R F INDUSTRIES LTD

CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’** EQUITY**

(In thousands, except share amounts)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1–** Unaudited interim condensed consolidated financial statements**

Our accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, which are normal and recurring, and other items of gain (loss) and expense required in our view under ASC 270,Interim Reporting, have been included for a fair statement of the financial position. Information included in the condensed consolidated balance sheet as of October 31, 2024 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, 2024 included in our Annual Report on Form 10-K (the “Form 10-K”) for the year ended October 31, 2024 that was previously filed with the Securities and Exchange Commission (“SEC”). Operating results for the three months ended January 31, 2025 are not necessarily indicative of the results that may be expected for the year ended October 31, 2025. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Form 10-K.

Our accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business. The propriety of using the going-concern basis is dependent upon, among other things, the achievement of future profitable operations, the ability to generate sufficient cash from operations and potential other funding sources, in addition to cash on-hand along with the current credit facility with Eclipse Business Capital (“EBC”) to meet its obligations as they become due.

Although we have incurred operating losses during the three months ended January 31, 2025, we have implemented certain cost-cutting measures to reduce our operating expenses and to help drive positive operating cash flow and increase liquidity. Our plan includes consolidating facilities and recognizing the related operating efficiencies and synergies in our production operations. The Company intends to continue to pursue additional continuous improvement and cost reduction measures, as well as organic growth in revenue and profitability.

On March 15, 2024, the Company entered into the loan and security agreement with EBC, as administrative agent, pursuant to which proceeds from initial drawings under the credit facility with EBC were used to repay in full the outstanding obligations under the prior revolving credit facility and term loan that we had with Bank of America, N.A, which such credit facility with Bank of America, N.A. was terminated upon entry into the loan and security agreement with EBC.

Principles of consolidation

The accompanying consolidated financial statements include the accounts of RF Industries, Ltd., Cables Unlimited, Inc. (“Cables Unlimited”), Rel-Tech Electronics, Inc. (“Rel-Tech”), C Enterprises, Inc. (“C Enterprises”), Schroff Technologies International, Ltd. (“Schrofftech”), and Microlab/FXR LLC (“Microlab”), wholly-owned subsidiaries of RF Industries, Ltd. All intercompany balances and transactions have been eliminated in consolidation.

Fair value measurement

We measure at fair value certain financial assets and liabilities. Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. GAAP specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs have created the following fair-value hierarchy:

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

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

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

As of January 31, 2025 and October 31, 2024, the fair value carrying amounts reflected in the accompanying condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, and accounts payable approximated their carrying value due to their short-term nature.

Recent accounting standards

Recently issued accounting pronouncements not yet adopted:

In November 2023, the FASB issued ASU 2023-07,Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for our annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures for the year ending October 31, 2025.

In December 2023, the FASB issued ASU 2023-09,Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to expand the disclosure requirements for income taxes, specifically related to the effective tax rate reconciliation and income taxes paid. ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted. We are currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.

Note 2–** Concentrations of credit risk**

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. We maintain our cash and cash equivalents with high-credit quality financial institutions. At January 31, 2025, we had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $1.3 million.

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

For the three months ended January 31, 2025, one wireless carrier accounted for 21% of net sales and 21% of net accounts receivable. For the three months ended January 31, 2024, no customers accounted for 10% or more of net sales, andtwo distributor customers accounted for 10% each of total net accounts receivable. Although these customers have been significant customers of the Company, the written agreements with these customers do not have any minimum purchase obligations and these customers 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.

Note 3–** Inventories and major vendors**

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

For the three months ended January 31, 2025, one vendor accounted for 10% of inventory purchases. For the three months ended January 31, 2024, no single vendor accounted for 10% or more of inventory purchases. We have arrangements with these vendors to purchase products based on purchase orders that we periodically issue.

Note 4–** Other current assets**

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

Note 5–** Accrued expenses and other current liabilities**

Accrued expenses consist of the following (in thousands):

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

Note 6–** Loss per share**

Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding increased by the effects of assuming that other potentially dilutive securities (such as stock options) outstanding during the period had been exercised and the treasury stock method had been applied. During the three months ended January 31, 2025, we reported a net loss, and in periods with a net loss, the basic loss per share equals the diluted loss per share, as all common stock equivalents are excluded from the per share calculation due to their anti-dilutive effect. Potentially issuable securities that are out-of-the-money totaled 345,556 and 1,068,022 shares for the three months ended January 31, 2025 and 2024, respectively, and were excluded from the calculation of diluted per share amounts because of their anti-dilutive effect.

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

Note 7–** Stock-based compensation and equity transactions**

On December 2, 2024, we granted 47,500 incentive stock options to seven managers. The shares of incentive stock options vest equally over four years as follows: (i)one-quarter of the options shall vest on December 2, 2025 and (ii) the remaining options shall vest in three equal annual installments over the next three years.

On January 13, 2025, we granted a total of 82,500 shares of restricted stock and 165,000 incentive stock options to two managers 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 13, 2026 and (ii) the remaining restricted shares and options shall vest in 12 equal quarterly installments over the next three years.

No other shares or options were granted to Company employees during the three months ended January 31, 2025 and 2024.

The fair value of each option granted during the three months ended January 31, 2025 and 2024 was estimated on the grant date 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 2025 and 2024 options granted. The expected life represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on the U.S. Treasury rate with a maturity date corresponding to the options’ expected life. The dividend yield is based upon the historical dividend yield.

Company stock option plans

Descriptions of our stock option plans are included in Note 8 to our audited financial statements included in our Annual Report on Form 10-K for the year ended October 31, 2024. A summary of the status of the options granted under our stock option plans as of January 31, 2025 and the changes in options outstanding during the three months then ended is presented in the table that follows:

Weighted average remaining contractual life of options outstanding as of January 31, 2025:7.41 years

Weighted average remaining contractual life of options exercisable as of January 31, 2025:5.98 years

Weighted average remaining contractual life of options vested and expected to vest as of January 31, 2025:7.41 years

Aggregate intrinsic value of options outstanding at January 31, 2025: $1,037,000

Aggregate intrinsic value of options exercisable at January 31, 2025: $330,000

Aggregate intrinsic value of options vested and expected to vest at January 31, 2025: $1,037,000

As of January 31, 2025, $994,000 and $888,000 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 1.8 and 1.5 years, respectively.

Stock option expense

During the three months ended January 31, 2025 and 2024, stock-based compensation expense totaled $195,000 and $255,000, respectively, and was classified in selling and general expense.

Note 8–** Segment information**

We aggregate operating divisions intotwo reporting segments that have similar economic characteristics primarily in the following areas: (1) the nature of the product and services; (2) the nature of the production process; (3) the type or class of customer for their products and services; (4) the methods used to distribute their products or services; and (5) if applicable, the nature of the regulatory environment. Based upon this evaluation, as of January 31, 2025, we hadtwo reportable segments – RF Connector and Cable Assembly (“RF Connector”) segment and Custom Cabling Manufacturing and Assembly (“Custom Cabling”) segment.

On August 1, 2023, C Enterprises moved and transitioned its physical operations into the RF Connector office in San Diego, CA. Given the synergies in consolidating both the operating divisions into one building, C Enterprises has been included in the RF Connector segment since August 1, 2023. Further, since the acquisition of C Enterprises in 2019, the customer base for the division has shifted more towards distribution as opposed to direct to end customer which is more aligned with the RF Connector segment. The segment change of including C Enterprise as part of the RF Connector segment was made retroactive to the beginning of our fiscal year starting November 1, 2022 and reclassified for fiscal year 2022 for comparative purposes. In annual and interim periods prior to the transition on August 1, 2023, C Enterprises was included in the Custom Cabling segment.

The RF Connector segment consists of three divisions and the Custom Cabling segment also consists of three divisions. The six divisions that met the quantitative thresholds for segment reporting are the RF Connector and Cable Assembly division (“RF Connector division”), Cables Unlimited, Rel-Tech, C Enterprises, Schrofftech, and Microlab. While each segment has similar products and services, there was little overlapping of these services to their customer base. The biggest difference in segments is in the channels of sales; sales or products 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 end customer.

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, 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 months ended January 31, 2025 and 2024 (in thousands):

Net sales to external customers, income (loss) before provision (benefit) for income taxes and other related segment information for the three months ended January 31, 2025 and 2024 are as follows (in thousands):

Note 9–** Income taxes**

We use an estimated annual effective tax rate, which is based on expected annual taxable income (loss), statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate, to determine 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 $36,000 and ($831,000) for the three months ended January 31, 2025 and 2024, respectively. The effective tax rate was (17.2%) for the three months ended January 31, 2025, compared to 37.9% for the three months ended January 31, 2024. The change in effective tax rate for the three months ended January 31, 2025 compared to the three months ended January 31, 2024 was primarily driven by the valuation allowance.

We had $205,000 and $186,000 of unrecognized tax benefits as of January 31, 2025 and October 31, 2024, respectively. The unrecognized tax benefits, if recognized, would result in a net tax benefit of $123,000 as of January 31, 2025.

The Company assesses all positive and negative evidence in determining if, based on the weight of such evidence, a valuation allowance is required to be recorded against the deferred tax assets as of January 31, 2025. The Company has evaluated future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. In making such judgments, significant weight is given to evidence that can be objectively verified. After analyzing all available evidence, including the recent trend of losses, the Company has determined that it is not more likely than not that all of its deferred tax assets will be realized, and therefore, has a partial valuation allowance against its deferred tax assets. The Company's valuation allowance was $4,075,000 and $3,962,000 as of January 31, 2025 and October 31, 2024, respectively.

Note 10–** Intangible assets**

Intangible assets consist of the following as of January 31, 2025 and October 31, 2024 (in thousands):

Amortization expense for the three months ended January 31, 2025 and the year ended October 31, 2024 was $411,000 and $1,688,000, respectively. As of January 31, 2025, the weighted-average amortization period for the amortizable intangible assets is 7.38 years.

Note 11–** Commitments**

We adopted ASU 2016-02 on November 1, 2019, and elected the practical expedient modified retrospective method whereby the lease qualification and classification was carried over from the accounting for leases under ASC 840. The lease contracts for Cables Unlimited and Rel-Tech commenced prior to the effective date of November 1, 2019, and were determined to be operating leases. All other new contracts have been assessed for the existence of a lease and for the proper classification into operating leases. The rate implicit in the leases was undeterminable and, therefore, the discount rate used in all lease contracts is our incremental borrowing rate.

We have operating leases for corporate offices, manufacturing facilities, and certain storage units. Our leases have remaining lease terms ofone year toten 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 $18,000 per month.

We also have other operating leases for certain equipment. The components of our facilities and equipment operating lease expenses for the periods ending January 31, 2025 and 2024 were as follows (in thousands):

As of January 31, 2025, operating lease right-of-use assets were $14.9 million and operating lease liabilities totaled $20.1 million, of which $1.9 million is classified as current. There were no finance leases as of January 31, 2025. Future minimum lease payments under non-cancellable leases as of January 31, 2025 are a total of $26.7 million.

The Schrofftech facilities, consisting of one building of a total of 7,000 square feet, are leased by RF Industries, Ltd. under a lease that was renewed effective February 1, 2025, forone year expiring January 31, 2026. The aggregate monthly rental payment under the new lease currently is $4,607 per month.

Note 12–** Term Loan and Line of credit**

On March 15, 2024, we entered into a loan and security agreement (the “EBC Credit Agreement”) with EBC, as administrative agent, and used proceeds from the initial drawings under the EBC Credit Facilities (as defined below) to repay in full outstanding obligations under the loan agreement we had entered into in February 2022 with Bank of America, N.A. (the “BofA Loan Agreement”) and to pay fees, premiums, costs and expenses, including fees payable in connection with the EBC Credit Agreement. The BofA Loan Agreement was terminated upon entry into the EBC Credit Agreement and is no longer in effect.

The EBC Credit Agreement provides for (i) a senior secured revolving loan facility of up to $15.0 million (the “EBC Revolving Loan Facility”) and (ii) a senior secured revolving credit facility of up to $1.0 million (the “EBC Additional Line” and, together with the EBC Revolving Loan Facility, the “EBC Credit Facilities”) (with a $3.0 million swingline loan sublimit). On June 14, 2024, the parties entered into a First Amendment to the EBC Credit Agreement (the “First Amendment”) providing for a modified EBC Additional Line of $1.0 million through July 12, 2024, $666,666.67 from July 13, 2024 through August 11, 2024 and $333,333.34 from August 12, 2024 through September 10, 2024. Availability of borrowings under the EBC Credit Facilities will be based upon a borrowing base formula and periodic borrowing base certifications valuing certain of our accounts receivable and inventories, as reduced by certain reserves, if any.

In the absence of an Event of Default (as defined in the EBC Credit Agreement) or certain other events (including the inability of EBC to determine the secured overnight financing rate “SOFR”), borrowings under (a) the EBC Revolving Loan Facility accrues interest at a rate of the one-month term SOFR reference rate plus an adjustment of 0.11448% (“Adjusted Term SOFR”) plus 5.00%, and (b) the EBC Additional Line accrues interest at a rate of Adjusted Term SOFR plus 6.50%, in each case subject to a floor of 2.00% for Adjusted Term SOFR. We will be required to pay a commitment fee of 0.50% per annum for the unused portion of the EBC Revolving Loan Facility. In addition to the foregoing unused commitment fee, we are required to pay certain other administrative fees pursuant to the terms of the EBC Credit Agreement.

Borrowings under the EBC Credit Agreement are secured by a security interest in certain assets of the Company and are subject to certain loan covenants. The EBC Credit Facilities require the maintenance of certain financial covenants, including (i) Excess Availability (as defined in the EBC Credit Agreement) of at least, as of any date of determination, an amount equal to the greater of (a) $1.0 million and (b)10% of the Adjusted Borrowing Base (as defined in the EBC Credit Agreement), unless as of the last day of the most recent month for which the monthly financial statements and the related compliance certificate have been or are required to have been delivered to EBC, the Fixed Charge Coverage Ratio (as defined in the EBC Credit Agreement) for the 12 consecutive calendar month period then ended is greater than 1.10 to 1.00; and (ii) a capital expenditure limitation limiting the aggregate cost of all Capital Expenditure (as defined in the EBC Credit Agreement) to $2.5 million during any fiscal year. In addition, the EBC Credit Facilities contain customary affirmative and negative covenants.

We filed the EBC Credit Agreement as Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended January 31, 2024 and the First Amendment as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended July 31, 2024.

Debt issuance costs related to the EBC Credit Agreement totaled $368,000 and were included as part of our other long-term assets balance in the condensed consolidated balance sheet.

As of January 31, 2025, our outstanding borrowings under the EBC Credit Agreement were $8,053,000. In accordance with ASC 470-10-45,Other Presentations Matters - General, we have classified the outstanding borrowings as part of current liabilities in the condensed consolidated balance sheet.

Note 13–** Cash dividends and declared dividends**

We didnot pay any dividends during the three months ended January 31, 2025, nor during the three months ended January 31, 2024.