UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

 

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended October 31, 20192020

 

or

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______________ to ________________.

 

Commission File Number 0-13301

 

RF INDUSTRIES, LTD.

(Name of registrant as specified in its charter)

 

Nevada

88-0168936

(State or other jurisdiction

(I.R.S. Employer Identification No.)

of incorporation or organization)

 

7610 Miramar Road, Bldg. 6000, San Diego, California 92126-4202

(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

 

Securities registered pursuant to Section 12(g) of the Act:  None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.¨ Yesx No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.¨ Yesx No

 

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.    x Yes  ¨ No

 

Indicate by check mark whether the registrant has submitted electronically 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).   x Yes  ¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.¨

 

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 Filerx ☒

Smaller reporting company x

Emerging Growth Company ¨

 

 

1

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨ Yes    x No

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $47.1$49.4 million.

 

On December 13, 2019,28, 2020, the Registrant had 9,614,6179,848,246 outstanding shares of Common Stock, $.01 par value.

 

2

 

Forward-Looking Statements:

 

Certain statements in this Annual Report on Form 10-K (this “Annual Report”), and other oral and written statements made by the Company from time to time are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including those that discuss strategies, goals, outlook or other non-historical matters, or projected revenues, income, returns or other financial measures. In some cases forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “except,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms or other comparable terminology. These forward-looking statements are subject to numerous risks and uncertainties that may cause actual results to differ materially from those contained in such statements. Among the most important of these risks and uncertainties are the ability of the Company to continue to source its raw materials and products from its suppliers and manufacturers, particularly those in Asia, the market demand for its products, which market demand is dependent to a large part on the state of the telecommunications industry, the effect of future business acquisitions and dispositions, the incurrence of impairment charges, and competition.

 

Important factors which may cause actual results to differ materially from the forward-looking statements are described in the Section entitled “Risk Factors” in this Form 10-K, and other risks identified from time to time in the Company’s filings with the Securities and Exchange Commission. The Company assumes no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.

 

PART I

 

ITEM 1.

BUSINESS

 

General

 

RF Industries, Ltd. (together with subsidiaries, the “Company”, “we”, “us”, or “our”) is a national manufacturer and marketer of interconnect products and systems, including coaxial and specialty cables and connectors, fiber optic cables and connectors, and electrical and electronic specialty cables and components. The Company also manufactures and markets a line of ambient thermal systems for wireless telecom companies, as well as shrouds for small cell installations for the wireless industry. Through its fiveour manufacturing and production facilities, the Company provideswe 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 our acquisition of Schroff Technologies International, Inc. in November 2019, we also manufacture and sell energy-efficient cooling systems and integrated small cell solutions and related components.

 

The Company operatesWe operate through two reporting segments: (i) the “RFRF Connector and Cable Assembly” (RF Connector)Assembly (“RF Connector”) segment, and (ii) the “CustomCustom Cabling Manufacturing and Assembly” (Custom Cabling)Assembly (“Custom Cabling”) segment. The RF Connector and Cable Assembly segment primarily designs, manufactures, markets and distributes a broad range of connector and cable products, including coaxial connectors and cable assemblies that are integrated with coaxial connectors, used in telecommunications and information technology OEM markets and other end markets. The Custom Cabling Manufacturing and Assembly segment designs, manufactures, markets and distributes custom copper and fiber cable assemblies, complex hybrid fiber optic and power solution cables, electromechanical wiring harnesses, wiring harnesses ambient thermalfor a broad range of applications in a diverse set of end markets, energy-efficient cooling systems for wireless base stations and shrouds forremote equipment shelters and custom designed, pole-ready 5G small cell installations.integrated enclosures.

In March 2020, the World Health Organization (the “WHO”) declared coronavirus (“COVID-19”) a pandemic emergency. The COVID-19 pandemic has 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 those where we have operations, have also reacted by instituting quarantines, restrictions on travel, “shelter in place” rules, social distancing protocols and restrictions on types of business that may continue to operate. While we have been deemed an “essential” business, and therefore have been permitted to continue our operations, the impact of the COVID-19 pandemic has affected both our operations and those of our customers. Our operations have been negatively affected by changes that we had to make on our operating methods and procedures, and by our reduced workforce capacity allowed inside our facilities. 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, overall demand for our products has been reduced 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.

 

Recent Transactions

 

On October 31, 2018, the Company sold Comnet Telecom Supply, Inc. (“Comnet”), its New Jersey-based manufacturer and supplier of telecommunications and data products, including fiber optic cables, cabling technologies, custom patch cord assemblies, data center consoles and other data center equipment. Comnet was a wholly-owned subsidiary that operated with a different sales model and margin profile than the rest of the Company. This divestiture reflected the Company’s transformation of its operating culture and marketing strategies.

On March 15, 2019, the Companywe purchased the business and assets of C Enterprises L.P., a California based designer and manufacturer of quality connectivity solutions to telecommunications and data communications distributors.

 

On November 4, 2019, the Companywe purchased Schroff Technologies International, Inc. (“Schrofftech”), a Rhode Island basedIsland-based manufacturer and marketer of intelligent thermal control systems used by telecommunications companies across the U.S. and Canada, and shrouds for small cell integration and installation.

 

3

Strategy

 

The Company’sOur overall strategy is to provide itsour customers with a broad selection of products, rapid and high-quality service, and custom design capabilities, all at competitive prices. Specifically, the Company’s overallour strategy is the following:

 

Provide rapid and flexible design and manufacturing services. DuringOver the past twofew years the Company has been restructuring its operations to focuswe have focused our organization on providing rapid,a standardized portfolio, allowing for quick turn readily available products, while having the capabilities, flexible design and high quality custom manufacturing services.services to customize our offering to address customer specific requirements or applications.

 


Competitive Pricingpricing. The Company’sOur manufacturing and distribution arrangements have been designed to lower costs and thereby, to enable the Companyus to offer prices on both theour standard and custom manufactured products and on most standard connector and cable products that are competitive with the marketplace.

 

Leverage its ourmanufacturing and distribution capabilities and facilities. The Company’sOur strategy is to operate itsour five manufacturing and distribution locations to best provide our customers with a competitively priced, high quality customized product offering delivered with a fast turnaround time. As part of this strategy, the Company utilizeswe utilize a “one-company” approach to itsour five production and distribution locations and allocates itsallocate our resources based on theirthat location’s production specialization capabilities, its proximity to the shipment destination, and manyon other factors. Using this “one-company” approach, the Company’sour goal is to not onlyleverage available capacity and shorten delivery times, but to alsowhile potentially providing lower shipping costs. The Company currently operates from itsTwo of our five manufacturing and distribution locations in the U.S.; twoare located in California, andwhile the other three are in the Northeast.

 

Integrate marketing and selling efforts. The Company’sOur strategy is to integrate and cross-sell the product lines manufactured at, or distributed by itsour five facilities. The Company hasWe have been integrating the marketing and sales efforts of the five divisions, thereby expanding the number and type of products each division can offer to its existing client base.

 

Broad range of immediately available connector products. The Company’sOur strategy is to stock a very large selection of connector parts, including parts for older or discontinued products that are available for immediate delivery. As a result, the Company iswe are able to fill smaller orders for unique connector parts,orders, as well as provide a broad range of standard connector products.

 

Targeted focus of product lines. The Company’s revisedOur strategy is to focus on passive products that are integrated into telecommunications, infrastructure and similar products manufactured by others, rather than manufacturing and selling operating components or products. As a result, the Companywe no longer manufacturesmanufacture radio modems, no longer providesprovide mobile management solutions and services, and no longer manufacturesmanufacture medical monitoring products. Our product line focus still remains on supporting and leveraging our distribution channels with our core RF Cable & Connectors, Passive DAS, and Quick-Turn Fiber/Copper assemblies offering, while in parallel we continue to expand our portfolio of integrated solutions to address key end customer and market applications.

 

Increase long-term relationships with customers. The Company’sOur goal is to establish longer-termlong-term relationships with the customers who have to date used the Companyus for specialized projects by having the Company’s customizedour solutions built into the customer’s product specifications and billbills of materials. As we remain focused on maintaining and expanding our national distributor relationships through our dedicated sales and management teams, we have invested in a targeted business development efforts to assist in getting more closely aligned with the requirements of strategic end customers.

 

Grow through strategic and targeted acquisitions. The CompanyWe will continue to consider strategic acquisitions of companies or technologies that can increase or diversify the Company’sour customer base, supplement the Company’sour management team, expand the Company’sour product offerings, and/or expand the Company’sour footprint in a relevant market segment.

 

Operations

 

The CompanyWe currently conducts itsconduct operations through itsour five divisions.divisions with our product areas divided into two reporting segments.

 

RF Connector and Cable Assembly Segment.

 

The Company’sOur RF Connector and Cable Assembly segment (“RF Connector segment”) consists of the RF Connector and Cable Assembly division (“RF Connector division”) that is based at the Company’sour headquarters in San Diego, California. Although most of the Company’s RF connector and cable products are inventoried and distributed from its San Diego facilities, some of these products also are inventoried and distributed from the Company’s other facilities. The RF Connector division is engaged in the design, manufacture and distribution of coaxial connector solutions for companies that design, build, operate, maintain and use wireless voice, data, messaging, and location tracking systems.a variety of connectivity / communication applications. Coaxial connector products consist primarily of connectors which, when attached to a coaxial cable, facilitate the transmission of analog and digital signals in various frequencies. Although most of the connectors are designed to fit standard cable products, the RF Connector division also sells custom connectors specifically designed and manufactured to suit its customers’ requirements such as the Wi-Fi and broadband wireless markets.requirements.

 

The Company’s RF Connector division typically carries over 1,500 different types of connectors, adapters, tools, and test and measurements kits. This division’s RF connectors are used in thousands of different devices, products and types of equipment. Since the RF Connector division’s standard connectors can be used in a number of different products and devices, the discontinuation of one product typically does not make the Company’sour connectors obsolete. Accordingly, most connectors carried by the Companythat we carry can be marketed for a number of years and are only gradually phased out.years. Furthermore, because the Company’sour connector products are not dependent on any single line of products or any market segment, the Company’sour overall sales of connectors tend to fluctuate less when there are material changes or disruption to a single product line or market segment. Sales of the Company’s connector products are, however, dependent upon the infrastructure build-out by large telecommunications firms and on the Company’s ability to market its products to these customers.

4

 

Cable assembly products manufactured and sold by the RF Connector division consist of various types of coaxial cables that are attached to connectors (usually the Company’sour connectors) for use in a variety of communications applications. Cable assemblies manufactured for the RF Connector division are primarily manufactured at the Company’sour San Diego, California facilities using state-of-the-art automation equipment and are sold through distributors or directly to major OEM accounts. Cable assemblies consistOur cable assembly portfolio consists of both standard and custom cable assemblies and assemblies that are custom manufactureddesigned for the Company’s clients. The Company offersspecific customer requirements. We offer a line of cable assemblies with over 100,000 cable product combinations.

 


The Company designs itsWe design our connectors at itsour headquarters in San Diego, California. However, most of the RF connectors are manufactured for the Companyus by third-party foreign manufacturers located in Asia.

 

Custom Cabling Manufacturing and Assembly Segment.

 

The Custom Cabling segment currently consists of four wholly-owned subsidiaries – three located in the Northeastern U.S and one located in Southern California. Until its sale on October 31, 2018, Comnet Telecom was part of the Custom Cabling segment. C Enterprises, Inc., which the Company acquired in March 2019, and Schrofftech, which was acquired in November 2019, are now part of the Custom Cabling Manufacturing and Assembly segment. Certain of the products manufactured and sold by these East Coast are similar and can be manufactured at either of the East Coast facilities. The Company’sOur plan is to integrate certain aspects of the manufacturing, sales and marketing functions of these divisions so as to better address overlapping market opportunities and to more efficiently manufacture, market, and ship products to the Company’sour customers. The newly acquired Southern California custom cabling manufacturing and assembly facility provides similar products and services to their customers compared to the other East Coast facilities focusing largely on fiber optic and copper cable assemblies.

The four subsidiariesdivisions that comprise the current Custom Cabling segment consist of the following:

 

Cables Unlimited, Inc. Cables Unlimited, Inc. ("(“Cables Unlimited"Unlimited”) is a custom cable manufacturer located in Yaphank, New York, that RF Industries, Ltd.we acquired in 2011. Cables Unlimited is a Corning Cable Systems CAH Connections SM Gold Program member, authorized to manufacture fiber optic products that are backed by Corning Cable Systems' extended warranty. Cables Unlimited designs, develops and manufactures custom connectivity solutions for the industrial, defense, telecommunications and wireless markets.  The products sold by Cables Unlimited include custom and standard copper and fiber optic cable assemblies, adapters and electromechanical wiring harnesses for communications, computer, LAN, automotive fiber optic and medical equipment.

 

Rel-Tech Electronics, Inc. RF Industries, Ltd. acquired Rel-Tech Electronics, Inc. ("Rel-Tech"(“Rel-Tech”) was acquired in June 2015. Rel-Tech’s offices and manufacturing facilities are located in Milford, Connecticut. Founded in 1986, Rel-Tech is a designer and manufacturer of cable assemblies and wiring harnesses for blue chip industrial, oilfield, instrumentation, medical and military customers. Wire and cable assembly products include custom wire harnesses, ribbon cable, electromechanical and kitted assemblies, and networking and communications cabling.

 

C Enterprises, Inc. C Enterprises, Inc. ("(“C Enterprises"Enterprises”) is a fiber optic and copper cable manufacturer located in Vista, California. This subsidiary acquired the business and assets of C Enterprises, L.P. on March 15, 2019. C Enterprises is a Corning Cable Systems CAH Connections SM Gold Program member, authorized to manufacture fiber optic products that are backed by Corning Cable Systems’ extended warranty. C Enterprises designs, develops and manufactures connectivity solutions to telecommunications and data communications distributors.

 

Schroff Technologies International, Inc. RF Industries, LtdWe acquired Schroff Technologies (“Schrofftech”) in November 2019. Schrofftech is a Rhode Island-basedIsland based manufacturer and marketer of intelligent thermal cooling control systems, along with pole-ready wireless small cell shrouds and enclosures, custom designed for plug-and-play installation. These products are typically used by telecommunications companies across the U.S. and Canada, and shrouds for small cell integration and installation.Canada.

 

Product Description

 

The Company producesWe produce a broad rangeoffering of interconnect products and assemblies and other products used in the telecommunications and a broad range of other industries. The products that are offeredwe offer and sold by the Companysell consist of the following:

 

Connector and Cable Products

 

The Company designs, manufacturesWe design, manufacture and marketsmarket a broad range of coaxial connectors, coaxial adapters and coaxial cable assemblies for the numerous products with applications in commercial, industrial, automotive, transportation, scientific, aerospace and military markets. Various types of products/connectors include passive DAS related items such as connectors, adapters, splitters, couplers and loads. These connectors are offered in several configurations and cable attachment methods for customer applications.

There are numerous applications for these connectors, some of which include digital applications, 2.5G, 3G, 4G, 5G, LTE, Wi-Fi and other broadband wireless infrastructure, GPS (Global Positioning Systems), mobile radio products, aircraft, video surveillance systems, cable assemblies and test equipment. Users of the Company’sour connectors include telecommunications companies, circuit board manufacturers, OEMs, consumer electronics manufacturers, audio and video product manufacturers and installers, and satellite companies. The Company marketsWe market over 1,500 types of connectors, adapters, tools, assembly, test and measurement kits, which range in price from under $1 to over $1,000 per unit. The kits satisfy a variety of applications including, but not limited to, lab operations, site requirements and adapter needs.

 

The CompanyWe also designsdesign and sellssell a variety of connector tools and hand tools that are assembled into kits used by lab and field technicians, research and development technicians and engineers. These tools are manufactured for the Companyus by outside contractors. Tool products are carried as an accommodation to the Company’sour customers and have not materially contributed to the Company’sour revenues.

 

5

The Company marketsWe market and manufacturesmanufacture cable assemblies in a variety of sizes and combinations of RF coaxial connectors and coaxial cabling. Cabling is purchased from a variety of major unaffiliated suppliers and is assembled predominately with the Company’s connectors or other brands ofour connectors as complete cable assemblies. Coaxial cable assemblies have numerous applications including low PIM, Wi-Fi and wireless local area networks, wide area networks, internet systems, cellular systems including 2.5G, 3G, 4G, 5G, LTE, DAS and Small Cell installations, TV/dish network systems, test equipment, military/aerospace (mil-standard and COTS (Commercial Off–The-Shelf)) and entertainment systems. Cable assemblies are manufactured to customer requirements.

 


The Company carriesWe carry thousands of separate types of connectors, most of which are available in standard sizes and configurations and that are also offered by other companies. However, the Companywe also hashave some proprietary products, including the CompPro product line, its OptiFlex cables, and the Schrofftech telecom shelter cooling and control system products. CompPro is a patented compression technology that offers advantages for a water-tight, ruggedized connection, providing easier installation, and improved system reliability on braided cables. CompPro is used by wireless network operators, installers and distributors in North America and other parts of the world. OptiFlex is a hybrid fiber optic and DC power cabling solution that the Companywe designed and manufactures,manufactured, and the Schrofftech products are energy efficient cooling/temperature control and filtration systems for use in telecom shelters, outdoor enclosures and battery/power rooms.

 

Fiber Optic Products

 

The Company’s Cables Unlimited division is a Corning Cable Systems CAH Connections SM Gold Program member that is authorized to manufacture fiber optic products that are backed by Corning Cable Systems’ extended warranty. Through itsour Cables Unlimited division, the Company offerswe offer a broad range of interconnect products and systems that have the ability to combine radio frequency and fiber optic interconnect components, with various connectors and power cables through customized solutions for these customers. Cables Unlimited also manufactures OptiFlex, a custom designed hybrid fiber optic and DC power cabling solution manufactured for wireless service providers engaged in upgrading their cell towers. The custom hybrid cable is significantly lighter and possesses greater flexibility than cables previously used for wireless service.

 

C Enterprises is a Corning Cable Systems CAH Connections SM Gold Program member, authorized to manufacture fiber optic products that are backed by Corning Cable Systems’ extended warranty. C Enterprises designs, develops and manufactures connectivity solutions to telecommunications and data communications distributors.

 

Other CablingProducts

 

The CompanyWe also designs, manufacturesdesign, manufacture and sellssell cable assemblies and wiring harnesses for industrial, oilfield, instrumentation, medical and military customers. Wire and cable assembly products include custom wire harnesses, ribbon cable, electromechanical and kitted assemblies, networking and communications cabling. DIN and Mini DIN connector assemblies include power cord, coaxial, Mil-spec and testing.

 

Telecommunications Thermal Control Systems and Shrouds

 

Since itsour acquisition of Schrofftech in November 2019, the Companywe now also manufacturesmanufacture and sellssell intelligent thermal control systems for outdoor telecommunications equipment. The thermal control systems, which can be controlled offsite using networked software at the telecommunication company’s own data center, maintain the interior temperature of telecommunications equipment. Schrofftech has also introduced shrouds for small cell deployments that reduce installation time and improve aesthetics by eliminating the exterior cabling used with current configurations.

 

Foreign Sales

 

Net sales to foreign customers accounted for $1,411,000 (or approximately 3%) of our net sales, and $960,000 (or approximately 2%) of the Company’s net sales, and $662,000 (or approximately 1%) of the Company’sour net sales for the fiscal years ended October 31, 20192020 and 2018,2019, respectively. The majority of the export sales during these periods were to Canada and Mexico.Canada.

 

The Company doesWe do not own, or directly operate any manufacturing operations or sales offices in foreign countries.

 

Distribution and Marketing

 

The CompanyWe currently sells itssell our products through independent warehousing distributors and through itsour in-house marketing and sales team. Sales through independent distributors accounted for approximately 45%55% of theour net sales of the Company for the fiscal year ended October 31, 2019. The Company’s2020. Our agreements with most of the distributors are nonexclusive and generally may be terminated by either party upon 30-60 days’ written notice. The Company directly sells certain of its products to large, national telecommunication equipment and solution providers who include the Company’s products in their own product offerings.

 

Manufacturing

 

The Company contractsWe contract with outside third parties for the manufacture of a significant portion of itsour coaxial connectors. However, virtually all of the RF cable assemblies sold by the Company during the fiscal year ended October 31, 20192020 were assembled at the International Organization for Standardization (ISO) approved factory in San Diego, California. The Company procures itsWe procure our raw cable from manufacturers with ISO approved factories in the United States, China and Taiwan. The Company primarily relies on fourteen manufacturersseveral third-party partners for the manufacture of its coaxial connectors, tools and other passive components and several plants for raw cable.receives bulk cable from multiple manufacturing plants. Although the Company doeswe do not have manufacturing agreementscontracts with these manufacturers for itsour connectors and cable products, the Company doeswe do have long-term purchasing relationships with these manufacturers.relationships. There are certain risks associated with the Company’sour dependence on third-party manufacturers for some of itsour products. See “Risk Factors” below. The Company hasWe have in-house design engineers who create the engineering drawings for fabrication and assembly of connectors and cable assemblies. Accordingly, the manufacturers are not primarily responsible for design work related to the manufacture of the connectors and cable assemblies.

  


6

The Company manufactures

We manufacture custom cable assemblies, adapters and electromechanical wiring harnesses and other products through Cables Unlimited Inc. at its Yaphank, New York manufacturing facility. The Yaphank facility is an ISO approved factory. Cables Unlimited is a Corning Cable Systems CAH Connections SM Gold Program member, authorized to manufacture fiber optic products and assemblies that are backed by Corning Cable Systems' extended warranty.

 

The Milford, Connecticut facility of Rel-Tech Electronics, Inc. is an ISO approved manufacturing facility that is primarily used to manufacture cable assemblies, electromechanical assemblies, wiring harnesses and other similar products. 

 

The Vista, California facility operated by C Enterprises Inc. is an ISO approved manufacturing facility that is primarily used to manufacture fiber optic and copper cable assemblies that are backed by Corning Cable Systems’ extended warranty.

 

The products sold by Schrofftech are designed and manufactured at that company’sits ISO approved manufacturing facility in North Kingstown, Rhode Island. Schrofftech’s products are manufactured and tested in accordance with the ETL Listing standards.

 

Raw Materials

 

Connector materials are typically made of commodity metals such as copper, brass and zinc and include small applications of precious materials, including silver and gold. The RF Connector division purchases most of its connector products from contract manufacturers located in Asia and the United States. The Company believesWe believe that the raw materials used in itsour products are readily available and that the Company iswe are not currently dependent on any supplier for itsour raw materials. The Company doesWe do not currently have any long-term purchase or supply agreements with itsour connector suppliers. The Custom Cabling divisions obtain coaxial connectors from the RF Connector division. The Company believesWe believe there are numerous domestic and international suppliers of other coaxial connectors that the Companywe may need for any of itsour cabling products.

 

The Cables Unlimited, Rel-Tech, Electronics, C Enterprises, and Schrofftech divisions purchase largely all of the raw materials used in their products from sources located in the United States. Fiber optic cables are available from various manufacturers located throughout the United States; however, Cables Unlimited purchases most of its fiber optic cables from Corning Cables Systems LLC. The Company believes that the raw materials used by Cables Unlimited in its products are readily available and that Cables Unlimited is not currently dependent on any supplier for its raw materials except where Corning Extended Warranty certification is required. Neither Cables Unlimited nor Rel-Tech Electronics currently have any long-term purchase or supply agreements with their connector and cable suppliers.

 

Employees

 

As of October 31, 2019, the Company2020, we employed 281271 full-time employees, of whom 5154 were in accounting, administration, sales and management, 224210 were in manufacturing, distribution and assembly, and 6seven were engineers engaged in design, engineering and research and development. The employees were based at the Company’sour facilities in San Diego, California (78(81 employees), Yaphank, New York (76(51 employees), Milford, Connecticut (51(48 employees), Vista, California (79 employees), and Vista, California (76North Kingstown, Rhode Island (12 employees). RF Industries purchased Schrofftech in November 2019. As of the date of this Annual Report, Schrofftech had 12 full-time employees, of whom six were in administration and the rest were in engineering and manufacturing. The CompanyWe also occasionally hireshire part-time employees.

The Company believes We believe that it haswe have a good relationship with itsour employees. The Cables Unlimited division employs five cable installers who are currently represented by a union. Other than the foregoing installers that belong to a union, none of the Company’s other employees are unionized.

 

Patents, Trademarks and Licenses

 

The Company ownsWe own ten U.S. patents related to CompPro Product Line that itwe acquired in May 2015. The CompPro Product Line utilizes a patented compression technology that offers revolutionary advantages for a water-tight connection, easier installation, and improved system reliability on braided cables. The CompPro Product Line is used by wireless network operators, installers and distributors in North America and other parts of the world.

 

The Company’sOur Schrofftech subsidiary owns threefive issued patents (two are owned jointly) on its proprietary telecom shelter cooling and control system technology and its equipment room ventilation controls. Schrofftech has also filed fivefour pending patent applications related to ventilation and control equipment and controls.

 

The trademarks the Company owns includeswe own include the “CompPro” registered trademark associated with the compression cable product line and the “OptiFlex™” as a trademark for its hybrid cable wireless tower cable solution. The Company and eachEach of itsour subsidiaries also use various trademarks (and associated logos and trade names) in their operations, although none of these trademarks have been registered.

 


Because the RF Connectors division carries thousands of separate types of connectors and other products, most of which are available in standard sizes and configurations and are also offered by the Company’sour competitors, the Company doeswe do not believe that itsour cables and connector business or competitive position is dependent on patent protection.

 

Under its agreements with Corning Cables Systems LLC, Cables Unlimited and C Enterprises are permitted to advertise that they are Corning Cables System CAH Connections SM Gold Program members.

 

7

Warranties and Terms

 

The Company warrants itsWe warrant our products to be free from defects in material and workmanship for varying warranty periods, depending upon the product. Products are generally warranted to the dealer for one year, with the dealer responsible for any additional warranty it may make. The RF Connector products are warranted for the useful life of the connectors. Although the Company haswe have not experienced any significant warranty claims to date, there can be no assurance that it will not be subjected to such claims in the future.

 

The CompanyWe usually sellssell to customers on 30-day terms pursuant to invoices and doesdo not generally grant extended payment terms. Sales to most foreign customers are made on cash terms at time of shipment. Customers may delay, cancel, reduce, or return products after shipment subject to a restocking charge.

 

Under its agreements with Corning Cables Systems LLC, Cables Unlimited and C Enterprises are authorized to manufacture optic cable assemblies that are backed by Corning Cables Systems’ extended warranty (referred to as the “Gold Certified Warranty”).

  

Competition

 

The industries in which we operate are highly competitive, and we compete with thousands of companies that range from large multinational corporations,some of which have greater assets and financial resources, than the Company,to local manufacturers. Competition is generally based on breadth of product offering, product innovation, price, quality, delivery, performance and customer service. InIn addition, rapid technological changes occurring in the communications industry could also lead to the entry of new competitors of all sizes against whom we may not be able to successfully compete.  There can be no assurance that the Companywe will be able to compete successfully against existing or new competition, and the inability to do so may result in price reductions, reduced margins, or loss of market share, any of which could have an adverse effect on the Company’sour business, financial condition and results of operationsoperations.

 

Government Regulations

 

The Company’sOur products are designed to meet all known existing or proposed governmental regulations. Management believesWe believe that the Companywe currently meetsmeet existing standards for approvals by government regulatory agencies for itsour principal products.

  

The Company’sOur products are Restriction on Hazardous Substances (“RoHS”) compliant.

 

Investor Information.

 

The Company’sOur principal executive office is currently located at 7610 Miramar Road, Building #6000, San Diego, California. The CompanyRF Industries, Ltd. was incorporated in the State of Nevada on November 1, 1979, completed its initial public offering in March 1984 under the name Celltronics, Inc., and changed its name to RF Industries, Ltd. in November 1990. Unless the context requires otherwise, references to the “Company” in this report include RF Industries, Ltd. and its four wholly-owned subsidiaries, Cables Unlimited, Inc., Rel-Tech Electronics, Inc., C Enterprises, Inc., and Schroff Technologies International, Inc.

 

The Company’s principal Internet website is located athttp://www.rfindustries.com. The Company’s annual reports, quarterly reports, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to sectionSection 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and other information related to the Company, are available, free of charge, on that website as soon as we electronically file those documents with, or otherwise furnish them to, the Securities and Exchange Commission (“SEC”). Reports filed with the SEC are also available on the SEC’s website atwww.sec.gov. The Company’s Internet website and the information contained therein, or connected thereto, are not and are not intended to be incorporated into this Annual Report on Form 10-K.Report.

 

ITEM 1.A

RISK FACTORS

 

Investors should carefully consider the risks described below and all other information in this Form 10-K. The risks and uncertainties described below are not the only ones facing the Company.us. Additional risks and uncertainties not presently known to the Companyus or that itwe currently deemsdeem immaterial may also impair the Company’sour business and operations.

 

If any of the following risks actually occur, the Company’sour business, financial condition or results of operations could be materially adversely affected. In such case, the trading price of the Company’sour common stock could decline and investors may lose all or part of their investment in the Company’sour common stock.

 


We The Company Is Heavily Dependent Upon Wireless And Broadband Communications Providers.are heavily dependent upon wireless and broadband communications providers.

 

Most of the Company’sour revenues and profitability werehave in recent years been generated from products that the Company sells,we sell, directly or through itsour distributors, to the wireless and broadband communications industries. In addition, the Companywe also sellssell connectors, cables and other products to companies that incorporate these products into their own wireless and broadband communications products. As a result, the Company’sour business is heavily dependent upon the wireless and broadband markets.  Demand for the Company’sour products in these markets depends primarily on capital spending by operators for constructing, rebuilding or upgrading their telecommunication systems. The amount of this capital spending and, therefore, the Company’sour sales and profitability, will be affected by a variety of factors affecting the telecommunications companies, including general economic conditions, consolidation within the telecommunications industry and the financial condition of operators. There can be no assurance that existing levelsAlthough we sell many products into many different markets other than the telecommunications marketplace, because a major portion of capital spending will continue or that spending will not decrease. A significant decline in capital expenditures byour revenues has historically been derived from direct and indirect sales to wireless and broadband communications companies, couldour financial condition and results of operations are heavily influenced by the health and growth of the wireless and broadband markets, all of which is beyond our control.

8

The COVID-19 public health pandemic is adversely affecting, and is expected to continue to adversely affect, certain aspects of our business.

The COVID-19 pandemic, and the reactions of governmental and other authorities to contain, mitigate or combat the pandemic, which have severely restricted the level of economic activity around the world, have impacted, and are expected to continue to impact, our operations, and the nature, extent and duration of the impact of the COVID-19 pandemic or any future disease or adverse health condition is highly uncertain and beyond our control. In response to the COVID-19 pandemic, Federal, state and local governmental agencies have taken and may again take preventative or protective actions, such as imposing restrictions on travel and business operations. The COVID-19 pandemic, and the government’s reaction to the pandemic have significantly slowed capital expenditures in the primary markets for our products, which has resulted in a material adverse effectsignificant reduction in demand for our products.

Although we have implemented measures to mitigate the impact of the COVID-19 pandemic on the Company’sour business, financial condition and results of operations.

The Company’s Recent Increases In Revenues and Profits Are Due In Large Part To Accelerated Spending Related to Upgradesoperations, including reducing our expenses in certain areas of our business, these measures will not fully mitigate the adverse impact of the U.S. Wireless InfrastructureCOVID-19 pandemic on our business, financial condition and Networks, And Any Decline In This Activityresults of operations. We cannot predict the degree to, or the Related Capital Expenditures Could Have A Material Negative Affect On The Company’s Operations And Financial Condition.

A major portionperiod over, which we will be affected by the COVID-19 pandemic and resulting governmental and other measures. However, we expect that the economic effects of the Company’s recent growth in both revenues and profitability is due to increased sales by the Company of products, particularly custom made products manufactured by the Company’s Custom Cabling segment, used to build out and/or upgrade the U.S. wireless infrastructure and related networks. The upgrades to the infrastructure are to both support existing 4G networks, as well as to lay the groundwork for mobile 5G networks. The Company’s products used to build out and upgrade cell tower networks include certain types of custom cabling, fiber optic cable, copper cabling, and hybrid fiber and power cables. Most of the Company’s recent sales of cell tower upgrade products were made, directly or through the Company’s distributors, to a small number of end users. The Company’s revenues and profits could abruptly and materially decrease if any of the Company’s primary end user customers slow down or decrease their purchases of the Company’s products. No assurance can be given that the Company willCOVID-19 pandemic may continue to benefit fromadversely affect demand for certain of our products for the recent increase in wireless network improvements by U.S. wireless carriers.foreseeable future.

We The Company Depends On Third-Party Contract Manufacturers For A Majority Of Its Connector Manufacturing Needs.depend on third-party contract manufacturers for amajority of our connector manufacturing needs. If They Are Unable To Manufacture A Sufficient Quantity Of High-Quality Products On A Timely And Cost-Efficient Basis, The Company’s Net Revenue And Profitability Would Be Harmed And Its Reputation May Suffer.they are unable to manufacture asufficient quantity of high-quality products on atimely and cost-efficient basis, our net revenue and profitability would be harmed and our reputation may suffer.

 

Substantially all of the Company’s RF Connector division’s connector products are manufactured by third-party contract manufacturers. The Company reliesWe rely on them to procure components for RF connectors and in certain cases to design, assemble and test itsthe products on a timely and cost-efficient basis. If the Company’sour contract manufacturers are unable to complete design work on a timely basis, the Companywe will experience delays in product development and itsour ability to compete may be harmed. In addition, because some of the Company’sour manufacturers have manufacturing facilities in Taiwan and China, their ability to provide the Companyus with adequate supplies of high-quality products on a timely and cost-efficient basis is subject to a number of additional risks and uncertainties, including political, social and economic instability and factors that could impact the shipment of supplies. If the Company’sour manufacturers are unable to provide itus with adequate supplies of high-quality products on a timely and cost-efficient basis, the Company’sour operations would be disrupted and itsour net revenue and profitability would suffer. Moreover, if the Company’sour third-party contract manufacturers cannot consistently produce high-quality products that are free of defects, the Companywe may experience a higher rate of product returns, which would also reduce itsour profitability and may harm the Company’sour reputation and brand.

 

The Company doesWe do not currently have any long-term supply agreements with any of itsour contract manufacturers, and such manufacturers could stop manufacturing products for the Companyus at any time. Although the Company believeswe believe that itwe could locate alternate contract manufacturers if any of its manufacturers terminated theirour business, the Company’sour operations could be impacted until alternate manufacturers are found.

 

Our The Company’s Prior Acquisitions And Potential Additional Future Acquisitions Could Increase Operating Costs And Expose The Company To Additional Risks.prior acquisitions and potential additional future acquisitions could increase operating costs and expose us to additional risks.

 

As part of itsour plan to operate businesses that are profitable and that reflect the changing market, the Companywe from time to time sellssell unprofitable divisions and purchasespurchase new businesses. Such recent transactions include the disposition of its Comnet Telecom subsidiary on October 31, 2018, and the purchase of itsour new C Enterprises and Schrofftech subsidiaries in 2019. In addition, the Company haswe have previously disclosed that, as part of itsour growth strategy, the Company intendswe intend to make additional acquisitions of businesses in the future. While the Company believeswe believe that restructuring itsour operations and acquiring other businesses will benefit the Companyus in the longer term, these dispositions and acquisitions have in the short term caused the Companyus to incur additional legal, accounting and administrative expenses, including the cost of integrating the various accounting systems of itsour new subsidiaries, upgrading itsour information systems, and the cost of managing various divisions in separate locations and states. The CompanyWe may in the future make additional acquisitions. Accordingly, the Companywe will be subject to numerous risks associated with the acquisition of additional businesses, including:

 

 ·

diversion of management’s attention;

 

 ·

the effect on the Company’sour financial statements of the amortization of acquired intangible assets;

 


 ·

the cost associated with acquisitions and the integration of acquired operations;

 

 ·

the Company

we may not be able to secure capital to finance future acquisitions to the extent additional debt or equity is needed; and

 

 ·

assumption of unknown liabilities, or other unanticipated events or circumstances.

 

Any of these risks could materially harm the Company’sour business, financial condition and results of operations. There can be no assurance that any business that the Company acquireswe acquire will achieve anticipated revenues or operating results.

 

9

Our The Company’s Dependence On Third-Party Manufacturers Increases The Risk That It Will Not Have An Adequate Supply Of Products Or That Its Product Costs Will Be Higher Than Expected.dependence on third-party manufacturers increases the risk that we will not have an adequate supply of products or that our product costs will be higher than expected.

 

The risks associated with the Company’sour dependence upon third parties which develop and manufacture and assemble the Company’s products, include:

 

 ·

reduced control over delivery schedules and quality;

 

 ·

risks of inadequate manufacturing yields and excessive costs;

 

 ·

the potential lack of adequate capacity during periods of excess demand; and

 

 ·

potential increases in prices due to raw material and/or labor costs.

 

These risks may lead to increased costs or delay product delivery, which would harm the Company’sour profitability and customer relationships.

 

An Impairment In The Carrying Value Of Goodwill, Trade Names And Other Long-Lived Assets Could Negatively Affect The Company’s Consolidated Results Of Operations And Net Worth.impairment in the carrying value of goodwill, tradenames and other long-lived assets could negatively affect ourconsolidated results of operations and net worth.

 

Goodwill and indefinite-lived intangible assets, such as trade names, are recorded at fair value at the time of acquisition and are not amortized, but are reviewed for impairment annually or more frequently if impairment indicators arise. In evaluating the potential for impairment of goodwill and trade names, we make assumptions regarding future operating performance, business trends and market and economic conditions. There are inherent uncertainties related to these factors and in applying these factors to the assessment of goodwill and trade name recoverability. Goodwill reviews are prepared using estimates of fair value based on the estimated present value of future discounted cash flows. The CompanyWe could be required to evaluate the recoverability of goodwill or trade names prior to the annual assessment upon unexpected significant declines in operating results, the divestiture of a significant component of the Company’sour business or other factors.

 

No assurance can be given that events or circumstances will not change regarding the carrying value of goodwill of the Cables Unlimited, Rel-Tech, C-Enterprises and Schrofftech subsidiaries or the CompPro product line. Should the Companywe in the future determine that the carrying value of the goodwill associated with some or all of these assets no longer is recoverable, the Companywe will have to record additional impairment losses. In the event that the Company haswe have to record material impairment charges on the Cables Unlimited, Rel-Tech, C-Enterprises or Schrofftech subsidiaries or the CompPro product line, such future charges could materially reduce future earnings, which would negatively affect the Company’sour stock price.

 

Changes In Technology May Reduce The Demand For Some Of The Company’s Products.in technology may reduce the demand for some of ourproducts.

 

The wireless and telecommunications industry is rapidly changing. Changes in the product demands by telecommunications and other infrastructure companies may make certain of the Company’sour current products obsolete. Accordingly, the Companywe must timely react to technological developments and provide new products to meet the shifting demands of its customers. The Company’sOur failure to successfully introduce new or enhanced products on a timely and cost-competitive basis could have a material adverse effect on the Company’s results of our operations and financial condition.

 

If The Manufacturers Of The Company’s Coaxial Connectors Or Other Products Discontinue The Manufacturing Processes Needed To Meet The Company’s Demands Or Fail To Upgrade Their Technologies, The Company May Face Production Delays.the manufacturers of ourcoaxial connectors or other products discontinue the manufacturing processes needed to meet our demands or fail to upgrade their technologies, we may face production delays.

 

The Company’sOur coaxial connector and other product requirements typically represent a small portion of the total production of the third-party manufacturers. As a result, the Company iswe are subject to the risk that a third-party manufacturer will cease production of some of the Company’sour products or fail to continue to advance the process design technologies on which the manufacturing of the Company’sour products are based. Each of these events could increase the Company’sour costs, harm itsour ability to deliver products on time, or develop new products.

 


10

Our While The Company Has In The Past Paid Dividends, No Assurance Can Be Given That The Company Will Declare Or Pay Cash Dividends In The Future.dependence upon independent distributors to sell and market our products exposes us to the risk that such distributors may decrease their sales of our products or terminate their relationship with us.

 

During fiscal 2019, the Company made four dividends distributions to its stockholders (for a total of $0.08 per share). Dividends are declared and paid at the discretion of the Board of Directors subject to applicable laws, and depend on a number of factors, including our financial condition, results of operations, capital requirements, plans for future acquisitions, contractual restrictions, general business conditions and other factors that our Board of Directors may deem relevant. If the Company does not pay a cash dividend, the Company’s stockholders will not realize a return on their investment in the Common Stock except to the extent of any appreciation in the value of the Common Stock. 

The Company’s Dependence Upon Independent Distributors To Sell And Market The Company’s Products Exposes The Company To The Risk That Such Distributors May Decrease Their Sales Of The Company’s Products Or Terminate Their Relationship With The Company.

The Company’sOur sales efforts are primarily affected through independent distributors. Although the Company haswe have entered into written agreements with most of the distributors, the agreements are nonexclusive and generally may be terminated by either party upon 30-60 days’ written notice. The Company’sOur distributors are not within theour control, of the Company, are not obligated to purchase products from the Company,us, and may also sell other lines of products. There can be no assurance that these distributors will continue their current relationships with the Companyus or that they will not give higher priority to the sale of other products, which could include products of competitors. A reduction in sales efforts or discontinuance of sales of the Company’sour products by itsour distributors would lead to reduced sales and could materially adversely affect the Company’sour financial condition, results of operations and business. Selling through indirect channels such as distributors may limit the Company’sour contact with itsour ultimate customers and the Company’sour ability to assure customer satisfaction.

 

A Material Portion Of The Company’s Sales Is Dependent Upon A Few Principal Customers, The Loss Of Whom Could Materially Negatively Affect The Company’s Total Sales.material portion of oursales is dependent upon afew principal customers, the loss of whom could materially negatively affect our total sales.

 

Two customers, a distributorboth distributors, accounted for approximately 14% and 12% of our net sales for the fiscal year ended October 31, 2020. These two distributors each had accounts receivable balances that accounted for 12% of the total net accounts receivable balance at October 31, 2020. For the fiscal year ended October 31, 2019, one of these distributors and a wireless carrier accounted for approximately 19% and 23%, respectively, of the Company’sour net sales, respectively, for the fiscal year ended October 31, 2019. One distributor accounted for approximately 62% of the Company’s net sales for the year ended October 31, 2018.sales. The wireless carrier’s accounts receivable balance accounted for approximately 56% of the total net accounts receivable balance at October 31, 2019. The distributor’s accounts receivable balance accounted for approximately 48% of the total net accounts receivable balance at October 31, 2018.

None of these customers have entered into long-term written agreements with the Company,us, nor do they have any minimum purchase obligations. Accordingly, these customers could stop buying the Company’sour products at any time and for any reason. Also, a significant portion of the Company’s recently increased sales have been sold indirectlyfrom time to time we also sell products directly to a few end userslarger end-users for use in upgrading and building out thetheir wireless network infrastructure. A reduction, delay or cancellation of orders from these customers or the loss of the distributorour major distributors or theany of our primary end userend-user customers of the Company’s wireless product could significantly reduce the Company’s futureour revenues and profits. The CompanyWe cannot provide assurance that itsour existing distributors or primary end-user customers will continue to purchase at the current or historical levels or that the Company will be able to obtain orders from new customers.use us as a primary source of their product requirements.

 

Difficult Conditions In The Global Economy May Adversely Affected the Company’s Business And Results Of Operations.conditions in the global economy may adversely affected ourbusiness and results of operations.

 

A prolonged economic downturn, both in the U.S. and worldwide, could lead to lower sales or reduced sales growth, reduced prices, lower gross margins, and increased bad debt risks, all of which could adversely affect the Company’sour results of operations, financial condition and cash flows. Slowing economic activity, particularly in the telecommunication and data communication and wireless communications industries that represent the Company’sour largest target market, may adversely impact the demand for the Company’sour products. If the current economic condition in the U.S. deteriorates, the Company’sour results could be adversely affected as demand for wireless products lessens. There could also be a number of other adverse follow-on effects on the Company’sour business from a deterioration of economic conditions or from a credit crisis, including insolvency of certain key distributors, key suppliers, contract manufacturers and customers.

 

Changes In Income Tax And Other Regulatory Legislation.

The Company operates in compliance with applicable laws and regulations and attempts to structure its operations based upon existing laws and anticipated future changes in the law. However, when new legislation is enacted, or when new interpretations or applications of existing laws are made, the Company may need to implement changes in its policies or manner of operations, which changes could negatively affect the Company’s operations. The Company is, therefore, susceptible to unanticipated changes in legislation, especially relating to income and other taxes, import/export laws, hazardous materials, tariffs and other laws related to trade, accounting and business activities. Such changes in legislation may have an adverse effect on our business.

Because The Markets In Which The Company Competes Are Highly Competitive, A Failure To Effectively Compete Could Result In An Immediate And Substantial Loss Of Market Share.the markets in which wecompete are highly competitive, afailure to effectively compete could result in an immediate and substantial loss of market share.

 

The markets in which the Company operateswe operate are highly competitive and the Company expectswe expect that competition will increase in these markets. In particular, the wireless and telecommunications markets in which most of the Company’sour products are sold are intensely competitive. A failure to effectively compete in this market could result in an immediate and substantial loss of revenues and market share. Because most of the Company’sour sales are derived from products that are not proprietary or that can be used to distinguish the Companyus from itsour competitors, the Company’sour ability to compete successfully in these markets depends on a number of factors, including:

 


 ·

product quality;

 ·

reliability;

 ·

customer support;

 ·

time-to-market;

 ·

price;

 ·

market acceptance of competitors’ products; and

 ·

general economic conditions.

 

The Company’sOur revenues may suffer if the Company iswe are not able to effectively satisfy itsour customers in each of the foregoing ways. In addition, the Company’sour competitors or customers may offer enhancements to its existing products or offer new products based on new technologies, industry standards or customer requirements that have the potential to replace or provide lower-cost or higher performance alternatives to the Company’sour products. The introduction of enhancements or new products by the Company’sour competitors could render itsour existing and future products obsolete or unmarketable.

 

Many of the Company’sour competitors have significantly greater financial and other resources. In certain circumstances, the Company’sour customers or potential customers have internal manufacturing capabilities with which the Companywe may compete.

 

11

If The Industries Into Which The Company Sells Its Products Experience Recession Or Other Cyclical Effects Impacting The Budgets Of Its Customers, The Company’s Operating Results Could Be Negatively Impacted.the industries into which wesell our products experience recession or other cyclical effects impacting the budgets of our customers, our operating results could be negatively impacted.

 

The primary customers for the Company’sour connector and cable products are in the wireless communications industries. Any significant downturn in the Company’sour customers’ markets, in particular, or in general economic conditions which result in the cut back of budgets would likely result in a reduction in demand for the Company’sour products and services and could harm the Company’sour business. Historically, the communications industry has been cyclical, affected by both economic conditions and industry-specific cycles. Depressed general economic conditions and cyclical downturns in the communications industry have each had an adverse effect on sales of communications equipment, OEMs and their suppliers, including the Company.us. No assurance can be given that the wireless communications industry will not experience a material downturn in the near future. Any cyclical downturn in the communications industry could have a material adverse effect on the Company.us.

 

Because The Company Sells Its Products To Foreign Customers, The Company Is Exposed To All Of The Risks Associated With International Sales, Including Foreign Currency Exposure.we sell our products to foreign customers, we are exposed to all of the risks associated with international sales, including foreign currency exposure.

 

Sales to customers located outside the United States, either directly or through U.S. and foreign distributors, accounted for approximately 3% and 2% and 1% of theour net sales of the Company during the years ended October 31, 20192020 and 2018,2019, respectively. International revenues are subject to a number of risks, including:

 

 ·

longer accounts receivable payment cycles;

 ·

difficulty in enforcing agreements and in collecting accounts receivable;

 ·

tariffs and other restrictions on foreign trade;

 ·

economic and political instability; and the

 ·

burdens of complying with a wide variety of foreign laws.

 

The Company’sOur foreign sales are also affected by general economic conditions in its international markets. A prolonged economic downturn in itsour foreign markets could have a material adverse effect on the Company’sour business. There can be no assurance that the factors described above will not have an adverse material effect on the Company’sour future international revenues and, consequently, on theour financial condition, results of operations and business of the Company.business.

 

Since sales made to foreign customers or foreign distributors have historically been in U.S. dollars, the Company haswe have not been exposed to the risks of foreign currency fluctuations. However, if the Companywe in the future isare required to accept sales denominated in the currencies of the countries where sales are made, the Companywe will thereafter also be exposed to currency fluctuation risks.

 

The Inability To Hire inability to hire or Retain Certain Key Professionals, Management And Staff Could Adversely Affect Our Business, Financial Condition And Results Of Operations.retain certain key professionals, management and staff could adversely affect our business, financial condition and results of operations.

 

The Company’sOur future success depends largely upon the continued service of itsour executive officers and other key management and technical personnel, and on itsour ability to continue to identify, attract, retain and motivate them. However, other than the employment agreement the entered into with Mr. Dawson, the Company’s Chief Executive Officer, the Companywe currently doesdo not have any other written employment agreements with itsour executive officers and managers. The market for employees in the Company’sour industry is extremely competitive and the cost for new employees may exceed the cost of existing employees.The loss of key management and technical personnel, could have an adverse effect on our business, financial position and results of operations.

 


We The Company Has Few Patent Rights In The Technology Employed In Its Products, Which May Limit the Company’s Ability To Compete.have few patent rights in the technology employed in our products, which may limit our ability to compete.

 

Other than the patents that the Company ownswe own related to itsthe CompPro proprietary product line and itsthe Schrofftech telecom shelter cooling products and control systems, the Company doeswe do not hold any other United States or foreign patents. The Company doesSince we do not seek to protect itsour rights in the technology that it developswe develop or that the Company’sour third-party contract manufacturers develop for us by means of the patent laws, although it does protect some aspects of its proprietary products and technologies by means of copyright and trade secret laws. Accordingly, competitors can and do sell manymost of the same products as the Company,us, and the Companywe cannot prevent or restrict such competition.

 

Volatility of Trading Prices Of The Company’s Stock Could Result In A Loss On An Investment In The Company’s Stock.trading prices of our stock could result in aloss on an investment in our stock.

 

The market price of the Company’sour common stock has varied greatly, and the trading volume of the Company’sour common stock has fluctuated greatly as well. These fluctuations often occur independently of the Company’sour performance or any announcements by the Company.of our announcements. Factors that may result in such fluctuations include:

 

 ·

any shortfall in revenues or net income from revenues or net income expected by securities analysts, or a net loss in the Company’sour quarterly or annual operations;

 

·

fluctuations in the Company’sour financial results or the results of other communications-related companies, including those of the Company’sour direct competitors;

 

·

general conditions in the connector and communications industries;

 

·

changes in the Company’sour revenue growth rates or the growth rates of the Company’sour competitors;

 

·

sales of large blocks of the Company’sour common stock; and

 

·

conditions in the financial markets in general.

12

 

In addition, the stock market may, from time to time, experience extreme price and volume fluctuations, which may be unrelated to the operating performance of any specific company. Accordingly, the market prices of the Company’sour common stock may be expected to experience significant fluctuations in the future.

 

Failure To Maintain An Effective System Of Internal Control Over Financial Reporting Or To Remediate Weaknesses Could Materially Harm The Company’s Revenues, Erode Stockholder Confidence In The Company's Ability To Pursue Business And Report Its Financial Results/Condition, And Negatively Affect The Trading Price Of The Company’s Common Stock.to maintain an effective system of internal control over financial reporting or to remediate weaknesses could materially harm our revenues, erode stockholder confidence in our ability to pursue business and report our financial results/condition, and negatively affect the trading price of our common stock.

 

As a public reporting company, the Company iswe are required to establish and maintain effective internal control over financial reporting. Failure to establish such internal control, or any failure of such internal control once established, could adversely impact the Company’sour public disclosures regarding itsour business, financial condition or results of operations. Any failure of our internal control over financial reporting could also prevent the Companyus from maintaining accurate accounting records and discovering accounting errors and financial frauds.

 

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual assessment of our internal control over financial reporting. The standards that must be met for management to assess the internal control over financial reporting as effective are complex, and require significant documentation, testing and possible remediation to meet the detailed standards. Any assessment by management that there are weaknesses in the Company’sour internal control over financial reporting may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in the internal controls over financial reporting (including those weaknesses identified in periodic reports), or disclosure of management’s assessment of the internal controls over financial reporting may have an adverse impact on the price of the Company’sour common stock.

 

As of October 31, 2020 and 2019, and 2018, the Companywe determined that itsour internal control over financial reporting was effective. However, no assurance can be given that there will not be failures in our internal controls in future periods.

 

A Cyber Incident Could Result In Information Theft, Data Corruption, Operational Disruption, And/ Or Financial Loss.cyber incident could result in information theft, data corruption, operational disruption, and/or financial loss.

 

Businesses have become increasingly dependent on digital technologies to conduct day-to-day operations. Additionally, we may be exposed to increased cyber security risks as a result of remote working requirements imposed on us as a result of the COVID-19 pandemic. At the same time, cyber incidents, including deliberate attacks or unintentional events, have increased. A cyber attack could include gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption or result in denial of service on websites. The Company dependsWe depend on digital technology, including information systems and related infrastructure, to process and record financial and operating data, and communicate with its employees and business partners. The Company’sOur technologies, systems, networks, and those of its business partners may become the target of cyber attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of proprietary and other information, or other disruption of the Company’sour business operations. Although to date the Company haswe have not experienced any losses relating to cyber attacks, there can be no assurance that the Companywe will not suffer such losses in the future. As cyber threats continue to evolve, the Companywe may be required to expend significant additional resources to continue to modify or enhance its protective measures or to investigate and remediate any information security vulnerabilities.

 


While wehave in the past paid dividends, no assurance can be given that we will declare or pay cash dividends in the future.

During fiscal 2020, we made two dividends distributions to our stockholders (for a total of $0.04 per share), but thereafter stopped paying dividends because of the decrease in revenues and profitability and the uncertainty associated with COVID-19. Dividends are declared and paid at the discretion of the Board of Directors subject to applicable laws, and depend on a number of factors, including our financial condition, results of operations, capital requirements, plans for future acquisitions, contractual restrictions, general business conditions and other factors that our Board of Directors may deem relevant. Therefore, even if our operations return to their prior level of profitability, any decision to pay dividends in the future will depend on various other factors that the Board may consider relevant. Accordingly, no assurance can be given that we will once again pay regular dividends in the future. If we do not pay a cash dividend, our stockholders will not realize a return on their investment in the common stock except to the extent of any appreciation in the value of the common stock. 

ITEM 1B.

UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 2.

DESCRIPTION OF PROPERTY

 

The CompanyWe currently leases itslease our corporate headquarters and RF connector and cable assembly manufacturing facilities at 7610 Miramar Road,in San Diego, California. At that location, the Company leaseswe lease three buildings, with a total of approximately 21,908 square feet of office, warehouse and manufacturing space, that house the Company’sour corporate administration, sales and marketing, and engineering departments. The buildings also are used for production and warehousing by the Company’sour RF Connector division.segment. We also lease spaces in four other locations in the United States that house the administration offices and manufacturing facilities for our Custom Cabling segment. The termtable below shows a summary of the lease expires on Julysquare footage of these locations as of October 31, 2022, and the rental payments under the lease currently are $26,176 per month. The San Diego lease also requires the payment of the Company’s pro rata share of real estate taxes and insurance, maintenance and other operating expenses related to the facilities.2020:

 

 (i)The Cables Unlimited division leases its 12,000 square foot manufacturing facility in Yaphank, New York, from K&K Unlimited, a company controlled by Darren Clark, the former owner and current President of Cables Unlimited.  Cables Unlimited’s monthly rent expense under the lease is $13,000 per month, plus payments of all utilities, janitorial expenses, routine maintenance costs and costs of insurance for Cables Unlimited’s business operations and equipment. The current lease expires on June 30, 2021.
(ii)The Rel-Tech Electronic division leases an approximately 13,750 square foot facility in Milford, Connecticut.  The old lease expired in August 2019. On September 1, 2019, Rel-Tech extended its lease term for an additional two years to August 31, 2021, with escalating rent payments over the two years.  The net monthly rent payments currently are $8,969 per month.

Leased

   
(iii)On November 1, 2018, the Cables Unlimited division entered into a lease agreement with 100 Bellport Avenue, LLC for approximately 7,500 square feet located in Yaphank, New York with a monthly rent expense of $5,625. On February 1, 2019, Cables Unlimited entered into an amendment to this lease to expand the leased space by an additional 5,000 square feet and increase the monthly rent expense by $3,750, resulting in a total rent expense of $9,375 per month. The lease expired on October 31, 2019 and was converted to a month-to-month lease at the same monthly rental amount.

Milford, CT

 

                  13,750

(iv)The recently acquired C Enterprises division leases approximately 24,014 square feet of office, warehouse, and manufacturing space located in Vista, California. The term of the lease expires on June 30, 2023, and the rental payments under the lease currently are $18,491 per month, plus payments of real estate taxes, management fee, property insurance and other operating expenses related to the facilities.

North Kingstown, RI

 

                  10,700

Vista, CA

(v)The Schrofftech facilities, consisting of two buildings for a total of 10,700 square feet, are leased by RF Industries, Ltd. under two leases that expire on January 1, 2020 and April 30, 2020, respectively. Both leases have been renewed for two years and expire January 31, 2022. The aggregate monthly rental payments under the new leases will be $6,525 per month.

                  24,014

Yaphank, NY

                  19,500

 

The aggregate fiscal 2019 monthly rent for all of the Company’s facilities currently is approximately $76,000 per month, plus in certain circumstances, utilities, maintenance and insurance.

13

 

ITEM 3.

LEGAL PROCEEDINGS

 

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

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

None.

 

PART II

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

  

Market Information.Information. RF Industries, Ltd.’s common stock is listed on the Nasdaq Global Market and is traded under the “RFIL” trading symbol.

 


Stockholder.Stockholders. As of October 31, 2019,2020, there were 271273 holders of the Company’s Common Stockour common stock according to the records of the Company’sour transfer agent, Continental Stock Transfer & Trust Company, New York, New York, not including holders who hold their stock in “street name.”

 

Repurchase of Securities.Securities. The CompanyWe did not repurchase any securities during the fiscal year October 31, 2019.2020.

 

Recent Sales of Unregistered Securities.Securities. There were no previously unreported sales of equity securities by the Companyus that were not registered under the Securities Act during fiscal 2019.2020.

 

Dividend Policy.Policy. During the past nine years, we have paid dividends on a quarterly basis. This fiscal year, due to the impact of the COVID-19 pandemic on our financial results, our Board terminated these dividend payments after the first two fiscal quarters. The declaration and amount of any actual cash dividend are in the sole discretion of the Company’sour Board of Directors and are subject to numerous factors that ordinarily affect dividend policy, including the results of our operations and financial position, as well as general economic and business conditions. The Company has been paying quarterlyAccordingly, if and when any dividends for over nine years. The amountwill be declared in the future will be determined by our Board based on the Company’s future operations and on the Board’s decision regarding the use of the quarterly dividends may differ from quarter to quarter. During the fiscal years ended October 31, 2019 and 2018, the Company paid an aggregate of $748,000 and $730,000, respectively, of dividends.any future earnings.

 

EQUITY COMPENSATION PLAN INFORMATION

 

The following table provides information as of October 31, 20192020 with respect to the shares of Company common stock that may be issued under the Company’s existing equity compensation plans.plans:

 

 A B  C 

A

  

B

  

C

 
      Number of Securities         

Number of Securities

 
      Remaining Available for         

Remaining Available for

 
      Future Issuance Under         

Future Issuance Under

 
      Equity Compensation         

Equity Compensation

 
 Number of Securities to Weighted Average Plans (Excluding 

Number of Securities to

  

Weighted Average

  

Plans (Excluding

 
 be Issued Upon Exercise Exercise Price of Securities Reflected in 

be Issued Upon Exercise

  

Exercise Price of

  

Securities Reflected in

 
Plan Category of Outstanding Options Outstanding Options ($) Column A) 

of Outstanding Options

  

Outstanding Options ($)

  

Column A)

 
Equity Compensation Plans Approved by Stockholders (1)  759,088  $4.07  1,405,741
          
Equity Compensation Plans Not Approved by Stockholders (2)  130,000  $1.07  -

2010 Stock Incentive Plan

  778,143  $4.67   -(1)

2020 Equity Incentive Plan

  10,000  $4.66   1,197,399 
Total  889,088  $3.63  1,405,741  788,143  $4.67   1,197,399 

 

(1)

Consists of options granted under the R.F.

The RF Industries, Ltd. 2010 Stock Incentive Plan.Plan expired on March 8, 2020. Accordingly, additional equity incentive awards cannot be granted under this plan.

 

(2)Consists of options granted to one key employee of the Company.

ITEM 6.SELECTED FINANCIAL DATA

 

Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K.

 

14

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

The consolidated financial statements and related disclosures have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these consolidated financial statements requires the Companyus to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. The Company evaluates itsWe evaluate our estimates, including those related to bad debts, inventory reserves and contingencies on an ongoing basis. The Company bases itsWe 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.

 

Revenue Recognition

 

On November 1, 2018, the Companywe adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASC 606”) applying the modified retrospective method. The core principle of ASC 606 is that revenue should be recorded in an amount that reflects the consideration to which we expect to be entitled in exchange for goods or services promised to customers. Under ASC 606, the Company followswe follow a five-step model to: (1) identify the contract with our customer; (2) identify our performance obligations in our contract; (3) determine the transaction price for our contract; (4) allocate the transaction price to our performance obligations; and (5) recognize revenue when (or as) each performance obligation is satisfied. In accordance with this accounting principle, the Company recognizeswe recognize revenue using the output method at a point in time when finished goods have been transferred to the customer and there are no other obligations to customers after the title of the goods have transferred. Title of goods are transferred based on shipping terms for each customer – for shipments with terms of FOB Shipping Point, title is transferred upon shipment; for shipments with terms of FOB Destination, title is transferred upon delivery.

14

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value, with cost determined using the weighted average cost method of accounting. Certain items in inventory may be considered obsolete or excess and, as such, the Companywe periodically reviews itsreview our inventories for excess and slow moving items and makes provisions as necessary to properly reflect inventory value. Because inventories have, during the past couple years, represented up to one-fourth of our total assets, any reduction in the value of our inventories would require the Companyus to take write-offs that would affect theour net worth and future earnings.

 

Allowance for Doubtful Accounts

 

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

 

Long-Lived Assets Including Goodwill

 

The Company assessesWe 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. The Company measuresWe measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If property and equipment and intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value.

 

The Company amortizes itsWe amortize our intangible assets with definite useful lives over their estimated useful lives and reviews these assets for impairment.

 

The Company tests itsWe 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.

 

Income Taxes

 

The Company recordsWe 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. The Company recordsWe record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

 

The Company accountsWe account for uncertain tax positions by determining if it is “more likely than not” that a tax position will be sustained by the appropriate taxing authorities upon examination based on the technical merits of the position. An uncertain income tax position is not recognized if it has less than a 50% likelihood of being sustained.The Company recognizes We recognize interest and penalties related to certain uncertain tax positions as a component of income tax expense and the accrued interest and penalties are included in deferred and income taxes payable in the Company’sour consolidated balance sheets. See Note 98 to the Consolidated Financial Statements included in this Report for more information on the Company’sour accounting for uncertain tax positions.

15

 

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

 

Stock-based Compensation

 

The Company usesWe use the Black-Scholes model to value the stock option grants. This valuation is affected by the Company’sour 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.

 


RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

For recently issued accounting pronouncements that may affect us, see Note 1 of Notes to Consolidated Financial Statements.

 

OVERVIEW

 

During the periods covered by this Annual Report, the Companywe marketed a variety of connector products, including connectors and cables, standard and custom cable assemblies, wiring harnesses and fiber optic cable products to numerous industries for use in thousands of products. The Company aggregates itsWe aggregate our operating divisions into segments that have similar economic characteristics and are similar in the majority of the following areas: (1) the nature of the product and services; (2) the nature of the production process; (3) the type or class of customer for their products and services; (4) the methods used to distribute their products or services; and (5) if applicable, the nature of the regulatory environment. The Company hasWe have two reportable segments – the “RFRF Connector and Cable Assembly” (RF Connector)Assembly (“RF Connector”) segment and the “CustomCustom Cabling Manufacturing and Assembly” (Custom Cabling)Assembly (“Custom Cabling”) segment – based upon this evaluation.

 

In the fiscal years covered by this Annual Report, the RF Connector segment was comprised of one division, while the Custom Cabling segment was comprised of threefour divisions. The four divisions that met the quantitative thresholds for segment reporting in the fiscal year ended October 31, 20192020 were the RF Connector and Cable Assembly division, Cables Unlimited, Rel-Tech, and C Enterprises subsidiaries.and Schrofftech which the Company acquired in the current fiscal year ending October 31, 2020, is now part of the Custom Cabling segment.subsidiaries.

 

For the year ended October 31, 2019,2020, most of the Company’sour revenues were generated from the Custom Cabling segment from its sale of fiber optic cable, copper cabling, custom patch cord assemblies and wiring harnesses (which accounted for 75% of the Company’s total sales for the fiscal year ended October 31, 2019). This segment largely benefitted from an increase in demand of the segment’ssells customized cable assemblies and wiring harnesses that are integrated into customers’ products, as well as fiber optic cables used primarily in the build out of wireless carrier 4G and anticipated 5G network deployment. Thisnetworks. Because of the decrease in capital expenditures by carriers as a result of COVID-19, Custom Cabling sales decreased in fiscal 2020, and the percentage of our revenues generated by the Custom Cabling segment also sells customized cable assemblies and wiring harnesses which are integrated into customers’ products.decreased from 75% of our total sales in fiscal 2019 to 66% for the fiscal year ended October 31, 2020.

 

Revenues from the RF Connector segment were generated from the sales of RF connector products and connector cable assemblies and accounted for 25%34% of the Company’sour total sales for the fiscal year ended October 31, 2019.2020. This segment, which historically produces the largest margins of the fourfive production sites, is known for its quick turnaround of high quality customized solutions in the form of cable assemblies.

 

On October 31, 2018, the Company sold all of the shares of its Comnet subsidiary for a cash purchase price of $4.2 million.The sale of Comnet was consistent with the Company’s business transformation toward a one company culture and operating structure to more efficiently leverage its capabilities across the entire business. Comnet’s business did not match the Company’s go-to-market strategy since it operated with a different sales model and margin profile than the rest of the Company. As a result of the sale, the Company recognized a $0.2 million loss from discontinued operations for the year ended October 31, 2018.Comnet’s results of operations for fiscal 2018 have been excluded from operating results in the financial statements included in this Annual Report.

On March 15, 2019, through C Enterprises, Inc. (“C Enterprises”), itsour newly formed subsidiary, the Companywe purchased the business and assets of C Enterprises L.P., a California based designer and manufacturer of quality connectivity solutions to telecommunications and data communications distributors. In consideration for the C Enterprises business and assets, the Companywe paid $600,000 in cash and assumed certain liabilities. The acquisition was determined not to be material and was accounted for in accordance with the acquisition method of accounting, and the acquired assets and assumed liabilities were recorded by the Company at their estimated fair values in accordance with ASC 805, Business Combinations. There were no intangible assets identified as part of the acquisition. The results of C Enterprises, Inc.’sEnterprises’ operations subsequent to March 15, 2019 have been included in the results of the Custom Cabling segment as well as in the Company’s consolidated statements of operations.segment. Costs related to the acquisition of C Enterprises were approximately $100,000 and have been expensed as incurred and categorized in selling and general expenses. For the fiscal year ended October 31, 2019,2020, C Enterprises Inc. contributed $7.2$10.9 million of revenue.

 

On November 4, 2019, the Companywe purchased all of the issued and outstanding shares of Schroff Technologies International, Inc. (“Schrofftech”) from DRC Technologies, Inc., an unaffiliated party. Based in Rhode Island, Schrofftech is a Rhode Island based manufacturer and marketer of intelligent thermal control systems used by telecommunications companies across the U.S. and Canada, and shrouds for small cell integration and installation. The CompanyWe paid $4,000,000 in cash at the closing, of which $900,000 was deposited into two separate escrow accounts for a period of one year and two years, respectively, as security for any indemnification claims the Companywe may have against the seller. In addition to the cash paid at the closing, the Companywe agreed to pay up to an additional $2,400,000 as an earn-out payment if Schrofftech achieves certain adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets during the two-year period following the closing. SinceThe results of Schrofftech’s operations have been included in the results of the Custom Cabling segment. Costs related to the acquisition of Schrofftech occurred afterwere approximately $151,000 and have been expensed as incurred and categorize in selling and general expenses. For the endfiscal year ended October 31, 2020, Schrofftech contributed $4.3 million of revenue.

16

In March 2020, the World Health Organization (the “WHO”) declared coronavirus (“COVID-19”) a pandemic emergency. The COVID-19 pandemic has negatively impacted regional and global economies, disrupted global supply chains, and created significant volatility and disruption of financial markets. The global impact of the two fiscal years coveredoutbreak has been rapidly evolving and certain jurisdictions, including those where we have operations, have also reacted by instituting quarantines, restrictions on travel, “shelter in place” rules, social distancing protocols and restrictions on types of business that may continue to operate. While we have been deemed an “essential” business, and therefore have been permitted to continue our operations, the impact of the COVID-19 pandemic has affected both our operations and those of our customers. Our operations have been negatively affected by partial shutdowns of our facilities, by changes that we had to make on our operating methods and procedures, and by our reduced workforce as many 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, overall demand for our products has been reduced, 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 report,global pandemic.

The extent of the impact of the COVID-19 pandemic on our operational and financial resultsperformance will depend on future developments, including the duration and spread of Schrofftechthe 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 fiscal year ended October 31, 2020. We currently expect the decline caused by the economic slowdown to persist through at least the first quarter of 2021. The operations of our Cables Unlimited subsidiary in Long Island, New York, was particularly affected as many employees stayed at home and as local customers shut down or otherwise delayed, deferred or cancelled orders for our products. Because of the impact that COVID-19 has on our Northeastern operations, in May 2020 we applied for and received loans under the Paycheck Protection Program (“PPP”) of the CARES 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). We anticipate that most of the PPP Loans will be eligible for forgiveness in accordance with the provisions of the CARES Act. To the extent not includedforgiven, the PPP Loans have a two-year term, a fixed interest rate of 1%, and principal and interest payments are deferred for six months.

We considered the impact of the COVID-19 related economic slowdown on our evaluation of goodwill impairment indicators as of October 31, 2020. Although no goodwill 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. The impact of the COVID-19 pandemic was considered in the attached consolidated financial statements.annual assessment at fiscal year ended October 31, 2020.

 


Financial Condition

 

The following table presents certain key measures of financial condition as of October 31, 20192020 and 20182019 (in thousands, except percentages):

 

 

2020

  

2019

 
 2019  2018  

Amount

  

% Total Assets

  

Amount

  

% Total Assets

 
 Amount  % Total Assets  Amount  % Total Assets                 
Cash and cash equivalents $12,540   33.3% $16,334   50.3% $15,797   38.5% $12,540   33.3%
Current assets  33,660   89.3%  28,530   87.8%  30,865   75.2%  33,660   89.3%
Current liabilities  6,080   16.1%  4,719   14.5%  6,901   16.8%  6,080   16.1%
Working capital  27,580   73.2%  23,811   73.3%  23,964   58.4%  27,580   73.2%
Property and equipment, net  839   2.2%  559   1.7%  809   2.0%  839   2.2%
Total assets  37,700   100.0%  32,502   100.0%  41,059   100.0%  37,700   100.0%
Stockholders' equity  31,533   83.6%  27,783   85.5%  32,064   78.1%  31,533   83.6%

 

Liquidity and Capital Resources

 

Management believesWe believe that itsour existing current assets and the amount of cash it anticipates itwe anticipate we will generate from current operations will be sufficient to fund theour anticipated liquidity and capital resource needs of the Company for at least twelve months from the date of this filing. Management believes that its existing assets and the cash it expects to generate from operations, including its current backlog of unfulfilled orders, will be sufficient during the current fiscal year.Annual Report.

 

As of October 31, 2019, the Company2020, we had a total of $12.5$15.8 million of cash and cash equivalents compared to a total of $16.3$12.5 million of cash and cash equivalents as of October 31, 2018.2019. As of October 31, 2019, the Company2020, we had working capital of $27.6$24.0 million and a current ratio of approximately 5.5:4.5:1. The Company’sDespite a decrease in sales as a result of the COVID-19 pandemic, our cash and cash equivalents decreasedincreased compared to itsour cash and cash equivalents as of October 31, 20182019 due to the receipt of the PPP Loans, and the timing of its sales and the changes in accounts receivable. During the fourth quartercollections of the fiscal year ended October 31, 2019, the Company’s sales increased significantly compared to the prior year, which increased the Company’soutstanding accounts receivable, toresulting in a decrease in the accounts receivable balance by $6.5 million, from $12.2 million as of October 31, 2019 compared to $4.3$5.7 million as of October 31, 2018.2020. As of October 31, 2019, the Company2020, we had $33.7$30.9 million in current assets and $6.1$6.9 million in current liabilities.

 

The Company’s cash and cash equivalents decreased by $4.0 million on November 4, 2019 due to the cash payment the Company made on that day to purchase Schrofftech. The decrease in cash is not expected to have a negative impact on the Company’s liquidity and capital resources in the current fiscal year.

The Company’s backlog asAs of October 31, 20192020, our backlog was $6.1$6.3 million compared to a backlog of $10.9$6.1 million as of the fiscal year ended October 31, 2018.2019. Since purchase orders are submitted from customers based on the timing of their requirements, the Company’sour 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 the Company haswe have not historically experienced material cancellations of purchase orders.

 

17

The Company used

We generated cash of $2.7$3.3 million in operating activities during the fiscal year ended October 31, 20192020 due largely to anthe receipt of the PPP Loans ($2.8 million) and the collection of accounts receivable ($6.8 million) that were outstanding as of October 31, 2019. The cash received from the PPP Loans and collected from our accounts receivables, and the increase in accounts receivable ($6.6 million) as a result of extending terms for one of its major customer. Other activities that contributed to the increased use of cash was increased inventory purchases ($0.7 million) due to increased sales, increased capital expenditures ($0.5 million) from the expansion of its manufacturing facilities and the purchase of additional manufacturing equipment, the purchase of C Enterprises ($0.5 million), and dividends paid ($0.7 million) to our shareholders. Partially offsetting these decreases were increases resulting from net income of $3.5 million, in addition to noncashnon-cash credits of $0.6 million from depreciation and amortization ($1.0 million) and $0.3 million from stock-based compensation expense.expense ($0.6 million), was partially offset by the net cash used in the purchase of Schrofftech ($3.9 million), net loss of $0.1 million, and a decrease in accounts payable ($1.0 million) and accrued expenses ($1.4 million) primarily due to the payout of prior year’s bonuses. In addition, during the fiscal year ended October 31, 2020, we received $0.4 million from the exercise of stock options and paid out $0.4 million in dividends. The current year dividends were declared before the full impact of the COVID-19 pandemic was realized, and our Board of Directors stopped the dividend payment when the adverse effects of the COVID-19 pandemic on our operations became clear.

 

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

 

As of October 31, 2019,2020, aside from the CompanyPPP Loans, we had no other outstanding indebtedness for borrowed funds. See Note 11 of the Notes to Consolidated Financial Statements for further discussion on the PPP Loans.  In November 2019, the Company obtainedwe entered into an agreement for a $5 million revolving line of credit (“LOC”) in the amount of $5.0 million from Bank of America, N.A. The credit facility is secured by all ofAmounts outstanding under the assets of RF Industries, Ltd., including by a pledge of the shares of the Company’s four subsidiaries and by guaranties executed by those subsidiaries. The credit facility bearsLOC shall bear interest per year at a rate equal to theof 2.0% plus LIBOR Daily Floating Rate plus 2.00%.(“base interest rate”), with interest payable on the first day of each month. Borrowings under the LOC are secured by a security interest in certain assets of the Company. The LOC contains certain loan covenants. Failure to maintain the loan covenants may constitute an event of default, which could result in all outstanding amounts of principal and interest becoming immediately due and payable. All outstanding principal and interest is due and payable on December 1, 2021. As of October 31, 2020, we were in compliance with all loan covenants. Additionally, as of the date of this Annual Report, no advancesreport, we have been made tonot used the Company underLOC and accordingly, the credit facility.entire amount of the LOC is currently available.

 


From time to time, the Companywe may undertake acquisitions of other companies or product lines in order to diversify itsour product and solutions offerings and customer base. Conversely, the Companywe may undertake the disposition of a division or product line due to changes in the Company’sour business strategy or market conditions. Acquisitions may require the outlay of cash, which may reduce the Company’sour liquidity and capital resources while dispositions may increase the Company’sour cash position, liquidity and capital resources.

The Company is currently evaluating On November 4, 2019, we purchased the financial impactbusiness of the import tariffs that were recently enactedSchroff Technologies International, Inc., a Rhode Island-based manufacturer and marketer of intelligent thermal control systems used by telecommunications companies across the U.S. and Canada, and shrouds for small cell integration and installation. At the closing, in consideration for Schrofftech, we paid the sellers $4 million in cash, and, if certain foreign countries. While the Company does not believe that the direct financial impact on the Companytargets are met by Schrofftech over a two-year period, agreed to pay an additional cash earn-out payment of the enacted tariffs has been material, there is uncertainty relatedup to potential costs resulting from the tariffs and the disruption related to the trade dispute between the U.S. and certain other countries, and there may be an indirect impact in the form of increased material costs from suppliers that cannot be accurately measured.$2.4 million.

 

Results of Operations

 

The following summarizes the key components of theour consolidated results of operations for the fiscal years ended October 31, 20192020 and 20182019 (in thousands, except percentages) of the Company, excluding Comnet. On October 31, 2018, the Company sold its Comnet subsidiary. Except as stated, all information regarding the Company’s results of operations in the fiscal year ended October 31, 2018 exclude the operations of Comnet. As a result of the sale of the Comnet division, Comnet is included in the Company’s results from operations as loss from discontinued operations.:

 

  2019  2018 
  Amount  % of Net
Sales
  Amount  % of Net
Sales
 
Net sales $55,325   100.0% $50,196   100.0%
Cost of sales  39,688   71.7%  33,096   65.9%
Gross profit  15,637   28.3%  17,100   34.1%
Engineering expenses  1,468   2.7%  1,480   2.9%
Selling and general expenses  9,710   17.6%  8,173   16.3%
Operating income  4,459   8.1%  7,447   14.8%
Other income  98   0.2%  47   0.1%
Income from continuing operations before provision for income taxes  4,557   8.2%  7,494   14.9%
Provision for income taxes  1,036   1.9%  1,468   2.9%
Income from continuing operations  3,521   6.4%  6,026   12.0%
Loss from discontinued operations, net of tax  -   0.0%  (180)  -0.4%
Consolidated net income  3,521   6.4%  5,846   11.6%
  

2020

  

2019

 
  

Amount

  

% of Net

Sales

  

Amount

  

% of Net

Sales

 
                 

Net sales

 $43,044   100.0% $55,325   100.0%

Cost of sales

  31,478   73.1%  39,688   71.7%

Gross profit

  11,566   26.9%  15,637   28.3%

Engineering expenses

  1,989   4.6%  1,468   2.7%

Selling and general expenses

  9,980   23.2%  9,710   17.6%

Operating (loss) income

  (403)  -0.9%  4,459   8.1%

Other (loss) income

  (45)  -0.1%  98   0.2%

(Loss) income before provision for income taxes

  (448)  -1.0%  4,557   8.2%

(Benefit) provision for income taxes

  (367)  -0.9%  1,036   1.9%

Consolidated net (loss) income

  (81)  -0.2%  3,521   6.4%

 

Net sales for the year ended October 31, 2019 ( “fiscal 2019”2020 (“fiscal 2020”) increaseddecreased by $5.1$12.3 million (or 10%22%) to $55.3$43.0 million, as compared to net sales of $50.2$55.3 million for the year ended October 31, 20182019 (“fiscal 2018”2019”). The decrease in net sales is attributable to a decrease in net sales at the Custom Cabling segment, which decreased by $13.1 million, or 32%, to $28.5 million compared to $41.6 million in fiscal 2020. The decrease was primarily in our project-based business which declined following the slowdown in carrier capital expenditure spending. The project-based sales decrease was partially offset by additional sales from the newly acquired Schrofftech and C Enterprises subsidiaries. The sales decrease in net sales at the Custom Cabling segment was partially offset by an increase in net sales at the RF Connector segment. Net sales for fiscal 20192020 at the RF Connector segment increased by $1.9$0.9 million, or 16%6%, to $13.7$14.6 million as compared to $11.8$13.7 million for fiscal 20182019 as business from the Company’s distribution channel increased.

18

Gross profit for fiscal 2020 declined $4.1 million to $11.6 million, and gross margins decreased to 26.9% of sales from 28.3% of sales in fiscal 2019. The Company’sdecrease in gross profit and gross margins was due to (i) lower sales in the project-based business that resulted in lower coverage of fixed production costs, (ii) product mix at the Custom Cabling segment, generated $41.6 million of netand (iii) increased sales for fiscal 2019, an increase of $3.3 million or 9% when compared to $38.4 million for fiscal 2018 as a result of $7.2 million of sales contributed fromat the C Enterprises division. This increase was partially offset by a sales decline in the wireless market due to the inclusion of the largest series of orders in the Company’s history in the fiscal 2018 second quarter. C Enterprises was acquired in March 2019 and, therefore, no revenues from this subsidiary, were recorded in fiscal 2018.

The Company’s gross profit for fiscal 2019 declined $1.5 million when compared to fiscal 2018 due largely to the decrease in sales described above while also facing pricing pressure from some of its customers. In addition,whose gross margins at C Enterprises are lower than the blended margins at the majority of theour other Custom Cabling subsidiaries, and substantially lower than the margins at the RF Connector segment, which contributed to the reduction of the Company’s gross margins. Accordingly, gross margins as a percentage of sales of 28% declined compared to 34% for fiscal 2018. Furthermore, the cost of labor increased as the Company paid more to reward and retain its production workforce and, in some cases, to meet increased state mandated minimum wage requirements.divisions.

 

Engineering expenses increased $0.5 million to $2.0 million for fiscal 2020 compared to $1.5 million in fiscal 2019 were consistent withprimarily due to the absorption of the engineering costs of the newly acquired Schrofftech (which we did not own in fiscal 2019) and a full twelve months of engineering costs at C Enterprises (whose expenses for fiscal 2018.were only included in 2019 following the acquisition of this subsidiary on March 15, 2019). Engineering expenses represent costs incurred relating to the ongoing development of new products.

 

Selling and general expenses increased by $1.5$0.3 million duringto $10.0 million (23% of sales) in fiscal 20192020 compared to $9.7 million (17.6% of sales) from $8.2 million (16.3%(18% of sales) in the prior fiscal year. The increase in selling and general expenses in 2019 was primarilylargely due to the addition of theadditional selling and general expenses of the newlyrecently acquired Schrofftech and C Enterprises division ($1.4 million), whichsubsidiaries. Additionally, total selling and general expenses did not exist in fiscal 2018.2020 included (i) $0.7 million of amortization expense, an increase of $0.4 million over last year as a result of the acquisition of Schrofftech, (ii) $0.6 million in stock-based compensation expense, an increase of $0.2 million over last year due in part to option grants to new hires and the expense related to accelerated vesting of options under a departing officer’s severance agreement, and (iii) $0.2 million of severance obligations. These costs were partially offset with a $0.9 million valuation decrease in the Schrofftech earn-out liability.

 

For fiscal 2019,2020, pretax (loss) income for the Company’s operating income of $4.5Custom Cabling segment and the RF Connector segment was $(2.4) million decreased $2.9and $2.0 million, respectively, as compared to operating income of $7.4$3.6 million and $0.9 million for fiscal 2019. The pretax loss at the Custom Cabling segment in the prior fiscal year. The2020 was primarily due to the decrease in operating and net income isproject-based businesses resulting from the result of smaller gross margins and higher selling and general expenses.


On December 22, 2017, the U.S. President signed the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act, among other things, lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allowed us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As a result, we previously recorded a provisional estimate of the effect of the Tax Actslowdown in our financial statements. In the first quarter of 2019, we completed our analysis to determine the effect of the Tax Act and recorded no additional adjustments as of December 22, 2018.carrier spending.

 

The provision or benefit for income taxes from continuing operations was $(0.4) million for an effective tax rate of 81.9% and $1.0 million for an effective tax rate of 22.7% for fiscal 2020 and $1.5 million for an2019, respectively. The fiscal 2020 effective tax rate of 19.6% for fiscal 2019 and 2018, respectively. The increase in the effective income tax rate from year to year is primarily driven by the elimination of the benefitdiffered from the domestic production activities deduction, the one-time benefit recorded in the prior year related to the reduction in the Company’s deferred tax liability due to the change in thestatutory federal tax rate bothof 21% primarily as a result of the Tax Act, during fiscal 2018,benefit from research and the impact of share-based compensation excessdevelopment tax credits and tax benefits recognized which vary from year-to-year depending on the Company’s share price in each period. The Company recorded income from discontinued operations, net of tax, for fiscal 2018 as disclosed in Note 3.associated with share-based compensation.

 

Loss from discontinued operations, net of tax, during fiscal 2018 was $180,000, resulting from the sale of the Comnet subsidiary on October 31, 2018. For fiscal 2018, the Company recognized pretax2020, net loss was $(0.1) million and fully diluted loss per share was $0.01 per share as compared to a net income of $221,000 from Comnet’s operations.

Net income$3.5 million and fully diluted earnings per share for fiscal 2019 were $3.5 million andof $0.36 per share respectively, as compared to $5.8 million or $0.61 per share for the prior year.fiscal 2019.

 

ITEM 7A.

QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K.

 

ITEM 8.

STATEMENTS AND SUPPLEMENTARY DATA

 

The Company’s financial statements required by this item are set forth as a separate section of this Annual Report on Form 10-K and incorporated by reference in this Item 8. The following Financial Statements of the Company with related Notes and Report of Independent Registered Public Accounting Firm are attached hereto as pages F-1 to F-19F-22 and filed as part of this Annual Report:

 

 ·

Report of CohnReznick LLP, Independent Registered Public Accounting Firm

 

 ·

Consolidated Balance Sheets as of October 31, 20192020 and 20182019

 

 ·

Consolidated Statements of Operations for the years ended October 31, 20192020 and 20182019

 

 ·

Consolidated Statements of Stockholders’ Equity for the years ended October 31, 20192020 and 20182019

 

 ·

Consolidated Statements of Cash Flows for the years ended October 31, 20192020 and 20182019

 

 ·

Notes to Consolidated Financial Statements

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None

 

ITEM 9A.

CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

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

 

19

In designing and evaluating the disclosure controls and procedures, management recognizeswe 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 management necessarily is required to apply its judgment in weighting the costs and benefits of possible new or different controls and procedures. Limitations are inherent in all control systems, so no evaluation of controls can provide absolute assurance that all control issues and any fraud have been detected.

 


As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this report, management, under the supervision and with the participation of our Chief Executive Officer and our Interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, managementour Chief Executive Officer and Interim Chief Financial Officer concluded that the Company’sour disclosure controls and procedures are effective at a reasonable assurance level as of October 31, 2019.2020.

 

Management’s Report on Internal Control over Financial Reporting

 

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

  

The Company’sOur system of internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.

 

Under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and our Chief Financial Officer, the Companywe conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the above evaluation, the Company’s management has concluded that the Company’sour internal control over financial reporting was effective as of October 31, 2019.2020.

 

This annual reportAnnual Report does not include an attestation report of the Company’sour independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’sour independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Companyus to provide only management’s report in this annual report.Annual Report.

 

Changes in Internal Controls

 

Other than as described below, there were no changes in the Company’sour internal control over financial reporting during the most recent fiscal quarter ended October 31, 20192020 that materially affected, or is reasonably likely to materially affect, the Company’sour internal control over financial reporting.

 

Scope of Management's Report on Internal Control over Financial Reporting

 

As described throughout this Annual Report, during the year ended October 31, 20192020, we acquired C Enterprises,Schrofftech, which is now a wholly owned subsidiary of RF Industries. While our financial statements for the year ended October 31, 20192020 include the results of C Enterprises from the March 15, 2019 date through October 31, 2019,Schrofftech, as permitted by the rules and regulations of the SEC, our management's assessment of our internal control over financial reporting did not include an evaluation of the internal control over financial reporting for C Enterprises.Schrofftech. Further, our management's conclusion regarding the effectiveness of our internal control over financial reporting as of October 31, 20192020 does not extend to the internal control over financial reporting for C Enterprises.Schrofftech.

 

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.

 

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. Until the Company is fully integrated, we will maintain the operational integrity of each company's internal control over financial reporting. C EnterprisesSchrofftech constituted $1.0$0.8 million of total assets as of October 31, 20192020 and $7.2$4.3 million of revenues for the year then ended.

 

Inherent Limitations of Internal Controls

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 


20

PART III

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Set forth below is information regarding the Company’s directors, including information furnished by them as to their principal occupations for the last five years, and their ages as of October 31, 2019.December 28, 2020.  Other than Howard Hill, our former Chief Executive Officer, and Robert Dawson, our current President and Chief Executive Officer, all of the Directors are “independent directors” as defined by the listing standards of the NASDAQ Stock Market, and the Board of Directors has determined that such independent directors have no relationship with the Company that would interfere with the exercise of their independent judgment in carrying out the responsibilities of a director. On December 22, 2020 Howard Hill, a director and a former Chief Executive Officer of the Company, resigned from the Board of Directors for health reasons.

 

Name Age Director Since 

Age

  

Director Since

 
Joseph Benoit 65 2013  66   2013 
Marvin H. Fink 83 2001  84   2001 
Howard F. Hill 79 1979
Gerald Garland 69 2017 70  2017 
Robert Dawson 45 2018 46  2018 
Sheryl Cefali 57 2019  58   2019 

 

Joseph Benoit was appointed to the Board of Directors on April 8, 2013. Mr. Benoit retired from Union Bank in June 2012 after serving in various management and leadership roles for over 20 years. Managing over 100 Union Bank branch offices in Southern California and being the head of Business Banking were among his responsibilities. As an Executive Vice President, he also served as Union Bank’s integration manager for FDIC assisted acquisitions. Mr. Benoit has a B.S. in Business Administration from San Diego State University and an MBAM.B.A from National University. He is also a graduate of Pacific Coast Banking School and serves as a director on various non-profit boards.

 

Marvin H. Fink is a retired executive. Mr. Fink most recently served as the Chief Executive Officer, President and Chairman of the Board of Recom Managed Systems, Inc. from October 2002 to March 2005. Prior thereto, Mr. Fink was President of Teledyne’s Electronics Group. Mr. Fink was employed at Teledyne for 39 years. He holds a B.E.E. degree from the City College of New York, an M.S.E.E. degree from the University of Southern California and a J.D. degree from the University of San Fernando Valley. He is an inactive member of the California Bar.

 

Howard F. Hill, a founder of the Company in 1979, served as the Company’s Chief Executive Officer until January 22, 2015. Effective January 22, 2015, Mr. Hill stepped down as the Chief Executive Officer and agreed to serve as the Company’s Chief Operating Officer. Effective April 6, 2015, Mr. Hill announced that he was taking an indefinite medical leave of absence and resigned as the Company’s Chief Operating Officer. On April 7, 2016, Mr. Hill retired as an employee of the Company, but continued to serve on the Company’s Board of Directors. On October 31, 2016, Mr. Hill assumed the position as the unpaid, interim President and Chief Executive Officer of the Company until July 17, 2017, the date that his successor, Robert Dawson, assumed the duties of President and Chief Executive Officer. In addition, from January 18, 2013 until June 7, 2013, Mr. Hill also served as the Company’s interim Chief Financial Officer. Mr. Hill has credits in Manufacturing Engineering, Quality Engineering and Industrial Management. He was the President of the Company from July 1993 until July 2011. He has held various positions in the electronics industry over the past 60 years.

Gerald T. Garland was most recently Senior Vice President of Solutions Development and Product Management for TESSCO Technologies, a publicly-traded value-added distributor and solutions provider for the wireless industry.industry until 2015. Mr. Garland also served as Senior Vice President of the Commercial divisionDivision at TESSCO, where he was responsible for sales, business and productsproduct development and product management at the Company’s core wireless communications business. He was previously Director of Business Development at American Express Tax and Business Services from 2002 to 2003, where he was involved in an expanded asset recovery capability for Fortune 1000 corporations. From 2000 to 2001, he was Chief Financial Officer at Mentor Technologies, a developer of on-line, Cisco certification training products. Mr. Garland was Chief Financial Officer and Treasurer at TESSCO Technologies from 1993 to 1999 during the Company’s successful Initial Public Offering and oversaw TESSCO’s annual sales expansion from $50 million to over $190$160 million. Prior to joining TESSCO, Mr. Garland held leadership positions at Bank of America and Stanley Black & Decker. Mr. Garland received his MBA,M.B.A, with a concentration in Finance, from Loyola University and his Bachelor of Science in Business Management and Accounting from Towson University. He is currently the Managing Director at Inscite Consulting and on the Board of Directors and ChiefSenior Adviser to the World Trade Center Institute and on the Executive Advisory Board of Patriot Capital.Institute. He is also on the Executive Committee of Communications Electronics, Inc. and the Board of SOZO Children.

 

Robert Dawson has been the Company’s current President and Chief Executive Officer since July 17, 2017. Effective July 21, 2018, Mr. Dawson was appointed to the Company’s Board to also serve as a director. Prior to joining RF Industries on July 17, 2017, Mr. Dawson was President and CEO of Vision Technology Services, an information technology consulting and project management company that was acquired by BG Staffing. He spent 2007-2013 at TESSCO Technologies, a publicly traded distributor of wireless products and services. At TESSCO Mr. Dawson held multiple executive roles in sales, marketing, product management and strategy culminating with being Vice President of Sales, responsible for TESSCO’s sales organization and leading a team delivering more than $700 million in sales. He joined TESSCO through the 2007 acquisition of NetForce Solutions, a technology training and consulting firm that he co-founded in 2000 and led as the Chief Executive Officer through seven years of growth before being acquired by TESSCO. Mr. Dawson received his Bachelor's degree in Business Administration from Hillsdale College.

 

Sheryl Cefali was appointed to the Board of Directors on June 7, 2019.  Ms. Cefali is a Managing Director in the transactions opinions practice at Duff & Phelps and heads theirhead of the firms Los Angeles office. In addition, Ms. Cefali has over 30 years of experience rendering fairness and solvency opinions and determining valuations of companies and securities. She is a member of Duff & Phelps’the Fairness &and Solvency Opinion Senior Review Committee.Committee at Duff & Phelps. Prior to joining Duff & Phelps in 1990, Ms. Cefalishe was a Vice President with Houlihan Lokey.  Ms. Cefali received her MBAM.B.A with a concentration in finance from the University of Southern California and her Bachelor’sB.A. degree from the University of California at Santa Barbara. Ms. Cefali holds the FINRA Series 7 and 63 licenses and is a Director onlicenses. In February 2020, the boardLos Angeles Business Journal named Ms. Cefali as one of the Women’s Leadership Council.Top Women in Banking.

 


21

The Company believes that Messrs. Benoit, Fink, Hill, Garland, and Dawson and Ms. Cefali have the following qualifications as members of the Board of Directors:

 

Joseph Benoit:Mr. Benoit has significant financial management and banking experience, having served in various executive positions at Union Bank.

 

Marvin Fink: Mr. Fink has significant experience in a variety of areas important to overseeing the management and operations of this Company, including experience as an executive officer, an engineer and a lawyer. Mr. Fink has been the principal executive officer of a public company as well as the President of Teledyne’s Electronics Group. He has degrees in engineering and law and was involved in the electronics industry for over 40 years.

 

Howard Hill: Mr. Hill is a founder of the Company, has guided the Company’s development for 40 years, and has over 60 years of experience in the electronics industry.

Gerald T. Garland:Mr. Garland has significant leadership experience in product management, sales management, solutions development, global sourcing and financial management. Mr. Garland served as a Chief Financial Officer and Senior Vice President for a leading distributor and solutions provider to the wireless industry for over 18 years. Mr. Garland has also held senior leadership positions with Bank of America, Stanley Black & Decker, American Express and TESSCO Technologies.

 

Robert Dawson: Mr. Dawson has significant leadership experience in sales, marketing, and product management and strategy for a leading publicly traded distributor of wireless products and services. Mr. Dawson also served as President and CEO of an information technology consulting and project management company and was a co-founder of a successful telecom and wireless technology training and consulting firm that he led for seven years of growth until it was acquired.

 

Sheryl Cefali: Ms. Cefali has over 30 years of experience rendering fairness and solvency opinions and determining valuations of companies and securities. Ms. Cefali is currently a Managing Director at Duff & Phelps, is the head of that firm’s Los Angeles office, and is a member of that firm’s Fairness and Solvency Opinion Senior Review Committee. Prior to joining Duff & Phelps in 1990, she was a Vice President with Houlihan Lokey.

 

Management

 

Robert Dawson, 45,46, has been the Company’s current President and Chief Executive Officer since July 17, 2017. Effective July 21, 2018, Mr. Dawson was appointed to the Company’s Board to also serve as a director. See preceding section for information regarding Mr. Dawson.

 

Mark Turfler,Peter Yin, Senior Vice President and Interim Chief Financial Officer, was appointed as the Company’s ActingInterim Chief Financial Officer and Corporate Secretary on June 7, 2013. EffectiveJuly 11, 2020. He has been with the Company since September 2014 when he joined as of January 10, 2014, Mr. TurflerController leading the SEC and financial reporting and Sarbanes-Oxley (SOX) internal controls functions. Since then his responsibilities have expanded from accounting and finance to include operations, information systems and technology. He was promoted to Chief Financial Officer. Mr. Turfler joined the CompanyVice President of Finance and Operations in January 2013 as our Controller.December 2017 and then to Senior Vice President in November 2019. Prior to joining the Company, Mr. Turflerhe worked at Sony Corporation of America from 2010 to 2014 in senior accounting/finance positionsCorporate Audit Previous to that, he was an auditor at Ligand Pharmaceuticals, Inc.Grant Thornton from 2006 to 2009, at Cylene Pharmaceuticals, Inc. from 2010 to 2011, and as an independent financial/accounting consultant from 2012 until he joined the Company in January 2013.2010. Mr. Turfler has more than 35 years of accounting and finance experience including several years with publicly traded companies in a variety of senior financial executive positions with wireless telecommunications, international manufacturing, medical device and software companies. Mr. Turfler began his career with PricewaterhouseCoopers after graduating from Syracuse University with a B.S. in accounting. Mr. TurflerYin is a Certified Public Accountant (CPA), Certified Fraud Examiner (CFE) and received his Bachelor’s degree in Accountancy from the University of San Diego.

Significant Employee

Ray Bibisi, 56, joined the Company as Chief Revenue Officer in January 2020. Prior to joining the Company, he spent the over 30 years at Radio Frequency Systems, where he concurrently held the roles of Vice President of Sales and General Manager of North America, and was a member of the American Institute of CPAs, California Society of CPAs, Corporate Directors Forum and Financial Executives International.Global Governing Executive Committee.

 

Board of Director Meetings

 

During the fiscal year ended October 31, 2019,2020, the Board of Directors held eighteleven meetings. During the fiscal year ended October 31, 2019,2020, each member of the Board of Directors attended at least 75% of the meetings of the Board of Directors and of the Board committees on which they served.

 

Board Committees

 

During fiscal 2019,2020, the Board of Directors maintained three committees: the Compensation Committee, the Audit Committee, and the Nominating and Corporate Governance Committee.    William Reynolds was a member of all three of the Board of Directors’ committees until his retirement in September 2019. Mr. Reynolds was an “independent director” as defined under the NASDAQ Stock Market’s listing standards, and an independent committee member.

22

 

The Audit Committee meets periodically with the Company’s management and independent registered public accounting firm to, among other things, review the results of the annual audit and quarterly reviews and discuss the financial statements. The Audit Committee also hires the independent registered public accounting firm, and receives and considers the accountant’s comments as to controls, adequacy of staff and management performance and procedures. The Audit Committee is also authorized to review related party transactions for potential conflicts of interest and to conduct internal investigations into whistleblower complaints.complaints, and to oversee the Company’s cybersecurity risk, policies and procedures. During fiscal 2019,2020, the Audit Committee was composed of Mr. Reynolds (Chairman)Garland (Chair), Mr. Benoit and Mr. Garland. Following Mr. Reynolds’ retirement, Mr. Garland was appointed as the Chairman of the Audit Committee, and Ms. Cefali was added as a new member of the Audit Committee.Cefali. Each of the current members of the Audit Committee is a non-employee director and is independent as defined under the NASDAQ Stock Market’s listing standards. In addition, each of the current members of the Audit Committee has significant knowledge of financial matters, and Mr. Garland is an “audit committee financial expert.”  The Audit Committee met fivefour times during fiscal 2019. The Audit Committee operates under a formal charter,2020, which is posted on the Company’s website.were attended by all committee members.

 


The Compensation Committee currently consists of Ms. Cefali (Chair), Mr. Fink, Mr. Garland, and Mr. Benoit each of whom is a non-employee director and is independent as defined under the NASDAQ Stock Market’s listing standards. The Compensation Committee is responsible for considering and recommending to the Board the compensation arrangements for senior management. As part of its other responsibilities, the Compensation Committee provides general oversight of our compensation structure, and, if deemed, necessary, retains and approves the terms of the retention of compensation consultants and other compensation experts. Other specific duties and responsibilities of the Compensation Committee include reviewing the performance of executive officers; reviewing and approving objectives relevant to executive officer compensation; recommending equity-based and incentive compensation plans; and recommending compensation policies and practices for service on our Board of Directors and its committees and for the Chair of our Board of Board of Directors. The Compensation Committee held three formalfive meetings during fiscal 2019,2020, which waswere attended by all committee members.

 

The Nominating and Corporate Governance Committee is responsible for developing and recommending corporate governance guidelines to the Board, identifying qualified individuals to become directors, recommending selected nominees to serve on the Board, and overseeing the evaluation of the Board and its committees. The Nominating and Corporate Governance Committee currently consists of Mr. Mr. Benoit (Chairman)(Chair), Mr. Fink, Ms. Cefali, and Mr. Garland, each of whom is a non-employee director and is independent as defined under the NASDAQ Stock Market’s listing standards. The Nominating and Corporate Governance Committee held threefive meetings during fiscal 2019,2020, which waswere attended by all committee members.

The Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee each operate pursuant to a written charter, which charters are available on our website on www.rfindustries.com.

 

Code of Business Conduct and Ethics

 

The Company hasWe have adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all of the Company’sour Directors, officers and employees, including its principal executive officer and principal financial officer. The Code is posted on the Company’sour website at www.rfindustries.com. The Company intendswww.rfindustries.com. We intend to disclose any amendments to the Code by posting such amendments on its website. In addition, any waivers of the Code for Directors or executive officers of the Company will be disclosed in a report on Form 8-K.

 

Compliance WithDelinquent Section 16(a) of the Exchange ActReports

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the Company’s executive officers and directors, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”). Executive officers, directors and greater than 10% stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.

Based solely upon a review of information furnishedthe Section 16(a) reports filed electronically with the SEC by our executive officers and directors and persons owning more than 10% of our common stock and upon any written representations received from the executive officers and directors, to the Company, to the Company’sour knowledge, during the fiscal year ended October 31, 2019, all2020, Peter Yin was late in filing a Form 3 upon his appointment as Interim Chief Financial Officer, Sheryl Cefali was late in filing two Forms 4, and Marvin Fink, Joseph Benoit, and Gerald Garland were each late in filing one Form 4 upon the awards of options. All other Section 16(a) reports were timely filed.

 

ITEM 11.

EXECUTIVE COMPENSATION

 

Summary of Cash and Other Compensation. The following table sets forth compensation for services rendered in all capacities to the Company: (i) for each person who served as the Company’s Chief Executive Officer at any time during the past fiscal year, (ii) for eachthe two most highly compensated executive officer,officers, other than our Chief Executive Officer, who was employed with the Company on October 31, 20192020 and who earned over $100,000 during the fiscal year ended October 31, 2019,2020, and (iii) for anyup to two other executive officerofficers who earned over $100,000 during the October 31, 20192020 fiscal year but waswere no longer employed with the Company on October 31, 20192020 (the foregoing executives are herein collectively referred to as the “Named Executive Officers”). Except for the persons listed below, no other executive officer of the Company received salary and bonus, which exceeded $100,000 in the aggregate, during the fiscal year ended October 31, 2019.2020.

23

 

Summary Compensation Table

 

              Nonqualified                                

Nonqualified

         
            Non-Equity Deferred                            

Non-Equity

  

Deferred

         
        Stock Option Incentive Plan Compensation All Other                  

Stock

  

Option

  

Incentive Plan

  

Compensation

  

All Other

     
    Salary Bonus Awards Awards Compensation Earnings Compensation Total   

Salary

  

Severance

  

Bonus

  

Awards

  

Awards

  

Compensation

  

Earnings

  

Compensation

  

Total

 
Name and Principal Position Year  ($)  ($)  ($)  ($)  ($)  ($)  ($)  ($) 

Year

 ($)  ($)  ($)  ($)  ($)  ($)  ($)  ($)  ($) 
Robert D. Dawson                                                                         
President and Chief Executive Officer and Director (1)  2019   327,000   -   -   -   -(6)  -   34,946(3)  361,946 

2020

  400,000   -   -   167,100(2)  127,844(2)  -(12)   -   46,154(3)  741,098 
  2018   259,423   -   -   -   200,000(2)  -   36,448(3)  495,871 

2019

  327,000   -   -   -   -   130,800(13)  -   34,946(3)  492,746 
Mark Turfler                                                                         
SVP, Chief Financial Officer(4)  2019   187,000   -   -   -   -(6)  -   6,862(5)  193,862 

2020

  135,934(4)   93,500(4)  -   -   -   -   -   14,546(5)  243,981 
  2018   170,000   -   -   -   123,050(4)  -   20,197(5)  313,247 

2019

  187,000   -   -   -   -   55,500(13)  -   6,862(5)  249,362 

Ray Bibisi

                                     

Chief Revenue Officer (6)

2020

  161,538(6)  -   -   32,000(7)  193,276(6)(7)  -   -   6,071(8)  392,885 
                                     

Peter Yin

                                     

Interim Chief Financial Officer (9)

2020

  181,827(9)  -   -   38,787(10)  22,829(10)  -(12)  -   26,625(11)  270,068 

2019

  175,000   -   -   -   -   59,316(13)  -   12,638(11)  246,954 

 

(1)       Mr. Dawson joined the Company as President as of July 17, 2017 at an annual salary of $250,000. Effective July 17, 2018, Mr. Dawson’s annual salary was increased to $275,000.     As of January 2, 2019, Mr. Dawson’s salary was increased from $275,000 to $300,000. Upon his two-year anniversary$300,000, and then to $400,000 on July 17, 2019, Mr. Dawson’s salary was increased to $400,000.2019.

 


(2)     For the fiscal year ended October 31, 2018, the Company adopted corporate goals for the determination of cash bonuses to be paid to Robert Dawson, the Company’s Chief Executive Officer.  The target bonus payable toOn January 9, 2020, Mr. Dawson was 50%granted 21,000 shares of his 2018 base salary ($250,000) uprestricted stock valued at $134,400 and options to 133% basedpurchase 42,000 shares of common stock at an exercise price of $6.40 (the closing price of the Company’s common stock on the achievement by the Companydate of certain EPS targets and the Company’s subjective determination of his performance for the fiscal year ended October 31, 2018.  The Company did achieve its maximum EPS targets, and the Board of Directors awardedgrant) valued at $127,844. Mr. Dawson a cash bonus of $200,000.was also awarded 5,062 fully-vest shares valued at $32,397.

 

(3)       As part of his employment agreement, the Company agreed to reimburse Mr. Dawson up to $75,000 for relocation expenses, of which Mr. Dawson was paid $52,397 in the fiscal year ended October 31, 2017 and $22,603 of which was paid in the fiscal year ended October 31, 2018.     Mr. Dawson’s other compensation for the fiscal 2020 and 2019 years consisted of $46,154 and 2018 year also includes $34,946, and $13,845, respectively, of accrued vacation.

 

(4)     For the fiscal year ended October 31, 2018,Effective July 10, 2020, Mr. Turfler departed from the Company adopted corporate goals for the determination of cash bonuses to be paid to Mark Turfler, the Company’s as its Senior Vice President—Chief Financial Officer.  The target bonus payable toOfficer and Corporate Secretary. Mr. Turfler was 50%will receive a severance payment of his 2018 base salary ($170,000) up to 133% based on the achievement by the Company of certain EPS targets and the Company’s subjective determination of his performance for the fiscal year ended October 31, 2018.  The Company did achieve its maximum EPS targets, and the Board of Directors awarded Mr. Turfler a cash bonus of $123,050.$93,500.

 

(5)     Mr. Turfler’s other compensation for the fiscal 2020 and 2019 and 2018 yearyears consisted of $14,546 and $6,862, respectively, of accrued vacation. Mr. Turfler’s fiscal 2020 accrued vacation was paid out to him upon his termination.

(6)     Mr. Bibisi joined the Company as Chief Revenue Officer as of January 6, 2020 at an annual salary of $200,000. As part of his offer letter, Mr. Bibisi was also granted options to purchase 50,000 shares of common stock at an exercise price of $6.74 (the closing price of the Company’s common stock on the date of grant) valued at $162,837.

(7)     On January 9, 2020, Mr. Bibisi was granted 5,000 shares of restricted stock valued at $32,000 and $20,197, respectively,options to purchase 10,000 shares of common stock at an exercise price of $6.40 (the closing price of the Company’s common stock on the date of grant) valued at $30,439.

(8)     Mr. Bibisi’s other compensation for the fiscal 2020 year also includes $6,071 of accrued vacation.

 

(6)(9)     Effective July 11, 2020, Mr. Yin was appointed Interim Chief Financial Officer and new Corporate Secretary. Effective July 11, 2020, Mr. Yin’s annual base salary increased from $175,000 to $187,000.

(10)     On January 9, 2020, Mr. Yin was granted 3,750 shares of restricted stock valued at $24,000 and options to purchase 7,500 shares of common stock at an exercise price of $6.40 (the closing price of the Company’s common stock on the date of grant) valued at $22,829. Mr. Yin was also awarded 2,289 fully-vest shares valued at $14,650.

(11)      Mr. Yin’s other compensation for the fiscal 2020 year consisted of $26,625 of accrued vacation.

(12)      On January 9, 2020, the Board adopted an incentive compensation plan for officers (including the named executive officers) and senior managers of the Company pursuant to which officers and managers are entitled to cash bonuses based upon (i) the Company’s achievement of specified corporate goals and (ii) the satisfaction of subjective personal performance and contribution goals established for that participant. The personal bonus target for both Mr. Dawson and Mr. Yin is 50% of their respective annual base salaries.  As of the date of this Annual Report, the cash bonuses that Mr. Dawson and Mr. Yin may have earned for the fiscal year ended October 31 ,2020 have not yet been determined.

(13)      For the fiscal year ended October 31, 2019, the Company adopted a cash incentive compensation plan for cash bonuses that can be earned by the Company’s officers and senior managers, which bonuses are based upon (i) the Company’s achievement of specified corporate goals and (ii) the satisfaction of subjective personal performance goals. Under the cash incentive plan, Mr. Dawson’s and Mr. Turfler’s cash bonus targets were 40% of their respective base salaries, and Mr. Yin’s target for his cash bonus was 32% of his base salary.  The Company’s Compensation Committee determined that Mr. Dawson met all of his corporate and personal goals, Mr. Turfler met 60% of his personal targets, and Mr. Yin exceeded his personal targets.  Based on the determination offoregoing evaluation, their cash bonuses to be paid to Robert Dawson and Mark Turfler. The target bonuses payable to each of these Named Executive Officers for the fiscal year ended October 31, 2019 has not yet been determined.were adjusted accordingly

 

20192020 Option Grants

 

On January 6, 2020, Ray Bibisi 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 January 6, 2020, and expire ten years from the date of grant.

On January 9, 2020, we granted a total of 59,500 incentive stock options to Messrs. Dawson, Yin, and Bibisi. The options vest over four years as follows: (i) one-quarter of the options shall vest on January 9, 2021; and (ii) the remaining options shall vest in twelve equal quarterly installments over the next three years, commencing with the first quarter following January 9, 2021. All incentive stock options expire ten years from the date of grant.

24

No other options were granted to the Named Executive Officers during the year ended October 31, 2019.2020.

 

Holdings of Previously Awarded Equity

 

Equity awards held as of October 31, 20192020 by each of our Named Executive Officers were issued under our 2020 Equity Incentive Plan and our 2010 Stock Incentive Plan. The following table sets forth outstanding equity awards held by our Named Executive Officers as of October 31, 2019:2020:

 

Outstanding Equity Awards As Of October 31, 20192020

 

 Option Awards 

 

Option Awards

Name Number of
Securities
Underlying
Unexercised
Options
 (#) Exercisable
 Number of
Securities
Underlying
Unexercised
Options
 (#) Unexercisable
 Equity Incentive Plan
Awards: Number of
Securities Underlying
Unexercised
Unearned Options
(#)
 Option
Exercise
Price
($)
 Option
Expiration
Date
 

 

Number of
Securities
Underlying
Unexercised
Options
 (#) Exercisable

 

 

Number of
Securities
Underlying
Unexercised
Options
 (#) Unexercisable

 

Equity Incentive Plan
Awards: Number of
Securities Underlying
Unexercised
Unearned Options
(#)

 

 

Option
Exercise
Price
($)

 

Option
Expiration
Date

 

 

 

 

 

 

 

 

 

 

 

 

Mark Turfler  60,000            40,000(1)  5.88   04/11/24  100,000 (1)      5.88 01/31/21
Robert D. Dawson         70,000(2)  1.90   07/17/27  10,000    60,000 (2) 1.90 07/17/27
      42,000 (5) 6.40 01/09/30
Peter Yin      56,000 (3) 2.40 12/13/27
      7,500 (5) 6.40 01/09/30
Ray Bibisi 10,000    40,000 (4) 6.74 01/06/30
      10,000 (5) 6.40 01/09/30

 

(1)

Vests as

Effective July 10, 2020, the Board accelerated the vesting period of stock options held by Mr. Turfler for the purchase of 30,000 shares of common stock, and agreed to 10,000 shares annually following grant on April 11, 2014.extend the period during which Mr. Turfler can exercise his stock options to January 31, 2021.

(2)

(3)

(4)

Vests as to 10,000 shares annually following grant on July 17, 2017.

Vests as to 8,000 shares annually following grant on December 13, 2017.

Vests as to 10,000 shares annually following grant on January 6, 2020.

(5)Vests over four years as follows: i) one-quarter shall vest on January 9, 2021; and (ii) the remaining options shall vest in twelve equal quarterly installments over the next three years, commencing with the first quarter following January 9, 2021.

 

During the fiscal year ended October 31, 2019, the Company2020, we did not adjust or amend the exercise price of stock options awarded to the Named Executive Officers.

 

Employment Agreements; Incentive Plan; Change of Control Arrangements

 

Employment Agreements

 

On June 16, 2017, RF Industries, Ltd. entered into an employment letter agreement with Robert D. Dawson, under which Mr. Dawson has served as the Company’s President and Chief Executive Officer since July 17, 2017. Under that agreement, the Company agreed to pay Mr. Dawson an annual base salary of $250,000. Mr. Dawson’s salary was increased to $275,000 upon his one year anniversary, July 17, 2018. As of January 2, 2019, Mr. Dawson��s salary was increased to $300,000. Upon his two-year anniversary on July 17, 2019, On July 17, 2019, RF Industries, Ltd. entered into a newtwo-year employment letter agreement (the “2019 Agreement”) with Mr. Dawson. The term of the Agreement is for the two year period ending July 17, 2021. Under the 2019 Agreement, the Company agreed to pay Mr. Dawson an annual base salary of $400,000. Mr. Dawson will also be eligible to participate in the Company’s annual bonus plan, pursuant to which he will have the opportunity to earn a year-end bonus equal to fifty percent (50%) of his annual base salary (the “Annual Bonus”). The actual bonus paid may be higher or lower than the Annual Bonus based on the over- or under-achievement of Company and individual objectives as determined by the Company’s Board of Directors or its Compensation Committee. Upon a Change of Control Transaction (as defined in the 2019 Agreement), all of Mr. Dawson’s time based stock options shall immediately vest, whether or not his employment is terminated. If at the time of a Change of Control Transaction Mr. Dawson’s employment is terminated by the Company for any reason other than Cause (as defined), Mr. Dawson will be entitled to receive a change of control cash payment in an amount equal to 12 months of his salary. Mr. Dawson earned a $200,000$130,800 cash bonus for fiscal year 2018, but his cash bonus for fiscal year 2019 has not yet been determined.2019.

 


In addition, onOn July 17, 2017, Mr. Dawson received stock options to purchase 100,000 shares of the Company’s common stock. The award has an exercise price of $1.90 vests as to 10,000 shares per year on each anniversary of July 17, 2017 (with 10,000 shares having vested on July 17, 2017) while he is employed by the Company. Mr. Dawson is also eligible to participate in the employee benefit plans and programs generally available to the Company’s senior executives, subject to the terms and conditions of such plans and programs.

 

Mark Turfler,Peter Yin was appointed as the Company’s new Interim Chief Financial Officer effective July 11, 2020. Mr. Yin is currently employed on an at-will basis pursuant to an unwritten employment agreement.  Mr. Turfler’s currentYin’s annual base salary is $187,000, and hewas $175,000 prior to his promotion to Interim Chief Financial Officer. Upon his promotion, Mr. Yin’s annual base salary was increased to $187,000. Mr. Yin is entitled to participate in the Company’s pension, retirement, disability, insurance, medical service, orand other employee benefit planplans that are generally available to all employees of the Company.

 

Adoption of Fiscal Year 2020 Management Incentive Equity and Cash Compensation Plan

 

Both Mr. DawsonOn January 9, 2020, the Board adopted an incentive compensation plan for officers (including the named executive officers) and Mr. Turfler aresenior managers of the Company and its subsidiaries, under which each participant (i) is eligible to participate inreceive a cash payment after the Company’s cashend of the fiscal year as short-term incentive bonus, and (ii) received an equity award as a long-term incentive bonusaward.

Cash Incentives

Under the plan adopted by the Board, of Directors for the 2019 fiscal year (the “Incentive Plan”). Under the Incentive Plan, cash and equityincentive bonuses, if any, will be paid to qualified participating officers of the Companyeach officer and its subsidiaries, including Messrs. Dawson and Turfler,senior manager based upon (i) the Company’s achievement of specified corporate goals and (ii) a reviewthe satisfaction of the subjective personal performance and contribution of each of the officers.goals established for that participant. The corporate goals will apply equally to all participating officers and managers. The subjective performance of each officer will be evaluated and determined in its sole discretion, by the Compensation Committee, of the Boardin its sole discretion, after consultation with the Company’s Chief Executive Officer. The corporate goals will apply to all participating officers.

 

25

The maximum target cash bonus payable under the Incentive Plan to participating officersparticipants if 100%all of the goals are achieved will range from 15% of the recipient’s annual salary to 50% of the recipient’s 2019fiscal 2020 base salary for the senior executive officers, including Mr. Dawson and Mr. Turfler. However, the maximum cash bonus payable to all participating officers, including the Chief Executive Officer, may be increased to 75% of the 2019 base salaries of the officers if the Company achieves 150% of its performance targets. Cash bonuses and equity compensation (in the form of either stock options or restricted stock)salary. Bonuses will be weighted and based on (i) the Company’s achievement of certain fiscal 2020 revenues (weighted 30%), (ii) earnings per share (before paymentbefore interest, taxes, depreciation and amortization (“EBITDA”) (weighted 60%), and (iii) individual subjective performance criteria (weighted 10%). The calculation of bonuses) (“EPS”) forEBITDA will exclude the fiscalimpact of any business acquisitions or dispositions effected during the year, ending October 31, 2019. The maximum bonus payableearn-out liabilities, and stock option compensation expenses accrued to each participating officer is subject to reduction based upon the overall performance of such participating officer (performance criteria include the development and execution of strategic plans, the operations of that officer’s business unit, the exercise of leadership by the officer, the support and development of management and other employees, and the contribution of such officer to the improvement in the Company’s overall business activities and profitability).management. The Board and the Compensation Committee reserve the right to modify these goals, criteria and target percentage at any time, and to grant bonuses to the participants even if the performance goals are not met. In addition, the Board and Compensation Committee may modify the incentivebonus plan targets to reflect significant changechanges in Company’s business, including changes due to acquisitions or dispositions of businesses or product lines. The 20192020 bonuses will be paid within 75 days after the end to the fiscal year to participating officers and managers who are employed with the Company or its subsidiaries on the date of payment. As

Equity Awards

In order to provide long-term incentives to our officers and managers, on January 9, 2020, the Board granted participating officers and managers shares of restricted stock and/or options to purchase the Company’s common stock.  Provided the participating officer or manager is still employed with the Company or its subsidiaries on the following dates, the shares of restricted stock and the options shall vest over four years as follows: (i) one-quarter of the restricted shares and options shall vest on January 9, 2021; and (ii) the remaining restricted shares and options shall vest in twelve equal quarterly installments over the next three years, commencing with the first quarter following January 9, 2021.  The options have a ten-year term and an exercise price of $6.40 per share (which was the closing price of the Company’s common stock on the date of this Annual Report,grant).

Mr. Dawson, the BoardCompany’s President and Chief Executive Officer, is a participant in the plan and was granted 21,000 shares of restricted stock, and options to purchase 42,000 shares of common stock at an exercise price of $6.40 (the closing price of the Company’s common stock on the date of grant). Mr. Dawson’s shares of restricted stock and the Compensation Committeeoptions have not determined the amount of bonuses payablesame terms, vesting schedule and price as the equity awards granted to other officers and managers under the various participants of the Incentive Plan.equity awards plan. Mr. Dawson was also awarded 5,062 fully-vested shares valued at $32,700.

 

The Company anticipates that it will establish a fiscal October 31, 20202021 incentive compensation plan for its officers and division managers, including the Named Executive Officers, early in January 2020.2021.

 

Change of Control Arrangements

 

The outstanding stock options currently owned by the Company’s principal officers (including Messrs. Dawson and Turfler)Yin) and division managers provide that, immediately prior to a change of control (as defined in the 2010 Stock Option Plan), all unvested stock options will become fully vested and exercisable. In addition, the shares of restricted stock granted to the non-executive directordirectors for his/her services to be rendered during the current year, shall also become fully vested upon a change of control event.

 


The Company has no other change of control payment agreements that are currently in effect other than the provision in Mr. Dawson’s employment agreement described above.

 

Compensation of Directors

 

Under the compensation policies adopted by the Compensation Committee, directors who also are officers and/or employees of the Company do not receive any compensation for serving on the Board. For their service as directors until the year ended October 31, 2019,annual meeting of stockholders held in 2020, non-employee directors (i.e. directors who are not employed by the Company as officers or employees) received $50,000, which amount was paid one-half in cash, and one-half through the grant of stock options to purchase sharesequity awards. In addition, the Chairman of the Company’s common stock.

ForBoard of Directors and the year ending October 31, 2019,Chair of each non-employee directorcommittee of the Board of Directors received an annual retainer of $15,000, most of which was paid in cash as indicated below.

DIRECTOR COMPENSATION FOR 2020

  

Fees

                 
  

Earned or

                 
  

Paid in

  

Stock

  

Option

  

All Other

     

Name

 

Cash

  

Awards(1)

  

Awards

  

Compensation

  

Total

 
                     

Joseph Benoit

 $35,175  $27,050

(2)

 $-  $-  $62,225 

Marvin H. Fink

 $35,175  $27,050

(2)

 $-  $-  $62,225 

Howard F. Hill

 $23,925  $23,925(3) $-  $-  $47,850 

Gerald Garland

 $35,175  $27,050

(2)

 $-  $-  $62,225 

Sheryl Cefali

 $35,175  $27,050

(2)

 $-  $-  $62,225 

(1)

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 the 10 months ending August 31, 2020 and dividing by the 20-day average closing stock price ($6.36).

(2)

On July 31, 2020, each of the four committee chairpersons was awarded 279 shares at $4.47 per share in lieu of cash.

(3)Effective December 22, 2020 Mr. Hill resigned from the Board of Directors.

26

On September 15, 2020, the Board of Directors determined that the compensation packagepayable to directors for the next year ending with the 2021 annual meeting of stockholders will be the same as they received in 2020 (i.e. $50,000, payable one-half in cash and one-half through the grant of stock options to purchaseequity awards). Accordingly, on September 15, 2020, the Board granted each of our five non-employee directors 5,757 shares of restricted stock. The number of restricted shares granted to each director was determined by dividing $25,000 by the Company’s common stock. Effective November 1, 2018, the Chairman20-day average closing stock price ($4.34). In addition, since non-employee directors who are also a chairperson of the Board of Directors and the Chairman of eacha committee of the Board of Directors received an annual cash retainerreceive additional compensation of $15,000 which retainer is payable quarterly.

DIRECTOR COMPENSATION FOR FISCAL YEAR 2019

  Fees             
  Earned or             
  Paid in  Stock  Option  All Other    
Name Cash  Awards  Awards(1)(2)  Compensation  Total 
Joseph Benoit $40,000  $     -  $25,000  $       -  $65,000 
Marvin H. Fink $40,000  $-  $25,000  $-  $65,000 
Howard F. Hill $25,000  $-  $25,000  $-  $50,000 
William Reynolds (3) $25,000  $-  $25,000  $-  $50,000 
Gerald Garland $37,500  $-  $25,000  $-  $62,500 
Sheryl Cefali (4) $12,143  $-  $10,000  $-  $22,143 

(1)This column represents the aggregate grant date fair value of option awards computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures related to service-based vesting conditions. These amounts do not correspond to the actual value that will be recognized by the named directors from these awards.

(2)On November 11, 2018, the Company granted 6,600 five-year non-qualified options to purchase shares of the Company’s common stock toannually, on September 15, 2020, each of Marvin Fink (Chairman), William Reynolds, Joseph Benoit, Howard Hill, and Gerald Garland for their services as directors for the fiscal year ended October 31, 2019. The options have an exercise price of $8.07 per share.
(3)William Reynolds retired from the Board of Directors immediately before the September 9, 2019 annual meeting of stockholders, but was paid for the entire fiscal year ended October 31, 2019.
(4)Sheryl Cefali was appointed to the Board on June 7, 2019 and, accordingly, only received a pro-rata amount of the annual compensation for fiscal 2019.

For the current fiscal year ending October 31, 2020, the Company has agreed to pay each non-executive director for his/her services as a member of the Board an amount equal to $50,000 per year, payable one-half in cash and one-half in equity. The director’s annual compensation will be payable based on the twelve-month period following the September 2019 annual meeting of stockholders. Accordingly, the compensation has been annualized over a ten-month period end. The number offour committee chairpersons was also awarded 3,454 shares of restricted stock issuedfor services as a committee chair. The number of restricted shares granted to directorseach chairperson was determined by dividing the annualized equity compensation amount$15,000 by the 20-day average trailing closing stock price of the Company’s common stock. The shares of restricted stock vest quarterly over the one-year term (subject to accelerated vesting upon the closing of a sale, merger or other acquisition of the Company, as specified in the Company’s equity incentive plan)($4.34). The Chair of each committee of the Board, and that the Chairman of the Board, each earn an annual fee of $15,000 for such services. In accordance with this compensation arrangement, on November 4, 2019, the Company granted the right to acquire 3,270 shares of restricted stock to each of Mr. Marvin Fink (Chairman), Joseph Benoit, Howard Hill, Gerald Garland, and Ms. Sheryl Cefali for their services as directors for the period ending August 31, 2020.

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information regarding the ownership of the Company’s Common Stock as of December 13, 201928, 2020 for: (i) each director; (ii) the Company’s Named Executive Officers; (iii) all executive officers and directors of the Company as a group; and (iv) all those known by the Company to be beneficial owners of more than 5% of the Common Stock.  As of December 13, 2019,28, 2020, there were 9,614,6179,848,246 shares of Common Stock issued and outstanding.

 


  Number of Shares  Percentage 
Name and Address of Beneficial Owner Beneficially Owned(1)  Beneficially Owned 
Howard H. Hill  313,839(2)  3.3%
         
Marvin H. Fink  142,803(3)  1.5%
         
Joseph Benoit  107,719(4)  1.1%
         
Mark Turfler  81,495(5)  0.9%
         
Robert D. Dawson  45,000   0.5%
         
Gerald Garland  76,140(6)  0.8%
         
Sheryl Cefali  6,352(7)  0.1%
         
All Directors and Officers as a Group (7 Persons)  773,348(8)  7.9%
         
Hytek International, Ltd        
9642 Penshurst Trace        
Charlotte, North Carolina 28210  848,010(9)  8.9%
         
Renaissance Technologies LLC        
800 Third Avenue        
New York, New York  10022(9)  720,602(10)  7.6%
         
AIGH Investment Partners, L.P.        
6006 Berkeley Avenue        
Baltimore, MD 21209  562,500(11)  5.9%

Number of Shares

Percentage

Name and Address of Beneficial Owner

Beneficially Owned (1)

Beneficially Owned

Marvin H. Fink

152,293 (2)1.5%

Joseph Benoit

117,209 (3)1.2%

Mark Turfler

102,495 (4)1.0%

Gerald Garland

95,630 (5)1.0%

Robert D. Dawson

94,187 (6)1.0%

Peter Yin

71,483 (7)0.7%

Sheryl Cefali

20,442 (8)0.2%

All Directors and Officers as a Group (6 Persons)

653,739 (9)6.4%

Hytek International, Ltd

9642 Penshurst Trace

Charlotte, North Carolina 28210

848,010 (10)8.6%

Renaissance Technologies LLC

800 Third Avenue

New York, New York 10022(9)

746,700 (11)7.6%

AIGH Investment Partners, L.P.

6006 Berkeley Avenue

Baltimore, MD 21209

406,115 (12)4.1%

 

 

(1)

Shares of Common Stock, which were not outstanding but which could be acquired upon exercise of an option within 60 days from the date of this filing, are considered outstanding for the purpose of computing the percentage of outstanding shares beneficially owned.  However, such shares are not considered to be outstanding for any other purpose.

27

(2)Includes 45,130 shares that Mr. Fink has the right to acquire upon exercise of options exercisable within 60 days.

(3)

Includes 72,469 shares that Mr. Benoit has the right to acquire upon exercise of options exercisable within 60 days.

(4)

Includes 100,000 shares, which Mr. Turfler has the right to acquire upon exercise of options exercisable within 60 days.

(5)

Includes 45,130 shares, which Mr. Garland has the right to acquire upon exercise of options exercisable within 60 days.

   
 (2)(6)Includes 86,34823,125 shares, thatwhich Mr. HillDawson has the right to acquire upon exercise of options exercisable within 60 days.
   
 (3)(7)Includes 62,19410,344 shares, thatwhich Mr. FinkYin has the right to acquire upon exercise of options exercisable within 60 days.
   
 (4)Includes 89,533 shares that Mr. Benoit has the right to acquire upon exercise of options exercisable within 60 days.
(5)Includes 60,000 shares, which Mr. Turfler has the right to acquire upon exercise of options exercisable within 60 days.
(6)Includes 45,130 shares, which Mr. Garland has the right to acquire upon exercise of options exercisable within 60 days.
(7)(8)Includes 3,082 shares, which Ms. Cefali has the right to acquire upon exercise of options exercisable within 60 days.
   
 (8)

(9)

Includes 478,481261,353 shares, which the directors and officers have the right to acquire upon exercise of options exercisable within 60 days.

 

(10)

(9)

Based on records with the Company’s transfer agent and representation from Company representatives.

  

 (10)

(11)

Based on a Schedule 13G/A jointly filed with the SEC by Renaissance Technologies LLC and Renaissance Technologies Holdings Corporation on as of February 13, 2019December 31, 2019.

   
 (11)(12)Based on a Schedule 13G/A jointly filed with the SEC by AIGH Investment Partners, L.P., AIGH Investment Partners, LLC, and Mr. Orin Hirschman on February 15, 2019.June 30, 2020.

 


ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

 

None.

 

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Audit Fees

 

The following is a summary of the fees billed to the Company by CohnReznick LLP, the Company’s independent registered public accounting firm, for professional services rendered related to the fiscal years ended October 31, 20192020 and 2018:2019:

 

Fee Category 2019  2018 
Audit Fees $290,000  $248,000 
Audit-Related Fees  -   - 
Total Fees $290,000  $248,000 

Fee Category

 

2020

  

2019

 

Audit Fees

 $215,220  $290,000 

Audit-Related Fees

  -   - 

Total Fees

 $215,220  $290,000 

 

Audit Fees. Consists of fees billed for professional services rendered for the audit of the Company’s annual financial statements and review of the interim financial statements included in quarterly reports and services that are normally provided by CohnReznick LLP in connection with statutory and regulatory filings or engagements.

 

Audit-Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit and review of the Company’s financial statements and are not reported under “Audit Fees.” The CompanyWe did not incur audit-related fees during fiscal 20192020 and 2018.2019.

 

ITEM 15.

EXHIBITS

 

The Company’s consolidated financial statements and related notes thereto are listed and included in this Annual Report on Form 10-K beginning on page F-1. The following exhibits are filed as part of this report:Annual Report:

 

3.1

Amended and Restated Articles of Incorporation (2)

3.2

3.2

Amended and Restated By-Laws (3)

3.3

3.3

Amendment No. 1 to Amended and Restated Bylaws (4)

28

3.4

Amendment to Amended and Restated Bylaws (27)

 

10.14.1

Description of Registrant’s Securities

10.1

Multi-Tenant Industrial Gross Lease, effective March 31, 2009, between RF Industries, Ltd. and Walton CWCA Miramar GL 74, LLC regarding the Company’s facilities in San Diego (5)

10.2

10.2

Second Amendment to Lease, dated August 25, 2009, to Multi-Tenant Industrial Gross Lease, effective March 31, 2009, between RF Industries, Ltd. and Walton CWCA Miramar GL 74, LLC (5)

10.3

10.3

Single Tenant Commercial Lease, dated June 15, 2011, between K&K and RF Industries, Ltd. regarding the Company’s lease in Yaphank, New York (7)

10.4

10.4

Form of 2010 Stock Incentive Plan (6)

10.5

10.5

Form of Stock Option Agreement for the Company’s 2010 Stock Incentive Plan (6)

10.6

10.6

Stock Purchase Agreement, dated January 20, 2015, between RF Industries, Ltd. and Robert A. Portera (8)

  

10.7

Stock Purchase Agreement, dated June 5, 2015, between RF Industries, Ltd., Rel-Tech Electronics, Inc., and the Shareholders.(9)

 

10.8

Employment Agreement, dated December 23, 2015, by and among RF Industries, Ltd. and Johnny Walker.(10)#

 

10.9

Employment Agreement, dated December 23, 2015, by and among RF Industries, Ltd. and Mark Turfler.(10)#

 

10.10

Employment Agreement, dated December 23, 2015, by and among RF Industries, Ltd. and Darren Clark. (10)#

 

10.11

Multi-Tenant Industrial Gross Lease, effective December 1, 2007, between Rel-Tech Electronics, Inc. and D’Amato Investments, LLC regarding the Company’s lease in Milford, CT, as amended to date(11)


10.12

10.12

Multi-Tenant Industrial Gross Lease, effective January 12, 2012, between Comnet Telecom Supply Inc. and EB3, LLC regarding the Company’s lease in East Brunswick, NJ (11).

 

10.13

Separation and Release of Claims Agreement, dated October 24, 2016, by and among RF Industries, Ltd. and Johnny Walker.(12)#

 

10.14

Third Amendment To Lease, by and between Icon Miramar Owner Pool 2 West/Northeast/Midwest, LLC and the Company, dated April 17, 2014 (13)

 

10.15

Fourth Amendment To Lease, by and between Icon Miramar Owner Pool 2 West/Northeast/Midwest, LLC and the RF Industries, Ltd., dated January 26, 2017 (25)

 

10.16

Fifth Amendment To Lease, by and between Icon Miramar Owner Pool 2 West/Northeast/Midwest, LLC and the RF Industries, Ltd., dated June 5, 2017 (14)

 

10.17

Amendment To Lease, by and between K & K Unlimited and Cables Unlimited, Inc., dated June 9, 2017 (14)

 

10.18

Employment Letter Agreement, dated June 16, 2017, by and between RF Industries, Ltd. and Robert D. Dawson (15)#

 

10.19

Fifth Amendment To Lease, by and between Icon Kimberly Alvin Property, LLC and Comnet Telecom Supply, Inc., dated June 19, 2017 (16)

 

10.20

Lease Agreement by and between D’Amato Investments, LLC and Rel-Tech Electronics, Inc., dated July 25, 2017 (17)

29

10.21

10.21

Form of Indemnification Agreement (18)#

10.22

10.22

Amendment To Lease, by and between K & K Unlimited and Cables Unlimited, Inc., dated June 6, 2018 (19)

10.23

10.23

Stock Purchase Agreement between RF Industries, Ltd. and RAP Acquisition Inc., dated October 31, 2018 (20)

10.24

10.24

2019 Corporate Goals-Cash and Equity Incentive Plan, dated December 7, 2018 (23)#

10.25

10.25

Option Agreement Amendment- RF Industries, Ltd. 2010 Stock Incentive Plan (24)#

10.26

10.26

Employment Letter Agreement, dated July 17, 2019, by and between RF Industries, Ltd. and Robert D. Dawson (21)

10.27

10.27

Stock Purchase Agreement between RF Industries, Ltd., DRC Technologies, Inc. and Stockholders of DRC Technologies, Inc., dated November 4, 2019 (22)

 

14.1

10.28

2020 Equity Incentive Plan (26)

10.29

2020 Corporate Goals – Cash and Equity Incentive Plan, dated January 9, 2020 (28)#

14.1

Code of Ethics (1)

 

21.1

List of Subsidiaries

23.1

23.1

Consent of Independent Registered Public Accounting Firm CohnReznick LLP

31.1

31.1

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2

Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

32.1

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350

 

32.2

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350

 

EX-101.INS

XBRL Instance Document

  

EX-101.SCH

XBRL Taxonomy Extension Schema

  

EX-101.CAL

XBRL Taxonomy Extension Calculation Linkbase

  

EX-101.DEF

XBRL Taxonomy Extension Definition Linkbase

  

EX-101.LAB

XBRL Taxonomy Extension Label Linkbase

  

EX-101.PRE

XBRL Taxonomy Extension Presentation Linkbase


 

#

#

Indicates a management contract or compensatory plan or arrangement.

 

(1)

(1)           Previously filed as an exhibit to the Company’s Form 10- KSB for the year ended October 31, 2003, which exhibit is hereby incorporated herein by reference.

(2)           Previously filed as an exhibit to the Company’s Form 8-K, dated August 31, 2012, which exhibit is hereby incorporated herein by reference.

(3)           Previously filed as an exhibit to the Company’s Form 8-K, dated February 12, 2009, which exhibit is hereby incorporated herein by reference.

(4)           Previously filed as an exhibit to the Company’s Form 8-K, dated June 13, 2013, which exhibit is hereby incorporated herein by reference.

(5)           Previously filed as an exhibit to the Company’s Form 10- K for the year ended October 31, 2009, which exhibit is hereby incorporated herein by reference.

(6)           Previously filed as an exhibit to the Company’s Registration Statement on Form S-8, filed on September 20, 2010, which exhibit is hereby incorporated herein by reference.

(7)           Previously filed as an exhibit to the Company’s Form 10- K for the year ended October 31, 2011, which exhibit is hereby incorporated herein by reference.

(8)           Previously filed as an exhibit to the Company’s Form 8-K, dated January 21, 2015, which exhibit is hereby incorporated herein by reference.

(9)           Previously filed as an exhibit to the Company’s Form 8-K, dated June 5, 2015, which exhibit is hereby incorporated herein by reference.

(10)         Previously filed as an exhibit to the Company’s Form 8-K, dated December 24, 2015, which exhibit is hereby incorporated herein by reference.

(11)         Previously filed as an exhibit to the Company’s Form 10-K for the year ended October 31, 2015, which exhibit is hereby incorporated herein by reference.

(12)         Previously filed as an exhibit to the Company’s Form 8-K, dated October 25, 2016, which exhibit is hereby incorporated herein by reference.

(13)         Previously filed as an exhibit to the Company’s Form 8-K, dated May 1, 2014, which exhibit is hereby incorporated herein by reference.

(14)         Previously filed as an exhibit to the Company’s Form 8-K, dated June 5, 2017, which exhibit is hereby incorporated herein by reference.

(15)         Previously filed as an exhibit to the Company’s Form 8-K, dated June 20, 2017, which exhibit is hereby incorporated herein by reference.

(16)         Previously filed as an exhibit to the Company’s Form 8-K, dated June 21, 2017, which exhibit is hereby incorporated herein by reference.

(17)         Previously filed as an exhibit to the Company’s Form 8-K, dated July 28, 2017, which exhibit is hereby incorporated herein by reference.

(18)         Previously filed as an exhibit to the Company’s Form 8-K, dated September 12, 2017, which exhibit is hereby incorporated herein by reference.

(19)         Previously filed as an exhibit to the Company’s Form 8-K, dated June 6, 2018, which exhibit is hereby incorporated herein by reference.

(20)         Previously filed as an exhibit to the Company’s Form 8-K, dated October 31, 2018, which exhibit is hereby incorporated herein by reference.

(2)

Previously filed as an exhibit to the Company’s Form 8-K, dated August 31, 2012, which exhibit is hereby incorporated herein by reference.

(3)

Previously filed as an exhibit to the Company’s Form 8-K, dated February 12, 2009, which exhibit is hereby incorporated herein by reference.

(4)

Previously filed as an exhibit to the Company’s Form 8-K, dated June 13, 2013, which exhibit is hereby incorporated herein by reference.

(5)

Previously filed as an exhibit to the Company’s Form 10- K for the year ended October 31, 2009, which exhibit is hereby incorporated herein by reference.

 


30

(21)         Previously filed as an exhibit to the Company’s Form 8-K, dated July 18, 2019, which exhibit is hereby incorporated herein by reference.


 

(22)         Previously filed as an exhibit to the Company’s Form 8-K, dated November 5, 2019,

(6)

Previously filed as an exhibit to the Company’s Registration Statement on Form S-8, filed on September 20, 2010, which exhibit is hereby incorporated herein by reference.

 

(23)         Previously filed as an exhibit to the Company’s Form 8-K, dated December 3, 2018,

(7)

Previously filed as an exhibit to the Company’s Form 10- K for the year ended October 31, 2011, which exhibit is hereby incorporated herein by reference.

 

(24)         Previously filed as an exhibit to the Company’s Form 10-K for the year ended October 31, 2018,

(8)

Previously filed as an exhibit to the Company’s Form 8-K, dated January 21, 2015, which exhibit is hereby incorporated herein by reference.

 

(9)

Previously filed as an exhibit to the Company’s Form 8-K, dated June 5, 2015, which exhibit is hereby incorporated herein by reference.

(25)         

(10)

Previously filed as an exhibit to the Company’s Form 8-K, dated December 24, 2015, which exhibit is hereby incorporated herein by reference.

(11)

Previously filed as an exhibit to the Company’s Form 10-K for the year ended October 31, 2015, which exhibit is hereby incorporated herein by reference.

(12)

Previously filed as an exhibit to the Company’s Form 8-K, dated October 25, 2016, which exhibit is hereby incorporated herein by reference.

(13)

Previously filed as an exhibit to the Company’s Form 8-K, dated May 1, 2014, which exhibit is hereby incorporated herein by reference.

(14)

Previously filed as an exhibit to the Company’s Form 8-K, dated June 5, 2017, which exhibit is hereby incorporated herein by reference.

(15)

Previously filed as an exhibit to the Company’s Form 8-K, dated June 20, 2017, which exhibit is hereby incorporated herein by reference.

(16)

Previously filed as an exhibit to the Company’s Form 8-K, dated June 21, 2017, which exhibit is hereby incorporated herein by reference.

(17)

Previously filed as an exhibit to the Company’s Form 8-K, dated July 28, 2017, which exhibit is hereby incorporated herein by reference.

(18)

Previously filed as an exhibit to the Company’s Form 8-K, dated September 12, 2017, which exhibit is hereby incorporated herein by reference.

(19)

Previously filed as an exhibit to the Company’s Form 8-K, dated June 6, 2018, which exhibit is hereby incorporated herein by reference.

(20)

Previously filed as an exhibit to the Company’s Form 8-K, dated October 31, 2018, which exhibit is hereby incorporated herein by reference.

(21)

Previously filed as an exhibit to the Company’s Form 8-K, dated July 18, 2019, which exhibit is hereby incorporated herein by reference.

(22)

Previously filed as an exhibit to the Company’s Form 8-K, dated November 5, 2019, which exhibit is hereby incorporated herein by reference.

(23)

Previously filed as an exhibit to the Company’s Form 8-K, dated December 3, 2018, which exhibit is hereby incorporated herein by reference.

(24)

Previously filed as an exhibit to the Company’s Form 10-K for the year ended October 31, 2018, which exhibit is hereby incorporated herein by reference.

(25)

Previously filed as an exhibit to the Company’s Form 10-K for the year ended October 31, 2016, which exhibit is hereby incorporated herein by reference.

(26)

Previously filed as an exhibit to the Company’s Registration Statement on Form S-8, filed on September 14, 2020, which exhibit is hereby incorporated herein by reference.

(27)

Previously filed as an exhibit to the Company’s Form 8-K, dated March 20, 2020, which exhibit is hereby incorporated herein by reference.

(28)

Previously filed as an exhibit to the Company’s Form 8-K, dated January 9, 2020, which exhibit is hereby incorporated herein by reference.

 

Stockholders of the Company may obtain a copy of any exhibit referenced in this Annual Report on Form 10-K by writing to: Secretary, RF Industries, Ltd., 7610 Miramar Road, Bldg. 6000, San Diego, CA 92126. The written request must specify the stockholder’s good faith representation that such stockholder is a stockholder of the Company.

 

ITEM 16.FORM 10-K SUMMARY

We may voluntarily include a summary of information required by Form 10-K under this Item 16. We have elected not to include such summary information.


31

RF INDUSTRIES, LTD. AND SUBSIDIARIES

 

Index

 

Page

Report of Independent Registered Public Accounting Firm

F-2

Consolidated Balance Sheets

October 31, 20192020 and 20182019

F-3 - F-4

Consolidated Statements of Operations

Years Ended October 31, 20192020 and 20182019

F-5

Consolidated Statements of Stockholders’ Equity

Years Ended October 31, 20192020 and 20182019

F-6

Consolidated Statements of Cash Flows

Years Ended October 31, 20192020 and 20182019

F-7

Notes to Consolidated Financial Statements

F-8 - F-19– F-21

 

*       *       *

 

F-1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

of RF Industries, Ltd.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of RF Industries, Ltd. and Subsidiaries (the Company)“Company”) as of October 31, 20192020 and 2018,2019, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the two-year period ended October 31, 2019,2020, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 20192020 and 2018,2019, and the results of its operations and its cash flows for each of the years in the two-year period ended October 31, 2019,2020, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of November 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ CohnReznick LLP

 

We are uncertain as to the year CohnReznick LLP became the Company’s auditor as 1995 is the earliest year of which we have knowledge.

 

Jericho, New York

 

December 20, 201929, 2020

 

F-2

 

RF INDUSTRIES, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

OCTOBER 31, 2019 2020AND 20182019

(In thousands, except share and per share amounts)

 

  2019  2018 
 ASSETS        
CURRENT ASSETS        
Cash and cash equivalents $12,540  $16,334 
Trade accounts receivable, net of allowance for doubtful accounts of $23 and $88, respectively  12,190   4,255 
Inventories  8,245   7,113 
Other current assets  685   828 
      TOTAL CURRENT ASSETS  33,660   28,530 
         
Property and equipment:        
Equipment and tooling  3,602   3,210 
Furniture and office equipment  998   822 
   4,600   4,032 
Less accumulated depreciation  3,761   3,473 
      Total property and equipment  839   559 
         
Goodwill  1,340   1,340 
Amortizable intangible assets, net  1,092   1,367 
Non-amortizable intangible assets  657   657 
Other assets  112   49 
      TOTAL ASSETS $37,700  $32,502 

  

2020

  

2019

 

ASSETS

        
         

CURRENT ASSETS

        

Cash and cash equivalents

 $15,797  $12,540 

Trade accounts receivable, net of allowance for doubtful accounts of $66 and $23, respectively

  5,669   12,190 

Inventories

  8,586   8,245 

Other current assets

  813   685 

TOTAL CURRENT ASSETS

  30,865   33,660 
         

Property and equipment:

        

Equipment and tooling

  3,819   3,602 

Furniture and office equipment

  1,073   998 
   4,892   4,600 

Less accumulated depreciation

  4,082   3,761 

Total property and equipment

  810   839 
         

Operating lease right of use assets, net

  1,421   - 

Goodwill

  2,467   1,340 

Amortizable intangible assets, net

  3,181   1,092 

Non-amortizable intangible assets

  1,174   657 

Deferred tax assets

  834   44 

Other assets

  70   68 

TOTAL ASSETS

 $40,822  $37,700 

 

F-3

 

RF INDUSTRIES, LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

OCTOBER 31, 2019 2020AND 20182019

(In thousands, except share and per share amounts)

 

 2019  2018  

2020

  

2019

 
LIABILITIES AND STOCKHOLDERS' EQUITY                
        
CURRENT LIABILITIES                
Accounts payable $2,406  $1,342  $1,475  $2,406 
Accrued expenses  3,653   3,377   2,573   3,653 

Current portion of PPP Loan

  1,699   - 
Income taxes payable  21   -   43   21 

Other current liabilities

  874   - 
TOTAL CURRENT LIABILITIES  6,080   4,719   6,664   6,080 
                

Operating lease liabilities

  635   - 

PPP Loan

  1,089   - 
Other long-term liabilities  87   -   370   87 
TOTAL LIABILITIES  6,167   4,719   8,758   6,167 
                
COMMITMENTS AND CONTINGENCIES                
                
STOCKHOLDERS’ EQUITY                
Common stock - authorized 20,000,000 shares of $0.01 par value; 9,462,267 and 9,291,201 shares issued and outstanding at October 31, 2019 and October 31, 2018, respectively  95   93 

Common stock - authorized 21,250,000 and 20,000,000 shares of $0.01 par value; 9,814,118 and 9,462,267 shares issued and outstanding at October 31, 2020 and October 31, 2019, respectively

  98   95 
Additional paid-in capital  21,949   20,974   22,946   21,949 
Retained earnings  9,489   6,716   9,020   9,489 
TOTAL STOCKHOLDERS' EQUITY  31,533   27,783   32,064   31,533 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $37,700  $32,502  $40,822  $37,700 

 

See Notes to Consolidated Financial Statements.

 

F-4

 

RF INDUSTRIES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED OCTOBER 31, 2019 2020AND 20182019

(In thousands, except share and per share amounts)

 

  2019  2018 
Net sales $55,325  $50,196 
Cost of sales  39,688   33,096 
         
Gross profit  15,637   17,100 
         
Operating expenses:        
      Engineering  1,468   1,480 
      Selling and general  9,710   8,173 
Total operating expense  11,178   9,653 
         
Operating income  4,459   7,447 
         
Other income  98   47 
         
Income from continuing operations before provision for income taxes  4,557   7,494 
Provision for income taxes  1,036   1,468 
         
Income from continuing operations  3,521   6,026 
         
Loss from discontinued operations, net of tax  -   (180)
         
Consolidated net income $3,521  $5,846 
         
Earnings (loss) per share        
   Basic        
      Continuing operations $0.38  $0.66 
      Discontinued operations  -   (0.02)
      Net income per share $0.38  $0.64 
         
Earnings (loss) per share        
   Diluted        
      Continuing operations $0.36  $0.63 
      Discontinued operations  -   (0.02)
      Net income per share $0.36  $0.61 
         
Weighted average shares outstanding        
      Basic  9,358,836   9,105,406 
      Diluted  9,854,604   9,593,066 
         

  

2020

  

2019

 
         

Net sales

 $43,044  $55,325 

Cost of sales

  31,478   39,688 
         

Gross profit

  11,566   15,637 
         

Operating expenses:

        

Engineering

  1,989   1,468 

Selling and general

  9,980   9,710 

Total operating expense

  11,969   11,178 
         

Operating (loss) income

  (403)  4,459 
         

Other (loss) income

  (45)  98 
         

(Loss) income before (benefit) provision for income taxes

  (448)  4,557 

(Benefit) provision for income taxes

  (367)  1,036 
         

Consolidated net (loss) income

 $(81) $3,521 
         

(Loss) earnings per share

        

Basic

 $(0.01) $0.38 

Diluted

 $(0.01) $0.36 
         

Weighted average shares outstanding

        

Basic

  9,678,822   9,358,836 

Diluted

  9,678,822   9,854,604 

 

See Notes to Consolidated Financial Statements.

 

F-5

 

RF INDUSTRIES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEARS ENDED OCTOBER 31, 2019 2020AND 20182019

(In thousands, except share amounts)

 

      Additional               

Additional

         
 Common Stock  Paid-In  Retained     

Common Stock

  

Paid-In

  

Retained

     
 Shares  Amount  Capital  Earnings  Total  

Shares

  

Amount

  

Capital

  

Earnings

  

Total

 
Balance, November 1, 2017  8,872,246  $89  $19,654  $1,600  $21,343 

Balance, November 1, 2018

  9,291,201  $93  $20,974  $6,716  $27,783 
                                        
Exercise of stock options  418,955   4   1,109   -   1,113   171,066   2   658   -   660 
                                        
Stock-based compensation expense  -   -   211   -   211   -   -   317   -   317 
                                        
Dividends  -   -   -   (730)  (730)  -   -   -   (748)  (748)
                                        
Net Income  -   -   -   5,846   5,846 

Net income

  -   -   -   3,521   3,521 
                                        
Balance, October 31, 2018  9,291,201   93   20,974   6,716   27,783 

Balance, October 31, 2019

  9,462,267  $95  $21,949  $9,489  $31,533 
                                        
Exercise of stock options  171,066   2   658   -   660   241,209   2   443   -   445 
                                        
Stock-based compensation expense  -   -   317   -   317   -   -   473   -   473 
                                        

Issuance of restricted stock

  97,451   1   (1)  -   - 
                    

Issuance of common shares

  13,191   -   82   -   82 
                    
Dividends  -   -   -   (748)  (748)  -   -   -   (388)  (388)
                                        
Net Income  -   -   -   3,521   3,521 

Net income

  -   -   -   (81)  (81)
                                        
Balance, October 31, 2019  9,462,267  $95  $21,949  $9,489  $31,533 

Balance, October 31, 2020

  9,814,118  $98  $22,946  $9,020  $32,064 

 

See Notes to Consolidated Financial Statements.

 

F-6

 

RF INDUSTRIES, LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED OCTOBER 31, 2019 2020AND 20182019

(In thousands)

  2019  2018 
OPERATING ACTIVITIES:        
Consolidated net income $3,521  $5,846 
Loss from discontinued operations  -   (180)
Income from continuing operations  3,521   6,026 
         
Adjustments to reconcile consolidated net income to net cash provided by (used in) operating activities:        
    Bad debt expense  21   8 
    Depreciation and amortization  563   513 
    Gain on sale of fixed assets  -   (1)
    Stock-based compensation expense  317   211 
    Deferred income taxes  (43)  (79)
Changes in operating assets and liabilities:        
    Trade accounts receivable  (6,640)  (1,360)
    Inventories  (657)  (1,570)
    Other current assets  218   (321)
    Other long-term assets  (1)  21 
    Accounts payable  106   306 
    Accrued expenses  (211)  1,516 
    Income tax payable  21   - 
    Other long-term liabilities  75   - 
        Net cash provided by (used in) operating activities from continuing operations  (2,710)  5,270 
        Net cash provided by operating activities from discontinued operations  -   945 
         
INVESTING ACTIVITIES:        
    Proceeds from landlord for tenant improvements  -   34 
    Proceeds from sale of fixed assets  -   1 
    Capital expenditures  (538)  (266)
    Proceeds from sale of Comnet  -   4,200 
    Purchase of C Enterprises, net of cash acquired ($143)  (458)  - 
        Net cash provided by (used in) investing activities from continuing operations  (996)  3,969 
        Net cash used in investing activities from discontinued operations  -   (272)
         
FINANCING ACTIVITIES:        
    Proceeds from exercise of stock options  660   1,113 
    Dividends paid  (748)  (730)
        Net cash provided by (used in) financing activities  (88)  383 
         
Net increase (decrease) in cash and cash equivalents  (3,794)  10,295 
         
Cash and cash equivalents of continuing operations, beginning of year  16,334   5,208 
Cash and cash equivalents of discontinued operations, beginning of year  -   831 
Cash and cash equivalents, beginning of year  16,334   6,039 
         
Cash and cash equivalents, end of year $12,540  $16,334 
         
Supplemental cash flow information – income taxes paid $739  $1,826 
Supplemental schedule of noncash investing and financing activities:        
    Disposal of fully depreciated property and equipment $-  $90 
    Write-off of deferred rent from sale of Comnet $-  $9 

  

2020

  

2019

 

OPERATING ACTIVITIES:

        

Consolidated net (loss) income

 $(81) $3,521 
         

Adjustments to reconcile consolidated net income to net cash provided by (used in) operating activities:

     

Bad debt expense

  16   21 

Depreciation and amortization

  1,014   563 

Stock-based compensation expense

  556   317 

Deferred income taxes

  (790)  (43)

Changes in operating assets and liabilities:

        

Trade accounts receivable

  6,775   (6,640)

Inventories

  442   (657)

Other current assets

  (113)  218 

Right of use asset

  88   - 

Other long-term assets

  (2)  (1)

Accounts payable

  (1,040)  106 

Accrued expenses

  (1,374)  (211)

Income tax payable

  22   21 

Other long-term liabilities

  (966)  75 

Net cash provided by (used in) operating activities

  4,547   (2,710)
         

INVESTING ACTIVITIES:

        

Capital expenditures

  (235)  (538)

Purchase of C Enterprises, net of cash acquired ($143)

  -   (458)

Purchase of Schrofftech, net of cash acquired ($99)

  (3,901)  - 

Net cash used in investing activities

  (4,136)  (996)
         

FINANCING ACTIVITIES:

        

Proceeds from exercise of stock options

  445   660 

Dividends paid

  (388)  (748)

Proceeds from PPP Loan

  2,789   - 

Net cash provided by (used in) financing activities

  2,846   (88)
         

Net increase (decrease) in cash and cash equivalents

  3,257   (3,794)
         

Cash and cash equivalents, beginning of year

  12,540   16,334 
         

Cash and cash equivalents, end of year

 $15,797  $12,540 
         

Supplemental cash flow information – income taxes paid

 $415  $739 

 

See Notes to Consolidated Financial Statements.

 

F-7

 

RF INDUSTRIES, LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Business activities and summary of significant accounting policies

 

Business activities

 

RF Industries, Ltd., together with its threefour wholly-owned subsidiaries (collectively, hereinafter the “Company”, “we”, “us”, or “our”), primarily engages in the design, manufacture, and marketing of interconnect products and systems, including coaxial and specialty cables, fiber optic cables and connectors, and electrical and electronic specialty cables. For internal operating and reporting purposes, and for marketing purposes, as of the end of the fiscal year ended October 31, 2019, the Company2020, we classified itsour operations into the following fourfive divisions/subsidiaries: (i) The RF Connector and Cable Assembly division designs, manufactures and distributes coaxial connectors and cable assemblies that are integrated with coaxial connectors; (ii) Cables Unlimited, Inc., the subsidiary that manufactures custom and standard cable assemblies, complex hybrid fiber optic power solution cables, adapters, and electromechanical wiring harnesses for communication, computer, LAN, automotive and medical equipment; (iii) Rel-Tech Electronics, Inc., the subsidiary that designs and manufacturers cable assemblies and wiring harnesses for blue chip industrial, oilfield, instrumentation and military customers; and (iv) C Enterprises, Inc., the subsidiary that designs and manufactures quality connectivity solutions to telecommunications and data communications distributors.distributors; and (v) Schroff Technologies International, Ltd., the subsidiary that manufactures and markets intelligent thermal control systems used by telecommunications companies across the U.S. and Canada, and shrouds for small cell integration and installation. The Cables Unlimited and C Enterprises divisions are Corning Cables Systems CAH Connections SM Gold Program members that are authorized to manufacture fiber optic cable assemblies that are backed by Corning Cables Systems’ extended warranty.

 

Use of estimates 

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results may differ from those estimates.

 

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”), and C Enterprises, Inc. (“C Enterprises”), and Schroff Technologies International, Ltd. (“Schrofftech”), wholly-owned subsidiaries of RF Industries, Ltd. All intercompany balances and transactions have been eliminated in consolidation.

 

Cash equivalents

 

The Company considers all highly-liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

 

Revenue recognition

 

On November 1, 2018, the Companywe adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASC 606”) applying the modified retrospective method. The core principle of ASC 606 is that revenue should be recorded in an amount that reflects the consideration to which we expect to be entitled in exchange for goods or services promised to customers. Under ASC 606, the Company followswe follow a five-step model to: (1) identify the contract with our customer; (2) identify our performance obligations in our contract; (3) determine the transaction price for our contract; (4) allocate the transaction price to our performance obligations; and (5) recognize revenue when (or as) each performance obligation is satisfied. In accordance with this accounting principle, the Company recognizeswe recognize revenue using the output method at a point in time when finished goods have been transferred to the customer and there are no other obligations to customers after the title of the goods have transferred. Title of goods are transferred based on shipping terms for each customer – for shipments with terms of FOB Shipping Point, title is transferred upon shipment; for shipments with terms of FOB Destination, title is transferred upon delivery.

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value, with cost determined using the weighted average cost of accounting. Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories. We regularly review inventory quantities on hand, future purchase commitments with our suppliers, and the estimated utility of our inventory. If our review indicates a reduction in utility below carrying value due to damage, physical deterioration, obsolescence, changes in price levels, or other causes, we reduce our inventory to a new cost basis through a charge to cost of sales in the period in which it occurs. The determination of market value and the estimated volume of demand used in the lower of cost or market analysis requires significant judgment.

 

F-8

 

Property and equipment

 

Equipment, tooling and furniture are recorded at cost and depreciated over their estimated useful lives (generally 3three to 5five years) using the straight-line method. Expenditures for repairs and maintenance are charged to operations in the period incurred.

 

Goodwill

 

Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Goodwill is not amortized, but is subject to impairment analysis at least once annually, which the Company performswe perform in October, or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit’s carrying amount is greater than its fair value.

 

We assess whether a goodwill impairment exists using both qualitative and quantitative assessments at the reporting level. Our qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If based on this qualitative assessment we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, we will not perform a quantitative assessment.

 

If the qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount or if we elect not to perform a qualitative assessment, we perform a quantitative assessment, or two-step impairment test, to determine whether a goodwill impairment exists at the reporting unit. The first step in our quantitative assessment identifies potential impairments by comparing the estimated fair value of the reporting unit to its carrying value, including goodwill (“Step 1”). If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment (“Step 2”).

 

No instances of goodwill impairment were identified as of October 31, 20192020 and 2018.2019. We considered the impact of the COVID-19 related economic slowdown on our evaluation of goodwill impairment indicators as of October 31, 2020 as well as consideration of positive factors including backlog and sell-through subsequent to October 31, 2020. Although no goodwill 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.

 

On June 15, 2011, the Companywe completed itsthe acquisition of Cables Unlimited. Goodwill related to this acquisition is included within the Cables Unlimited reporting unit. As of May 19, 2015, the Companywe completed itsthe acquisition of the CompPro product line. Goodwill related to this acquisition is included within the RF Connector and Cable Assembly Division. Effective June 1, 2015, the Companywe completed itsthe acquisition of Rel-Tech. Goodwill related to this acquisition is included within the Rel-Tech reporting unit. On March 15, 2019, the Companywe completed itsthe acquisition of C Enterprises; however, no goodwill resulted from this transaction. On November 4, 2019, we completed the acquisition of Schrofftech. Goodwill related to this acquisition is included within the Schrofftech reporting unit.

 

Long-lived assets

 

The Company assessesWe 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. The Company measuresWe measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If property and equipment and intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value. The Company hasWe have made no material adjustments to our long-lived assets in any of the years presented.

 

The Company amortizes itsWe amortize our intangible assets with definite useful lives over their estimated useful lives and reviewsreview these assets for impairment.

 

In addition, the Company testswe test our trademarks and indefinite-lived asset for impairment at least annually or more frequently if events or changes in circumstances indicate that these assets may be impaired.

 

No instances of impairment were identified as of October 31, 20192020 or 2018.2019.

 

Fair value measurement

 

The Company measuresWe 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. U.S. GAAP specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company'sour 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.

 

F-9

As of October 31, 20192020 and 2018,2019, the carrying amounts reflected in the accompanying consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilitiesthe current portion of the PPP Loan approximated their carrying value due to their short-term nature.

F-9

 

Intangible assets

 

Intangible assets consist of the following as of October 31, 20192020 and 20182019 (in thousands): 

 

 2019  2018  

2020

  

2019

 
Amortizable intangible assets:                

Non-compete agreement (estimated life 5 years)

 $423  $200 

Accumulated amortization

  (245)  (200)
  178   - 
        
Customer relationships (estimated lives 7 - 15 years) $2,879  $2,879   5,058   2,879 

Accumulated amortization

  (2,367)  (1,884)
  2,691   995 
        

Backlog (estimated life 1 - 2 years)

  287   134 
Accumulated amortization  (1,884)  (1,619)  (266)  (134)
  995   1,260   21   - 
                
Patents (estimated life 14 years)  142   142   368   142 
Accumulated amortization  (45)  (35)  (77)  (45)
  97   107   291   97 
                
Totals $1,092  $1,367  $3,181  $1,092 
                
Non-amortizable intangible assets:                
Trademarks $657  $657  $1,174  $657 

 

Amortization expense was $692,000 and $275,000 for the years ended October 31, 20192020 and 2018.2019. The weighted-average amortization period for the amortizable intangible assets is 10.988.39 years.

 

There was no impairment to trademarks for the years ended October 31, 20192020 and 2018.2019.

 

Estimated amortization expense related to finite lived intangible assets is as follows (in thousands):

 

Year endingYear ending        
October 31,October 31,  Amount  

Amount

 
2020  $275 
2021   136 
2022   89 
2023   79 
2024   79 
Thereafter   434 
Total  $1,092 

2021

 $443 

2022

  374 

2023

  364 

2024

  364 

2025

  320 

Thereafter

  1,316 

Total

 $3,181 

 

Advertising

 

The Company expensesWe expense the cost of advertising and promotions as incurred. Advertising costs charged to operations were approximately $231,000$295,000 and $236,000$422,000 in 20192020 and 2018,2019, respectively.

 

Research and development

 

Research and development costs are expensed as incurred. The Company’sOur research and development expenses relate to its engineering activities, which consist of the design and development of new products for specific customers, as well as the design and engineering of new or redesigned products for the industry in general. During the years ended October 31, 2020 and 2019, we recognized $1,989,000 and 2018, the Company recognized $1,468,000 and $1,480,000 in engineering expenses, respectively.

 

F-10

Income taxes

 

The Company accountsWe account for income taxes under the asset and liability method, based on the income tax laws and rates in the jurisdictions in which operations are conducted and income is earned. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Developing the provision (benefit) for income taxes requires significant judgment and expertise in federal, international and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be required for deferred tax assets. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Management’s judgments and tax strategies are subject to audit by various taxing authorities.

 

The CompanyWe had adopted the provisions of ASC 740-10, which clarifies the accounting for uncertain tax positions. ASC 740-10 requires that the Companywe recognize the impact of a tax position in the financial statements if the position is not more likely than not to be sustained upon examination based on the technical merits of the position. The Company’s recognizesWe recognize interest and penalties related to certain uncertain tax positions as a component of income tax expense and the accrued interest and penalties are included in deferred and income taxes

F-10

payable in the Company’sour consolidated balance sheets. See Note 98 to the Consolidated Financial Statements included in this Report for more information on the Company’s accounting for uncertain tax positions.

 

Stock options

 

For stock option grants to employees, the Company recognizeswe recognize compensation expense based on the estimated fair value of the options at the date of grant. Stock-based employee compensation expense is recognized on a straight-line basis over the requisite service period. The Company issuesWe issue previously unissued common shares upon the exercise of stock options.

 

For the fiscal years ended October 31, 20192020 and 2018,2019, charges related to stock-based compensation amounted to approximately $317,000$556,000 and $211,000,$317,000, respectively. For the fiscal years ended October 31, 20192020 and 2018,2019, all stock-based compensation is classified in selling and general and engineering expense.

 

Earnings per share

 

Basic earnings per share is calculated by dividing net income applicable to common stockholders by the weighted average number of common shares outstanding during the period. The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, principally those issuable upon the exercise of stock options, were issued and the treasury stock method had been applied during the period. The greatest number of shares potentially issuable by the Company upon the exercise of stock options in any period for the years ended October 31, 20192020 and 2018,2019, that were not included in the computation because they were anti-dilutive, totaled 124,097402,838 and 133,220,124,097, respectively.

 

The following table summarizes the computation of basic and diluted earnings per share:

 

 2019  2018  

2020

  

2019

 
Numerators:                
Consolidated net income (A) $3,521,000  $5,846,000  $(81,000) $3,521,000 
                
Denominators:                
Weighted average shares outstanding for basic earnings per share (B)  9,358,836   9,105,406   9,678,822   9,358,836 
Add effects of potentially dilutive securities - assumed exercise of stock options  495,768   487,660   -   495,768 
                
Weighted average shares outstanding for diluted earnings per share (C)  9,854,604   9,593,066   9,678,822   9,854,604 
                
Basic earnings per share (A)/(B) $0.38  $0.64  $(0.01) $0.38 
                
Diluted earnings per share (A)/(C) $0.36  $0.61  $(0.01) $0.36 
        

 

Recent accounting standards

 

Recently issued accounting pronouncements not yet adopted:

In February 2016, the FASB issued Accounting Standards Update (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.  Recognition of these assets and liabilities will have a material impact to our consolidated balance sheets upon adoption.  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.  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 its 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.  We will recognize those lease payments in the Consolidated Statements of Operations on a straight-line basis over the lease term.  We estimate that the adoption of the standard will result in recognition of additional right-of-use assets and lease liabilities of approximately $2.3 million and $2.4 million, respectively, as of November 1, 2019.  We do not believe the standard will materially affect our consolidated net earnings, nor do we believe the new standard will have a notable impact on our liquidity.

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other, which simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test. Instead, if “the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.” The guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. We are evaluating the adoption of this new standard compared to the previous accounting policies and have not identified any material impact on our Consolidated Financial Statements.

F-11

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses, which requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The Companyallowance 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. Early adoption is permitted. We are currently evaluating the impact the adoption of this new standard will have on its Consolidated Financial Statements.our consolidated financial statements.

F-11

 

Recently issued accounting pronouncements adopted:

 

In May 2014, the FASB issued ASC 606. This guidance superseded Topic 605, Revenue Recognition, in addition to other industry-specific guidance. The new standard requires a company to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the companyCompany expects to be entitled in exchange for those goods and services.  In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, as a revision to ASU 2014-09, which revised the effective date to fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption was permitted but not prior to periods beginning after December 15, 2016 (i.e., the original adoption date per ASU 2014-09). In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, which clarifies certain aspects of the principal-versus-agent guidance, including how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements, such as service transactions. The amendments also reframe the indicators to focus on evidence that an entity is acting as a principal rather than as an agent. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, which clarifies how an entity should evaluate the nature of its promise in granting a license of intellectual property, which will determine whether it recognizes revenue over time or at a point in time. The amendments also clarify when a promised good or service is separately identifiable (i.e., distinct within the context of the contract) and allow entities to disregard items that are immaterial in the context of a contract. On November 1, 2018, the Company adopted ASC 606 applying the modified retrospective method. The Company has performed a review of ASC 606 as compared to its previous accounting policies for our product revenue and did not identify any material impact to revenue recognized. Therefore, there was no adjustment to retained earnings for a cumulative effect. The necessary changes to business processes and controls to effectively review and account for any new contracts under this standard have been implemented.

In February 2016, 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 its 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. We have recognized those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. The adoption of the standard resulted in a material recognition of additional right of use 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 income.

Note 2 – Business Acquisition

C Enterprises, Inc.

 

On March 15, 2019, through C Enterprises, Inc. (“C Enterprises”), itsour newly formed subsidiary, the Companywe purchased the business and assets of C Enterprises L.P., a California based designer and manufacturer of quality connectivity solutions to telecommunications and data communications distributors. In consideration for the C Enterprises business and assets, the Companywe paid $600,000 in cash and assumed certain liabilities. The acquisition was determined not to be material and was accounted for in accordance with the acquisition method of accounting, and the acquired assets and assumed liabilities were recorded by the Company at their estimated fair values in accordance with ASC 805, Business Combinations. There were no intangible assets identified as part of the acquisition.

 

The results of C Enterprises’ operations subsequent to March 15, 2019 have been included in the results of the Custom Cabling Manufacturing and Assembly segment (“Custom Cabling segment”) as well as in the Company’s consolidated statements of operations. Costs related to the acquisition of C Enterprises were approximately $100,000 and have been expensed as incurred in fiscal 2019 and categorized in selling and general expenses. For the year ended October 31, 2019,2020, C Enterprises contributed revenue of $10.9 million.

The following table summarizes the components of the purchase price at fair value at March 15, 2019:

Cash consideration paid

 $600,000 

Total purchase price

 $600,000 

F-12

The following table summarizes the allocation of the estimated purchase price at fair value at March 15, 2019:

Current assets

 $2,008,000 

Fixed assets

  30,000 

Other assets

  18,000 

Non-interest bearing liabilities

  (1,456,000)

Net assets

 $600,000 

Schroff Technologies International, Inc.

On November 4, 2019, we purchased the business of Schroff Technologies International, Inc. (“Schrofftech”), a Rhode Island-based manufacturer and marketer of intelligent thermal control systems used by telecommunications companies across the U.S. and Canada, and shrouds for small cell integration and installation. At the closing, in consideration for the Schrofftech business, we paid the sellers $4 million in cash, and, if certain financial targets are met by Schrofftech over a two-year period, agreed to pay additional cash earn-out payments of up to $2.4 million.

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 specialist. Schrofftech serves the high growth wireless, telecom and cable markets. All manufacturing operations are performed at Schrofftech’s facilities in Rhode Island. The Schrofftech business allows us to diversify the types of services provided for our customers in these markets. All manufacturing operations are performed at Schrofftech’s facilities in Rhode Island.

Although the closing occurred on November 4, 2019, the acquisition of Schrofftech is deemed to have become effective for financial accounting purposes as of November 1, 2019. Accordingly, Schrofftech’s financial results have been included in the results of the Custom Cabling segment as well as in the consolidated statements of operations. Total costs related to the acquisition of Schrofftech were approximately $151,000, of which $108,000 was incurred in fiscal 2019 and $43,000 was incurred in fiscal 2020. All acquisition-related costs have been expensed as incurred and categorized in selling and general expenses. For the year ended October 31, 2020, Schrofftech contributed $7.2 millionrevenue of revenue.$4.3 million.

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

Cash consideration paid

 $4,000,000 

Earn-out liability

  1,249,000 

Total purchase price

 $5,249,000 

The following table summarizes the allocation of the purchase price at fair value at November 1, 2019:

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 

 

The following unaudited pro forma financial information presents the combined operating results of the Company, and C Enterprises, and Schrofftech as if the acquisitionboth acquisitions had occurred as of the beginning of the earliest period presented. Pro forma data is subject to various assumptions and estimates and is presented for informational purposes only. This pro forma data does not purport to represent or be indicative of the consolidated operating results that would have been reported had the transaction been completed as described herein, and the data should not be taken as indicative of future consolidated operating results. 

 

F-13

Pro

Unaudited pro forma financial information assuming the acquisition of C Enterprises and Schrofftech as of November 1, 2018 is presented in the following table:

  October 31,
2019
  October 31,
2018
 
       
Revenue $59,250  $58,658 
Net income  3,370   5,419 
         
Earnings per share        
     Basic $0.36  $0.60 
     Diluted $0.34  $0.56 

Note 3 - Discontinued operations

On October 31, 2018, the Company sold all of the assets and liabilities of its subsidiary, Comnet Telecom Supply (“Comnet Telecom”). The Company and RAP Acquisition Inc. (“RAP Acquisition”), a New Jersey corporation, entered into a stock purchase agreement under which RAP Acquisition agreed to purchase 100% of the issued and outstanding shares of Comnet Telecom for a purchase price of $4,200,000 in cash. Comnet Telecom is a New Jersey-based manufacturer and supplier of telecommunications and data products, including fiber optic cables, cabling technologies, custom patch cord assemblies, data center consoles and other data center equipment. This division was one of the three subsidiaries of the “Custom Cabling Manufacturing and Assembly” segment. Comnet Telecom was acquired by the Company in January 2015 from Robert Portera, and has been a wholly-owned subsidiary of the Company since that time. Mr. Portera served as the President of Comnet Telecom during the period that Comnet Telecom was owned by the Company, and is the founder and principal of RAP Acquisition.

F-12

For the year ended October 31, 2018, the Company recognized pretax loss of $221,000 from the discontinued operations of the Comnet Telecom division, and an income tax benefit of $41,000. The major line items constituting the loss of discontinued operations of Comnet are as followstable (in thousands):

 

  2018 
Major line items constituting pretax income    
from discontinued operations:    
Net sales $8,343 
Cost of sales  (6,199)
Gross profit  2,144 
Selling, general and administrative expense  (1,569)
Pretax income from discontinued operations  575 
Pretax loss on sale of Comnet  (796)
Total pretax income (loss) from discontinued operations  (221)
Provision (benefit) for income taxes  (41)
Income (loss) from discontinued operations $(180)
  

Fiscal Year Ended

 
  

October 31, 2019

 
     

Revenue

 $67,096 

Net income

  4,815 
     

Earnings per share

    

Basic

 $0.51 

Diluted

 $0.49 
     
     
     

Weighted average shares outstanding

 

Basic

  9,358,836 

Diluted

  9,854,604 

 

Note 4 -3 Concentrations of credit risk

 

Financial instruments which potentially subject the Companyus to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains itsWe maintain our cash and cash equivalents with high-credit quality financial institutions. At October 31, 2019, the Company2020, we had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $11.6$14.2 million.

 

Two customers, a distributorboth distributors, accounted for approximately 14% and 12% of net sales for the year ended October 31, 2020. These same two distributors had accounts receivable balances that accounted each for 12% of the total net accounts receivable balance at October 31, 2020. For the year ended October 31, 2019, one of these distributors and a wireless carrier accounted for approximately 19% and 23% of the Company’s net sales for the fiscal year ended October 31, 2019. This distributor accounted for approximately 62% of the Company’s net sales for the year ended October 31, 2018.sales. The wireless carrier’s accounts receivable balance accounted for approximately 56% of the total net accounts receivable balance at October 31, 2019. The distributor’s accounts receivable balance accounted for approximately 48% of the total net accounts receivable balance at October 31, 2018. Although these customers have been on-going major customers of the Company, continuously in the past, the written agreement with these customers do not have any minimum purchase obligations and they could stop buying the Company’sour products at any time and for any reason. A reduction, delay or cancellation of orders from these customers or the loss of these customers could significantly reduce the Company’sour future revenues and profits.

 

Note 5 -4 Inventories and major vendors

 

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

 

 

2020

  

2019

 
 2019  2018         
Raw materials and supplies $3,576  $2,711  $4,410  $3,576 
Work in process  791   603   196   791 
Finished goods  3,878   3,799   3,980   3,878 
                
Totals $8,245  $7,113  $8,586  $8,245 

 

TwoNo vendor accounted for more than 10% of inventory purchases for the fiscal year ended October 31, 2020, compared to two vendors who accounted for 13% and 19% of inventory purchases during the fiscal year ended October 31, 2019, compared to one vendor who accounted for 40% of inventory purchases for the fiscal year ended October 31, 2018. The Company has2019. We have arrangements with theirthese vendors to purchase productproducts based on purchase orders that we periodically issued by the Company.issue.

 

Note 6 -5 Other current assets

 

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

 

 2019  2018  

2020

  

2019

 
Prepaid taxes $-  $335 
        
Prepaid expense  346   228  $393  $346 
Notes receivable, current portion  -   20 
Other  339   245   420   339 
                
Totals $685  $828  $813  $685 

 

F-13
F-14

 

Note 7 -6 Accrued expenses and other long-term liabilities

 

Accrued expenses consist of the following (in thousands):

 

 

2020

  

2019

 
 2019  2018         
Wages payable $1,591  $1,705  $1,506  $1,591 
Accrued receipts  1,683   1,271   518   1,683 
Other current liabilities  379   401   549   379 
                
Totals $3,653  $3,377  $2,573  $3,653 

 

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

 

Note 8 - Segment informationThe purchase agreement for the Schrofftech acquisition provides for earn-out payments of up to $2,400,000, which 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 and subsequent period ends. 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.  In determining the fair value of the earn-out liability as of October 31, 2020, we used the most recent projections while giving consideration to actual results versus such projections subsequent to October 31, 2020.

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

Description

 

Level 3

 

Earn-out liability

 $370 


There were no financial assets or liabilities measured at fair value as of October 31, 2019.

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

  

Level 3

 
  

October 31, 2020

  

July 31, 2020

  

April 30, 2020

  

January 31, 2020

  

October 31, 2019

 

Beginning balance

 $558  $869  $1,215  $1,249  $- 

Change in value

  (188)  (311)  (346)  (34)  - 

Ending balance

 $370  $558  $869  $1,215  $- 

As of October 31, 2020, the full amount of the $0.4 million earn-out was classified as other long-term liabilities.

Note 7 Segment information

We aggregate operating divisions into operating segments which 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 October 31, 2019, the Company2020, we had two reportable segments – RF Connector and Cable Assembly (RF Connector)(“RF Connector”) and Custom Cabling Manufacturing and Assembly (Custom Cabling)(“Custom Cabling”).

F-15

 

During fiscal 2019,2020, the RF Connector segment was comprised of one division, while the Custom Cabling segment was comprised of threefour divisions. The fourfive divisions that met the quantitative thresholds for segment reporting the were RF Connector and Cable Assembly division, Cables Unlimited, Rel-Tech, C Enterprises, and C Enterprises.Schrofftech. While each segment hadhas similar products and services, with one major exception, there was little overlapping of these services to their customer base. In addition,The biggest difference in segments is in the channels of sales; sales or product and services for the RF Connector segment waswere primarily through the distribution channel, while the Custom Cabling segment sales waswere through a combination of distribution and direct to the end customer.

 

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

 

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

 

Substantially allAll of the Company’sour operations are conducted in the United States; however, the Company deriveswe derive a portion of itsour revenue from export sales. The Company attributesWe attribute sales to geographic areas based on the location of the customers. The following table presents the sales of the Company by geographic area for the years ended October 31, 20192020 and 20182019 (in thousands):

 

  2019  2018 
United States $54,365  $49,534 
Foreign Countries:        
  Canada  592   547 
  Mexico  109   39 
  All Other  259   76 
   960   662 
Totals $55,325  $50,196 

F-14
  

2020

  

2019

 
         

United States

 $41,633  $54,365 

Foreign Countries:

        

Canada

  933   592 

Mexico

  12   109 

All Other

  466   259 
   1,411   960 
         

Totals

 $43,044  $55,325 

 

Net sales, income from continuing operations(loss) before provision (benefit) for income taxes and other related segment information for the years ended October 31, 20192020 and 20182019 are as follows (in thousands):

 

 

RF Connector

  

Custom Cabling

         
 

and

  

Manufacturing and

         

2020

 

Cable Assembly

  

Assembly

  

Corporate

  

Total

 

Net sales

 $14,554  $28,490  $-  $43,044 
                

Income (loss) before benefit for income taxes

  2,019   (2,423)  (44)  (448)
                

Depreciation and amortization

  159   855   -   1,014 
                

Total assets

  7,822   15,486   17,514   40,822 
 RF Connector Custom Cabling                      
 and Manufacturing and                      
2019 Cable Assembly  Assembly  Corporate  Total                 
Net sales $13,704  $41,621  $-  $55,325  $13,704  $41,621  $-  $55,325 
                                
Income from continuing operations before provision for income taxes  868   3,591   98   4,557 

Income before provision for income taxes

  868   3,591   98   4,557 
                                
Depreciation and amortization  170   393   -   563   170   393   -   563 
                                
Total assets  7,081   17,282   13,337   37,700   7,081   17,282   13,337   37,700 
                
2018                
Net sales $11,846  $38,350  $-  $50,196 
                
Income from continuing operations before provision for income taxes  107   7,340   47   7,494 
                
Depreciation and amortization  172   341   -   513 
                
Total assets  6,529   8,763   17,210   32,502 

 

F-16

Note 9 -8 – Income tax provision

 

Reconciliation of provision (benefit) for income taxes for the years ended October 31, 2019 and 2018 are as follows (in thousands):

  2019  2018 
Continuing operations $1,036  $1,468 
Discontinued operations  -   (41)
Net income $1,036  $1,427 

The provision (benefit) for income taxes for the fiscal years ended October 31, 20192020 and 20182019 consists of the following (in thousands):

 

  2019  2018  

2020

  

2019

 
Current:                 
Federal  $859  $1,344  $279  $859 
State   220   236   143   220 
   1,079   1,580   422   1,079 
                 
Deferred:                 
Federal   (25)  (112)  (593)  (25)
State   (18)  -   (196)  (18)
   (43)  (112)  (789)  (43)
                 
  $1,036  $1,468  $(367) $1,036 

 

Income tax at the federal statutory rate is reconciled to the Company’sour actual net provision (benefit) for income taxes as follows (in thousands, except percentages):

 

F-15

  

2020

  

2019

 
      

% of Pretax

      

% of Pretax

 
  

Amount

  

Income

  

Amount

  

Income

 
                 

Income taxes at federal statutory rate

 $(94)  21.0% $957   21.0%

State tax provision, net of federal tax benefit

  (41)  9.2%  160   3.5%

Nondeductible differences:

             

Stock options

  (123)  27.5%  21   0.5%

Meals and entertainment

  2   -0.4%  8   0.2%

Parking disallowance

  5   -1.1%  -   0.0%

R&D credits

  (152)  33.9%  (119)  -2.6%

Foreign derived intangible income

  (5)  1.1%  -   0.0%

ASC 740-10 Liability

  27   -6.0%  21   0.5%

Penalties

  11   -2.5%  -   0.0%

Other

  3   -0.7%  (12)  -0.3%
  $(367)  82.0% $1,036   22.8%

 

  2019  2018 
     % of Pretax     % of Pretax 
  Amount  Income  Amount  Income 
Income taxes at federal statutory rate $957   21.0% $1,737   38.1%
State tax provision, net of federal tax benefit  160   3.5%  170   3.7%
Nondeductible differences:                
Rel-Tech earn-out  -   0.0%  (6)  -0.1%
Qualified domestic production activities deduction  -   0.0%  (141)  -3.1%
Stock options  21   0.5%  (204)  -4.5%
Meals and entertainment  8   0.2%  8   0.2%
R&D credits  (119)  -2.6%  (111)  -2.4%
ASC 740-10 Liability  21   0.5%  54   1.2%
Tax Cut and Jobs Act  -   0.0%  (34)  -0.7%
Other  (12)  -0.3%  (5)  -0.1%
  $1,036   22.8% $1,468   32.3%

The Company’sOur total deferred tax assets and deferred tax liabilities at October 31, 20192020 and 20182019 are as follows (in thousands):

 

 

2020

  

2019

 
 2019  2018         
Deferred Tax Assets:        

Deferred Tax Assets:

     
PPP Loan $706  $- 
Reserves $172  $276   344   172 
Accrued vacation  97   116   149   97 
Stock-based compensation awards  87   113   100   87 
Uniform capitalization  64   78   92   64 

Lease liability

  381   - 
Other  55   93   35   55 
Total deferred tax assets  475   676   1,807   475 
                
Deferred Tax Liabilities:        

Deferred Tax Liabilities:

     
Amortization / intangible assets  (307)  (544)  (479)  (307)

Change in ROU assets

  (359)  - 
Depreciation / equipment and furnishings  (125)  (132)  (135)  (124)
Total deferred tax liabilities  (432)  (676)  (973)  (431)
                
Total net deferred tax assets (liabilities) $43  $-  $834  $44 

 

On December 22, 2017,March 27, 2020, the U.S. President signedUnited States enacted the Tax CutsCoronavirus Aid, Relief and JobsEconomic Security Act (the “Tax Act”"CARES Act"). The TaxCARES Act among other things, loweredis an emergency economic stimulus package that includes spending and tax breaks to strengthen the U.S. corporate income tax rate from 35%United States economy and fund a nationwide effort to 21% effective January 1, 2018. In December 2017,curtail the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implicationseffects of the Tax CutsCOVID-19 pandemic. The CARES Act includes several provisions that provide economic relief for individuals and Jobsbusinesses. We continue to evaluate the impact the CARES Act (SAB 118), which allowed us to record provisional amounts during a measurement periodwill have on our tax obligations, but have concluded it did not to extend beyond onematerially impact our income taxes for the fiscal year of the enactment date. As a result, we previously recorded a provisional estimate of the effect of the Tax Act in our financial statements. In the first quarter of 2019, we completed our analysis to determine the effect of the Tax Act and recorded no additional adjustments as of December 22, 2018.ended October 31, 2020.

F-17

 

Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company hasWe have evaluated the available evidence supporting the realization of its gross deferred tax assets, including the amount and timing of future taxable income, and has determined it is more likely than not that the assets will be realized in future tax years.

 

The provision (benefit) for income taxes from continuing operations was $(0.4) million or 81.9% and $1.0 million or 22.7% and $1.5 million or 19.6% of income before income taxes for fiscal 20192020 and 2018,2019, respectively. The increase in thefiscal 2020 effective income tax rate from year to year is primarily driven by the elimination of the benefitdiffered from the domestic production activities deduction, the one-time benefit recorded in the prior year related to the reduction in the Company’s deferred tax liability due to the change in thestatutory federal tax rate bothof 21% primarily as a result of the Tax Act,benefit from research and the impact of share-based compensation excessdevelopment tax credits and tax benefits recognized which vary from year to year depending on the Company’s share price in each period. The Company recorded income from discontinued operations, net of tax, for fiscal 2018 as disclosed in Note 3.associated with share-based compensation.   

 

F-16

The Company’sOur adjustments to its uncertain tax positions in fiscal years ended October 31, 20192020 and 20182019 are as follows:

 

 2019  2018  

2020

  

2019

 
Balance, at beginning of year $59  $-  $80  $59 
Increase for tax positions related to the current year  23   24   32   23 
Increase for tax positions related to prior years  3   29   -   3 
Increase for interest and penalties  2   6   6   2 
Statute of Limitations Expirations  (7)  -   (11)  (7)
Balance, at end of year $80  $59  $107  $80 

 

The CompanyWe had gross unrecognized tax benefits of $72,000$96,000 and $53,000$72,000 attributable to its U.S. federal and California research tax credits as of October 31, 20192020 and 2018,2019, respectively. During fiscal 2019,2020, the increase in the Company’sour gross unrecognized tax benefit was primarily related to claiming additional federal and California research tax credits. The uncertain tax benefit is recorded as income taxes payable in the Company’sour consolidated balance sheet.

 

The Company recognizesWe recognize interest and penalties related to uncertain tax positions in income tax expense. The CompanyWe recognized expense of approximately $2,000$11,000 and $6,000$8,000 during the years ended October 31, 20192020 and 2018,2019, respectively.

 

The Company believesWe believe that an adequate provision has been made for any adjustments that may result from tax examinations. However, it is possible that certain changes may occur within the next twelve months, but the Company doeswe do not anticipate that itsour accrual for uncertain tax positions will change by a material amount over the next twelve-month period.

 

The Company isWe are subject to taxation in the United States and state jurisdictions. The Company’sOur tax years for October 31, 20152017 and forward are subject to examination by the United States and October 31, 20142016 and forward with state tax authorities.

 

Note 10 -9 Stock options

 

Incentive and non-qualified stock option plans

 

On March 9, 2010,July 22, 2020, the Company’s Board of Directors adopted the RF Industries, Ltd. 2010 Stock2020 Equity Incentive Plan (the “2010“2020 Plan”). In June 2010,September 2020, the Company’s stockholders approved the 20102020 Plan by vote as required by NASDAQ. An aggregate of 1,000,0001,250,000 shares of common stock was set aside and reserved for issuance under the 20102020 Plan. The Company’s stockholders approved the issuance of an additional 500,000 shares of common stock at its annual meeting held on September 5, 2014, another 500,000 shares of common stock at its annual meeting held September 4, 2015 and another 1,000,000 shares of common stock at its annual meeting held September 8, 2017. As of October 31, 2019, 1,405,7412020, 1,197,399 shares of common stock were remaining for future grants of stock options under the 20102020 Plan.

 

Additional disclosures related to stock option plans 

 

On December 13, 2017, the Company granted 80,000 incentive stock options to an employee. These options vested 8,000 shares on the date of grant, and the balance vests as to 8,000 shares per year thereafter on each of the next nine anniversaries of December 13, 2017, and expire ten years from date of grant. On December 3, 2018, the Company granted each of two employees were each granted 25,000 incentive stock options. These options vested 5,000 each on the date of grant, and the balance vests as to 5,000 shares each per year thereafter on each of the next four anniversaries of December 3, 2018, and expire ten years from the date of grant. OnAlso on December 3, 2018, the Company also granted one employee was granted 10,000 incentive stock options. These options vested 2,000 shares on the date of grant, and the balance vests as to 2,000 shares per year thereafter on each of the next four anniversaries of December 3, 2018, and expire ten years from the date of grant.

On March 8, 2019, the Company granted one employee was granted 25,000 incentive stock options. These options vested 5,000 on the date of grant, and the balance vests as to 5,000 shares per year thereafter on each of the next four anniversaries of March 8, 2019, and expire ten years from the date of grant.

On January 6, 2020, 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 January 6, 2020, and expire ten years from the date of grant.

F-18

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

Stock grants for a total of 12,075 common shares to two officers and one employee. We accounted for these shares as stock-based compensation totaling $77,000; 

A total of 3,241 incentive stock options to two employees, all of which vested immediately on the date of grant; and

A total of 38,500 shares of restricted stock and 77,000 incentive stock options to three officers and two employees. 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 9, 2021; and (ii) the remaining restricted shares and options shall vest in twelve equal quarterly installments over the next three years, commencing with the first quarter following January 9, 2021. All incentive stock options expire ten years from the date of grant. 

On June 29, 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.

No other shares or options were granted to Companycompany employees during fiscal 2019.2020.

 

The fair value of each option granted in 20192020 and 20182019 was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions:

 

  2019  2018 
Weighted average volatility  55.42%  46.83%
Expected dividends  0.98%  3.28%
Expected term (in years)  5.9   4.5 
Risk-free interest rate  2.86%  1.87%
Weighted average fair value of options granted during the year $3.98  $0.82 
Weighted average fair value of options vested during the year $6.03  $2.64 

F-17

  

2020

  

2019

 

Weighted average volatility

  52.68%  55.42%

Expected dividends

  0.63%  0.98%

Expected term (in years)

  7.0   5.9 

Risk-free interest rate

  1.58%  2.86%

Weighted average fair value of options granted during the year

 $3.06  $3.98 

Weighted average fair value of options vested during the year

 $2.38  $2.56 

 

Expected volatilities are based on historical volatility of the Company’sour stock price and other factors. The CompanyWe used the historical method to calculate the expected life of the 2020 and 2019 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.

 

Additional information regarding all of the Company'sour outstanding stock options at October 31, 20192020 and 20182019 and changes in outstanding stock options in 20192020 and 20182019 follows:

 

 2019  2018  

2020

  

2019

 
 Shares or Weighted Shares or Weighted  

Shares or

  

Weighted

  

Shares or

  

Weighted

 
 Price Per Average Price Per Average  

Price Per

  

Average

  

Price Per

  

Average

 
 Share  Exercise Price  Share  Exercise Price  

Share

  

Exercise Price

  

Share

  

Exercise Price

 
Outstanding at beginning of year  942,366  $3.09   1,159,771  $3.19   890,147  $3.62   942,366  $3.09 
Options granted  124,097  $8.16   269,635  $2.44   140,241  $6.40   124,097  $8.16 
Options exercised  (171,066) $3.86   (418,955) $2.66   (241,209) $1.85   (171,066) $3.86 
Options canceled or expired  (5,250) $6.82   (68,085) $4.98   -  $-   (5,250) $6.82 
Options outstanding at end of year  890,147  $3.62   942,366  $3.09   789,179  $4.66   890,147  $3.62 
                                
Options exercisable at end of year  599,981  $3.25   675,033  $3.01   459,513  $4.48   599,981  $3.25 
                                
Options vested and expected to vest at end of year  889,088  $3.63   940,144  $3.09   788,143  $4.67   889,088  $3.63 
                                
Option price range at end of year  $1.90 - $8.69       $1.90 - $5.88      

$1.90 - $8.69

      

$1.90 - $8.69

     
                                
Aggregate intrinsic value of options exercised during year $317,827      $1,207,148      $975,638      $317,827     

 

Weighted average remaining contractual life of options outstanding as of October 31, 2019: 4.162020: 4.73 years

 

Weighted average remaining contractual life of options exercisable as of October 31, 2019: 2.622020: 2.58 years

 

Weighted average remaining contractual life of options vested and expected to vest as of October 31, 2019: 4.152020: 4.72 years

 

Aggregate intrinsic value of options outstanding at October 31, 2019: $2,340,0002020: $643,000

F-19

 

Aggregate intrinsic value of options exercisable at October 31, 2019: $1,735,0002020: $387,000

 

Aggregate intrinsic value of options vested and expected to vest at October 31, 2019: $2,330,0002020: $639,000

 

As of October 31, 2019, $439,0002020, $571,000 and $245,000 of expense with respect to nonvested share-based arrangementsstock options and restricted shares, respectively, has yet to be recognized whichbut is expected to be recognized over a weighted average period of 5.25 years.4.09 and 0.89 years, respectively.

 

Non-employee directors receive $50,000 annually, which is paid one-half in cash and one-half through the grant of non-qualified stock optionsequity awards. For fiscal 2020, compensation payable to purchase shares of the Company’s common stock. During the quarter ended Januarynon-employee directors was prorated from November 1, 2019 through August 31, 2020. On November 4, 2019, the Companywe granted each of itsour five non-employee directors 7,203 non-qualified stock options. The options have an exercise price3,270 shares of $8.07 per share.restricted stock. The number of stock optionsrestricted shares granted to each director was determined by prorating $25,000 for the 10 months ending 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 of stockholders, in September 15, 2020, 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 fair value20-day average closing stock price ($4.34).

Non-employee directors who are also a chairperson of a stock option grant usingcommittee of the Black-Scholes model ($3.471 per share). These options vest ratably over fiscal year 2019 and expire five years from the dateBoard receive additional compensation of grant. Effective November 1, 2018, in addition to the compensation received for serving on$15,000 annually. On June 5, 2020, the Board of Directors revised the Chairmancommittee chair compensation so that all future compensation from July 1, 2020 through the next annual meeting of the stockholders will be payable in shares of common stock rather than cash. Shares issued as compensation will be valued at the closing common stock price on the last day of each committeequarter. Accordingly, on July 31, 2020, each of the Board will receivefour 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 for the $15,000 perretainer payable to Chairpersons for the year in cash for services rendered as Chairman. On June 7, 2019, a new director joinedending with the Board. The Company granted the new director 3,082 non-qualified stock options with an exercise price2021 annual meeting of $7.50 per share.stockholders. The number of stock optionsrestricted shares granted to this directoreach chairperson was determined by dividing $10,000 of compensation (prorated for the period as an active director)$15,000 by the fair value of a20-day average RFIL stock option grant using the Black-Scholes modelprice ($3.245 per share)4.34). These options vest ratably over fiscal year 2019 and expire five years from the date of grant. No other non-qualified stock options were granted during the fiscal year ended October 31, 2019.

Note 10 Retirement plan

 

Note 11 - Retirement plan

The Company hasWe have a 401(K)401(k) plan available to itsour employees. For the years ended October 31, 2020 and 2019, and 2018, the Companywe contributed and recognized as an expense $181,000$295,000 and $159,000,$181,000, respectively, which amount represented 3% of eligible employee earnings under its Safe Harbor Non-elective Employer Contribution Plan.

 

F-18

Note 12 - Related party transactions11 – Line of credit and PPP Loan

 

On June 15, 2011, the Company purchased Cables Unlimited, Inc., a New York corporation, from Darren Clark, the sole shareholderLine of Cables Unlimited, Inc. In connection with the purchase of Cables Unlimited, the Company entered into a lease for the New York facilities from which Cables Unlimited conducts its operations. Cables Unlimited’s monthly rent expense under the lease is $13,000 per month, plus payments of all utilities, janitorial expenses, routine maintenance costs, and costs of insurance for Cables Unlimited’s business operations and equipment. During the fiscal year ended October 31, 2019, the Company paid the landlord a total of $156,000 under the lease. The owner and landlord of the facility is a company controlled by Darren Clark, the former owner of Cables Unlimited and the current President of this subsidiary of the Company.credit

 

On October 31, 2018, the Company sold its Comnet Telecom Supply, Inc.(“Comnet”) subsidiary to RAP Acquisition, Inc. for $4.2 million in cash. RAP Acquisition, Inc. is an affiliate of Robert A. Portera, the founder of Comnet and its President.

Note 13 - Cash dividend and declared dividends

The Company paid quarterly dividends of $0.02 per share during fiscal yearIn November 2019, for a total of $748,000. The Company paid quarterly dividends of $0.02 per share during fiscal year 2018 for a total of $730,000.

Note 14 - Commitments

For the year ended October 31, 2019, the Company leased its facilities in San Diego, California, Yaphank, New York, Milford, Connecticut and Vista, California under non-cancelable operating leases. Deferred rent, included in accrued expenses and other long-term liabilities, was $102,000 as of October 31, 2019 and $93,000 as of October 31, 2018. The San Diego and Vista leases also require the payment of the Company's pro rata share of the real estate taxes and insurance, maintenance and other operating expenses related to the facilities.

Rent expense under all operating leases totaled approximately $853,000 and $546,000 in 2019 and 2018, respectively.

Minimum lease payments under these non-cancelable operating leases in each of the years subsequent to October 31, 2019 are as follows (in thousands):

Year ending    
October 31,  Amount 
2020  $829 
2021   744 
2022   465 
2023   155 
2024   - 
Total  $2,193 

Note 15 - Subsequent events

On November 4, 2019, the Company purchased 100% of the voting equity interest of Schroff Technologies International, Inc. (“Schrofftech”), a Rhode Island- based manufacturer and marketer of intelligent thermal control systems used by telecommunications companies across the U.S. and Canada, and shrouds for small cell integration and installation. The Company paid $4,000,000 in cash at the closing, of which $900,000 was deposited into two separate escrow accounts for a period of one year and two years, respectively, as security for any indemnification claims the Company may have against the seller. In addition to the cash paid at the closing, the Company agreed to pay up to an additional $2,400,000 as an earn-out payment if Schrofftech achieves certain adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") targets during the two-year period following the closing. The acquisition is in line with the Company’s business strategy to diversify products and solution offerings and customer base.

On November 27, 2019, the Companywe entered into an agreement for a revolving line of credit (“LOC”) in the amount of $5.0 million. Amounts outstanding under the LOC shall bear interest at a rate of 2.0% plus LIBOR Daily Floating Rate (“base interest rate”), with interest payable on the lastfirst day of each month. Borrowings under the LOC are secured by a security interest in certain assets of the Company. The LOC contains certain loan covenants as described in the agreement.covenants. Failure to maintain the loan covenants shallmay constitute an event of default, resulting in all outstanding amounts of principal and interest becoming immediately due and payable. All outstanding principal and interest is due and payable on December 1, 2021. For the period ending October 31, 2020, we obtained a waiver with respect to the LOC that waived the Company to be in compliance of the financial covenants for the period. Additionally, as of October 31, 2020, no amounts were outstanding under the line of credit.

 

On December 13, 2019,PPP Loan

In May 2020, we applied for and received loans under the Board of DirectorsPaycheck Protection Program (“PPP”) of the CompanyCARES 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 our New York facility). We anticipate that most of the PPP Loans will be eligible for forgiveness in accordance with the provisions of the CARES Act. To the extent not forgiven, the PPP Loans have a two-year term, a fixed interest rate of 1%, and principal and interest payments are deferred for six months.

Future minimum loan payments as of October 31, 2020 were as follows:

Year ended October 31,

 

PPP Loan

 

2021

 $1,699 

2022

  1,089 

Total future minimum payments

 $2,788 

Note 12 Related party transactions

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. Cables Unlimited’s monthly rent expense under the lease is $13,000 per month, plus payments of all utilities, janitorial expenses, routine maintenance costs, and costs of insurance for Cables Unlimited’s business operations and equipment. In January 2020, we began to pay an additional $1,000 in rent expense for leased storage units located on the premises. During the fiscal year ended October 31, 2020, we paid a total of $180,000 under the leases.

During fiscal 2020, we paid royalties to Elmec Ltd. (“Elmec”), a European-based company that owns the intellectual property that is used in Schrofftech’s products.  One third of Elmec is jointly owned by David Therrien and Richard DeFelice, two of the former owners and current President and Vice President, respectively, of Schrofftech.  For the year ended October 31, 2020, we paid a total of $11,000 of royalty payments to Elmec, and have accrued an additional $4,000 as of October 31, 2020.  The expenses related to these transactions are included in cost of goods sold.

F-20

Note 13 Cash dividend and declared a quarterly dividenddividends

We paid dividends of $0.02 per share payablefor a total of $388,000 and $748,000 during fiscal year 2020 and 2019, respectively.

Note 14 Commitments

We adopted ASU 2016-02 on January 15,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 the corporate headquarters, RF Connector division manufacturing facilities, Cables Unlimited, Rel-Tech, and C Enterprises 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 of one year to three years, some of which include options to extend the leases for up to five 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 $14,000 per month.

We also have other operating leases for certain equipment. The components of our facilities and equipment operating lease expenses for the period ending October 31, 2020 to stockholders of record on December 31, 2019.were as follows (in thousands):

 

F-19

  

Fiscal Year Ended

 
  

October 31, 2020

 

Operating lease cost

 $1,001 

Short-term lease cost

  1 

 

Other information related to leases was as follows (in thousands):

  

October 31, 2020

 

Supplemental Cash Flows Information

    

Right of use assets obtained in exchange for lease obligations:

    

Operating leases

 $1,421 
     

Weighted Average Remaining Lease Term

    

Operating leases (in months)

  22.94 
     

Weighted Average Discount Rate

    

Operating leases

  3.54%

Future minimum lease payments under non-cancellable leases as of October 31, 2020 were as follows (in thousands):

Year ended October 31,

 

Operating Leases

 

2021

 $920 

2022

  532 

2023

  166 

2024

  - 

Thereafter

  - 

Total future minimum lease payments

  1,618 

Less imputed interest

  (109)

Total

 $1,509 

Reported as of October 31, 2020

 

Operating Leases

 

Other current liabilities

 $874 

Operating lease liabilities

  635 

Finance lease liabilities

  - 

Total

 $1,509 

As of October 31, 2020, operating lease ROU asset was $1.4 million and operating lease liability totaled $1.5 million, of which $874,000 is classified as current. There were no finance leases as of October 31, 2020.

F-21

SIGNATURES

 

In accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

RF INDUSTRIES, LTD.

Date: December 29, 2020

By:

/s/ ROBERT D. DAWSON

Robert D. Dawson

President and Chief Executive Officer

  
Date: December 20, 2019By:/s/ ROBERT D. DAWSON
Robert D. Dawson
President and Chief Executive Officer

 

In accordance with the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

 

Date: December 20, 201929, 2020

By:

/s/ ROBERT D. DAWSON

Robert D. Dawson, Director, President and Chief Executive Officer
(Principal Executive Officer)

 

Date: December 20, 201929, 2020

By:

/s/ MARK TURFLERPETER YIN

Mark Turfler,

Peter Yin, Interim Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

Date: December 29, 2020

By:

/s/ MARVIN FINK

Marvin Fink, Director

  
Date: December 20, 201929, 2020

By:

/s/ MARVIN FINKJOSEPH BENOIT

Marvin Fink, Director
Date: December 20, 2019By:/s/ JOSEPH BENOIT
 Joseph Benoit, Director

Date: December 20, 201929, 2020By:/s/ HOWARD HILLGERALD GARLAND
 Howard Hill,Gerald Garland, Director

Date: December 20, 201929, 2020By:/s/ GERALD GARLANDSHERYL CEFALI

Gerald Garland, Director
Date: December 20, 2019By:/s/ SHERYL CEFALI
Sheryl Cefali, Director

 

32