UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒	~~Quarterly report pursuant to Section~~ QUARTERLY REPORT PURSUANT TO SECTION 13 orOR 15(d) ~~of the Securities Exchange Act of~~OF THE SECURITIES EXCHANGE ACT OF 1934
	~~For the quarterly period ended July 31, 2021~~

For the quarterly period ended July 31, 2022

☐	~~Transition report pursuant to Section~~ TRANSITION REPORT PURSUANT TO SECTION 13 orOR 15(d) ~~of the Securities Exchange Act of~~OF THE SECURITIES EXCHANGE ACT OF 1934
	~~For the transition period from~~ ~~______________~~ to ~~______________.~~

Commission file number: 000-13301

RF INDUSTRIES, ~~LTD.~~LTD.

(Exact name of registrant as specified in its charter)

Nevada	88-0168936
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7610 Miramar Road, Building 6000 San Diego, California	92126
(Address of principal executive offices)	(Zip Code)
(858) 549-6340
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Common Stock, $0.01 par value per share	RFIL	NASDAQ Global Market

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. Yes ☒ No ☐

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes ☒ No ☐

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.

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	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 ☐ No ☒

The number of shares of the issuer’s Common Stock, par value $0.01 per share, outstanding as of September ~~9, 2021~~2, 2022 was ~~10,040,598.~~10,156,191.

July 31

October 31,

2021

2020

(Unaudited)

(Note 1)

ASSETS

CURRENT ASSETS

Cash and cash equivalents
$ 12,578 $ 15,797
Trade accounts receivable, net of allowance for doubtful accounts of $79 and $66, respectively
10,526 5,669
Inventories
10,400 8,586
Other current assets
4,124 813
TOTAL CURRENT ASSETS
37,628 30,865

Property and equipment:

Equipment and tooling
3,948 3,819
Furniture and office equipment
1,093 1,073
5,041 4,892
Less accumulated depreciation
4,282 4,082
Total property and equipment, net
759 810

Operating lease right of use assets, net
1,482 1,421
Goodwill
2,467 2,467
Amortizable intangible assets, net
2,834 3,181
Non-amortizable intangible assets
1,174 1,174
Deferred tax assets
0 834
Other assets
70 70
TOTAL ASSETS
$ 46,414 $ 40,822

	July 31,		October 31,
	2022		2021
	(Unaudited)		(Note 1)
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	5,086	$	13,053
Trade accounts receivable, net of allowance for doubtful accounts of $124 and $87, respectively		16,161		13,523
Inventories		19,161		11,179
Other current assets		6,647		2,893
TOTAL CURRENT ASSETS		47,055		40,648

Property and equipment:
Equipment and tooling		4,353		3,986
Furniture and office equipment		1,347		1,086
		5,700		5,072
Less accumulated depreciation		4,669		4,364
Total property and equipment, net		1,031		708

Operating lease right of use assets, net		13,967		1,453
Goodwill		7,682		2,467
Amortizable intangible assets, net		15,728		2,739
Non-amortizable intangible assets		1,174		1,174
Deferred tax assets		263		389
Other assets		295		70
TOTAL ASSETS	$	87,195	$	49,648

Three Months Ended July 31,

Nine Months Ended July 31,

2021

2020

2021

2020

Net sales
$ 15,257 $ 9,544 $ 36,316 $ 32,348
Cost of sales
10,198 6,814 23,881 23,778

Gross profit
5,059 2,730 12,435 8,570

Operating expenses:

Engineering
411 429 1,044 1,553
Selling and general
3,452 2,521 8,099 7,423
Total operating expenses
3,863 2,950 9,143 8,976

Operating income (loss)
1,196 (220 ) 3,292 (406 )

Other income
2 1 2,803 18

Income (loss) before provision (benefit) for income taxes
1,198 (219 ) 6,095 (388 )
Provision (benefit) for income taxes
272 (137 ) 727 (148 )

Consolidated net income (loss)
$ 926 $ (82 ) $ 5,368 $ (240 )

Earnings (loss) per share:

Basic
$ 0.09 $ (0.01 ) $ 0.54 $ (0.02 )
Diluted
$ 0.09 $ (0.01 ) $ 0.53 $ (0.02 )

Weighted average shares outstanding:

Basic
9,979,578 9,714,700 9,955,193 9,661,054
Diluted
10,150,396 9,714,700 10,131,172 �� 9,661,054

For the Three Months Ended July 31, 2021

Additional

Common Stock

Paid-in

Retained

Shares

Amount

Capital

Earnings

Total

Balance, May 1, 2021
10,001,056 $ 100 $ 23,678 $ 13,462 $ 37,240

Exercise of stock options
23,827 0 82 0 82

Stock-based compensation expense
- 0 374 0 374

Issuance of restricted stock
1,840 0 0 0 0

Forfeiture of restricted stock
(864 ) 0 0 0 0

Tax withholding related to vesting of restricted stock
(261 ) 0 (2 ) 0 (2 )

Consolidated net income
- 0 0 926 926

Balance, July 31, 2021
10,025,598 $ 100 $ 24,132 $ 14,388 $ 38,620

For the Nine Months Ended July 31, 2021

Additional

Common Stock

Paid-in

Retained

Shares

Amount

Capital

Earnings

Total

Balance, November 1, 2020
9,814,118 $ 98 $ 22,946 $ 9,020 $ 32,064

Exercise of stock options
180,528 1 566 0 567

Stock-based compensation expense
- 0 634 0 634

Issuance of restricted stock
38,674 1 (1 ) 0 0

Forfeiture of restricted stock
(5,182 ) 0 0 0 0

Tax withholding related to vesting of restricted stock
(2,540 ) 0 (13 ) 0 (13 )

Consolidated net income
- 0 0 5,368 5,368

Balance, July 31, 2021
10,025,598 $ 100 $ 24,132 $ 14,388 $ 38,620

	Three Months Ended July 31,					Nine Months Ended July 31,
	2022			2021		2022			2021

Net sales	$	23,842		$	15,257	$	62,265		$	36,316
Cost of sales		16,594			10,198		44,853			23,881

Gross profit		7,248			5,059		17,412			12,435

Operating expenses:
Engineering		791			411		2,101			1,044
Selling and general		5,369			3,452		13,838			8,099
Total operating expenses		6,160			3,863		15,939			9,143

Operating income		1,088			1,196		1,473			3,292

Other (expense) income		(177	)		2		(280	)		2,803

Income before provision for income taxes		911			1,198		1,193			6,095
Provision for income taxes		140			272		196			727

Consolidated net income	$	771		$	926	$	997		$	5,368

Earnings per share:
Basic	$	0.08		$	0.09	$	0.10		$	0.54
Diluted	$	0.08		$	0.09	$	0.10		$	0.53

Weighted average shares outstanding:
Basic		10,127,244			9,979,578		10,100,767			9,955,193
Diluted		10,238,932			10,150,396		10,233,209			10,131,172

	For the Three Months Ended July 31, 2022
						Additional
	Common Stock					Paid-in			Retained
	Shares			Amount		Capital			Earnings		Total
Balance, May 1, 2022		10,118,685		$	102	$	24,648		$	15,427	$	40,177

Exercise of stock options		37,927			-		93			-		93

Stock-based compensation expense		-			-		191			-		191

Tax withholding related to vesting of restricted stock		(421	)		-		(3	)		-		(3	)

Consolidated net income		-			-		-			771		771

Balance, July 31, 2022		10,156,191		$	102	$	24,929		$	16,198	$	41,229

	For the Nine Months Ended July 31, 2022
						Additional
	Common Stock					Paid-in			Retained
	Shares			Amount		Capital			Earnings		Total
Balance, November 1, 2021		10,058,571		$	101	$	24,301		$	15,201	$	39,603

Exercise of stock options		60,854			1		149			-		150

Stock-based compensation expense		-			-		498			-		498

Issuance of restricted stock		39,666			-		-			-		-

Tax withholding related to vesting of restricted stock		(2,900	)		-		(19	)		-		(19	)

Consolidated net income		-			-		-			997		997

Balance, July 31, 2022		10,156,191		$	102	$	24,929		$	16,198	$	41,229

For the Three Months Ended July 31, 2020

Additional

Common Stock

Paid-in

Retained

Shares

Amount

Capital

Earnings

Total

Balance, May 1, 2020
9,758,062 $ 98 $ 22,652 $ 8,943 $ 31,693

Exercise of stock options
12,339 0 22 0 22

Stock-based compensation expense
- 0 161 0 161

Issuance of common shares
1,116 0 5 0 5

Consolidated net loss
- 0 0 (82 ) (82 )

Balance, July 31, 2020
9,771,517 $ 98 $ 22,840 $ 8,861 $ 31,799

	For the Three Months ended July 31, 2021
						Additional
	Common Stock					Paid-In			Retained
	Shares			Amount		Capital			Earnings		Total
Balance, May 1, 2021		10,001,056		$	100	$	23,678		$	13,462	$	37,240

Exercise of stock options		23,827			-		82			-		82

Stock-based compensation expense		-			-		374			-		374

Issuance of restricted stock		1,840			-		-			-		-

Forfeiture of restricted stock		(864	)		-		-			-		-

Tax withholding related to vesting of restricted stock		(261	)		-		(2	)		-		(2	)

Consolidated net income		-			-		-			926		926

Balance, July 31, 2021		10,025,598		$	100	$	24,132		$	14,388	$	38,620

For the Nine Months Ended July 31, 2020

Additional

Common Stock

Paid-in

Retained

Shares

Amount

Capital

Earnings

Total

Balance, November 1, 2019
9,462,267 $ 95 $ 21,949 $ 9,489 $ 31,533

Exercise of stock options
241,209 2 443 0 445

Stock-based compensation expense
- 0 367 0 367

Issuance of restricted stock
54,850 1 (1 ) 0 0

Issuance of common shares
13,191 0 82 0 82

Dividends
- 0 0 (388 ) (388 )

Consolidated net loss
- 0 0 (240 ) (240 )

Balance, July 31, 2020
9,771,517 $ 98 $ 22,840 $ 8,861 $ 31,799

	For the Nine Months ended July 31, 2021
						Additional
	Common Stock					Paid-In			Retained
	Shares			Amount		Capital			Earnings		Total
Balance, November 1, 2020		9,814,118		$	98	$	22,946		$	9,020	$	32,064

Exercise of stock options		180,528			1		566			-		567

Stock-based compensation expense		-			-		634			-		634

Issuance of restricted stock		38,674			1		(1	)		-		-

Forfeiture of restricted stock		(5,182	)		-		-			-		-

Tax withholding related to vesting of restricted stock		(2,540	)		-		(13	)		-		(13	)

Consolidated net income		-			-		-			5,368		5,368

Balance, July 31, 2021		10,025,598		$	100	$	24,132		$	14,388	$	38,620

	Nine Months Ended July 31,						Nine Months Ended July 31,
	2021			2020			2022			2021
OPERATING ACTIVITIES:
Consolidated net income (loss)	$	5,368		$	(240	)
Consolidated net income							$	997		$	5,368

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Adjustments to reconcile consolidated net income to net cash provided by (used in) operating activities:
Bad debt expense		17			17			13			17
Depreciation and amortization		592			760			1,155			592
Stock-based compensation expense		634			449			498			634
Amortization of debt issuance cost								4			-
Tax payments related to shares cancelled for vested restricted stock awards		(13	)		0			(19	)		(13	)
Deferred income taxes		924			219			126			924
PPP Loan and interest forgiveness		(2,807	)		0			-			(2,807	)
Changes in operating assets and liabilities:
Trade accounts receivable		(4,874	)		7,395			229			(4,874	)
Inventories		(1,814	)		(219	)		(3,980	)		(1,814	)
Other current assets		(3,311	)		(544	)		(1,006	)		(3,311	)
Right of use assets		(24	)		94			78			(24	)
Other long-term assets		0			(2	)		(224	)		-
Accounts payable		986			(1,293	)		1,464			986
Accrued expenses		1,143			(1,576	)		1,261			1,143
Income taxes payable		(43	)		(21	)		-			(43	)
Other long-term liabilities		(370	)		(778	)		-			(370	)
Net cash (used in) provided by operating activities		(3,592	)		4,261
Net cash provided by (used in) operating activities								596			(3,592	)

INVESTING ACTIVITIES:
Capital expenditures		(194	)		(117	)		(430	)		(194	)
Purchase of Schrofftech, net of cash acquired ($99)		0			(3,901	)
Purchase of Microlab, net of cash acquired ($33)								(24,442	)		-
Net cash used in investing activities		(194	)		(4,018	)		(24,872	)		(194	)

FINANCING ACTIVITIES:
Proceeds from exercise of stock options		567			445			149			567
Dividends paid		0			(388	)
Proceeds from PPP Loan		0			2,788
Debt issuance cost								(32	)		-
Term Loan payments								(808	)		-
Term Loan								17,000			-
Net cash provided by financing activities		567			2,845			16,309			567

Net (decrease) increase in cash and cash equivalents		(3,219	)		3,088
Net decrease in cash and cash equivalents								(7,967	)		(3,219	)

Cash and cash equivalents, beginning of period		15,797			12,540			13,053			15,797

Cash and cash equivalents, end of period	$	12,578		$	15,628		$	5,086		$	12,578

Supplemental cash flow information – income taxes paid	$	309		$	415		$	223		$	309

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.~~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~~GAAP 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, ~~2020~~ 2021 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, ~~2020~~ 2021 included in our Annual Report on Form 10-K10-K (“Form 10~~-K”~~10-K”) for the year ended October 31, ~~2020~~ 2021 that was previously filed with the Securities and Exchange Commission (“SEC”). Operating results for the nine months ended July 31, ~~2021~~ 2022 are not necessarily indicative of the results that may be expected for the year ending October 31, ~~2021.~~ 2022. 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.~~10-K.

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”). ~~All~~The unaudited condensed consolidated financial statements for the three and nine months ended July 31, 2022 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” collectively~~“Company” shall refer to RF Industries, Ltd., Cables Unlimited, Rel-Tech, C Enterprises, and ~~Schrofftech.~~Schrofftech and for all periods after January 31, 2022, reference to the “Company” 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.

In March 2020, the World Health Organization (the “WHO”) declared coronavirus (“~~COVID-~~~~19”~~COVID-19”) a pandemic emergency. The ~~COVID-~~19COVID-19 pandemic has negatively impacted regional and global economies, disrupted global supply chains, and created significant volatility and disruption of financial markets. The extent of the impact of the ~~COVID-~~19COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by domestic and international jurisdictions to prevent disease spread, all of which are uncertain and cannot be predicted.

~~The outbreak impacted our performance for the~~ ~~nine~~ ~~months ended~~ ~~July 31, 2021.~~ During the periods covered by this report, the operations at all locations were affected intermittently as some of our employee schedules were impacted, and as certain customers scaled back operations or otherwise delayed or deferred orders for our products. Because of the impact that ~~COVID-~~19COVID-19 had on our operations, in May 2020 we applied for and received loans under the Paycheck Protection Program (“PPP”) of the the Coronavirus Aid, Relief, and Economic Security Act, H.R. 748 (“CARES ~~Act~~Act”) totaling approximately $2.8 million (“PPP Loans”). ~~See Note~~ 13 ~~on discussions of the PPP Loans.~~

In March 2021, the Internal Revenue Service (“IRS”) released Notice ~~2021~~-~~20,~~2021-20, which retroactively eliminated the restriction that prevented employers who received a PPP loan from qualifying for the Employee Retention Credit (“ERC”), which is a refundable tax credit against certain employment taxes. Upon determination that the employer has complied with all of the conditions required to receive the credit, a receivable is recognized and the credit reduces salaries and wages. For the ~~nine~~ ~~months~~fiscal year ended ~~July~~October 31, 2021, we qualified and filed to claim the ERC and have recorded this as an other receivable classified in other current assets. As of July 31, 2022, the ERC in other receivable classified in other current assets were $1.7 million.

We considered the impact of the ~~COVID-~~19COVID-19 related economic slowdown on our evaluation of goodwill and non-amortizable intangibles impairment indicators as of July 31, ~~2021.~~ 2022. Although no impairment indicators were identified, it is possible that impairments could emerge as the impact of the crisis becomes clearer, and those impairment losses could be material.

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. ~~The accounting principles generally accepted in the United States of America (“GAAP”)~~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 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, ~~2021~~ 2022 and October 31, ~~2020,~~ 2021, the carrying amounts reflected in the accompanying condensed consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable ~~and the current portion of the PPP Loans~~ approximated their carrying value due to their short-term nature. See Note 5 for discussion on the fair value of other current liabilities.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2016~~-~~13,~~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,~~2019-10, Financial Instruments—Credit Losses (Topic ~~326~~)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 consolidated financial statements.

In ~~February 2016,~~ January 2017, the FASB issued ASU No.~~2016~~-~~02,~~ ~~Leases. This ASU requires lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under the current GAAP. Under ASU~~ ~~2016~~-~~02,~~ lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients. We adopted the standard as of ~~November 1, 2019,~~ ~~the beginning of our fiscal~~ ~~2020,~~ applying the modified retrospective method. We elected the package of practical expedients permitted under the transition guidance with the new standard, which among other things, allows us to carryforward the historical lease classification. We elected the policy which allows us to combine the nonlease components with their related lease components rather than separating, and the policy election to keep leases with an initial term of 12 months or less off of the balance sheet. Operating leases are included in our consolidated balance sheet as operating lease right of use (“ROU”) assets, other current liabilities, and operating lease liabilities. Finance leases are included in finance ROU assets, other current liabilities, and finance lease liabilities on our consolidated balance sheet. ROU assets represent our right to use an underlying asset for the duration of the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do ~~not~~ provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms ~~may~~ include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term and is recognized on the consolidated statements of operations. The adoption of the standard resulted in a material recognition of additional ROU assets and lease liabilities of approximately $2.3 million and $2.4 million, respectively, as of ~~November 1, 2019,~~ ~~but did~~ ~~not~~ ~~materially affect our consolidated net loss.~~

In ~~January 2017,~~ ~~the FASB issued ASU~~ ~~No.~~~~2017~~-~~04,~~ 2017-04, Intangibles—Goodwill and Other, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the amendments of this update, the goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss should be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The guidance also still gives entities the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. We adopted the standard as of November 1, 2020, the beginning of our fiscal 2021, applying this prospectively. The adoption of the standard did not result in an impairment charge as of July 31, 2022 or October 31, 2021.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new ASU also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates. These changes aim to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. The guidance was effective for the Company beginning on November 1, 2021 and prescribes different transition methods for the various provisions. The adoption of this standard had no material impact on the Company’s financial statements or related disclosures.

On ~~November 4, 2019,~~ ~~we purchased~~March 1, 2022, the ~~business~~Company completed its purchase (the “Purchase Transaction”) of ~~Schrofftech,~~100% of the issued and outstanding membership interests of Microlab, a ~~Rhode Island-based manufacturer and marketer of intelligent thermal control systems used by telecommunications companies across~~New Jersey limited liability company, from Wireless Telecom Group, Inc, a New Jersey corporation (the “Seller”) pursuant to the ~~U.S. and Canada, and shrouds for small cell integration and installation. At~~Membership Interest Purchase Agreement (the “Purchase Agreement”) dated December 16, 2021, with the ~~closing, in~~Seller. The consideration for the ~~Schrofftech business,~~Purchase Transaction was $24,250,000, subject to certain post-closing adjustments as set forth in the Purchase Agreement. The purchase price was paid in cash at the closing. The Company funded $17 million of the cash purchase price from the funds obtained under the Term Loan (as defined in Note 13) and paid the remaining amount of the cash purchase price with cash on hand. During the three months ended July 31, 2022, we paid ~~the sellers $4 million~~an additional $225,000 in ~~cash, and, if~~purchase consideration as a result of certain ~~financial targets are met by Schrofftech over a~~ ~~two-year period, agreed~~post-closing adjustments relating to ~~pay additional cash earn-out payments of up to $2.4 million.~~net working capital.

The acquisition was accounted for ~~as an acquisition of a business in accordance~~ 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~~third-party specialist. ~~Schrofftech serves~~Microlab designs and manufactures high-performance RF 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 ~~high growth wireless, telecom~~portfolio of products that we offer to the market and ~~cable markets. The Schrofftech business~~ allows us to ~~diversify the types of services provided for~~provide a more complete solution to our customers in ~~these markets.~~key market segments. All manufacturing operations are performed at ~~Schrofftech’s~~Microlab’s facilities in ~~Rhode Island.~~New Jersey.

~~Although the closing occurred~~The acquisition closed on ~~November 4, 2019,~~ ~~the acquisition of Schrofftech is deemed to have become effective for financial accounting purposes as of~~ ~~November~~March 1, ~~2019.~~ ~~Accordingly,~~2022, accordingly, subsequent to ~~November~~March 1, ~~2019,~~ ~~Schrofftech’s~~2022, Microlab’s financial results have been included in the results of the ~~Custom Cabling Manufacturing~~RF Connector and Cable Assembly (“RF Connector”) segment ~~(“Custom Cabling segment”)~~ as well as in the 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 one to ten years. Total costs, as of July 31, 2022, related to the acquisition of ~~Schrofftech~~Microlab were approximately ~~$151,000~~$1.3 million and have been expensed as incurred and categorized in selling and general ~~expenses during periods prior to~~ ~~November 1, 2020.~~expenses.

The following table summarizes the components of the purchase price at fair values at ~~November~~March 1, ~~2019:~~2022:

The following table summarizes the allocation of the preliminary purchase price at fair value at March 1, 2022:

Unaudited pro forma financial information assuming the acquisition of Microlab as of November 1, ~~2019:~~2021 is presented in the following table:

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

For the three months ended July 31, 2022, one vendor accounted for 17% of inventory purchases, while ~~One~~one vendor accounted for 27% of inventory purchases for the three months ended July 31, ~~2021,~~ 2021. For the nine months ended July 31, 2022, one vendor accounted for 28% of inventory purchases andone vendor accounted for 17% of inventory purchases for the nine months ended July 31, 2021. ~~Two~~ ~~vendors accounted for 12% and 10% of inventory purchases for the~~ ~~three~~ ~~months ended~~ ~~July 31, 2020,~~ ~~but~~ no ~~vendors accounted for more than~~ ~~10%~~ ~~of inventory purchases for the~~ ~~nine~~ ~~months ended~~ ~~July 31, 2020.~~ We have arrangements with our vendors to purchase products based on purchase orders that we periodically issue.

Pursuant to the 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 IRS. The period assessed for eligibility of the ERC is on a calendar year basis. ~~For the~~ ~~first~~ ~~and~~ ~~second~~ ~~quarter of calendar year~~ ~~2021,~~ ~~we were eligible to claim the ERC.~~ As of July 31, ~~2021,~~ 2022, the remaining portion of the ERC that we have not yet received is included as other receivables in other current assets.

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

~~The purchase agreement for the Schrofftech acquisition provides for earn-out payments of up to $2.4 million, which are earned through~~ ~~October 31, 2021.~~ The initial earn-out liability was valued at its fair value using an option pricing based approach with a risk-neutral framework using Black Scholes due to the option-like nature of the earn-out payout structure. 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 amount of the actual results and forecasted 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.

We estimate the fair value of the earn-out liability using an option pricing based approach with a risk-neutral framework using Black Scholes related to Schrofftech 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~~ ~~July 31, 2021 (~~~~in thousands):~~

~~The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of~~ ~~October 31, 2020 (~~~~in thousands):~~

~~The following table summarizes the changes to the Level~~ 3 ~~liabilities measured at fair value for the~~ ~~three~~ ~~months ended~~ ~~July 31, 2021,~~ ~~April 30, 2021,~~ ~~January 31, 2021~~ ~~and for the year ended~~ ~~October 31, 2020 (~~~~in thousands):~~

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 per share is computed by dividing net income ~~(loss)~~ by the weighted average number of common shares outstanding increased by the effects of assuming that other potentially dilutive securities (such as stock options) outstanding during the period had been exercised and the treasury stock method had been applied. ~~During the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~July 31, 2020,~~ we reported a net loss and diluted loss per share is computed the same as basic loss per share as the effect of utilizing the fully diluted share count would have reduced the net loss per share which has an anti-dilutive effect. Therefore, all outstanding stock options are excluded from the computation of diluted loss per share. Potentially issuable securities ~~that are out-of-the-money totaled~~totaling 471,464 and 298,015 ~~and 402,838~~ shares for the three months ended July 31, ~~2021~~ 2022 and ~~2020,~~2021, respectively, and ~~371,338~~482,889 and ~~402,838~~371,338 shares for the nine months ended July 31, 2022 and 2021, ~~and~~ ~~2020,~~ ~~respectively. These shares~~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:

On ~~December 6, 2019,~~ ~~one~~ ~~employee was granted 50,000 incentive stock options. These options vested 10,000 on the date of grant, and the balance vests as to 10,000 shares per year thereafter on each of the next~~ ~~four~~ ~~anniversaries of~~ ~~December 6, 2019,~~ ~~and expire~~ ~~ten~~ ~~years from the date of grant.~~

On ~~January 9, 2020,~~ ~~we granted the following equity awards to our managers and officers:~~

On ~~June 30, 2020,~~ ~~one~~ ~~employee was granted 10,000 incentive stock options. These options vested 2,500 on the date of grant, and the balance vests as to 2,500 shares per year thereafter on each of the next~~ ~~three~~ ~~anniversaries of~~ ~~June 30, 2020,~~ ~~and expire~~ ~~ten~~ ~~years from the date of grant.~~

On January 12, 2021, we granted a total of 33,500 shares of restricted stock and 67,000 incentive stock options to one manager and three officers. The shares of restricted stock and incentive stock options vest over four years as follows: (i) ~~one~~one-quarter~~-quarter~~ of the restricted shares and options shall vest on January 12, 2022; and (ii) the remaining restricted shares and options shall vest in twelve equal quarterly installments over the next three years. All incentive stock options expire ten years from the date of grant.

On July 16, 2021, we granted our Chief Executive Officer ~~was granted~~ incentive stock options to purchase 50,000 shares. These options immediately vested on the date of grant, and expire ten years from the date of grant.

On January 10, 2022, we granted a total of 39,666 shares of restricted stock and 106,001 incentive stock options to one manager and three officers. The shares of restricted stock and incentive stock options vest over four years as follows: (i) one-quarter of the restricted shares and options shall vest on January 10, 2023; and (ii) the remaining restricted shares and options shall vest in twelve equal quarterly installments over the next three years. All incentive stock options expire ten years from the date of grant.

On May 2, 2022, we granted a total of 39,000 incentive stock options to the following:

No other shares or options were granted to Company employees during the three and nine months ended July 31, ~~2021~~ 2022 and ~~2020.~~2021.

The weighted average fair value of employee stock options that were granted during the nine months ended July 31, ~~2021~~ 2022 and ~~2020~~2021 was estimated to be ~~$3.38~~$3.77 and ~~$3.06,~~$3.38, respectively, per share, using the Black-Scholes option pricing model with the following assumptions:

Expected volatilities are based on historical volatility of our stock price and other factors. We used the historical method to calculate the expected life of the ~~2021~~2022 and ~~2020~~2021 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.

Descriptions of our stock option plans are included in Note 9 of our Annual Report on Form 10-K10-K for the year ended October 31, ~~2020.~~ 2021. A summary of the status of the options granted under our stock option plans as of July 31, ~~2021~~ 2022 and the changes in options outstanding during the nine months then ended is presented in the table that follows:

Weighted average remaining contractual life of options outstanding as of July 31, ~~2021:~~ ~~6.48~~2022: 6.86 years

Weighted average remaining contractual life of options exercisable as of July 31, ~~2021:~~ ~~5.59~~2022: 6.12 years

Weighted average remaining contractual life of options vested and expected to vest as of July 31, ~~2021:~~ ~~6.48~~2022: 6.87 years

Aggregate intrinsic value of options outstanding at July 31, ~~2021:~~ ~~$2,729,000~~2022: $992,000

Aggregate intrinsic value of options exercisable at July 31, ~~2021:~~ ~~$1,221,000~~2022: $497,000

Aggregate intrinsic value of options vested and expected to vest at July 31, ~~2021:~~ ~~$2,713,000~~2022: $984,000

As of July 31, ~~2021,~~ ~~$587,000~~2022, $778,000 and ~~$311,000~~$442,000 of expenses with respect to nonvested stock options and restricted shares, respectively, has yet to be recognized but is expected to be recognized over a weighted average period of ~~2.86~~2.39 and ~~1.37~~1.32 years, respectively.

~~Non-employee~~Under the compensation policies adopted by the Compensation Committee, directors who also are officers and/or employees of the Company do not receive aany compensation ~~package~~for serving on the Board. For their service as directors beginning in 2020 until the annual meeting of stockholders held in 2021, non-employee directors (i.e., directors who are not employed by the Company as officers or employees) were awarded $50,000 ~~annually,~~as Board fees, which ~~is paid~~ ~~one~~~~-half~~amount was payable (a) one-half in cash ($25,000), with payments made on a quarterly basis, and ~~one~~~~-half~~(b) one-half through the grant of ~~non-qualified awards. For fiscal~~ ~~2020,~~ ~~compensation payable to non-employee directors was prorated from~~ ~~November 1, 2019~~ ~~through~~ ~~August 31, 2020.~~ On ~~November 4, 2019,~~ ~~we granted each of our~~ ~~five~~ ~~non-employee directors 3,270 shares of restricted stock. The number of~~ restricted shares ~~granted to each director was determined by prorating $25,000 for~~that vest on a quarterly basis. In addition, the ~~ten~~ ~~months ended~~ ~~August 31, 2020~~ ~~and dividing by the~~ 20~~-day average closing stock price ($6.36). These restricted shares vested ratably through~~ ~~August 31, 2020.~~ ~~As compensation for services to be provided until the~~ ~~2021~~ ~~annual meeting~~Chairman of ~~stockholders in~~ ~~September 2021,~~ ~~we granted each of our~~ ~~five~~ ~~non-employee directors 5,757 shares of restricted stock, which number was determined by dividing $25,000 by the~~ 20~~-day average closing stock price ($4.34). On~~ ~~December 31, 2020,~~ ~~a new director joined the Board of Directors. We granted the new director 3,334 shares of restricted stock as payment for the year ending with the~~ ~~2021~~ ~~annual meeting. The number of restricted stock was determined by prorating $25,000 for the 8.5 months of service upon joining~~ the Board of Directors ~~through~~and the ~~2021~~ ~~annual meeting and dividing by the~~ 20~~-day average closing stock price ($5.31).~~

~~Non-employee directors who are also a chairperson~~Chair of aeach committee of the Board ~~receive additional compensation~~of Directors received an annual retainer of $15,000, ~~annually. On~~ ~~June 5,~~also payable in restricted shares, that vests in four equal quarterly installments commencing on September 15, 2020 and ending on the ~~Board~~earlier of ~~Directors revised the committee chair compensation so that all future compensation from~~ ~~July 1, 2020~~ ~~through~~September 15, 2021 or the next annual meeting of stockholders. In each case, the ~~stockholders will be payable in shares~~equity portion of the award was calculated based on the 20-day average trailing closing price of the Company's common stock ~~rather~~from the date of grant ($4.34); and cash and stock payments were pro-rated for board members who served less than ~~cash. Shares issued~~the entire service period during fiscal 2021.

On September 8, 2021, the Board of Directors determined that the compensation payable to directors as ~~compensation will be valued at the closing common stock price on the last day of each quarter. Accordingly, on~~ ~~July 31, 2020,~~ ~~each of the~~ ~~four~~ ~~committee chairpersons was awarded 279 shares at $4.47 per share. We account for these shares as stock-based compensation. On~~ ~~September 15, 2020,~~ ~~each of the~~ ~~four~~ ~~committee chairpersons was awarded 3,454 shares of restricted stock as payment~~Board fees for the ~~$15,000 retainer payable to Chairpersons for the~~next year ending with the ~~2021~~2022 annual meeting of ~~stockholders.~~stockholders was the same as they received in 2021 (i.e., $50,000). In addition, effective September 8, 2021, the Board determined that both Board fees and additional chair fees would be paid half in cash and half in restricted stock, and, in light of the additional work required by the chairs, revised the chair fees as follows, $25,000 for the Chairman of the Board, $25,000 for the Audit Committee Chair, $20,000 for the Compensation Committee Chair, $20,000 for the Strategic Planning and Capital Allocation Chair, and $10,000 for the Nominating & Governance Chair. The ~~number of~~cash and restricted ~~shares granted to each chairperson was~~stock fees vest in four equal quarterly installments commencing on December 8, 2021, with the restricted stock portion determined by dividing ~~$15,000~~the amount of the fee by the 20~~-day~~20-day average trailing closing ~~stock~~ price ~~($4.34).~~

~~One director was appointed as a chairperson of a new committee effective~~ ~~March 4, 2021,~~ ~~and was also appointed as the chairperson of another committee effective~~ ~~June 15, 2021.~~ ~~Since directors who service as chairpersons of any~~ of the ~~Board’s committees receive additional compensation, which compensation is payable in~~Company’s common stock from the date of grant ($8.21). Accordingly, on September 8, 2021, Mr. Holdsworth was granted 5,785 shares of restricted ~~stock, for the appointment effective~~ ~~March 4, 2021,~~ ~~the director received 1,344 shares of restricted stock. The number of shares of restricted stock was determined by prorating $15,000 for the 6.5 months of service upon being appointed chairperson~~stock; Ms. Cefali, 4,871 shares; Mr. Garland, 4,567 shares; and ~~dividing by the~~ 20~~-day average closing stock price ($6.04). For the appointment effective~~ ~~June 15, 2021,~~ ~~the director received 496 shares of restricted stock. The number of restricted stock was determined by prorating $15,000 for the~~ ~~three~~ ~~months of service upon being appointed chairperson and dividing by the~~ 20~~-day average closing stock price ($7.56).~~Mr. Fink, 3,044 shares.

During the three months ended July 31, ~~2021~~ 2022 and ~~2020,~~2021, stock-based compensation expense totaled ~~$374,000~~$191,000 and ~~$166,000,~~$374,000, respectively, and was classified in selling and general expenses. During the nine months ended July 31, ~~2021~~ 2022 and ~~2020,~~2021, stock-based compensation expense totaled ~~$634,000~~$498,000 and ~~$449,000,~~$634,000, respectively, and was classified in selling and general expenses.

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, ~~2021,~~ 2022, we had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately ~~$12.9~~$3.8 million.

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

~~The~~For the nine months ended July 31, 2022, one wireless ~~provider had an accounts receivable balance that~~carrier customer accounted for ~~36%~~23% of ~~the~~net sales and 19% of total net accounts receivable ~~balance at~~ ~~July 31, 2021.~~ ~~Distributor A~~balance. Two customers, both distributors, accounted for approximately 12% and ~~Distributor B~~11% of net sales and had accounts receivable balances that accounted for ~~21%~~8% and ~~14%~~8%, respectively, of the total net accounts receivable balance at for the nine months ended July 31, ~~2020.~~ 2021. Although these customers have been on-going major customers of the Company, the written agreements with these customers do not have any minimum purchase obligations and they could stop buying our 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 our future revenues and profits.

We aggregate operating divisions into two reporting segments that have similar economic characteristics primarily in the following areas: (1)(1) the nature of the product and services; (2)(2) the nature of the production process; (3)(3) the type or class of customer for their products and services; (4)(4) the methods used to distribute their products or services; and (5)(5) if applicable, the nature of the regulatory environment. Based upon this evaluation, as of July 31, ~~2021,~~ 2022, we had two segments – the RF Connector segment and ~~Cable~~the Custom Cabling Manufacturing and Assembly (“~~RF Connector segment”) and~~ Custom ~~Cabling~~Cabling”) segment.

The RF Connector segment ~~consisted~~consists of ~~one~~ ~~division~~two divisions and the Custom Cabling segment ~~was composed~~consists of four divisions. The ~~five~~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 ~~Schrofftech.~~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 or product and services for the RF Connector segment were primarily through the distribution channel, while the Custom Cabling segment sales were through a combination of distribution and direct to the end customer.

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 ~~division~~and Microlab divisions constitutes the RF Connector segment, and the Cables Unlimited, Rel-Tech, C Enterprises, and Schrofftech divisions constitute the Custom Cabling segment.

As reviewed by our chief operating decision maker, 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, ~~ROU~~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, ~~2021~~ 2022 and ~~2020~~2021 (in thousands):

~~Net sales, income (loss) before provision (benefit) for income taxes and other related segment information for the~~ ~~three~~ ~~months ended~~ ~~July 31, 2021~~ ~~and~~ ~~2020~~ ~~are as follows (in thousands):~~

RF Connector

Custom Cabling

and

Manufacturing and

2021

Cable Assembly

Assembly

Corporate

Total

Net sales
$ 3,933 $ 11,324 $ 0 $ 15,257
Income before provision for income taxes
255 941 2 1,198
Depreciation and amortization
35 143 0 178
Total assets
7,188 22,524 16,702 46,414

2020

Net sales
$ 3,611 $ 5,933 $ 0 $ 9,544
Income (loss) before provision for income taxes
500 (720 ) 1 (219 )
Depreciation and amortization
40 212 0 252
Total assets
8,413 15,539 16,942 40,894

Net sales, income (loss) before provision (benefit) for income taxes and other related segment information for the ~~nine~~three months ended July 31, 2022 and 2021 ~~and~~ ~~2020~~ ~~are~~were as follows (in thousands):

Net sales, income (loss) before provision (benefit) for income taxes and other related segment information for the nine months ended July 31, 2022 and 2021 were as follows (in thousands):

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~~our 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.

We recorded income tax provisions ~~(benefits)~~ of ~~$272,000~~$140,000 and ~~($137,000)~~$272,000 for the three months ended July 31, ~~2021~~ 2022 and ~~2020,~~2021, respectively. The effective tax rate was ~~22.7%~~15.4% for the three months ended July 31, ~~2021,~~ 2022, compared to ~~(62.5%)~~15.2% for the three months ended July 31, ~~2020.~~ 2021. For the nine months ended July 31, ~~2021~~ 2022 and ~~2020,~~2021, we recorded income tax provisions ~~(benefits)~~ of ~~$727,000~~$196,000 and ~~($148,000),~~$727,000, respectively. The effective tax rate was 16.4% for the nine months ended July 31, 2022, compared to 22.1% for the nine months ended July 31, ~~2021,~~ ~~compared to 38.2% for the~~ ~~nine~~ ~~months ended~~ ~~July 31, 2020.~~ ~~The effective tax rates for the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~July 31, 2021~~ ~~are excluding the PPP Loan forgiveness classified in Other Income.~~2021. The change in effective tax rate for the nine months ended July 31, 2022 compared to the nine months ended July 31, 2021 ~~compared to the~~ ~~nine~~ ~~months ended~~ ~~July 31, 2020~~ was primarily driven by ~~the disproportionate impact of various permanent book-tax differences with respect to our forecasted book income or loss in each period.~~stock compensation windfall benefits and increased benefit from research and development tax credits.

We had ~~$126,000~~$211,000 and ~~$107,000~~$141,000 of unrecognized tax benefits, inclusive of interest and penalties, as of July 31, ~~2021~~ 2022 and October 31, ~~2020,~~ 2021, respectively. The unrecognized tax benefits, if recognized, would result in a net tax benefit of ~~$32,000~~$206,000 as of July 31, ~~2021.~~2022.

Amortization expense for the nine months ended July 31, ~~2021~~ 2022 and the year ended October 31, ~~2020~~ 2021 was ~~$347,000~~$850,000 and ~~$692,000,~~$442,000, respectively. As of July 31, ~~2021,~~ 2022, the weighted-average amortization period for the amortizable intangible assets is ~~5.66~~9.72 years.

We have operating leases for corporate offices, manufacturing facilities, and certain storage units. Our leases have remaining lease terms of 1 year to 310 years, some of which include options to extend the leases for up to 5 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 ~~$15,000~~$16,000 per month.

We also have other operating leases for certain equipment. The components of our facilities and equipment operating lease expenses for the period ended July 31, ~~2021~~ 2022 were as follows (in thousands):

Future minimum lease payments under non-cancellable leases as of July 31, ~~2021~~ 2022 were as follows:

As of July 31, ~~2021,~~ 2022, operating lease ROU ~~assets~~asset was ~~$1.5~~$14 million and operating lease liability totaled ~~$1.5~~$16.8 million, of which ~~$848,000~~$1.6 million is classified as current. There were 0no finance leases as of July 31, ~~2021.~~2022.

The Cables and Connectors facilities, consisting of four buildings for a total of 21,908 square feet, are leased by RF Industries, Ltd. We renewed the lease effective as of effective August 1, 2022, for 6 month term expiring on January 31, 2023. The monthly rental payment under the new lease currently is $33,957.40 per month.

The Cables and Connectors and C Enterprises facilities will relocate and consolidate into one building consisting of a total86,952 square feet, which is leased by RF Industries, Ltd. The lease will commence December 1, 2022, for a 120-month term expiring November 30, 2032. The monthly rental payments under the lease will be $139,123 per month for the first year and will increase annually. During the three months ended July 31, 2022, the Company obtained possession of the building to begin construction and renovation, which resulted in a lease liability of $15.6 million ($14.9 million in long-term and $726,000 in current lease liability), a right of use asset of $12.8 million and other receivables related to tenant improvement allowance of $2.7 million being recorded. The discount rate used to calculate the lease liability was 3.76%. Further, as a result of the early possession, the Company recognized additional rent expense of $135,000 for the three months ended July 31, 2022.

In ~~November 2019,~~ February 2022, we entered into an agreement for a revolving line of credit ~~(“LOC”~~(the “Revolving Credit Facility”) in the amount of ~~$5.0 million.~~$3.0 million and a $17.0 million term loan (the “Term Loan”, and together with the Revolving Credit Facility, the “Credit Facility”). Amounts outstanding under the ~~LOC~~Revolving Credit Facility shall bear interest at a rate of 2.0% plus ~~LIBOR Daily Floating~~the Bloomberg Short-Term Bank Yield Index Rate (“base interest rate”)~~, with~~. The maturity date of the Revolving Credit Facility is March 1, 2024. The Company drew down the entire amount of the Term Loan on March 1, 2022. The primary interest ~~payable on~~rate for Term Loan is 3.76% per annum. The maturity date of the ~~first~~ ~~day of each month.~~ Term Loan is March 1, 2027.

Borrowings under the ~~LOC~~Credit Facility are secured by a security interest in certain assets of the ~~Company. The LOC~~Company and contains certain loan covenants. ~~Failure~~The Credit Facility requires the maintenance of certain financial covenants, including: (i) consolidated debt to ~~maintain~~EBITDA ratio not to exceed 3.00 to 1.00; (ii) consolidated fixed charge coverage ratio of at least 1.25 to 1.00; and (iii) consolidated minimum EBITDA of at least $600,000 for the ~~loan covenants~~ ~~may~~ ~~constitute an event~~discrete quarter ending January 31, 2022. In addition, the Credit Facility contains customary affirmative and negative covenants.

As of ~~default, resulting in all outstanding~~July 31, 2022, we have borrowed $16,192,000 under the Term Loan while we have not borrowed any amounts ~~of principal and interest becoming immediately due and payable. All outstanding principal and interest is due and payable on~~ ~~December 1, 2021.~~ On ~~December 30, 2020,~~ ~~we closed~~under the ~~LOC with 0 amounts outstanding.~~Revolving Credit Facility.

In May 2020, we applied for and received loans under the PPP of the CARES Act totaling approximately $2.8 ~~million (“PPP Loans”).~~million. The funds from the PPP Loans were used to retain employees, maintain payroll and benefits, and make lease and utility payments. Without the PPP Loans, we would have made material reductions in our workforce (particularly at ~~Cables Unlimited)~~our New York Facility). As of ~~July 31,~~April 30, 2021, the full amount of the PPP Loans has been forgiven and considered paid in full (including applicable interest).

We did not pay any dividends during the three or nine months ended July 31, ~~2021,~~ 2022, nor did we pay any dividends during the three or nine months ended July 31, ~~2020.~~ ~~During the~~ ~~nine~~ ~~months ended~~ ~~July 31, 2020,~~ ~~we paid dividends of $0.02 per share for a total of $388,000.~~ 2021.

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~~’sCompany’s future financial performance. In some cases, you can identify forward-looking statements by terminology such as “~~may,~~“may,”“~~will,~~ “will,”“~~should,~~ “should,”“~~except,~~ “except,”“~~plan,~~ “plan,”“~~anticipate,~~ “anticipate,”“~~believe,~~ “believe,”“~~estimate,~~ “estimate,”“~~predict,~~ “predict,”“~~potential~~” “potential” or “~~continue,~~“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, ~~2020~~2021 and other reports and filings made with the Securities and Exchange Commission.

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 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 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.

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.

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.

The purchase agreement for the acquisition of Schrofftech provides for an earn-out payment of up to $2.4 million, which amount is earned through October 31, 2021. The initial earn-out liability was valued at its fair value using an option pricing based approach with a risk-neutral framework using Black Scholes due to the option-like nature of the earn-out payout structure. 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 amount of the actual results and forecasted 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.

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 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.

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.

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 ~~and specialty~~ cables, ~~and connectors,~~data cables, wire harnesses, fiber optic cables, custom cabling, energy-efficient cooling systems and ~~connectors, and electrical and electronic specialty cables and components.~~integrated small cell enclosures. Through 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”)~~(OEMs) in several market segments. Since the acquisition of Schrofftech in November 2019, we also 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 ~~connectors~~passives and cable assemblies that are ~~integrated with coaxial connectors,~~ 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 5G small cell integrated enclosures.

For the nine months ended July 31, ~~2021,~~2022, most of our revenues were generated from the Custom Cabling segment from the sale of fiber optics cable, copper cabling, custom patch cord assemblies, and wiring harnesses, which collectively accounted for ~~70%~~65% 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 ~~30%~~70% of total sales for the nine months ended July 31, 2021. The RF Connector segment mostly sells standardized products regularly used by customers and, therefore, has a more stable revenue ~~stream. On~~stream when compared to the ~~other hand, the~~Custom Cabling segment. 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 project orders, and its revenues are, therefore, more volatile than the revenues of the RF Connector segment.

~~In March 2020, the World Health Organization (the “WHO”) declared coronavirus (“COVID-19”) a pandemic emergency.~~

The COVID-19 coronavirus pandemic, ~~has~~in its various strains, negatively impacted regional and global economies, disrupted global supply chains, and created significant volatility and disruption of financial markets. The global impact of the outbreak has been rapidly evolving and certain jurisdictions, including in regions where we or third parties on which we rely have manufacturing facilities, have also reacted by instituting quarantines, restrictions on travel, social distancing protocols and restrictions on types of business that may continue to operate. While we have continued our operations during the pandemic, the impact of the COVID-19 pandemic has affected both our operations and those of our ~~vendors and~~ customers. Our operations in both the 2020 and 2021 periods were negatively affected by partial shutdowns of our facilities (particularly in the Northeast), by changes that we had to make on our operating methods and procedures, and by a fluctuating workforce as at times, some of our employees stayed at home. Many of our customers and vendors have likewise had temporary closures of their facilities and have otherwise been impacted by changes in their industries. As a result, there has been some volatility in the overall demand for our products, and certain costs have increased. We have taken measures to protect the health and safety of our employees, and we continue to work with our customers and vendors to minimize potential disruptions in addressing the challenges posed by this global pandemic.

The extent of the impact of the COVID-19 pandemic on our future operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by domestic and international jurisdictions to prevent disease spread, all of which are uncertain and cannot be predicted. The outbreak impacted our performance in fiscal year ~~2020~~2021 and for the three and nine months ended July 31, ~~2021.~~2022. During the periods covered by this report, the operations at all locations were affected intermittently as some of our employee schedules were impacted, and as certain customers scaled back operations or otherwise delayed or deferred orders for our products. Because of the impact that COVID-19 had on our operations, in May 2020 we applied for and received loans under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act, H.R. 748 (“CARES ~~Act~~Act”) totaling approximately $2.8 million (“PPP Loans”). The funds from the PPP Loans were used to retain employees, maintain payroll and benefits, and make lease and utility payments. Without the PPP Loans, we would have made material reductions in our workforce (particularly at Cables Unlimited). In February 2021, all of the $2.8 million of PPP Loans were forgiven and considered paid in full (including applicable interest) by the Small Business Administration (“SBA”).

In March 2021, the Internal Revenue Service (“IRS”) released Notice 2021-20, which retroactively eliminated the restriction that prevented employers who received a PPP loan from qualifying for the Employee Retention Credit (“ERC”)~~. This action enabled us to apply for the ERC. The ERC~~, which is a refundable tax credit against certain employment ~~wages.~~taxes. Upon determination that the employer has complied with all of the conditions required to receive the credit, a receivable is recognized and the credit reduces salaries and wages. For the ~~nine months~~fiscal year ended ~~July~~October 31, 2021, we qualified and filed to claim the ERC and have recorded ~~this~~the credit as ~~an other~~a receivable ~~classified~~ in ~~other current assets.~~Other Current Assets. As of July 31, ~~2021, the amount of~~2022, we carried a $1.7 million the ERC ~~that we were eligible to receive is $2.8 million, which amount reduced our labor costs during the nine-month period.~~receivable in Other Current Assets.

Historically, we have been able to fund our liquidity and other capital requirements from funds we generated from operations. ~~While~~On March 1, 2022, we ~~still~~acquired Microlab. The acquisition of Microlab has affected both our liquidity and our capital resources. In order to acquire Microlab, we used $7.3 million of our cash on hand to pay a portion of the purchase price, thereby reducing the amount available for future acquisitions, for investments in the expansion of our existing businesses and assets, or as a reserve for unanticipated financial requirements. In connection with the purchase of Microlab, we entered into the Credit Facility and borrowed the full $17 million amount available under the Term Loan. We believe that our ~~existing current assets, the amount of cash we anticipate will be generated from on-going operations,~~remaining and funds we received from the PPP Loans collectively will be sufficient to fund our anticipated liquidity and capital resource needs for at least twelve months from the date of this filing, there are some uncertainties because of the unknown future impact of the COVID-19 pandemic on our business. Nevertheless, we believe that our existing assets and the cash we expect to generate from operations ~~including~~and from our current backlog of unfulfilled orders, will be sufficient to fund our liquidity needs during the next twelve months from the date of this filing based on the following:

As of July 31, ~~2021,~~2022, we had a total of ~~$12.6~~$5.1 million of cash and cash equivalents ~~compared~~with access to ~~a total of $15.8~~$3.0 million ~~of cash and cash equivalents as of October 31, 2020.~~under the Revolving Credit Facility. As of July 31, ~~2021,~~2022, we had working capital of ~~$30.6~~$30.1 million and a current ratio of approximately ~~5.4:~~3:1 with current assets of ~~$37.6~~$47.1 million and current liabilities of ~~$7.0~~$17.0 million.

As of July 31, ~~2021,~~2022, we had ~~$31.9~~$30.6 million of backlog, compared to ~~$6.3~~$33.3 million as of October 31, ~~2020.~~2021. 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, ~~2021,~~2022, we ~~used $3.6~~generated $0.6 million of cash in our operating ~~activities despite~~activities. This net inflow of cash is primarily related to our net income of ~~$5.4 million.~~$0.9 million, $1.2 million from depreciation and amortization and $0.5 million from stock-based compensation expense, $1.5 million from accounts payable, and $1.3 million from accrued expenses. The ~~net outflow of~~ cash usage was primarily due ~~in part~~ to ~~increased~~an increase to our inventory purchases ~~(which increased our inventory balance by $1.8 million), and cash used for other current assets~~ ($~~3.3~~4 million). The cash used for other current assets represents ~~i) tax payments we made that we are expected to get refunded back~~($1 million) which consists of ~~$0.7 million due to the impact of the passage of the Consolidated Appropriations Act (“CAA”) that allows~~($0.2 million) in other receivables, ($0.5 million) in prepaid expenses and ($0.3 million) in deposits for PPP loan expenses to be deducted on our tax return, and (ii) employee tax payments for which we will receive future tax credits of $2.8 million. The foregoing cash usage was partially offset by an increase in cash from noncash credits of $0.8 million as a result of the passage of the CAA, $0.6 million from depreciation and amortization, $0.6 million from stock-based compensation expense, and $4.9 million from the increase in accounts receivable as a result of the increase in sales.inventory purchases.

During the nine months ended July 31, ~~2021,~~2022, we also spent ~~$0.2~~$0.4 million on capital ~~expenditures.~~expenditures, and $24.4 million on the purchase of Microlab offset by $17 million from the Term Loan as noted above. The cash used in operating activities and the amounts spent on capital expenditures were partially offset by ~~$0.6~~$0.1 million of proceeds that we received from the exercise of stock options. As a result of the cash received from the exercise of stock options that partially offset our net cash used in operating and investing activities, our cash and cash equivalent balance decreased by $3.2 million during the July 31, 2021 nine-month period.

~~We do not anticipate making~~Our goal to expand and grow our business both organically and through acquisitions may require material additional capital ~~equipment in the next twelve months.~~equipment. In the past, we have purchased all additional equipment, or financed some of our equipment and furnishings requirements through ~~capital~~ leases. NoCurrently, no additional capital equipment purchases have been ~~currently~~ identified that would require significant additional leasing or capital expenditures during the next twelve months.

~~In November 2019,~~ We also believe that based on our current financial condition, our current backlog of unfulfilled orders and our anticipated future operations, we entered into a $5.0 million revolving line of credit that bore interest at a rate of 2.0% plus LIBOR Daily Floating Rate. We never used the line of credit and on December 30, 2020, we closed the line of credit. Accordingly, we currently do not have a credit facility availablewould be able to ~~us should we need to borrow amounts to fund either~~finance our ~~working capital needs or any future unplanned capital expenditures.~~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 any acquisitions we may undertake in the future.

Three Months Ended July 31, ~~2021~~2022 vs. Three Months Ended July 31, ~~2020~~2021

Net sales for the three months ended July 31, ~~2021~~2022 (the “fiscal ~~2021~~2022 quarter”) increased by ~~60%~~56%, or ~~$5.7~~$8.6 million, to ~~$15.3~~$23.8 million as compared to the three months ended July 31, ~~2020~~2021 (the “fiscal ~~2020~~2021 quarter”) due to an increase in net sales at the Custom Cabling ~~segment.~~segment and a $6.5 million increase as a result of our consolidation of the results of Microlab, which we acquired in March 2022. Net sales in the Custom Cabling segment increased by ~~$5.4~~$2 million, or ~~91%~~18%, to ~~$11.3~~$13.3 million, compared to ~~$5.9~~$11.3 million in the fiscal ~~2020~~2021 quarter primarily because of increased sales of products to wireless carriers, ~~including~~primarily related to hybrid fiber optic cables used in the build out of 4G and 5G networks. Net sales for the fiscal ~~2021~~2022 quarter at the RF Connector segment increased by ~~$0.3~~$6.6 million, or 9%167%, to ~~$3.9~~$10.5 million as compared to ~~$3.6~~$3.9 million in the fiscal ~~2020~~2021 quarter, due primarily to the ~~general recovery~~acquisition of ~~spend~~Microlab whose results are included in the ~~wireless market including the return of certain project-related deployments in locations like stadiums, large office buildings, and other public use venues.~~RF Connector segment.

Gross profit for the fiscal ~~2021~~2022 quarter increased by ~~$2.3~~$2.2 million to ~~$5.1~~$7.2 million and gross margins ~~increased~~decreased to ~~33.1%~~30.4% of sales compared to ~~28.6%~~33.2% of net sales in the fiscal ~~2020~~2021 quarter due primarily to the ERC that the Company was eligible to claim for the production ~~employees.~~employees in fiscal quarter 2021. The ERC refundable employee tax credit reduced our labor costs and thereby increased our gross ~~profits.~~profits in fiscal quarter 2021 compared to fiscal quarter 2022. Excluding the benefit of the ERC, our gross profits for the fiscal 2021 quarter would have been $4.2 million ~~which is an increase~~with gross margins of ~~$1.5~~27.7%.

Engineering expenses increased by $0.4 million to $0.8 million in the fiscal 2022 quarter compared to ~~the fiscal 2020 quarter, and gross margins would have been 27.7%. The increase in gross margins is primarily due to the increase in sales at the Custom Cabling segment~~$0.4 million in the fiscal 2021 ~~quarter.~~

~~Engineering expenses remained flat between the fiscal 2021 and 2020 quarters at $0.4 million~~quarter due primarily to the additional engineering expenses of $0.3 million from Microlab and to the ERC of $0.5 million the Company was eligible to claim for engineering ~~employees. Excluding the benefit of the ERC, engineering expenses would have been $0.5 million, which is an increase of $0.1 million compared to the~~employees in fiscal ~~2020~~2021 quarter. ~~This increase is due to the increased business at the Custom Cabling segment, which required added research and development costs to support the business growth.~~ Engineering expenses represent costs incurred relating to the ongoing research and development of new processes and products.

Selling and general expenses increased by ~~$1.0~~$1.9 million to ~~$3.5~~$5.4 million (23% of sales) compared to ~~$2.5~~$3.5 million ~~(26%~~(23% of sales) in the third quarter last year ~~primarily~~ due to ~~(i) $0.3 million valuation adjustment to~~ the Schrofftech earn-out liability made in the third quarter last year that resulted in a reduction to selling and general expenses (no valuation adjustment was made during the current period), (ii) a non-cash expense resulting from the accelerated vesting of an officer’s unvested remaining options upon the renewal of his employment agreement ($0.2 million), and (iii) increase in commissions payable as a result of the increase in sales ($0.1 million). The ERC the Company was eligible to claim for the general and administrative ~~employees had minimal impact this quarter since most of the ERC for general and administrative employees were taken in our fiscal second quarter.~~employees. Excluding the benefit of the ERC, selling and general expenses would have been $3.4 million (22% of sales). ~~This~~The increase is ~~lower than~~largely due to (i) Microlab accounted for $1.4 million of the selling and general expenses ~~including the ERC as there were some credits included in our fiscal second quarter that were reallocated in~~and (ii) acquisition related expenses and other one-time charges (including professional fees, system implementation charges and severance) accounted for $114,000 and (iii) additional rent expense of $135,000 (non-cash) related to lease accounting for the fiscal ~~third quarter to cost~~2022 quarter. Selling and general expenses also increased as a result of ~~goods sold.~~the increase in net sales during the current fiscal 2022 quarter.

For the fiscal ~~2021~~2022 quarter, the Custom Cabling segment and the RF Connector segment had pretax income of ~~$0.9~~$0.6 million and ~~$0.3~~$1.0 million, respectively, as compared to ~~$0.7~~$0.9 million ~~loss~~ and ~~$0.5~~$0.3 million of income, respectively, for the comparable third quarter last year. The pretax income at both the Custom Cabling and RF Connector segments in the fiscal 2021 quarter was primarily due to the ~~increase in sales, and in part, to the~~ ERC the Company was eligible to claim.

For the fiscal ~~2021~~2022 and ~~2020~~2021 quarters, we recorded income tax provisions ~~(benefits)~~ of ~~$272,000~~$140,000 and ~~($137,000),~~$272,000, respectively. The effective tax rate was 15.4% for the fiscal 2022 quarter, compared to 22.7% for the fiscal 2021 ~~quarter, compared to (62.5%) for the fiscal 2020~~ quarter. The change in effective tax rate for the fiscal ~~2021~~2022 and ~~2020~~2021 quarters was primarily driven by the disproportionate impact of various permanent book-tax differences with respect to our forecasted book income or loss in each period.

For the fiscal ~~2021~~2022 quarter, net income was $0.8 million and fully diluted earnings per share was $0.08 per share, compared to a net income of $0.9 million and fully diluted earnings per share ~~was~~of $0.09 ~~per share, compared to a net loss of $0.1 million and fully diluted loss per share of $0.01~~ per share for the fiscal ~~2020~~2021 quarter. For the fiscal ~~2021~~2022 quarter, the diluted weighted average shares outstanding was ~~10,150,396~~10,238,932 as compared to ~~9,714,700~~10,150,396 for the fiscal ~~2020~~2021 quarter.

Nine Months Ended July 31, ~~2021~~2022 vs. Nine Months Ended July 31, ~~2020~~2021

Net sales for the nine months ended July 31, 2022 (the “fiscal 2022 nine-month period”) of $62.3 million increased by 72%, or $26 million, compared to the nine months ended July 31, 2021 (the “fiscal 2021 nine-month period”) due to a stronger fiscal 2022 first quarter and the acquisition of ~~$36.3 million increased by 12%, or $4.0 million, compared to the nine months ended July 31, 2020 (the “fiscal 2020 nine-month period”) due primarily to an~~Microlab in March 2022. The increase in net sales ~~at the Custom Cabling segment. Net sales at~~is attributable to the Custom Cabling segment, which increased by ~~$3.5~~$15 million, or ~~16%~~60%, to ~~$25.3~~$40.3 million compared to ~~$21.8~~$25.3 million in the fiscal ~~2020~~2021 nine-month period. The increase ~~reflects~~was primarily in our project-based business which resulted from the ~~increase~~upturn in ~~sales to wireless carriers, including sales of fiber optic cables used~~carrier spending in the ~~build out of 4G and 5G networks.~~fiscal 2022 nine-month period. Net sales for the fiscal ~~2021~~2022 nine-month period at the RF Connector segment increased by ~~$0.5~~$10.8 million, or 5%98%, to ~~$11.1~~$21.9 million compared to ~~$10.6~~$11.1 million in the fiscal ~~2020~~2021 nine-month ~~period.~~period of which $9.9 million was a result of the Microlab acquisition.

Gross profit for the fiscal ~~2021~~2022 nine-month period increased by ~~$3.9~~$5.0 million to ~~$12.4~~$17.4 million and gross margins ~~increased~~decreased to ~~34.2%~~28.0% of sales from ~~26.5%~~34.2% of sales in the fiscal ~~2020~~2021 nine-month period. The increase in gross profit primarily related to the overall increase in sales and decrease in gross margins was primarily due to the ERC ~~that~~ the Company was eligible to claim for production ~~employees. The ERC refundable employee tax credit reduced our labor costs and thereby increased our gross profits.~~employees for the fiscal 2021 nine-month period. Excluding the benefit of the ERC, our gross profits for the fiscal 2021 nine-month period would have been $9.8 million ~~which is an increase of $1.2 million compared to the fiscal 2020 nine-month period,~~ and gross margins would have been 27.0%.

Engineering expenses ~~decreased $0.6~~increased $1.1 million to ~~$1.0~~$2.1 million for the fiscal ~~2021~~2022 nine-month period compared to ~~$1.6~~$1.0 million in the fiscal ~~2020~~2021 nine-month period primarily due to the ERC the Company was eligible to claim for engineering ~~employees.~~employees in fiscal 2021 quarter as well as the acquisition of Microlab in March 2022. Excluding the benefit of the ERC, engineering expenses would have been $1.3 million, which is ~~a decrease~~an increase of ~~$0.2~~$0.8 million compared to the fiscal ~~2020~~2022 nine-month ~~period. This decrease is due~~period which includes $0.7 million from Microlab. Engineering expenses represent costs incurred relating to ~~a reduction in engineering marketing personnel, which costs are included in~~ the ~~engineering costs.~~ongoing research and development of new products.

Selling and general expenses increased by ~~$0.7~~$5.7 million to ~~$8.1~~$13.8 million (22% of sales) compared to ~~$7.4~~$8.1 million ~~(23%~~(22% of sales) in the nine-month period last year primarily due to (i) smaller valuation adjustment to the Schrofftech earn-out liability ($0.4 million) compared to the valuation adjustment in the nine-month period last year ($0.7 million), (ii) the non-cash expense resulting from the accelerated vesting of an officer’s unvested remaining options ($0.2 million), and (iii) increase in commissions due to the ~~increase in sales ($0.1 million). The increase is also due in part~~ERC the Company was eligible to ~~the hiring of additional sales people in the last half of the 2020 fiscal year~~claim on general and ~~in the first quarter of fiscal 2021.~~administrative employees. Excluding the benefit of the ERC, selling and general expenses would have been $8.7 million (24% of sales), which is an increase of ~~$1.1~~$5.1 million compared to the fiscal ~~2020~~2022 nine-month period.

~~In February 2021, all~~ Microlab accounted for $2 million of the ~~$2.8~~selling and general expenses and acquisition related expenses and other one-time charges (including attorney fees, due diligence and broker fees) accounted for $1.6 million for the fiscal 2022 nine-month period. Selling and general expenses also increased as a result of ~~PPP Loans were forgiven and considered paid~~the increase in ~~full (including applicable interest), which debt forgiveness is reflected as “Other Income”.~~net sales during the current fiscal 2022 quarter.

For the fiscal ~~2021~~2022 nine-month period, pretax income for the Custom Cabling segment and the RF Connector segment was ~~$1.1~~$1.7 million and ~~$2.2~~$1.6 million, respectively, as compared to ~~$1.9~~$1.1 million ~~loss~~ and ~~$1.5~~$2.2 million of income, respectively, for the comparable nine-month period last year. The pretax income at the Custom Cabling and RF Connector segments in the nine-month period of fiscal 2021 was primarily due to the ERC the Company was eligible to ~~claim and the PPP Loan forgiveness.~~claim.

For the fiscal ~~2021~~2022 and ~~2020~~2021 nine-month periods, we recorded income tax provisions ~~(benefits)~~ of ~~$727,000~~$196,000 and ~~($148,000),~~$727,000, respectively. The effective tax rate was 16.5% for the fiscal 2022 nine-month period, compared to 22.1% for the fiscal 2021 nine-month ~~period, compared to 38.2% for the fiscal 2020 nine-month~~ period. ~~The fiscal 2021 nine-month period’s effective tax rate is excluding the PPP Loan forgiveness classified in Other Income.~~ The change in effective tax rate for the fiscal ~~2021~~2022 and ~~2020~~2021 nine-month periods was primarily driven by the disproportionate impact of various permanent book-tax differences with respect to our forecasted book income or loss in each period.

For the fiscal ~~2021~~2022 nine-month period, net income was ~~$5.4~~$1 million and fully diluted income per share was ~~$0.53~~$0.10 per share as compared to a net ~~loss~~income of ~~$0.2~~$5.4 million and fully diluted ~~loss~~earnings per share of ~~$0.02~~$0.53 per share for the fiscal ~~2020~~2021 nine-month period. For the fiscal ~~2021~~2022 nine-month period, the diluted weighted average shares outstanding was ~~10,131,172~~10,233,209 as compared to ~~9,661,054~~10,131,172 for the fiscal ~~2020~~2021 nine-month period.

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 ~~SEC’s~~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.

As described throughout our quarterly report, during the quarter ended April 30, 2022, we acquired Microlab, which is now a wholly owned subsidiary of RF Industries. We are currently integrating policies, processes, technology, and operations for the consolidated company and will continue to evaluate our internal control over financial reporting as we develop and execute our integration plans.

During the third quarter of fiscal ~~2021,~~year 2022, other than as described above, there were no changes in the internal control over financial reporting as such term is defined in Rule 13a-15(f) of the ~~Exchange~~exchange Act, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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.

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, ~~2020~~2021 filed with the SEC, which describe various risks and uncertainties to which we are or may become subject. Further, the current coronavirus (“COVID-19”) pandemic and actions taken to address the pandemic may exacerbate the risks described in our ~~SEC reports.~~reports filed with the Securities and Exchange Commission (the “SEC”). 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.

~~The COVID-19 pandemic has adversely impacted,~~Global economic conditions and ~~poses risks to, our business, the nature and extent of which are highly uncertain and unpredictable.~~ In March 2020, the WHO characterized COVID-19 as a pandemic. This pandemic has resulted in a global health crisis that is adversely affecting broader economies, financial markets, and the business environment worldwide. We are monitoring the global impact of the COVID-19 pandemic and taking steps to mitigate the accompanyingany related impact on our supply chain and the markets where we do business ~~by working with~~could adversely affect our ~~employees, customers, suppliers,~~results of operations.

The uncertain state of the global economy (including the current conflict between Russia and Ukraine and related economic and other ~~stakeholders. The pandemic is~~retaliatory measures taken by the United States, European Union and others) continues to impact businesses around the world. Deteriorating economic conditions or financial uncertainty in any of the markets in which we sell our products could reduce business confidence and adversely ~~affecting,~~impact spending patterns, and ~~is expected to continue to~~thereby could adversely affect ~~certain elements~~our sales and results of operations. In challenging and uncertain economic environments such as the current one, we cannot predict whether or when such circumstances may improve or worsen, or what impact, if any, such circumstances could have on our business, financial condition and results of operations, or on the price of our ~~business. Portions~~common stock.

Recent inflationary pressures have increased the cost of ~~our workforce may be unable to work effectively due to illness~~energy and containment measures, including quarantines, illness precautions, travel restrictions, and other restrictions. We experienced volatility in customer demand as their businesses were impacted by the pandemic. If the pandemic continues, recurs, or worsens, we may experience additional adverse impacts on our operational and commercial activities, including rising costs, volatility in customer orders and purchases and declines in our collections of accounts receivable. Furthermore, the pandemic has impactedraw materials and may adversely affect our results of operations. If inflation continues to rise and further impact the ~~broader U.S. economy, including~~cost of energy and raw materials, we may not be able to offset cost increases to our products through price adjustments without negatively impacting ~~economic growth, the proper functioning of financial and capital markets and interest rates, all of~~consumer demand, which could ~~lead to a decline in~~adversely affect our ~~net sales. Due to the speed with which the situation is developing, the breadth of its spread~~sales and the range of governmental and community reactions thereto, there is uncertainty around its duration, ultimate impact and the timing of recovery. Therefore, the pandemic could lead to an extended disruption of economic activity and the impact on our stock price, access to capital, consolidated results of ~~operations, financial position and cash flows could be material.~~operations.

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, ~~2021~~2022 in connection with employee tax withholding for shares of restricted stock that vested under our 2020 Equity Incentive Plan.

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.

	July 31,		October 31,		July 31,		October 31,
	2021		2020		2022		2021
	(Unaudited)		(Note 1)		(Unaudited)		(Note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	2,461	$	1,475	$	6,050	$	3,504
Accrued expenses		3,697		2,573		6,913		5,034
Current portion of PPP Loans		0		1,699
Current portion of Term Loan						2,424		-
Current portion of operating lease liabilities		848		874		1,576		832
Income taxes payable		0		43
TOTAL CURRENT LIABILITIES		7,006		6,664		16,963		9,370

Deferred tax liabilities		90		0
Operating lease liabilities		698		635		15,263		675
PPP Loans		0		1,089
Other long-term liabilities		0		370
Term Loan, net of debt issuance cost						13,740		-
TOTAL LIABILITIES		7,794		8,758		45,966		10,045

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY
Common stock - authorized 20,000,000 shares of $0.01 par value; 10,025,598 and 9,814,118 shares issued and outstanding at July 31, 2021 and October 31, 2020, respectively		100		98
STOCKHOLDERS' EQUITY
Common stock - authorized 20,000,000 shares of $0.01 par value; 10,156,191 and 10,058,571 shares issued and outstanding at July 31, 2022 and October 31, 2021, respectively						102		101
Additional paid-in capital		24,132		22,946		24,929		24,301
Retained earnings		14,388		9,020		16,198		15,201
TOTAL STOCKHOLDERS' EQUITY		38,620		32,064		41,229		39,603
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	46,414	$	40,822	$	87,195	$	49,648

Cash consideration paid	$	4,000,000
Earn-out liability		1,249,000
Total purchase price	$	5,249,000

Cash consideration paid at closing	$	24,250,000
Post-closing adjustment		225,000
Total consideration transferred	$	24,475,000

Current assets	$	6,924,000
Property and equipment		198,000
Intangible assets		13,840,000
Goodwill		5,215,000
Non-interest bearing liabilities		(1,702,000	)
Net assets acquired at fair value	$	24,475,000

Current assets	$	1,168,000
Fixed assets		58,000
Intangible assets		3,299,000
Goodwill		1,127,000
Non-interest bearing liabilities		(403,000	)
Net assets	$	5,249,000

	July 31		October 31,
	2021		2020
	(Unaudited)		(Note 1)
ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	12,578	$	15,797
Trade accounts receivable, net of allowance for doubtful accounts of $79 and $66, respectively		10,526		5,669
Inventories		10,400		8,586
Other current assets		4,124		813
TOTAL CURRENT ASSETS		37,628		30,865

Property and equipment:
Equipment and tooling		3,948		3,819
Furniture and office equipment		1,093		1,073
		5,041		4,892
Less accumulated depreciation		4,282		4,082
Total property and equipment, net		759		810

Operating lease right of use assets, net		1,482		1,421
Goodwill		2,467		2,467
Amortizable intangible assets, net		2,834		3,181
Non-amortizable intangible assets		1,174		1,174
Deferred tax assets		0		834
Other assets		70		70
TOTAL ASSETS	$	46,414	$	40,822

	July 31, 2021		October 31, 2020		July 31, 2022		October 31, 2021

Raw materials and supplies	$	6,034	$	4,410	$	12,116	$	6,422
Work in process		301		196		361		381
Finished goods		4,065		3,980		6,684		4,376

Totals	$	10,400	$	8,586	$	19,161	$	11,179

	Level 3
	July 31, 2021		April 30, 2021			January 31, 2021			October 31, 2020
Beginning balance	$	0	$	296		$	370		$	1,249
Change in value		0		(296	)		(74	)		(879	)
Ending balance	$	0	$	0		$	296		$	370

				Weighted
				Average
	Shares			Exercise Price
Outstanding at November 1, 2020		789,179		$	4.66
Options granted		117,000		$	6.57
Options exercised		(180,528	)	$	3.15
Options cancelled		(91,793	)	$	5.88
Options outstanding at July 31, 2021		633,858		$	5.26
Options exercisable at July 31, 2021		323,568		$	5.78
Options vested and expected to vest at July 31, 2021		633,522		$	5.27

	RF Connector		Custom Cabling
	and		Manufacturing and
2021	Cable Assembly		Assembly			Corporate		Total
Net sales	$	3,933	$	11,324		$	0	$	15,257
Income before provision for income taxes		255		941			2		1,198
Depreciation and amortization		35		143			0		178
Total assets		7,188		22,524			16,702		46,414

2020
Net sales	$	3,611	$	5,933		$	0	$	9,544
Income (loss) before provision for income taxes		500		(720	)		1		(219	)
Depreciation and amortization		40		212			0		252
Total assets		8,413		15,539			16,942		40,894

	Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
	July 31, 2021		July 31, 2021		July 31, 2022		July 31, 2022
Operating lease cost	$	248	$	739	$	477	$	1,048
Short-term lease cost		0		1		-		1

Year ending October 31,	Operating Leases			Operating Leases

2021 (excluding nine months ended July 31, 2021)	$	244
2022		792
2022 (excluding nine months ended July 31, 2022)				$	267
2023		429			2,286
2024		180			1,991
2025		13			1,796
2026					1,835
Thereafter		7			12,123
Total future minimum lease payments		1,665			20,298
Less imputed interest		(119	)		(3,459	)
Total	$	1,546		$	16,839

Reported as of July 31, 2021	Operating Leases
Reported as of July 31, 2022			Operating Leases
Other current liabilities	$	848	$	1,576
Operating lease liabilities		698		15,263
Finance lease liabilities		0		-
Total	$	1,546	$	16,839

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 2021		-	$	-		-	$	-
June 2021		-	$	-		-	$	-
July 2021		261	$	7.74		-	$	-

Exhibit
Number


~~31.1:~~31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~31.2:~~31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~32.1:~~32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~32.2:~~ 32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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 in~~(formatted as Inline ~~Extensible Business Reporting Language (iXBRL)~~XBRL and contained in Exhibit ~~101~~101)


	RF INDUSTRIES, LTD.

Date: September ~~13, 2021~~14, 2022	By:	/s/ Robert Dawson
		Robert Dawson President and Chief Executive Officer (Principal Executive Officer)