UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended April 30, 2017January 31, 2018

Commission file number:0-13301

RF INDUSTRIES, LTD.

(Exact name of registrant as specified in its charter)

(858) 549-6340

(Registrant’s telephone number, including area code)

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. YesxNoo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) YesxNoo

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.

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.¨o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨oNo x

The number of shares of the issuer’s Common Stock, par value $0.01 per share, outstanding as of June 5, 2017March 8, 2018 was 8,835,483.8,974,297.

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)

See Notes to Unaudited Condensed Consolidated Financial Statements.

Item 1: Financial Statements (continued)

RF INDUSTRIES, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

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)

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)

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

The accompanying unaudited condensed consolidated financial statements of RF Industries, Ltd. and its divisions and three wholly-owned subsidiaries (collectively, hereinafter the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, which are normal and recurring, have been included in order to make the information not misleading. Information included in the consolidated balance sheet as of October 31, 20162017 has been derived from, and certain terms used herein are defined in, the audited consolidated financial statements of the Company as of October 31, 20162017 included in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the year ended October 31, 20162017 that was previously filed with the Securities and Exchange Commission (“SEC”). Operating results for the three- and six-month periodsthree month ended April 30, 2017January 31, 2018 are not necessarily indicative of the results that may be expected for the year ending October 31, 2017.2018. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2016.2017.

Principles of consolidation

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

Revenue recognition

Four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured. The Company recognizes revenue from product sales after purchase orders are received whichthat contain a fixed price and for shipments with terms of FOB Shipping Point, revenue is recognized upon shipment, for shipments with terms of FOB Destination, revenue is recognized upon delivery and revenue from services is recognized when services are performed, and the recovery of the consideration is considered probable.

Recent accounting standards

Recently issued accounting pronouncements not yet adopted:

In AugustFebruary 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. The new standard will change the classification of certain cash payments and receipts within the cash flow statement. Specifically, payments for debt prepayment or debt extinguishment costs, including third-party costs, premiums paid, and other fees paid to lenders that are directly related to the debt prepayment or debt extinguishment, excluding accrued interest, will now be classified as financing activities. Previously, these payments were classified as operating expenses. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019, with early adoption permitted, and will be applied retrospectively. The Company does not expect that the adoption of this new standard will have a material impact on its Consolidated Financial Statements.  

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

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation – Stock Compensation. The new standard will modify several aspects of the accounting and reporting for employee share-based payments and related tax accounting impacts, including the presentation in the statements of operations and cash flows of certain tax benefits or deficiencies and employee tax withholdings, as well as the accounting for award forfeitures over the vesting period. The new standard is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on its Consolidated Financial Statements.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes. Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified balance sheet. The new standard simplifies the presentation of deferred tax assets and liabilities and requires that deferred tax assets and liabilities be classified as noncurrent in a classified balance sheet. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, with early adoption permitted. This ASU affected our disclosures relating to deferred tax assets and liabilities. The Company has applied this guidance prospectively and it did not have a material impact on the consolidated balance sheets.

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

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles-Goodwill and Other, which simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test. Instead, if “the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.” The guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have a material impact on its Consolidated Financial Statements.

Recently issued accounting pronouncements adopted:

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation – Stock Compensation. The new standard modified several aspects of the accounting and reporting for employee share-based payments and related tax accounting impacts, including the presentation in the statements of operations and cash flows of certain tax benefits or deficiencies and employee tax withholdings, as well as the accounting for award forfeitures over the vesting period. One provision within this pronouncement requires that excess income tax benefits and tax deficiencies related to share-based payments be recognized within income tax expense in the statement of income, rather than within additional paid-in capital on the balance sheet. The Company adopted this provision in the first quarter of fiscal 2018. The adoption of this provision was applied prospectively. The impact to the Company's results of operations related to this provision in the first quarter of fiscal 2018 was an increase in the benefit for income taxes of $19,000, and a 3.5% lower effective tax rate than if the standard had not been adopted. The impact of this provision on the Company's future results of operations will depend in part on the market prices for the Company's shares on the dates there are taxable events related to share awards, but is not expected to be material. In connection with another provision within this pronouncement, the Company has elected to account for forfeitures as they occur rather than estimate expected forfeitures, with the change being applied prospectively. The adoption of this and other provisions within the pronouncement did not have a material impact on the Company’s financial statements.

Note 2 - Discontinued operations

For the three and six months ended April 30,January 31, 2018 and January 31, 2017, the Company recognized approximately $66,000$0 and $128,000$62,000 of royalty income, respectively, for RadioMobile, which amounts, net after tax, haveamount has been included within discontinued operations. For the three-and six-months ended April 30, 2016, the Company recognized approximately $2,000 of royalty income for the RF Neulink division, which amounts have been included within discontinued operations.

During March 2016, the Company announced the shutdown of its Bioconnect division, which comprised the entire operations of the Medical Cabling and Interconnect segment. The closure is part of the Company’s ongoing plan to close or dispose of underperforming divisions that are not part of the Company’s core operations. For the three and six months ended April 30,January 31, 2017, the Company recognized approximately $10,000 of income from sale of equipment for the Bioconnect division, which has been included within discontinued operations. For the three and six months ended April 30, 2016, the Company recognized approximately $59,000 loss and $99,000 loss for the Bioconnect division, which has been included within discontinued operations.

Note 3 - Sale of Aviel Electronics division

On December 22, 2015, the Company sold the assets of its Aviel Electronics division at a gain of approximately $35,000. The terms of the sale included $150,000 cash due upon closing and a $250,000 secured promissory note ($83,000 of which is recorded in other current assets and $63,000 in other assets as of April 30, 2017) with principal and interest (at 5%) payable over a three-year period. Aviel Electronics’ sales and loss from continuing operations before provision for income taxes of $86,000 and $40,000, respectively, were included in the Company’s RF Connector and Cable Assembly segment for the six months ended April 30, 2016.

The sale of the Aviel Electronics division does not represent a strategic shift that has a major effect on the Company’s operations and financial results. Accordingly, historical results and the sale of Aviel Electronics will be reported in income from continuing operations.

Note 43 - Inventories and major vendors

Inventories, consisting of materials, labor and manufacturing overhead, are stated at the lower of cost or market. Cost has been determined using the weighted average cost method. Inventory carrying value is net of inventory reserves of $676,000 and $500,000 at April 30, 2017 and October 31, 2016, respectively. Inventories consist of the following (in thousands):

PurchasesOne vendor accounted for 23% of inventory from one major vendorpurchases for the three months ended April 30, 2017 represented 14% of inventory purchases. No vendor accounted for greater than 10% of inventory purchases for the six months ended April 30, 2017.January 31, 2018. No vendor accounted for greater than 10% of inventory purchases for the three months ended April 30, 2016. Purchases of inventory from one major vendor during the six months ended April 30, 2016 represented 10% of total inventory purchases.January 31, 2017. The Company has arrangements with itsthese vendors to purchase product based on purchase orders periodically issued by the Company.

Note 54 - Other current assets

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

Long-term portion of notes receivable of $63,000$0 and $21,000 is recorded in other assets.assets at January 31, 2018 and October 31, 2017, respectively.

Note 5 - Accrued expenses and other long-term liabilities

Accrued expenses consist of the following (in thousands):

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

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

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

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

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

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

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

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

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

Note 6 - Earnings per share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding increased by the effects of assuming that other potentially dilutive securities (such as stock options) outstanding during the period had been exercised and the treasury stock method had been applied. Potentially dilutive securities totaling 1,003,854771,973 and 899,8201,024,188 for the three months ended April 30,January 31, 2018 and 2017, and 2016, respectively, and 1,003,854 and 868,524 for the six months ended April 30, 2017 and 2016, respectively, were excluded from the calculation of diluted per share amounts because of their anti-dilutive effect.

The following table summarizes the computation of basic and diluted weighted average shares outstanding:

Note 7 - Stock-based compensation and equity transactions

The Company’s current stock incentive plan provides for the granting of qualified and nonqualified options to the Company’s officers, directors and employees. The Company satisfies the exercise of options by issuing previously unissued common shares. On December 13, 2017, the Company granted 80,000 incentive stock options to an employee. These options vest 8,000 on the date of grant and 8,000 shares per year thereafter on each of the next nine anniversaries of December 13, 2017 and expire ten years from date of grant. No options were granted to Company employees during the three and six months ended April 30, 2017 and 2016.January 31, 2017.

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

Company stock option plans

Descriptions of the Company’s stock option plans are included in Note 109 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2016.2017. A summary of the status of the options granted under the Company’s stock option plans as of April 30, 2017January 31, 2018 and the changes in options outstanding during the sixthree months then ended is presented in the table that follows:

Weighted average remaining contractual life of options outstanding as of April 30, 2017: 4.04January 31, 2018: 4.63 years

Weighted average remaining contractual life of options exercisable as of April 30, 2017: 3.26January 31, 2018: 3.21 years

Weighted average remaining contractual life of options vested and expected to vest as of April 30, 2017: 4.04January 31, 2018: 4.62 years

Aggregate intrinsic value of options outstanding at April 30, 2017: $107,000January 31, 2018: $1,012,000

Aggregate intrinsic value of options exercisable at April 30, 2017: $92,000January 31, 2018: $736,000

Aggregate intrinsic value of options vested and expected to vest at April 30, 2017: $107,000January 31, 2018: $1,007,000

As of April 30, 2017, $311,000January 31, 2018, $418,000 of expense with respect to nonvested share-based arrangements has yet to be recognized andbut is expected to be recognized over a weighted average period of 3.015.04 years.

Effective for the fiscal year ending October 31, 2017, non-employeeNon-employee directors receive $50,000 annually, which is paid one-half in cash and one-half through the grant of non-qualified stock options to purchase shares of the Company’s common stock. Previously, for the fiscal year ended October 31, 2016, non-employee directors received $30,000 annually. During the quarter ended January 31, 2017,2018, the Company granted each of its fourfive non-employee directors 77,33937,927 options. The number of stock options granted to each director was determined by dividing $25,000 by the fair value of a stock option grant using the Black-Scholes model ($0.320.659 per share). These options vest ratably over fiscal year 2017.2018.

Stock option expense

During the sixthree months ended April 30,January 31, 2018 and 2017, and 2016, stock-based compensation expense totaled $99,000 and $102,000, respectively. During the three months ended April 30, 2017 and 2016, stock-based compensation expense totaled $48,000$75,000 and $51,000, respectively. For the sixthree months ended April 30,January 31, 2018 and 2017, and 2016, stock-based compensation classified in cost of sales amounted to $6,000none and $17,000,$3,000, respectively, and stock-based compensation classified in selling and general expense amounted to $93,000$75,000 and $85,000,$48,000, respectively.

Note 8 - Concentrations of credit risk

Financial instruments whichthat potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents with high-credit quality financial institutions. At April 30, 2017,January 31, 2018, the Company had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $3.1$5.3 million.

One customer accounted for approximately 36% of the Company’s net sales for the three-month period ended January 31, 2018. At January 31, 2018, this customer’s accounts receivable balance accounted for approximately 32% of the Company’s total net accounts receivable balance. Two customers accounted for approximately 15% and 14%10% of the Company’s net sales for the six-monththree-month period ended April 30,January 31, 2017. Of the two customers, one accounted for approximately 15% of the Company’s net sales for the six-month period ended April 30, 2016. The same customers accounted for approximately 16% and 17% of the Company’s net sales for the three months ended April 30, 2017 and one customer accounted for approximately 15% of the Company’s net sales for the three months ended April 30, 2016. At April 30,January 31, 2017, these customers’ accounts receivable balancebalances accounted for approximately 16%15% and 24% of the total net accounts receivable balance. At October 31, 2016, one of the customer’s accounts receivable balance accounted for approximately 20%13% of the Company’s total net accounts receivable balances.balance.  Although these customers have been ongoingon-going major customers of the Company, the written agreements with these customers do not have any minimum purchase obligations and the customersthey could stop buying the Company’s products at any time and for any reason. A reduction, delay or cancellation of orders from these customers or the loss of these customers could significantly reduce the Company’s future revenues and profits.

Note 9 - Segment information

The Company aggregates operating divisions into operating 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; (5) if applicable, the nature of the regulatory environment. As of April 30, 2017,January 31, 2018, the Company hashad two segments: 1) RF Connector and Cable Assembly and 2) Custom Cabling Manufacturing and Assembly based upon this evaluation.

The RF Connector and Cable Assembly segment consisted of one division and the Custom Cabling Manufacturing and Assembly segment was composed of three divisions. The four divisions that met the quantitative thresholds for segment reporting are Connector and Cable Assembly, Cables Unlimited, Comnet and Rel-Tech. The specific customers are different for each division; however, there is some overlapping of product sales to them. The methods used to distribute products are similar within each division aggregated.

Management identifies the Company’s segments based on strategic business units that are, in turn, based along market lines. These strategic business units offer products and services to different markets in accordance with their customer base and product usage. For segment reporting purposes, the Connector and Cable Assembly division constitutes the RF Connector and Cable Assembly segment, and the Cables Unlimited, Comnet and Rel-Tech divisions constitute the Custom Cabling Manufacturing and Assembly segment.

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

Substantially all of the Company’s operations are conducted in the United States; however, the Company derives a portion of its revenue from export sales. The Company attributes sales to geographic areas based on the location of the customers. The following table presents the sales of the Company by geographic area for the three and six months ended April 30,January 31, 2018 and 2017 and 2016 (in thousands):

Net sales, income (loss) from continuing operations before provision (benefit) for income taxes and other related segment information for the three months ended April 30,January 31, 2018 and 2017 and 2016 are as follows (in thousands):

Note 10 - Income taxes

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

Net sales, income (loss) from continuing operations before provision (benefit) for income taxes and other related segment information for the six months ended April 30, 2017 and 2016 are as follows (in thousands): 

Note 10 - Income tax provision

The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision (benefit) for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter.

The provision (benefit)( benefit) for income taxes was 47%18% and (238)%30% of income (loss) before income taxes for the three months ended April 30,January 31, 2018 and 2017, and 2016, respectively, and 26% and 60% of income (loss) from before income taxes for the six months ended April 30, 2017 and 2016, respectively. The changedecrease in the effective income tax rate from period to period was primarily driven by a decreasethe reduction of the federal corporate income tax rate due to the Company’s full year financial forecast.

TheTax Act resulting in the recognition of a benefit of $41,000, recognition of a stock option windfall benefit of $19,000 related to the exercise of NQSOs and the benefit of R&D credits.The Company recorded income from discontinued operations, net of tax, as disclosed in Note 2.

The total amount of unrecognized tax benefits was $0 as of April 30, 2017January 31, 2018 and October 31, 2016.

2017. The total balance of accrued interest and penalties related to uncertain tax positions was $0 as of April 30, 2017January 31, 2018 and October 31, 2016.2017. The Company recognizes interest and penalties related to uncertain tax positions, if any, as a component of income tax expense and the accrued interest and penalties, if any, are included in deferred and other long-term liabilities in the Company's condensed consolidated balance sheets. There were no material interest or penalties included in income tax expense for the sixthree months ended April 30,January 31, 2018 or 2017.

Note 11 - Intangible assets

Intangible assets consist of the following (in thousands):

Amortization expense for the six-months ended April 30, 2017 and the year-ended October 31, 2016 was $295,000 and $649,000, respectively.

Note 12 - Accrued expenses

Accrued expenses consist of the following (in thousands):

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

Non-current portion of earn-out liability of $20,000 is recorded in other long-term liabilities.

Note 13 - Former line of credit

From May 2015 until September 2016, the Company had a $5 million line of credit available to it from its bank. The Company did not use the line of credit and, effective September 8, 2016, the Company terminated the line of credit.

Note 14 - Commitments

In April 2014,The Company currently leases its corporate headquarters and RF connector and cable assembly manufacturing facilities in San Diego, California. On June 5, 2017, the Company amendedentered into a fifth amendment to its lease for its facility in San Diego, California, extendingCalifornia. As a result, the Company now leases a total of approximately 21,908 square feet of office, warehouse and manufacturing space at its San Diego location. The term of the lease and reducing its square footage. The amended lease was scheduled to expire in March 2017; however,expires on January 26, 2017, the term of the lease was extended until July 31, 2022, and the rental payments increased $2,596 per month from $20,125 tounder the lease currently are $22,721 per month. The minimum annual rentals are being charged to expense on a straight-line basis over the lease term. The San Diego lease also requires the payment of the Company’s pro rata share of real estate taxes and insurance, maintenance and other operating expenses related to the facilities.

The Cables Unlimited division leases an approximately 12,000 square foot facility located in Yaphank, New York. In April 2016, the lease was extended until June 30, 2017. Cables Unlimited’s monthly rent expense under the lease is $13,000 per month, plus payments of all utilities, janitorial expenses, routine maintenance costs and costs of insurance for Cables Unlimited’s business operations and equipment. The landlord is a company controlled by Darren Clark, the former owner and current President of Cables Unlimited.

The Comnet Telecom division leases approximately 15,000 square feet in two suites located in East Brunswick, New Jersey. Comnet’s monthly rent expense under the leases is approximately $11,655 per month for these facilities, and the leases expire in September 2017.

The Rel-Tech Electronic division leases approximately 13,750 square feet located in Milford, Connecticut. Rel-Tech’s netaggregate monthly rent expense underrental for all of the leaseCompany’s facilities currently is approximately $8,307$53,000 per month, for these facilities,plus utilities, maintenance and the leases expires in August 2017.insurance.

Note 1513 - Cash dividend and declared dividends

The Company paid dividends of $0.02 per share during the three months ended April 30, 2017January 31, 2018 and 2016 for a total of $177,000 and $177,000, respectively. The Company paid dividends of $0.04 per share during the six months ended April 30, 2017 for a total of $353,000. The Company paid dividends of $0.02 and $0.07$176,000 per share during the six months ended April 30, 2016 for a total of $787,000.period.

Note 1614 - Subsequent events

At its June 9, 2017 meeting,On March 8, 2018, the Board of Directors of the Company declared a quarterly cash dividend of $0.02 per share to be paid on July 14, 2017April 15, 2018 to stockholders of record on June 30, 2017.

In addition, the Board of Directors also approved the extension of the Company’s lease at its current terms, as described above, with Cables Unlimited until June 30,March 31, 2018.

On June 5, 2017, the Company amended its lease for its facility in San Diego, California, increasing its square footage by 2,321 from 19,587 to 21,908. The amended lease expires July 31, 2022, and the rental payments increased $2,692 per month for the first year from $22,721 to $25,413 per month.

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

The following discussion should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this Form 10-Q. Readers are also urged to carefully review and consider the various disclosures made by the Company which attempt to advise interested parties of the factors which affect the Company’s 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 the Company’s Annual Report filed on Form 10-K for the year ended October 31, 20162017 and other reports and filings made with the Securities and Exchange Commission.

Critical Accounting Policies

The unaudited condensed consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates, including those related to bad debts, inventory reserves and contingencies on an ongoing basis. We base our estimates on historical experience and on various other assumptions that are believed to be appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Inventories

Inventories are stated at the lower of cost or market, 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-thirdone-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

The Company records its allowance for doubtful accounts based upon its assessment of various factors. The Company considers historical experience, the age of the accounts receivable balance, credit quality of the Company’s customers, current economic conditions and other factors that may affect a customer’s ability to pay.

Long-Lived Assets Including Goodwill

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

The Company amortizes its intangible assets with definite useful lives over their estimated useful lives and reviews 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 requires significant judgment and could include a significant change in the business climate, legal factors, operating performance indicators, competition and sale or disposition of all or a portion of a division. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital.

Earn-out Liability

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

Income Taxes

The Company records 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 financial statements that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

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

The calculation of the tax provision involves significant judgment in estimating the impact of uncertainties in the application of GAAP and complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on the Company’s financial condition and operating results.

Stock-based Compensation

The Company uses the Black-Scholes model to value the stock option grants. This valuation is affected by the Company’s 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

The Company primarily engages inRF Industries, Ltd. (together with subsidiaries, the design, manufacture,“Company”) is a national manufacturer and marketingmarketer of interconnect products and systems, including coaxial and specialty cables and connectors, fiber optic cables and connectors, data center equipment solutions and electrical and electronic specialty cables. The Company’s connectivitycables and components. Through its four manufacturing and production facilities, the Company provides a wide selection of interconnect products and solutions are used across diversified, growing markets including wirelessprimarily to telecommunications carriers and equipment manufacturers, wireless and network infrastructure carriers and industrial companies. The Company’s operations are currently conducted through its divisionsmanufacturers, Data Center and three wholly-owned subsidiaries.Co-location companies, and to various original equipment manufacturers (OEMs) in several market segments.

For the first time in over two decades, the Company experienced an annual net loss in the fiscal year ended October 31, 2016. Also, for the first time during that period, the Company had negative cash flow from its operations. This trend, and some of the reasons for the decline in business, also impacted the Company’s fiscal period ended April 30, 2017. The Company believes that, as a result of the continuing change in the wireless marketplace, there has been a decreased demand for certain of the Company’s wireless products (including in particular for the Company’s wireless cabling products used by cell towers). During the past few years, the Company benefitted from the demand for the products it sold to wireless service providers who were updating their networks to 4G technologies. Now that much of that upgrading work has been completed, the demand for the Company’s products has softened, resulting in lower sales and narrower gross margins. The decrease in sales was particularly significant in the Company’s Cables Unlimited subsidiary as demand for its Optiflex and other cell tower solutions decreased. The slowdown in the wireless marketplace also resulted in decreased sales at the Company’s Comnet Telecom subsidiary which manufactures and distributes telecom equipment and cabling infrastructure products used by telecommunications carriers, co-location service companies, and other telecommunication and data center companies in the U.S. across multiple industries. The Company’s Rel-Tech subsidiary, which designs and manufactures cable assemblies and wiring harnesses for blue chip industrial, oilfield, instrumentation and military customers, also has experienced a slowdown due to certain customers shifting their business to off-shore manufacturers.

During this slowdown the Company continues to actively manage its operations to return to continued profitability including emphasizing its marketing and sales efforts in the public safety sector of the Distributed Area Systems (“DAS”) market where the Company has seen a significant increase in sales in this sector during the six months ended April 30, 2017. In addition, the Company continues its efforts to increase efficiencies and reduce costs wherever possible which has resulted in a significant decrease in its operating expenses during the six months ended April 30, 2017.

The Company operates through two reporting segments: (i) the “RF Connector and Cable Assembly” segment, and (ii) the “Custom Cabling Manufacturing and Assembly” segment. The RF Connector and Cable Assembly segment primarily designs, manufactures, markets and distributes a broad range of connector and cable products, including coaxial connectors and cable assemblies that are integrated with coaxial connectors, used in telecommunications and information technology OEM markets and other end markets. The Custom Cabling Manufacturing and Assembly segment designs, manufactures, markets and distributes custom copper and fiber cable assemblies, complex hybrid fiber optic and power solution cables, electromechanical wiring harnesses, data center products, and wiring harnesses for a broad range of applications in a diverse set of end markets. The two segments were determined based on the aggregation of operating divisions that have similar economic characteristics and are similar in the majority of the following areas: (1) the nature of the product and services; (2) the nature of the production process; (3) the type or class of customer for their products and services; (4) the methods used to distribute their products or services; and (5) if applicable, the nature of the regulatory environment.

For the quarter ended January 31, 2018, most of the Company’s revenues were generated from the Custom Cabling Manufacturing and Assembly segment from the sale of fiber optics cable, copper cabling, custom patch cord assemblies, wiring harnesses, transceivers/converters and other data center equipment (which accounted for 75% of the Company’s total sales for the quarter ended January 31, 2018). Revenues from the RF Connector and Cable Assembly segment were generated from the sales of RF connector products and connector cable assemblies and accounted for 25% of the Company’s total sales for the quarter ended January 31, 2018.

Liquidity and Capital Resources

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Management believes that existing current assets and the amount of cash it anticipates it will generate from current operations will be sufficient to fund the anticipated liquidity and capital resource needs of the Company for at least twelve months from the date of this filing. Management believes that its existing assets and the cash expected to be generated from operations, including its current backlog of unfulfilled orders, will be sufficient during the current fiscal year based on the following:

As of April 30, 2017,January 31, 2018, the Company had a total of $4.3$5.9 million of cash and cash equivalents compared to a total of $5.3$6.0 million of cash and cash equivalents as of October 31, 2016.2017. As of April 30, 2017,January 31, 2018, the Company had working capital of $12.9$13.9 million and a current ratio of approximately 4.1:3.8:1.

Subsequent to the fiscal year ended October 31, 2017, the Company has seen an increase in orders for its products in each of its four divisions. As a result of these increased orders, the Company’s backlog has increased from $4.0 million as of October 31, 2017 to $20.2 million as of January 31, 2018. A substantial amount of this backlog is expected to be filled in the upcoming quarter ending April 30, 2018 and the remaining amount of the current backlog largely filled by the end of the current fiscal year ending October 31, 2018.  Accordingly, the Company’s liquidity and available capital resources are also expected to materially increase in the current fiscal year.

The Company used cash of $0.5$0.2 million in operating activities during the six-month periodthree months ended April 30, 2017January 31, 2018 due in partlargely to the impact of increased sales. As a net lossresult of $115,000, the increased purchase of additionalsales, accounts receivables ($1.5 million) and inventories and other current assets, and payment of certain accrued expenses. The decrease in accrued expenses($0.7 million) increased, which was primarily due to the $496,000 of accrued earn-out and incentive bonus that were paid in the first quarter of the current fiscal year to the President of the Comnet division, as well as $95,000 for severance and other payroll related costs to a former CEO. These increased payments were partially offset by increased accounts payable ($0.7 million) and accrued expenses ($0.5 million). This net decrease in cash was partially offset by an increase in cash from net income of $0.5 million, noncash charges such as $434,000 forcredits of $0.2 million primarily from depreciation and amortization related to the acquisitions of Comnet, Rel-Tech and CompPro, and $99,000$0.1 million of stock-based compensation expense. In addition, during the quarter the Company received $0.2 million from the exercise of stock options and paid out $0.2 million in dividends.

The Company does not anticipate needing material additional capital equipment in the next 12twelve months. In the past, the Company has financed some of its equipment and furnishings requirements through capital leases. No additional capital equipment purchases have been currently identified that would require significant additional leasing or capital expenditures during the next 12twelve months. Management also believes that based on the Company’s current financial condition, its current backlog of unfulfilled orders and its anticipated future operations, the Company would be able to finance its expansion, if necessary.

As part of its announced business plan, the Company may from time to time acquire other companies or product lines in the future in order to diversify its product and customer base. Any future acquisitions may require the Company to make cash payments, which may reduce the Company’s future liquidity and capital resources.

During the three- and six-month periods ended April 30, 2017, the Company paid a total of $177,000 and $353,000 ($0.02 and $0.04 per common share) of dividends to its stockholders, respectively.

Results of Operations

Three Months Ended April 30, 2017January 31, 2018 vs. Three Months Ended April 30, 2016January 31, 2017

Net sales of $7.6$10.3 million decreasedincreased by 1%56%, or $94,000$3.7 million, for the three months ended April 30, 2017January 31, 2018 (the “fiscal 20172018 quarter”) when compared to the three months ended April 30, 2016January 31, 2017 (the “fiscal 20162017 quarter”). Net sales for the fiscal 2018 quarter at the Company’s “Custom Cabling Manufacturing and Assembly” segment (Custom Cabling) increased $3.6 million, or 89%, when compared to the fiscal 2017 quarter from the increased sale of fiber optics cable, copper cabling, custom patch cord assemblies, wiring harnesses, transceivers/converters and other data center equipment. Net sales for the fiscal 2018 quarter at the RF Connector and Cable Assembly segment increased by $528,000,$0.1 million, or 25%4%, to $2.6 million as compared to $2.5 million for the fiscal 20162017 quarter. The increase in net sales at the RF Connector and Cable Assembly segment was largely due to increased sales into the DAS market. The Company’s “Custom Cabling Manufacturing and Assembly” segment (which consisted of Cables Unlimited, Comnet and Rel-Tech) generated $5.0 million of net sales for fiscal 2017 quarter, a decrease of $0.6 million or 11% when compared to the fiscal 2016 quarter. The decrease in net sales at the Cables Unlimited division in this segment is primarily attributable to a continuing industry-wide softening of demand for wireless cabling products used by cell towers and other telecom equipment and cabling infrastructure products. Rel-Tech also has experienced a slowdown in net sales primarily due to certain customers shifting their business to off-shore manufacturers.

The Company’s gross profit as a percentage of sales in the fiscal 20172018 quarter decreasedincreased by 4%2% to 26%30% compared to 30%28% in the fiscal 2016 quarter. The decrease in gross margins is2017 quarter due primarily due to 1) a change in product mixthe increased revenues at the Company’s RF Connector and Cable Assembly division and, 2) certain fixed manufacturing costs at the Company’s Custom Cabling Manufacturing and Assembly segment spread over a lower revenue base.division.

Engineering expenses increased $25,000$0.1 million during the fiscal 2018 quarter to $0.3 million compared to $0.2 million for the fiscal 2017 quarter to $204,000 compared to $179,000 for the fiscal 2016 quarter due to increased salary expense related to engineering activities. Engineering expenses represent costs incurred inrelating to the ongoing development of new products.

Selling and general expenses decreasedincreased by $567,000, or 25%,$0.2 million during the fiscal 20172018 quarter to $1.7$2.2 million from $2.3$2.0 million in the prior year. Selling and general as a percentage of sales declined to 21% for the fiscal 2018 quarter as compared to 30% for the fiscal 2017 quarter. The decreaseincrease in selling and general expenses was primarily due to increased compensation in the impactform of the Company’s cost cutting measures. Also the Company’s current interim Presidentcommissions and Chief Executive Officer has agreed to serve for no salary. Fiscal 2016 quarter included a one-time payment of a $100,000 bonus paid to the retiring founder, and former CEO of the Company for over 35 years’ of service.accrued bonuses.

The provision (benefit) for income taxes was 47%18% and (238)%30% of income (loss) before income taxes for the three months ended April 30,January 31, 2018 and 2017, and 2016, respectively. The changedecrease in the effective income tax rate from period to period was primarily driven by a decreasethe reduction of the federal corporate income tax rate due to the Company’s full year financial forecast.Tax Act and the benefit of R&D credits.

IncomeOn December 22, 2017, the President signed the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act, among other things, lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. Consequently, we wrote down our net deferred tax liability as of October 31, 2017 by $41,000 to reflect the estimated impact of the Tax Act. While we have substantially completed our provisional analysis of the income tax effects of the Tax Act and recorded a reasonable estimate of such effects, the net one-time charge related to the Tax Act may differ, possibly materially, due to, among other things, further refinement of our calculations, changes in interpretations and assumptions that we have made, additional guidance that may be issued by the U.S. Government, and actions and related accounting policy decisions we may take as a result of the Tax Act. We will complete our analysis over a one-year measurement period ending December 22, 2018, and any adjustments during this measurement period will be included in net earnings from continuing operations as an adjustment to income tax expense in the reporting period when such adjustments are determined. All of the income from discontinued operations, net of tax, during the fiscal 2017 quarter was $44,000 compared to a loss of $(182,000) in the fiscal 2016 quarter. All of the income during fiscal quarter 2017 was for royalty payments received under the agreement for the sale of the Company’s RadioMobile division, while the loss for fiscal quarter 2016 was primarily from the discontinuance of the Company’s Bioconnect division. The period for earning royalties from RadioMobile has now expired.

For the fiscal 20172018 quarter, the Company had operating income of $66,000 and a net income of $78,000, compared to an operating loss from operations of $78,000was $0.5 million and net loss of $113,000 in the fiscal 2016 quarter.

Six Months Ended April 30, 2017 vs. Six Months Ended April 30, 2016

Net sales of $14.3 million decreased by 2% or $262,000 for the six months ended April 30, 2017 when compared to the six months ended April 30, 2016. Net sales for the six months ended April 30, 2017 at the RF Connector and Cable Assembly segment increased by $1.1 million, or 27%, to $5.1 millionfully diluted EPS was $0.05 per share as compared to $4.0 million for the six months ended April 30, 2016. The increase in net sales at the RF Connector and Cable Assembly segment was largely due to increased sales into the DAS market. Net sales for the six months ended April 30, 2016 includes net sales of $86,000 from the Aviel Electronics division, which the Company sold in December 2015. The Company’s “Custom Cabling Manufacturing and Assembly” segment generated $9.1 million of net sales for the six months ended April 30, 2017, a decrease of $1.4 million or 13% when compared to the six months ended April 30, 2016. The decrease in net sales at the Comnet and Cable Unlimited divisions in this segment is primarily attributable to a continuing industry-wide softening of demand for wireless cabling products used by cell towers and other telecom equipment and cabling infrastructure products. Rel-Tech also has experienced a slowdown in net sales primarily due to certain customers shifting their business to off-shore manufacturers.

The Company’s gross profit as a percentage of sales in the six months ended April 30, 2017 decreased by 3% to 27% compared to 30% in the six months ended April 30, 2016. The decrease in gross margins is primarily due to 1) a change in product mix at the Company’s RF Connector and Cable Assembly division and, 2) certain fixed manufacturing costs at the Company’s Custom Cabling Manufacturing and Assembly segment spread over a lower revenue base.

Engineering expenses increased $88,000 for the six months ended April 30, 2017 to $428,000 compared to $340,000 for the six months ended April 30, 2016 quarter due to increased salary expense related to engineering activities. Engineering expenses represent costs incurred in the development of new products.

Selling and general expenses decreased by $1.0 million, or 22%, during the six months ended April 30, 2017 to $3.7 million from $4.7 million in the prior period. The decrease in selling and general expenses was primarily due to the impact of the Company’s cost cutting measures. Also the Company’s current interim President and Chief Executive Officer has agreed to serve for no salary. The six months ended April 30, 2016 included a one-time payment of a $100,000 bonus paid to the retiring founder, and former CEO of the Company for over 35 years’ of service.

The benefit for income taxes was 26% and 60% of loss before income taxes for the six months ended April 30, 2017 and 2016, respectively. The change in the effective income tax rate from period to period was primarily driven by a decrease to the Company’s full year financial forecast.

Income from discontinued operations, net of tax, during the six months ended April 30, 2017 was $88,000 compared to a loss of $(220,000) in the prior year. All of the income during the six months ended April 30, 2017 was for royalty payments received under the agreement for the sale of the Company’s RadioMobile division, while the loss for the six months ended April 30, 2016 was primarily from the discontinuance of the Company’s Bioconnect division. The period for earning royalties from Radiomobile has now expired.

For the six months ended April 30, 2017, the Company incurred an operating loss of $293,000 and a net loss of $115,000, compared to an operating loss from operations$0.2 million and fully diluted of $649,000 and net loss of $467,000 in$0.02 per share for the prior period.fiscal 2017 quarter.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Nothing to report.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide reasonable assurance only of achieving the desired control objectives, and management necessarily is required to apply its judgment in weighting 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 described in Item 9A of our Annual Report on Form 10-K for the fiscal year ended October 31, 2016, we identified a material weakness where the Company did not have adequate design or operation of internal controls to ensure the timely review of its accounting for certain complex estimates.

As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this report, management, under the supervision and with the participation of our then Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Based on the material weakness described above,this evaluation, management concluded that the Company’s disclosure controls and procedures were not effective as of April 30, 2017.that date.

Changes in Internal Control over Financial Reporting

To remediate the material weakness described above and to prevent similar deficienciesThere has been no change in the future, we have initiated and implemented additional controls and procedures to more timely review complex accounting estimates that are provided by third-party subject matter experts. Specifically, the Company has designed and implemented a structured process that includes a formal quarterly closing checklist and timeline that includes a series of formal process and procedures detailing what is required to be completed along with the timeline of when it is to be completed.

Management will continue to evaluate the process and its controls over complex accounting estimates. However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of fiscal year 2017.

Except for the changes mentioned above, there have not been any changes in ourCompany’s internal control over financial reporting as of April 30, 2017,during the quarter ended January 31, 2018 that has materially affected, or areis reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

The discussion of our business and operations should be read together with the risk factors contained in Item 1A of our Annual Report on Form 10-K for the fiscal year ended October 31, 20162017 filed with the SEC, which describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. There have been no material changes from the risk factors previously disclosed in the above-mentioned periodic report.

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

Nothing to report.

Item 3. Defaults upon Senior Securities

Nothing to report.

Item 4. Mine Safety Disclosures

Nothing to report.

Item 5. Other Information

Noting to report.

Item 6. Exhibits

SIGNATURES

In accordance with 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.