
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Accumulated amortization |
( |
) | ( |
) | ||||
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Backlog (estimated life |
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Accumulated amortization |
( |
) | ( |
) | ||||
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Patents (estimated life |
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Accumulated amortization |
( |
) | ( |
) | ||||
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Tradename (estimated life |
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Accumulated amortization |
( |
) | ( |
) | ||||
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Proprietary Technology (estimated life |
||||||||
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Accumulated amortization |
( |
) | ( |
) | ||||
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Totals |
$ | $ | ||||||
| Non-amortizable intangible assets: | ||||||||
|
Trademarks |
$ | $ | ||||||
Amortization expense for the nine months ended July 31, 2023 and the year ended October 31, 2022 was $
Note 12 – Commitments
We have operating leases for corporate offices, manufacturing facilities, and certain storage units. Our leases have remaining lease terms of year to years, some of which include options to extend the leases for up to years. A portion of our operating leases are leased from K&K Unlimited, a company controlled by Darren Clark, the former owner and current President of Cables Unlimited, to whom we make rent payments totaling $
We also have other operating leases for certain equipment. The components of our facilities and equipment operating lease expenses for the periods ended July 31, 2023 and 2022 were as follows (in thousands):
|
Three Months Ended July 31, |
Nine Months Ended July 31, |
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|
2023 |
2022 |
2023 |
2022 |
|||||||||||||
|
Operating lease cost |
$ | $ | $ | $ | ||||||||||||
Other information related to leases was as follows (in thousands):
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July 31, 2023 |
October 31, 2022 |
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Supplemental Cash Flows Information |
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| ROU assets obtained in exchange for lease obligations: | ||||||||
|
Operating leases |
$ | $ | ||||||
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Weighted Average Remaining Lease Term |
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|
Operating leases (in months) |
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|
Weighted Average Discount Rate |
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|
Operating leases |
% | % | ||||||
Future minimum lease payments under non-cancellable leases as of July 31, 2023 were as follows:
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Year ending October 31, |
Operating Leases |
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|
2023 (excluding nine months ended July 31, 2023) |
$ | |||
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2024 |
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|
2025 |
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2026 |
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2027 |
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Thereafter |
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Total future minimum lease payments |
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|
Less imputed interest |
( |
) | ||
|
Total |
$ | |||
|
Reported as of July 31, 2023 |
Operating Leases |
|||
|
Other current liabilities |
$ | |||
|
Operating lease liabilities |
||||
|
Total |
$ | |||
As of July 31, 2023, operating lease ROU asset was $
On July 11, 2023, we entered into a Third Amendment to Lease (the “Amendment”) with Sorrento West Properties (the “Lessor”), amending that certain AIRCRE Standard Industrial/Commercial Single-Tenant Lease - Net, dated as of December 28, 2021, between the Company and Lessor, under which we lease from Lessor industrial and commercial space located at 16868 Via Del Campo Court, San Diego, California (the “Premises”). The Amendment provides for an increase in tenant improvements by an additional $
Note 13 – Term Loan and Line of credit
In February 2022, we entered into a loan agreement (the “Loan Agreement”) providing for a revolving line of credit (the “Revolving Credit Facility”) in the amount of $
Borrowings under the Credit Facility are secured by a security interest in certain assets of the Company and are subject to certain loan covenants. The Credit Facility requires the maintenance of certain financial covenants, including: (i) consolidated debt to EBITDA ratio not to exceed
As of July 31, 2023, we were not in compliance with the consolidated debt to EBITDA ratio nor were we in compliance with the consolidated fixed charge coverage ratio covenants (the “Defaults”). On September 12, 2023, we entered into Amendment No. 1 and Waiver to the Loan Agreement (the “Loan Amendment”) with the Bank, which, among other matters, provided for a temporary waiver of (i) the Defaults, and (ii) compliance with the consolidated debt to EBITDA ratio and the consolidated fixed charge coverage ratio minimum covenants for the quarterly periods ending October 31, 2023, January 31, 2024, April 30, 2024 and July 31, 2024. Further, pursuant to the Loan Amendment, we are required to maintain (i) (a) until September 21, 2023, minimum liquidity (week-end cash balance plus availability from the Revolving Credit Facility) of $
As of July 31, 2023, we have borrowed $
The foregoing summary description of the Loan Amendment is qualified in its entirety by reference to the complete text of the Loan Amendment, a copy of which is included as Exhibit 10.3 and is incorporated herein by reference.
Note 14 – Cash dividend and declared dividends
We did pay any dividends during the three or nine months ended July 31, 2023, did we pay any dividends during the three or nine months ended July 31, 2022.
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
This report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “except,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Company, nor any other person, assumes responsibility for the accuracy and completeness of the forward-looking statements. We are under no obligation to update any of the forward-looking statements after the filing of this Quarterly Report on Form 10-Q to conform such statements to actual results or to changes in its expectations.
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this Form 10-Q. Readers are also urged to carefully review and consider the various disclosures made by the Company which attempt to advise interested parties of the factors which affect our business, including without limitation the disclosures made under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the caption “Risk Factors,” and the audited consolidated financial statements and related notes included in our Annual Report filed on Form 10-K for the year ended October 31, 2022 and other reports and filings made with the Securities and Exchange Commission.
Critical Accounting Policies
Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these unaudited condensed consolidated financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates, including those related to bad debts, inventory reserves, earn-out liabilities, and contingencies on an ongoing basis. We base our estimates on historical experience and on various other assumptions that are believed to be appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Inventories
Inventories are stated at the lower of cost or net realizable value, with cost determined using the weighted average cost method of accounting. Certain items in inventory may be considered obsolete or excess and, as such, we periodically review our inventories for excess and slow-moving items and make provisions as necessary to properly reflect inventory value. Because inventories have, during the past few years, represented up to one-fourth of our total assets, any reduction in the value of our inventories would require us to take write-offs that would affect our net worth and future earnings.
Allowance for Doubtful Accounts
We record an allowance for doubtful accounts based upon our assessment of various factors. 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. Definite-lived assets are reviewed when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If property and equipment and intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value.
We amortize our intangible assets with definite useful lives over their estimated useful lives and review these assets for impairment.
We test our goodwill and trademarks and indefinite-lived assets for impairment at least annually or more frequently if events or changes in circumstances indicate these assets may be impaired. These events or circumstances require significant judgment and could include a significant change in the business climate, legal factors, operating performance indicators, competition and sale or disposition of all or a portion of a division. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital.
As of July 31, 2023, we performed an impairment test analysis for Schrofftech. As noted above, we test our goodwill, trademarks, and indefinite-lived intangible assets for impairment at least annually, which we have traditionally done in the fourth quarter, or on an interim basis when events or changes in circumstances suggest these assets may be impaired. 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. The amount of any impairment must be expensed as a charge to operations. Schrofftech’s three and nine-months results ended July 31, 2023 triggered an impairment analysis. Schrofftech was acquired on November 4, 2019 for a total purchase price of $5.3 million, consisting of cash consideration of $4.0 million and $1.3 million in earn-out, of which none was earned. As of July 31, 2023, Schrofftech has a carrying value of $3.2 million, of which includes $1.1 million in goodwill, $0.5 million in non-amortizable intangible assets and $1.6 million in net amortizable intangible assets. The analysis performed included a blend of the income approach (discounted cash flow method) and market approach (guideline public company method) to reach a fair value of equity in excess of the fair value to the carrying amount.
The analysis performed in blending the income approach and the market approach incorporates several significant judgments and assumptions about projected revenue growth, future operating margins and discount rates. There are inherent uncertainties related to these assumptions and our judgment in applying them to the impairment analysis. 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.
Income Taxes
We record a tax provision for the anticipated tax consequences of the reported results of operations. Income taxes are accounted for under the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates as of the date of the unaudited condensed consolidated financial statements that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
The calculation of the tax provision involves significant judgment in estimating the impact of uncertainties in the application of GAAP and complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on our financial condition and operating results.
Stock-based Compensation
We use the Black-Scholes model to value the 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. These inputs include the expected term of employee stock options, the expected volatility of the stock price, the risk-free interest rate and expected dividends.
Overview
RF Industries, Ltd. (together with subsidiaries, the “Company,” “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. 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.
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. 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. The Custom Cabling segment designs, manufactures, markets and distributes custom copper and fiber cable assemblies, complex hybrid fiber optic and power solution cables, electromechanical wiring harnesses, wiring harnesses for a broad range of applications in a diverse set of end markets, energy-efficient cooling systems for wireless base stations and remote equipment shelters and custom designed, pole-ready 4G and 5G small cell integrated enclosures.
For the nine months ended July 31, 2023, revenues from the Custom Cabling segment were generated from the sale of fiber optics cable, copper cabling, custom patch cord assemblies, and wiring harnesses, which collectively accounted for 55% of the Company’s total sales. Revenues from the RF Connector segment were generated from the sales of RF connector products and cable assemblies and accounted for 45% of total sales for the nine months ended July 31, 2023. The RF Connector segment mostly sells standardized products regularly used by customers and, therefore, has a more stable revenue stream. On the other hand, the Custom Cabling segment mostly designs, manufactures, and sells customized cabling and wireless-related equipment under larger purchase orders. Accordingly, the Custom Cabling segment is more dependent upon larger orders and its revenues can therefore be more volatile than the revenues of the RF Connector segment.
Our corporate headquarters are located at 16868 Via Del Campo Court, Suite 200, San Diego, CA 92127. Our phone number is (858) 549-6340.
Liquidity and Capital Resources
Historically, we have been able to fund our liquidity and other capital requirements from funds we generated from operations. However, we have incurred operating losses during the three and nine months ended July 31, 2023. During the period, we have implemented certain cost-cutting measures to reduce our operating expenses and to help drive positive operating cash flow and increase liquidity. Our plan includes consolidating facilities and recognizing the related operating efficiencies and synergies in our production operations. We intend to continue to pursue additional continuous improvement and cost reduction measures, as well as organic growth in revenue and profitability.
As of July 31, 2023, we had a total of $4.1 million of cash and cash equivalents compared to a total of $4.5 million of cash and cash equivalents as of October 31, 2022. As of July 31, 2023, we had working capital of $22.8 million and a current ratio of approximately 2.9:1 with current assets of $34.8 million and current liabilities of $12.1 million. We believe that the amount of cash remaining, plus the amount available to us under the Revolving Credit Facility, will be sufficient to fund our anticipated liquidity needs.
As of July 31, 2023, we had $17.2 million of backlog, compared to $27.8 million as of October 31, 2022. The decrease in backlog relates primarily to shipments made against orders for our hybrid fiber cables. Since purchase orders are submitted from customers based on the timing of their requirements, our ability to predict orders in future periods or trends in future periods is limited. Furthermore, purchase orders may be subject to cancellation from customers, although we have not historically experienced material cancellations of purchase orders.
In the nine months ended July 31, 2023, we generated $2.6 million of cash in our operating activities. This net inflow of cash is primarily related to an increase in other current assets of $4.6 million, the collections of accounts receivable of $5.4 million, $1.8 million from depreciation and amortization, and $0.7 million from stock-based compensation expense. The cash usage was primarily due to accrued expenses of $4.3 million and our net loss of $2.2 million. The cash generated by other current assets represents $4.6 million, which primarily consists of $2.8 million of reimbursement for tenant improvements and $1.5 million received from ERC.
During the nine months ended July 31, 2023, we also spent $2.3 million on capital expenditures, and $1.8 million in Term Loan payments. The cash used in operating activities and the amounts spent on capital expenditures were partially offset by $0.1 million of proceeds received from the exercise of stock options. As noted above, we also drew $1.0 million from the Revolving Credit Facility as of July 31, 2023, primarily to fund leasehold improvements to the new corporate headquarters.
Our goal to expand and grow our business both organically and through acquisitions may require material additional capital equipment. 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. 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. 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. Since our goal is to continue to expand our operations and accelerate our growth through future acquisitions, we may use some of our current capital resources to fund acquisitions we may undertake in the future.
Results of Operations
Three Months Ended July 31, 2023 vs. Three Months Ended July 31, 2022
Net sales for the three months ended July 31, 2023 (the “fiscal 2023 quarter”) decreased by 34%, or $8.1 million, to $15.7 million as compared to the three months ended July 31, 2022 (the “fiscal 2022 quarter”). Net sales for the fiscal 2023 quarter at the Custom Cabling segment decreased by $5.4 million, or 40.6%, to $7.9 million, compared to $13.3 million in the fiscal 2022 quarter. The decrease was primarily the result of a decrease in sales of hybrid fiber cables to wireless carrier customers and a decrease in sales of small cell products and systems to customers in the Tier-1 wireless ecosystem. Net sales for the fiscal 2023 quarter at the RF Connector segment decreased by $2.7 million, or 25.7%, to $7.8 million as compared to $10.5 million in the fiscal 2022 quarter, primarily due to a decrease in sales related to carrier projects involving approved RF components.
Gross profit for the fiscal 2023 quarter decreased by $3.4 million to $3.8 million, and gross margins decreased to 24.4% of sales compared to 30.4% of sales in the fiscal 2022 quarter. The decreases in gross profit and gross margins were primarily related to the overall decrease in sales.
Engineering expenses decreased by $0.1 million to $0.7 million in the fiscal 2023 quarter compared to $0.8 million in the fiscal 2022 quarter. Engineering expenses represent costs incurred relating to the ongoing research and development of current and new products.
Selling and general expenses decreased by $0.3 million to $5.1 million (32.9% of sales) compared to $5.4 million (22.5% of sales) in the third quarter last year primarily due to a decrease in variable compensation related to commissions and bonuses as a result of the lower sales. We also incurred a one-time charge of $194,000 (related to the move of our C Enterprises and Microlab divisions, and including system implementation charges and severance) compared to acquisition-related expenses and a one-time charge of $114,000 (including professional fees, system implementation charges and severance).
For the fiscal 2023 quarter, the Custom Cabling segment had pretax loss of $0.7 million and the RF Connector segment had a pretax loss of $1.1 million, as compared to $0.6 million income and $1 million income, respectively, for the comparable quarter last year. The pretax loss at the Custom Cabling segment was due to the decrease in sales of hybrid fiber cables to wireless carrier customers and a decrease in sales of small cell products and systems to customers in the Tier-1 wireless ecosystem. The decrease in the pretax net income at the RF Connector segment was primarily due to the decrease in Microlab sales related to carrier projects involving approved RF components.
For fiscal 2023 and 2022 quarters, we recorded income tax (benefit) provision of ($482,000) and $140,000, respectively. The effective tax rate was 22.7% for the fiscal 2023 quarter, compared to 15.4% for the fiscal 2022 quarter. The change in the effective tax rate from the fiscal 2022 quarter to fiscal 2023 quarter was primarily driven by the increased benefit from research and development credits and the Company's full year forecasted financial loss.
For the fiscal 2023 quarter, net loss was $1.6 million and fully diluted loss per share was $0.16, compared to a net income of $0.8 million and fully diluted earnings per share of $0.08 for the fiscal 2022 quarter. For the fiscal 2023 quarter, the diluted weighted average shares outstanding was 10,290,265 as compared to 10,238,932 for the fiscal 2022 quarter.
Nine Months Ended July 31, 2023 vs. Nine Months Ended July 31, 2022
Net sales for the nine months ended July 31, 2023 (the “fiscal 2023 nine-month period”) of $56.3 million decreased by 9.6%, or $6.0 million, compared to the nine months ended July 31, 2022 (the “fiscal 2022 nine-month period”). The decrease in net sales is attributable to the Custom Cabling segment, which decreased by $9.5 million, or 23.6%, to $30.8 million compared to $40.3 million in the fiscal 2022 nine-month period, primarily related to wireless carrier network deployment slowdowns across the industry in 2023 impacting both our hybrid fiber sales and our small cell and direct air cooling products. Net sales for the fiscal 2023 nine-month period at the RF Connector segment increased by $3.6 million, or 16.4%, to $25.5 million compared to $21.9 million in the fiscal 2022 nine-month period. The increase was primarily the result of the Microlab acquisition on March 1, 2022.
Gross profit for the fiscal 2023 nine-month period decreased by $2.4 million to $15.0 million and gross margins decreased to 26.7% of sales from 28.0% of sales in the fiscal 2022 nine-month period. The decreases in gross profit and gross margins were primarily related to the overall decrease in sales.
Engineering expenses increased by $0.4 million to $2.5 million for the fiscal 2023 nine-month period compared to $2.1 million in the fiscal 2022 nine-month period. The increase was primarily due to additional engineering expenses during the fiscal 2023 nine-month period related to the engineering efforts associated with our integrated systems products and three full quarters of Microlab. Engineering expenses represent costs incurred relating to the ongoing research and development of new products.
Selling and general expenses increased by $1.4 million to $15.2 million (27.0% of sales) compared to $13.8 million (22.2% of sales) in the nine-month period last year. Microlab, which was acquired on March 1, 2022, accounted for $3.6 million of the selling and general expenses, as compared to $2.0 million for the same period last fiscal year. The increase at Microlab was offset by decreases in variable compensation related to commissions and bonus as a result of the lower sales overall. We also incurred one-time charges totaling $0.8 million related to an additional rent expense of $444,000 (of which $387,000 was non-cash) related to lease accounting, $213,000 in facility move expenses, severance of $75,000 and $45,000 in ERP system implementations in the fiscal 2023 nine-month period compared to acquisition related expenses and other one-time charges (including attorney fees, due diligence and broker fees) which accounted for $1.6 million for the fiscal 2022 nine-month period.
For the fiscal 2023 nine-month period, we recorded a pretax loss for the Custom Cabling segment of $0.8 million and a pretax loss for the RF Connector segment of $1.2 million, as compared to $1.7 million and $1.6 million of income, respectively, for the comparable nine-month period last year. The pretax loss at the Custom Cabling segment was primarily due to the decrease in sales of hybrid fiber cables to our wireless carrier customers and a decrease in sales of small cell products and systems to customers in the Tier-1 wireless ecosystem. The decrease in the pretax net income at the RF Connector segment was primarily due to the decrease in sales related to carrier projects involving approved RF components.
For the fiscal 2023 and 2022 nine-month periods, we recorded income tax (benefit) provision of ($806,000) and $196,000, respectively. The effective tax rate was 26.6% for the fiscal 2023 nine-month period, compared to 16.4% for the fiscal 2022 nine-month period. The change in effective tax rate for the fiscal 2023 and 2022 nine-month periods was primarily driven by stock-based compensation windfall/shortfalls and the Company’s full year forecasted financial loss.
For the fiscal 2023 nine-month period, net loss was $2.2 million and fully diluted loss per share was $0.22 as compared to a net income of $1.0 million and fully diluted earnings per share of $0.10 for the fiscal 2022 nine-month period. For the fiscal 2023 nine-month period, the diluted weighted average shares outstanding was 10,267,652 as compared to 10,223,209 for the fiscal 2022 nine-month period.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) that are designed to assure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide reasonable assurance only of achieving the desired control objectives, and we necessarily are required to apply our judgment in weighing the costs and benefits of possible new or different controls and procedures. Limitations are inherent in all control systems, so no evaluation of controls can provide absolute assurance that all control issues and any fraud have been detected. Because of the inherent limitations, we regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, and to maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this report, we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, we concluded that our disclosure controls and procedures were effective as of that date.
Changes in Internal Control Over Financial Reporting
During the third quarter of fiscal 2023, there were no changes in the internal control over financial reporting as such term is defined in Rule 13a-15(f) of the Exchange Act, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. As of the date of this report, we are not subject to any proceeding that is not in the ordinary course of business or that is material to the financial condition of our business.
Item 1A. Risk Factors
Our business, financial condition and operating results are affected by a number of factors, whether currently known or unknown, including risks specific to us or our industry, as well as risks that affect businesses in general. In addition to the information and risk factors set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022, filed with the SEC on January 24, 2023. The risks disclosed in such Annual Report and in this Quarterly Report could materially adversely affect our business, financial condition, cash flows, or results of operations and thus our stock price. We believe there have been no material changes in our risk factors from those disclosed in the Annual Report. However, additional risks and uncertainties not currently known or which we currently deem to be immaterial may also materially adversely affect our business, financial condition, or results of operations.
These risk factors may be important to understanding other statements in this Quarterly Report and should be read in conjunction with the unaudited condensed consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q. Because of such risk factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth information regarding the shares of common stock cancelled, and deemed to have been repurchased, during the three months ended July 31, 2023 in connection with employee tax withholding for shares of restricted stock that vested under our 2020 Equity Incentive Plan:
|
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 |
||||||||||||
|
May 2023 |
- | $ | - | - | $ | - | ||||||||||
|
June 2023 |
- | $ | - | - | $ | - | ||||||||||
|
July 2023 |
486 | $ | 4.07 | - | $ | - | ||||||||||
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
Waiver and Amendment to Loan Agreement
On September 12, 2023, we entered into Amendment No. 1 and Waiver to the Loan Agreement, dated as of February 25, 2022, (the “Loan Amendment”) with Bank of America, N.A. (the “Bank”). The Loan Amendment, among other matters, provided for a one-time waiver of our failure to maintain (i) consolidated debt to EBITDA ratio not exceeding 3.00 to 1.00 (the “Debt Test”), measured as of the last day of each calendar quarter, for the period ended July 31, 2023; and (ii) consolidated fixed charge coverage ratio of at least 1.25 to 1.00 (the “FCCR Test”), measured as of the last day of each calendar quarter, for the period ended July 31, 2023. The Loan Amendment also waives 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 resuming with the period ending October 31, 2024, and continuing thereafter on a trailing 12-month basis. Further, pursuant to the Loan Amendment, we are required to maintain (i) (a) until September 21, 2023, minimum liquidity (week-end cash balance plus availability from the revolving line of credit) 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. The effectiveness of the Loan Amendment is conditioned upon, among other things, our payment of a waiver fee of $50,000, and each guarantor’s execution of a consent to the Loan Amendment and reaffirmation of its obligations under its respective guaranty.
The foregoing summary description of the Loan Amendment is qualified in its entirety by reference to the complete text of the Loan Amendment, a copy of which is included as Exhibit 10.3 and is incorporated herein by reference.
Insider Trading Arrangements
During the quarterly period ended July 31, 2023, no director or officer adopted or terminated any Rule 10b5-1 trading arrangement, and/or any non-Rule 10b5-1 trading arrangement (as such terms are defined pursuant to Item 408(a) of Regulation S-K).
Item 6. Exhibits
|
101.INS |
Inline XBRL Instance Document. |
|
101.SCH |
Inline XBRL Taxonomy Schema. |
|
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase. |
|
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase. |
|
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase. |
|
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase. |
|
104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
RF INDUSTRIES, LTD. |
||
|
Date: September 14, 2023 |
By: |
/s/ Robert Dawson |
|
Robert Dawson President and Chief Executive Officer (Principal Executive Officer) |
||
|
Date: September 14, 2023 |
By: |
/s/ Peter Yin |
|
Peter Yin Chief Financial Officer (Principal Financial and Accounting Officer) |
||
Exhibit 10.3
AMENDMENT NO. 1 AND WAIVER TO LOAN AGREEMENT
This Amendment No. 1 and Waiver to Loan Agreement (the “Amendment”) dated as of September 12, 2023 and effective as of September 12, 2023 is between Bank of America, N.A. (the “Bank”) and RF Industries, Ltd., a Nevada corporation (the “Borrower”).
RECITALS
A. The Bank and the Borrower entered into a certain Loan Agreement dated as February 25, 2022 (together with any previous amendments, “Agreement”).
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement.
2. Amendments. The Agreement is hereby amended as follows:
2.1 Paragraph 2.4(b) is amended in its entirety to read as follows:
“(b) The ‘BSBY Daily Floating Rate’ is a fluctuating rate of interest which can change on each banking day. The rate will be adjusted on each banking day to equal the BSBY Screen Rate for U.S. Dollar deposits two (2) U.S. Government Securities Business Days prior to the date of determination for a one month term beginning on that date; provided that if such rate is not published on such determination date then the rate will be the BSBY Screen Rate on the first U.S. Government Securities Business Days immediately prior thereto. ‘BSBY Screen Rate’ means the Bloomberg Short-Term Bank Yield Index rate (‘BSBY’) administered by Bloomberg Index Services Limited and published on the applicable Bloomberg screen page (or such other commercially available source providing such quotations as may be designated by the Bank from time to time). ‘U.S. Government Securities Business Day’ means any banking day, except any banking day on which any of the Securities Industry and Financial Markets Association, the New York Stock Exchange or the Federal Reserve Bank of New York is not open for business because such day is a legal holiday under the federal laws of the United States or the laws of the State of New York, as applicable. If at any time the BSBY Daily Floating Rate is less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.”
2.2 Paragraph 5.5 is amended in its entirety to read as follows:
“5.5 Banking Days.
Unless otherwise provided in this Agreement, a banking day is a day other than a Saturday, Sunday or other day on which commercial banks are authorized to close, or are in fact closed, in the state where the Bank’s lending office is located, and, if such day relates to amounts bearing interest at a Reference Rate, in New York City. All payments and disbursements which would be due or which are received on a day which is not a banking day will be due or applied, as applicable, on the next banking day.”
2.3 Paragraph 5.8 is amended in its entirety to read as follows:
“5.8 Successor Rate.
If at any time an interest rate index provided for in this Agreement (a ‘Reference Rate’) is not available at such time for any reason or the Bank makes the determination to incorporate or adopt a new interest rate index to replace such Reference Rate in credit agreements, then the Bank may replace such Reference Rate with an alternate interest rate index and adjustment, if applicable, as reasonably selected by the Bank, giving due consideration to any evolving or then existing conventions for such interest rate index and adjustment (any such successor interest rate index, as adjusted, the ‘Successor Rate’). In connection with the implementation of any Successor Rate, the Bank will have the right, from time to time, in good faith to make any conforming, technical, administrative or operational changes to this Agreement as may be appropriate to reflect the adoption and administration thereof and, notwithstanding anything to the contrary herein or in any other loan document, any amendments to this Agreement implementing such conforming changes will become effective upon notice to the Borrower without any further action or consent of the other parties hereto. If at any time any Successor Rate is less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.”
2.4 The following is hereby added to the Agreement as a new Paragraph 8.2(b):
“(b) Within 45 days after month end, monthly and year-to-date financial statements for the Borrower. These financial statements may be Borrower-prepared.”
2.5 The following is hereby added to the Agreement as a new Paragraph 8.2(c):
“(c) Within 5 days after each week end, a 4-week cash flow projection. This report may be Borrower prepared.”
2.6 Paragraph 8.5 is amended in its entirety to read as follows:
“8.5 Minimum EBITDA.
To maintain at least the amounts indicated for each period specified below:
| Period | Amount | ||
| For the quarter ending October 31, 2023 | ($400,000.00) | ||
| For the quarter ending January 31, 2024 | $500,000.00 | ||
| For the quarter ending April 30, 2024 | $1,000,000.00 | ||
| For the quarter ending July 31, 2024 | $1,000,000.00 |
‘EBITDA’ means net income, less income or plus loss from discontinued operations and unusual and infrequent items, including non-recurring expenses related to acquisition, (agreed to at the sole discretion of the Bank), plus non-cash stock compensation, plus income taxes, plus interest expense, plus depreciation, depletion, and amortization.”
2.7 The following is hereby added to the Agreement as a new Paragraph 8.24:
“8.24 Minimum Liquidity.
(a) Until September 21, 2023, to maintain Liquidity of at least $4,000,000.00.
(b) From September 22, 2023 and thereafter, to maintain Liquidity equal to the greater of (i) $4,000,000.00 or (ii) 80% of the amount of Liquidity that had been forecast for this date when this was the fourth week of the forecast defined in 8.2 (c).
This covenant to be measured each week upon receipt of the 4-week cash flow projection, at which time the prior week-end Liquidity will be tested.
‘Liquidity’ for each week is defined as the Ending Cash Balance plus the amount of borrowing availability under Facility 1.
‘Ending Cash Balance’ is defined as week-end cash balance as shown on the Borrower’s 4-week cash forecast.”
3 Waiver of Specified Defaults. The Borrower is currently in default under the terms of the Agreement as a result of (i) failure of the Borrower to maintain on a consolidated basis a Fixed Charge Coverage Ratio of at least 1.25:1.0 (the “FCCR Test”), measured as of the last day of each calendar quarter, for the period ended July 31, 2023, and (ii) failure of the Borrower to maintain on a consolidated basis a ratio of Funded Debt to EBITDA not exceeding 3.00:1.0 (the “FD Test”), measured as of the last day of each calendar quarter, for the period ended July 31, 2023 (collectively, the “Specified Defaults”). The Bank hereby agrees (i) to waive the Specified Defaults and (ii) waive testing of the FCCR Test and the FD Test for the periods ending October 31, 2023, January 31, 2024, April 30, 2024 and July 31, 2024, with the FCCR Test and the FD Test resuming with the period ending October 31, 2024 and thereafter on a trailing 12-month basis. The waiver set forth above has been granted solely for the purposes described in this paragraph on a one-time basis. No other approval, consent, forbearance, waiver, modification or amendment to the Agreement is implied or granted.
4. Effectiveness of Waiver. This waiver applies only to the Specified Defaults and shall be effective only to the extent specifically set forth herein and shall not (a) be construed as a waiver of any breach, default or event of default other than the Specified Defaults, (b) be construed as a waiver of any covenant testing other than the FCCR Test and the FD Test for the periods set forth above, (c) affect the right of the Bank to demand compliance by the Borrower with all terms and conditions of the Agreement and all documents executed in connection therewith (collectively with the Agreement, the “Loan Documents”) except as specifically waived by this Amendment, (d) be deemed a waiver of any transaction or future action on the part of the Borrower requiring the Bank’s consent or approval under the Agreement or Loan Documents, or (e) except as waived hereby, be deemed or construed to be a waiver or release of, or a limitation upon, the Bank’s exercise of any rights or remedies under the Agreement or any other Loan Document, whether arising as a consequence of any default or event of default which may now exist or otherwise, all such rights and remedies hereby being expressly reserved. All terms and conditions of the Agreement and the other Loan Documents remain unchanged.
5. Representations and Warranties. When the Borrower signs this Amendment, the Borrower represents and warrants to the Bank that: (a) there is no event which is, or with notice or lapse of time or both would be, a default under the Agreement except those events, if any, that have been disclosed in writing to the Bank or waived in writing by the Bank; (b) the representations and warranties in the Agreement are true as of the date of this Amendment as if made on the date of this Amendment; (c) this Amendment does not conflict with any law, agreement, or obligation by which the Borrower is bound; (d) if the Borrower is a business entity or a trust, this Amendment is within the Borrower’s powers, has been duly authorized, and does not conflict with any of the Borrower’s organizational papers; (e) as of the date of this Amendment and throughout the term of the Agreement, no Borrower or guarantor, if any, is (1) an employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), (2) a plan or account subject to Section 4975 of the Internal Revenue Code of 1986 (the “Code”); (3) an entity deemed to hold “plan assets” of any such plans or accounts for purposes of ERISA or the Code; or (4) a “governmental plan” within the meaning of ERISA; and (f) as of the date of this Amendment, the information included in the Beneficial Ownership Certification, if applicable, is true and correct in all respects. “Beneficial Ownership Certification” means a certification regarding beneficial ownership required by the Beneficial Ownership Regulation.
6. Conditions. This Amendment will be effective when the Bank receives the following items, in form and content acceptable to the Bank:
6.1 Borrower shall have executed and delivered to the Bank this Agreement, and each guarantor shall have executed and delivered to the Bank the Consent and Reaffirmation attached hereto.
6.2 If the Borrower or any guarantor is anything other than a natural person, evidence that the execution, delivery and performance by the Borrower and/or such guarantor of this Amendment and any instrument or agreement required under this Amendment have been duly authorized.
6.3 Payment by the Borrower of a waiver fee in the amount of $50,000.00.
6.4 Payment by the Borrower of all costs, expenses and attorneys’ fees (including allocated costs for in-house legal services) incurred by the Bank in connection with this Amendment.
6.7 Upon the request of the Bank, the Borrower shall have provided to the Bank, and the Bank shall be reasonably satisfied with, the documentation and other information so requested in connection with applicable “know your customer” and anti-money-laundering rules and regulations, including, without limitation, the Patriot Act.
6.6 If the Borrower that qualifies as a “legal entity customer” under the Beneficial Ownership Regulation, the Borrower shall have delivered, to the Bank, a Beneficial Ownership Certification in relation to the Borrower.
7. Effect of Amendment. Except as provided in this Amendment, all of the terms and conditions of the Agreement, including, but not limited to, the Dispute Resolution Provision, shall remain in full force and effect.
8. Counterparts. This Amendment may be executed in counterparts, each of which when so executed shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.
9. General Release. In consideration of the Bank’s waiver, the Borrower hereby releases and forever discharges the Bank and the Bank’s, respective predecessors, successors, assigns, officers, managers, directors, employees, agents, attorneys, representatives, and affiliates (collectively referred to as the “Bank Group”), from any and all presently existing claims, demands, damages, liabilities, actions and causes of action of any nature whatsoever, including, without limitation, all claims, demands, and causes of action for contribution and indemnity, whether arising at law or in equity, whether known or unknown, whether liability be direct or indirect, liquidated or unliquidated, whether absolute or contingent, foreseen or unforeseen, and whether or not heretofore asserted, which the Borrower may have or claim to have against any of the Bank Group arising out of facts or events in any way related to the Agreement and all documents executed in connection therewith (collectively with the Agreement, the “Loan Documents”) and/or the loan transactions evidenced thereby and which have occurred on or on or prior to the date hereof.
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.
10. Electronic Records and Signatures. This Amendment and any document, amendment, approval, consent, information, notice, certificate, request, statement, disclosure or authorization related to this Amendment (each a “Communication”), including Communications required to be in writing, may, if agreed by the Bank, be in the form of an Electronic Record and may be executed using Electronic Signatures, including, without limitation, facsimile and/or .pdf. The Borrower agrees that any Electronic Signature (including, without limitation, facsimile or .pdf) on or associated with any Communication shall be valid and binding on the Borrower to the same extent as a manual, original signature, and that any Communication entered into by Electronic Signature, will constitute the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with the terms thereof to the same extent as if a manually executed original signature was delivered to the Bank. Any Communication may be executed in as many counterparts as necessary or convenient, including both paper and electronic counterparts, but all such counterparts are one and the same Communication. For the avoidance of doubt, the authorization under this paragraph may include, without limitation, use or acceptance by the Bank of a manually signed paper Communication which has been converted into electronic form (such as scanned into PDF format), or an electronically signed Communication converted into another format, for transmission, delivery and/or retention. The Bank may, at its option, create one or more copies of any Communication in the form of an imaged Electronic Record (“Electronic Copy”), which shall be deemed created in the ordinary course of the Bank’s business, and destroy the original paper document. All Communications in the form of an Electronic Record, including an Electronic Copy, shall be considered an original for all purposes, and shall have the same legal effect, validity and enforceability as a paper record. Notwithstanding anything contained herein to the contrary, the Bank is under no obligation to accept an Electronic Signature in any form or in any format unless expressly agreed to by the Bank pursuant to procedures approved by it; provided, further, without limiting the foregoing, (a) to the extent the Bank has agreed to accept such Electronic Signature, the Bank shall be entitled to rely on any such Electronic Signature purportedly given by or on behalf of any Obligor without further verification and (b) upon the request of the Bank any Electronic Signature shall be promptly followed by a manually executed, original counterpart. For purposes hereof, “Electronic Record” and “Electronic Signature” shall have the meanings assigned to them, respectively, by 15 USC §7006, as it may be amended from time to time.
11. FINAL AGREEMENT. BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT: (A) THIS DOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF; (B) THIS DOCUMENT SUPERSEDES ANY COMMITMENT LETTER, TERM SHEET OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS RELATING TO THE SUBJECT MATTER HEREOF, UNLESS SUCH COMMITMENT LETTER, TERM SHEET OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS EXPRESSLY PROVIDES TO THE CONTRARY; (C) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES; AND (D) THIS DOCUMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.
[Signatures on following page(s).]
This Amendment is executed as of the date stated at the beginning of this Amendment.
| Bank of America, N.A. |
RF Industries, Ltd., a Nevada corporation |
|||
| By: | /s/ John W. Faassen | By: | /s/ Peter Yin | |
| Name: | John W. Faassen | Name: | Peter Yin | |
| Title: | Senior Vice President | Title: | Chief Financial Officer | |
CONSENT AND REAFFIRMATION OF GUARANTORS AND PLEDGORS
Each of the undersigned (collectively referred to as the “Credit Support Providers”) is a guarantor of, and/or is a pledgor of collateral for, the Borrower’s obligations to the Bank under the Agreement. Each Credit Support Provider hereby (i) acknowledges and consents to the foregoing Amendment, (ii) reaffirms its obligations under its respective guaranty in favor of the Bank and/or under any agreement under which it has granted to the Bank a lien or security interest in any of its real or personal property, and (iii) confirms that such guaranty and other agreements, including but not limited to the Dispute Resolution Provision, remain in full force and effect, without defense, offset, or counterclaim. (Capitalized terms used herein shall have the meanings specified in the foregoing Amendment.)
Although each of the undersigned has been informed of the terms of the Amendment, each understands and agrees that the Bank has no duty to so notify it or any other guarantor/pledgor or to seek this or any future acknowledgment, consent or reaffirmation, and nothing contained herein shall create or imply any such duty as to any transactions, past or future.
In consideration of the Bank’s waiver in the foregoing amendment, each Credit Support Provider hereby releases and forever discharges the Bank and the Bank’s, respective predecessors, successors, assigns, officers, managers, directors, employees, agents, attorneys, representatives, and affiliates (collectively referred to as the “Bank Group”), from any and all presently existing claims, demands, damages, liabilities, actions and causes of action of any nature whatsoever, including, without limitation, all claims, demands, and causes of action for contribution and indemnity, whether arising at law or in equity, whether known or unknown, whether liability be direct or indirect, liquidated or unliquidated, whether absolute or contingent, foreseen or unforeseen, and whether or not heretofore asserted, which such Credit Support Provider may have or claim to have against any of the Bank Group arising out of facts or events in any way related to the Loan Documents and/or the loan transactions evidenced thereby and which have occurred on or on or prior to the date hereof. Each Credit Support Provider hereby specifically waives the benefit of California Civil Code Section 1542 which states:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.
| Dated as of September 12, 2023. |
Rel-Tech Electronics, Inc., a Connecticut corporation
By: /s/ Peter Yin Name: Peter Yin Title: Chief Financial Officer
Cables Unlimited, Inc., a New York corporation
By: /s/ Peter Yin Name: Peter Yin Title: Chief Financial Officer
C Enterprises, Inc., a California corporation
By: /s/ Peter Yin Name: Peter Yin Title: Chief Financial Officer
Schroff Technologies International, Inc., a Rhode Island corporation
By: /s/ Peter Yin Name: Peter Yin Title: Chief Financial Officer
Microlab/FXR LLC, a New Jersey limited liability company
By: RF Industries, Ltd., a Nevada corporation, its Sole Member
By: /s/ Peter Yin Name: Peter Yin Title: Chief Financial Officer |
Exhibit 31.1
CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Robert Dawson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of RF Industries, Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: September 14, 2023 |
/s/ Robert Dawson |
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Robert Dawson |
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President and Chief Executive Officer |
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Exhibit 31.2
CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Peter Yin, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of RF Industries, Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: September 14, 2023 |
/s/ Peter Yin |
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Peter Yin |
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Chief Financial Officer |
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of RF Industries, Ltd. (the “Company”) on Form 10-Q for the quarter ended July 31, 2023, as filed with the Securities and Exchange Commission (the “Report”), I, Robert Dawson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date: September 14, 2023 |
/s/ Robert Dawson |
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Robert Dawson |
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President and Chief Executive Officer |
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The foregoing certifications are not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), and are not to be incorporated by reference into any filing of RF Industries, Ltd. under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of RF Industries, Ltd. (the “Company”) on Form 10-Q for the quarter ended July 31, 2023, as filed with the Securities and Exchange Commission (the “Report”), I, Peter Yin, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date: September 14, 2023 |
/s/ Peter Yin |
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Peter Yin |
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Chief Financial Officer |
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The foregoing certifications are not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), and are not to be incorporated by reference into any filing of RF Industries, Ltd. under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing.