2

	3

	4

	5

	6

	7

	8

	9

	10

 

	(i)	The cable assembly manufacturing portion of the Connector and Cable Assembly Division operates in a separate 3,180 square foot facility that is located adjacent to the Company’s corporate headquarters. The lease for this space expires on March 31, 2014.
	(ii)	Prior to the sale by the Company of the RadioMobile division in October 2013, the RadioMobile division operated from a separate building that is located near the Company’s corporate headquarters at 7606 Miramar Road, Building 7200. In connection with the sale of this division, the Company permitted the buyer of the RadioMobile division to continue to use this space, rent-free, through the end of the lease. The lease for this space expires on March 31, 2014.
	(iii)	During fiscal 2009, Aviel entered into a facility lease agreement for approximately 4,500 square feet at 3060 Post Road, Suite 100 Las Vegas Nevada. The lease term commenced September 1, 2009 and will expire March 31, 2015.
	(iv)	The Oddcables Division leased an approximately 4,000 square foot facility located at 7642 Clairemont Mesa Boulevard Suite 211, San Diego, California. The lease for this space expired December 31, 2013, and the Company has integrated the Oddcables Division into the Connector and Cable Assembly Division and, accordingly, has relocated those operations to the Connector and Cable Assembly facilities.
	(v)	The Cables Unlimited Division leases an approximately 12,000 square foot facility located at 3 Old Dock Road, Yaphank, New York. The lease for this space expires June 30, 2016. However, Cables Unlimited has a one-time option to extend the term of the lease for an additional five (5) year term. Cables Unlimited’s monthly rent expense under the lease is $13,000 per month, plus payments of all utilities, janitorial expenses, routine maintenance costs, and costs of insurance for Cables Unlimited’s business operations and equipment. The landlord is a company controlled by Darren Clark, the former owner of Cables Unlimited and a current director of the Company. In addition to the foregoing facilities, in October 2012 Cables Unlimited leased an additional approximately 2,000 square foot facility in Yaphank from a third party under a month to month arrangement. This additional space is used by Cables Unlimited as additional warehouse space and for pre-manufacturing activities. The monthly rent payable for this additional space is $1,250.

 

The aggregate monthly rental for all of the Company’s facilities was approximately $49,000 per month, plus utilities, maintenance and insurance as of October 31, 2013.

 

The Company is in discussions with its current landlord regarding renewing the leases for the various buildings the Company currently leases at 7610 Miramar, San Diego, California.  In addition, the Company is in discussions regarding leases for other facilities in the San Diego area.  The Company believes that alternate facilities are available in the San Diego area if the Company elects not to renew, or is unable to renew, its current leases by March 31, 2014.

 

ITEM 3.

LEGAL PROCEEDINGS

 

From time to time, the Company is involved in legal proceedings that are related to its business and operations. On May 24, 2013, a former employee of the Company filed a complaint with the San Diego, California office of the U.S. Department of Labor-OSHA alleging retaliatory employment practices in violation of the whistleblower provisions of the Sarbanes-Oxley Act (Peter Wyndham vs. RF Industries, Ltd., Case No. 9-3290-13-087). The complaint alleges that Mr. Wyndham was terminated in November 2012 in retaliation for making disclosures relating to alleged fraudulent accounting practices and lack of compliance with U.S. GAAP; violations of multiple Securities and Exchange Commission rules and regulations; and fraud against the shareholders. The complaint does not seek any specified amount of damages, but does seek various forms of relief, including the following: Reinstatement of the former employee’s employment, or in the alternative, an award for lost future wages, benefits and pension; back pay and bonuses; compensatory monetary damages in an amount to be determined; reasonable attorney’s fees; and all costs of litigation. The Company disputes the retaliation claim and has notified its employment practices liability insurance carrier of the demand.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

	12

 

PART II

 

ITEM 5.

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

 

The Company’s Common Stock is listed and trades on the NASDAQ Global Market under the symbol “RFIL.”

 

For the periods indicated, the following tables set forth the high and low closing prices per share of Common Stock. These prices represent inter-dealer quotations without retail mark-up, markdown or commission and may not necessarily represent actual transactions.

 

Quarter		High			Low
Fiscal 2013
November 1, 2012 - January 31, 2013		$	6.40		$	4.04
February 1, 2013 - April 30, 2013			7.10			5.17
May 1, 2013 - July 31, 2013			7.35			5.50
August 1, 2013 - October 31, 2013			10.86			5.64
Fiscal 2012
November 1, 2011 - January 31, 2012		$	3.82		$	3.05
February 1, 2012 - April 30, 2012			3.92			3.27
May 1, 2012 - July 31, 2012			4.15			3.31
August 1, 2012 - October 31, 2012			4.49			3.91

 

Stockholders .  As of October 31, 2013 there were 387 holders of the Company’s Common Stock according to the records of the Company’s transfer agent, Continental Stock Transfer & Trust Company, New York, New York, not including holders who hold their stock in “street name.”

 

Dividends .The Company paid a total of $2.3 million of dividends during the fiscal year ended October 31, 2013. The dividends consisted of a $0.10 dividend, a special dividend of $0.07 and two quarterly dividend payments of $0.07 per share. The Company paid four quarterly dividends of $0.05 per share totaling $1.4 million during the fiscal year ended October 31, 2012. The Board of Directors currently expects to continue to declare and pay dividends on a quarterly basis during the current fiscal year ending October 31, 2014, but may change the dividend rate, or may cease paying dividends at any time, depending on the Company’s financial condition and its financial needs.

  

Repurchase of Securities. The Company did not repurchase any shares of its common stock during the fiscal year ended October 31, 2013.

 

Recent Sales of Unregistered Securities .  There were no previously unreported sales of equity securities by the Company that were not registered under the Securities Act during fiscal 2013.

 

EQUITY COMPENSATION PLAN INFORMATION

 

The following table provides information as of October 31, 2013 with respect to the shares of Company common stock that may be issued under the Company’s existing equity compensation plans.

 

		A			B			C
								Number of Securities
								Remaining Available for
								Future Issuance Under
								Equity Compensation
		Number of Securities to			Weighted Average			Plans (Excluding
		be Issued Upon Exercise			Exercise Price of			Securities Reflected in
Plan Category		of Outstanding Options			Outstanding Options ($)			Column A)
Equity Compensation Plans      Approved by      Stockholders (1)			439,750		$	3.72		439,750
Equity Compensation Plans      Not Approved by      Stockholders (2)			548,465		$	1.22		-
Total			988,215		$	2.24		439,750

 

(1)	Consists of options granted under the R.F. Industries, Ltd. (i) 2010 Stock Option Plan and (ii) 2000 Stock Option. The 2000 Stock Option Plan has expired, and no additional options can be granted under this plan. Accordingly, all 525,768 shares remaining available for issuance represent shares under the 2010 Stock Option Plan.
(2)	Consists of options granted to six officers and/or key employees of the Company under employment agreements entered into by the Company with each of these officers and employees.

 

 

	13

 

ITEM 6. SELECTED FINANCIAL DATA

 

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

 

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

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

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

 

One of the accounting policies that involves significant judgments and estimates concerns our inventory valuation. Inventories are valued at their weighted average cost. Certain items in inventory may be considered obsolete or excess and, as such, we periodically review our inventories for excess and slow moving items and make provisions as necessary to properly reflect inventory value. Because inventories have, during the past few years, represented up to one-third of our total assets, any reduction in the value of our inventories would require us to take write-offs that would affect our net worth and future earnings.

 

Another accounting policy that involves significant judgments and estimates is our accounts receivable allowance, which requires us to make estimates about matters that are inherently uncertain. The Company routinely assesses the financial strength of its customers and maintains an allowance for doubtful accounts that management believes will adequately provide for credit losses.

 

Another critical accounting policy that involves significant judgments and estimates is management’s assessment of non-amortizable intangible assets for impairments. We review our non-amortizable intangible asset for impairment annually in the fourth quarter at the reporting unit level. We also analyze each quarter whether any indicators of impairment exist. 

 

Another critical accounting policy that involves significant judgments and estimates is management’s assessment of goodwill for impairment, which requires the Company to make assumptions and judgments regarding expected future cash flows. We review our goodwill for impairment annually in the fourth quarter at the reporting unit level. We also analyze each quarter whether any indicators of impairment exist.

 

The Company uses the Black-Scholes model to value the stock option grants. This valuation is affected by the Company’s stock price as well as assumptions regarding a number of inputs which involve significant judgments and estimates. These inputs include the expected term of employee stock options, the expected volatility of the stock price, the risk-free interest rate and expected dividends.

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

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

 

OVERVIEW

 

The Company markets connectors and cables to numerous industries for use in thousands of products, primarily for the wireless market. The Company aggregates operating divisions into operating segments which have similar economic characteristics and divisions 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; (5) if applicable, the nature of the regulatory environment. The Company has three segments - the “RF Connector and Cable Assembly” segment; the “Medical Cabling and Interconnector” segment; and the “Cables Unlimited” segment-based upon this evaluation.

 

The RF Connector and Cable Assembly segment is comprised of two divisions; the Medical Cabling and Interconnector segment is comprised of one division, and the Cables Unlimited segment is comprised of one division. The three divisions that meet the quantitative thresholds for segment reporting are Connector and Cable Assembly, Bioconnect, and Cables Unlimited. Each of the other divisions aggregated into these segments have similar products that are marketed to their respective customer base and production and product development processes that are similar in nature. The specific customers are different for each division; however, there is some overlapping of product sales to them. The methods used to distribute products are similar within each division aggregated.

 

Management identifies the Company’s segments based on strategic business units that are, in turn, based along market lines. These strategic business units offer products and services to different markets in accordance with their customer base and product usage. For segment reporting purposes, the Company aggregates the Connector and Cable Assembly and Aviel Electronics divisions into the RF Connector Cable Assembly segment. Effective November 1, 2013, the Oddcables Division was integrated with the Connector and Cable Division. The Bioconnect division makes up the Company’s Medical Cabling and Interconnector segment, while the Cables Unlimited division is the Cables Unlimited segment.

 

 

	14

 

Historically, most of the Company’s revenues were generated from the sale of RF connector products and connector cable assemblies (the Connector and Cable Assembly division accounted for approximately 33% of the Company’s total sales for the fiscal year ended October 31, 2013, and 47% of net sales for the prior fiscal year). While the RF Connector and Cable Assembly segment has historically generated most of the Company’s revenues, the Cables Unlimited segment has grown significantly (sales at Cables Unlimited represented 53% of total sales for the year ended October 31, 2013) because of the revenues it generated from its OptiFlex cabling solution that it commercially introduced in April 2012. Because the gross margins at the RF Connector and Cable Assembly segment are higher than those at the Cables Unlimited segment, the proportionate increase in sales by Cables Unlimited has reduced the Company’s overall gross margins and will continue to do so in the future.

 

The net income in fiscal 2013 represented the 20th consecutive year that the Company has been profitable.

 

In addition to its core cable and connector operations, the Company has historically operated a small RF Wireless segment that consisted of two divisions, the RF Neulink division and the RadioMobile division. During the past few years, the RF Wireless segment has not lived up to the Company’s expectations. This segment generally operated at a loss, was a significant drain on management, and did not produce any synergies with the Company’s core operations. Accordingly, in 2013 the Company decided to discontinue the RF Wireless segment and dispose of the two divisions. The disposition of the two divisions occurred in two unrelated transactions. Effective July 31, 2013, the Company sold all of the assets of its RF Neulink division, primarily consisting of inventory, certain intellectual property and licenses, customer lists and trademarks, to a third party wireless company. The Company did not receive any purchase price payment at the closing of the sale. Rather, the purchase price for the RF Neulink business will consist of cash payments made by the buyer to the Company under the following circumstances: (i) for each RF Neulink inventory item that the buyer sells, the buyer will have to pay the Company the assigned value of that inventory item. This arrangement will continue until the earlier of three years from the closing date or the date all inventory items are sold; and (ii) the buyer is required to pay the Company a royalty based on the buyer’s use of RF Neulink’s tradename or trademark, its customer list or its intellectual property. The royalty, which ranges from 5% to 10% of the buyer’s sales of such RF Neulink-related products, may not exceed $450,000 in the aggregate, and will not be payable on sales of inventory items. For the year ended October 31, 2013, the Company recognized approximately $20,000 of royalty income, which amount has been included within discontinued operations. Effective October 29, 2013, the Company sold all of the assets of the Company’s RadioMobile division, primarily consisting of inventory, certain equipment, certain intellectual property and licenses, customer lists and trademarks, to a new company formed by the former manager of this division. In return for the assets, the purchaser agreed to pay the Company 10.0% of all net revenues for the next three years (but not to exceed an aggregate total of $2.0 million). Additionally, as part of the sale of the RadioMobile division, all former RadioMobile employees were terminated by the Company and re-hired by the purchaser. Other closing costs amounted to approximately $0.2 million. For the fiscal year ended October 31, 2013, the RF Wireless segment generated $1.2 million of revenues and incurred an operating loss of $1.8 million.

  

Financial Condition

 

The following table presents certain key measures of financial condition as of October 31, 2013 and 2012 (in thousands, except percentages):

 

		2013						2012
		Amount			%  Total Assets			Amount			%  Total Assets
Cash and cash equivalents		$	11,881		41.0	%		$	5,492		21.6	%
Current assets			22,910		79.1	%			19,044		74.8	%
Current liablities			2,584		8.9	%			4,141		16.3	%
Working capital			20,326		70.2	%			14,903		58.5	%
Property and equipment, net			1,053		3.6	%			1,204		4.7	%
Total assets			28,953		100.0	%			25,463		100.0	%
Stockholders' equity			25,419		87.8	%			20,230		79.4	%

 

Liquidity and Capital Resources

 

Management believes that its existing current assets and the amount of cash it anticipates it will generate from current operations will be sufficient to fund the anticipated liquidity and capital resource needs of the Company for the fiscal year ending October 31, 2014 (“fiscal 2014”). The Company does not, however, currently have any commercial banking arrangements providing for loans or credit facilities should the Company need to obtain additional capital. Management believes that its existing assets and the cash it expects to generate from operations will be sufficient during the current fiscal year based on the following:

 

	·	As of October 31, 2013, the amount of cash and cash equivalents was equal to $11.9 million. Accordingly, the Company believes that it has sufficient cash available to operate its current business and fund its anticipated capital expenditures for the upcoming year.
	·	As of October 31, 2013, the Company had $22.9 million in current assets and $2.6 million in current liabilities for total working capital of $20.3 million.

 

 

	15

 

Management believes that based on the Company’s financial condition at October 31, 2013, and its recent operating results, there are sufficient capital resources to fund its operations and potential future acquisitions for at least the next 12 months. Should the Company need to obtain additional funds for unexpected capital improvements or other expansion activities, based on its balance sheet and its history of profitability, the Company believes that it would be able to obtain financing to fund these expenditures. However, there can be no assurance any financing would be obtainable, or if obtained, would be on favorable terms or conditions.

 

The Company is not a party to off-balance sheet arrangements and does not engage in trading activities involving non-exchange traded contracts. In addition, the Company has no financial guarantees or lease agreements or other arrangements that could trigger a requirement for an early payment or that could impact the value of the Company’s assets. Cables Unlimited, the subsidiary that the Company purchased in June 2011, was the guarantor of a second mortgage on the Cables Unlimited property in New York. Cables Unlimited was released as guarantor on the second mortgage, which was refinanced in January 2012. As a result, the Company deconsolidated the operations of its variable interest entity as of January 2012.

 

As part of its business strategy, and because of its offshore manufacturing arrangements, the Company normally maintains a significant level of inventory. As described elsewhere in this Annual Report, one of the Company’s competitive advantages and strategies is to maintain customer satisfaction by having sufficient inventory on hand to fulfill most customer orders on short notice. Accordingly, the Company maintains a significant amount of inventory, which increases or decreases to reflect the Company’s sales and lead times for products. The Company continuously monitors its inventory levels and product costs.  For inventory purchase pricing purposes, the Company may, however, increase its inventory levels from time to time to protect against anticipated future increases in raw material costs or to obtain volume discounts.

 

The Company generated cash from operating activities of $5.5 million during the year ended October 31, 2013 primarily due to consolidated net income of $3.8 million. Consolidated net income for the period was reduced by non-cash charges of $2.4 million, including $1.2 million for the write-off of inventory mostly as a result of the disposition of the RF Wireless segmentoffset by the excess tax benefit from stock-based compensation expense of $717,000.  For the fiscal year ended October 31, 2012, net cash provided by operating activities was $2.3 million.

 

During the year ended October 31, 2013, net cash used in investing activities was $281,000 related to purchases of capital equipment primarily at Cables Unlimited. During the year ended October 31, 2012, net cash provided by investing activities was $3.5 million due to proceeds received by the Company upon the maturity of its certificate of deposit in the amount of $4.1 million offset by capital expenditures of $590,000.

 

Net cash provided by financing activities during the year ended October 31, 2013 was $1.1 million primarily due to proceeds from the exercise of stock options in the amount of $2.8 million and $717,000 of excess tax benefits from stock option exercises offset by dividends paid of $2.3 million. For the year ended October 31, 2012, cash used in financing activities was $2.1 million primarily due to dividends paid during the year and the repurchase of common stock.

 

The Company does not believe that inflation has had a material impact on its business or operations.

 

Results of Operations

 

The following summarizes the key components of the results of operations for the fiscal years ended October 31, 2013 and 2012 (in thousands, except percentages):

 

		2013						2012
					% of Net						% of Net
		Amount			Sales			Amount			Sales
Net sales		$	36,625		100	%		$	27,687		100	%
Cost of sales			20,660		56	%			15,554		56	%
Gross profit			15,965		44	%			12,133		44	%
Engineering expenses			1,377		4	%			1,134		4	%
Selling and general expenses			7,810		21	%			6,930		25	%
Operating income			6,778		19	%			4,069		15	%
Other income - interest/dividends			20		0	%			38		0	%
Income from continuing operations before provision for income taxes			6,798		19	%			4,107		15	%
Provision for income taxes			1,830		5	%			1,499		5	%
Income from continuing operations			4,968		14	%			2,608		9	%
Income (loss) from discontinued operations, net of tax			(1,140)		-3	%			4		0	%
Consolidated net income			3,828		11	%			2,612		9	%

  

 

	16

 

Net sales for the year ended October 31, 2013 (“fiscal 2013”) increased by 32% or $8.9 million to $36.6 million from $27.7 million during the year ended October 31, 2012 (“fiscal 2012”) primarily due to a significant increase in net sales at the Company’s Cables Unlimited subsidiary. The Cables Unlimited segment generated $19.3 million of sales in fiscal 2013, an increase of $8.4 million or 77%, over the prior year comparable period, which contributed to most of the $8.9 million increase in the Company’s net sales during the period. The increase in net sales at Cables Unlimited is solely due to the release of a new custom cabling solution designed by Cables Unlimited for use with cell towers. Cables Unlimited commercially released its custom product line in April 2012 and generated $5.6 million sales during the remaining six months of fiscal 2012. For fiscal 2013, the sale of this new cabling solution generated $14.0 million of net sales for Cables Unlimited. However, net sales by Cables Unlimited of this new product are expected to decrease in the future as the need for this product decreases and, to a lesser extent as competing products are developed and commercially released by other companies. Also contributing to the overall increase in the Company’s net sales was the Medical Cabling and Interconnector segment, which had revenues of $3.0 million during fiscal 2013, an increase of $444,000 or 17% over fiscal 2012. The increase in sales at this segment was due to increased sales to its existing customers. Net sales at the RF Connector and Cable Assembly segment during fiscal 2013 remained relatively unchanged at $14.3 million, increasing by $78,000 or 1%, compared to $14.2 million during fiscal 2012.

 

The Company’s gross profit increased by $3.8 million or by 32% to $16.0 million in fiscal 2013 from $12.1 million in fiscal 2012 due to the increase in net sales. As a percentage of net sales, the Company’s overall gross profit remained consistent at 44% in both fiscal 2013 and fiscal 2012.

 

Engineering expenses represent costs incurred related to the ongoing development of new products. Engineering expenses increased $243,000 or 21% in fiscal 2013 to $1.4 million compared to $1.1 million in fiscal 2012. The increase in engineering expenses was primarily attributable to increased salary expense in connection with efforts devoted to the development of new products.

 

Selling and general expenses increased by $880,000 or 13% to $7.8 million during fiscal 2013 from $6.9 million in fiscal 2012. The increase in selling and general expenses was due to lump-sum bonus payments to senior management that were not made last year, increased sales commissions at the Cables Unlimited segment driven by the increase in net sales, an increase in wages and benefits related to an increase in pay rates and headcount and an increase in certain legal and consulting fees in connection with the termination and replacement of an employee. However, as a percentage of sales, selling and general expenses decreased to 21% in fiscal 2013 from 25% in fiscal 2012 as sales in fiscal 2013 increased by a higher percentage than the increase in selling and general expenses.

 

The provision for income taxes during fiscal 2013 was $1.8 million (or an effective tax rate of approximately 27%), compared to $1.5 million in fiscal 2012 (or an effective tax rate of approximately 36%). Despite the fact that the effective tax rate is significantly lower during fiscal 2013, the increase in the provision for tax is due to the significantly higher income from continuing operations before provision for income taxes. The reduction in the effective tax rate is attributable to the impact of the tax benefit to the Company of disqualifying dispositions of incentive stock options (ISO) during fiscal 2013, which resulted in a tax deduction to the Company. As a result of the Company’s increase in stock price during 2013, many employees exercised their ISOs and thereafter sold their shares, which resulted in a significant number of ISO disqualifying dispositions during the current year. Management believes that this trend may not continue into fiscal 2014 and, accordingly, anticipates that the effective tax rate likely will increase.

 

As a result of the 32% increase in net sales and the proportional decrease in selling and general expenses (which decreased to 21% of net sales in fiscal 2013 from 25% of net sales in fiscal 2012), the Company generated income from continuing operations of $5.0 million in fiscal 2013 compared to income from continuing operations of $2.6 million in fiscal 2012. However, income from continuing operations in fiscal 2013 was reduced by the loss from the sale of the two RF Wireless divisions in fiscal 2013, which sales resulted in a loss from discontinued operations, net of tax, of $1.1 million (in fiscal 2012, these two RF Wireless divisions generated $4,000 of income from their discontinued operations, net of tax).

 

Loss from discontinued operations, net of tax, during fiscal 2013 was $1.1 million compared to income from discontinued operations, net of tax, of $4,000 during fiscal 2012. During fiscal 2013, the Company sold the RF Neulink and RadioMobile divisions and accordingly, the results of these divisions are included in discontinued operations for all periods presented. In connection with the sale of RF Neulink, the Company recognized an inventory write-off of $297,000 during the third quarter of 2013. Additionally, in connection with the sale of RadioMobile, the Company recognized an inventory write-off of $471,000 during the fourth quarter of 2013. During fiscal 2012, the operations of RF Neulink and RadioMobile were close to break even.

 

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 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-18 and filed as part of this Annual Report:

  

·

Report of CohnReznick LLP, Independent Registered Public Accounting Firm

 

 

	17

 

	·	Consolidated Balance Sheets as of October 31, 2013 and 2012
	·	Consolidated Statements of Income for the years ended October 31, 2013 and 2012
	·	Consolidated Statements of Equity for the years ended October 31, 2013 and 2012
	·	Consolidated Statements of Cash Flows for the years ended October 31, 2013 and 2012
	·	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

 

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

 

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide reasonable assurance only of achieving the desired control objectives, and management necessarily is required to apply its judgment in weighting the costs and benefits of possible new or different controls and procedures. Limitations are inherent in all control systems, so no evaluation of controls can provide absolute assurance that all control issues and any fraud have been detected.

 

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 Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, management concluded that our disclosure controls and procedures were effective as of that date.

 

Management’s Report on Internal Control over Financial Reporting

 

Our 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 as of October 31, 2013.  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.

  

Our 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 our management, including our Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

Based on the above evaluation, our management has concluded that the system of internal controls over financial reporting was effective as of October 31, 2013.

 

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

 

 

	18

 

Changes in Internal Controls

 

There was no change in the Company’s internal control over financial reporting during the most recent fiscal quarter ended October 31, 2013 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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, 2013. A majority 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. The independent Directors are Messrs. Fink, Reynolds and Benoit.

 

	Name		Age		Director Since
	Joseph Benoit		59		2013
	Darren Clark		46		2011
	Marvin H. Fink		77		2001
	Howard F. Hill		73		1979
	William Reynolds		78		2005

 

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 MBA from National University. He is also a graduate of Pacific Coast Banking School and serves as a director on various non-profit boards.

 

Darren Clark was appointed to the Board of Directors on June 15, 2011 following the acquisition by the Company of Cables Unlimited, Inc. on that date. Mr. Clark has been an executive officer of Cables Unlimited, Inc. since that company was formed in 1992, and the Chief Executive Officer and sole shareholder of Cables Unlimited since 2005.

 

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 a member of the California Bar.

  

Howard F. Hill, a founder of the Company in 1979, is this Company’s 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 58 years.

 

William Reynolds is a retired financial executive. Mr. Reynolds most recently was the VP of Finance and Administration for Teledyne Controls from 1994 until his retirement in 1997.  Prior thereto, for 22 years he was the Vice-President of Finance and Administration of Teledyne Microelectronics. Mr. Reynolds also was a program finance administrator of Teledyne Systems Company for five years. He has a B.B.A. degree in Accounting from Woodbury College.

  

The Company’s Board of Directors identified and recommended that Messrs. Benoit, Clark, Fink, Hill and Reynolds be elected to the Board of Directors based on the following qualifications of these persons:

 

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

 

Darren Clark: Mr. Clark is the founder and has been a principal executive officer of Cables Unlimited, Inc. and, as a result, is familiar with the operations of that key subsidiary of the Company. In addition, Mr. Clark has expertise in the fiber optic cable industry, an important area of potential growth for the Company.

 

 

	19

 

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 and has over 58 years of experience in the electronics industry.

 

William Reynolds: Mr. Reynolds has significant accounting and financial management expertise, having served as VP of Finance and Administration for Teledyne Controls, as the Vice-President of Finance and Administration of Teledyne Microelectronics, and as a program finance administrator of Teledyne Systems Company. He also has a degree in accounting, which enables him to serve as the “audit committee financial expert” of the Audit Committee.

 

Management

 

Howard F. Hill is the Chief Executive Officer of the Company. From January 18, 2013 to June 7, 2013, he also served as the Company’s Interim Chief Financial Officer and Corporate Secretary. He co-founded the Company in 1979. In addition to being the Chief Executive Officer, he also was the President of the Company from July 1993 until July 2011. Mr. Hill has credits in Manufacturing Engineering, Quality Engineering and Industrial Management. He has held various positions in the electronics industry over the past 58 years.

 

James Doss is the Company’s President, a position he has held since July 7, 2011. Mr. Doss joined the Company as its full-time Director of Accounting on February 13, 2006. On February 1, 2007, the Company appointed Mr. Doss as its Acting Chief Financial Officer and Corporate Secretary. Mr. Doss was appointed as the Company’s Chief Financial Officer on January 25, 2008. Mr. Doss has significantly contributed to the recent growth of the Company, and the Board has decided that Mr. Doss’ efforts as the President should be focused primarily on the operations of the Company. Accordingly, on January 18, 2013, Mr. Doss stepped down as the Company’s Chief Financial Officer and Secretary, and Mr. Hill became the Interim Chief Financial Officer until a new, full-time Chief Financial Officer was hired. Prior to joining the Company, Mr. Doss, 44, was a private consultant to a number of software and high-tech companies, providing general accounting support. Previously, he was Director of Finance for San Diego-based HomeRelay Communications, Inc., an Internet Service Provider (ISP). From 1996 to 2000, Mr. Doss was Controller for CliniComp International, a San Diego medical software developer and hardware manufacturer of hospital critical care units. In 1995, Mr. Doss joined Denver-based Merrick & Company as Senior Staff Accountant. Mr. Doss received his B.S. in Finance and minor in Economics from San Diego State University in 1993.

 

Mark Turfler was appointed as the Company’s Acting Chief Financial Officer and Corporate Secretary on June 7, 2013. Effective as of January 10, 2014, Mr. Turfler was promoted to Chief Financial Officer. Mr. Turfler joined the Company in January 2013 as our Controller. Prior to joining the Company, Mr. Turfler worked in senior accounting/finance positions at Ligand Pharmaceuticals, Inc. 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. 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. Turfler is a Certified Public Accountant and a member of the American Institute of CPAs, California Society of CPAs, and Financial Executives International.

 

Board of Director Meetings

 

During the fiscal year ended October 31, 2013, the Board of Directors held sixteen meetings. During the fiscal year ended October 31, 2013, each Board of Directors members attended at least 75% of the meetings of the Board of Directors and at least 75% of the meetings of the committees on which he served.

 

Board Committees

 

During fiscal 2013, the Board of Directors maintained three committees, the Compensation Committee, the Audit Committee, and the Nominating and Corporate Governance Committee.

 

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. The Audit Committee currently is composed of Mr. Reynolds (Chairman), Mr. Fink and Mr. Benoit.  Each of these individuals was a non-employee director and was independent as defined under the NASDAQ Stock Market’s listing standards. Each of the members of the Audit Committee has significant knowledge of financial matters, and Mr. Reynolds currently serves as the “audit committee financial expert” of the Audit Committee. The Company believes that the current members of the Audit Committee can competently perform the functions required of them as members of the Audit Committee. The Audit Committee met four times during fiscal 2013. The Audit Committee operates under a formal charter that governs its duties and conduct.

 

 

	20

 

The Compensation Committee currently consists of Messrs. Fink, Reynolds, and Benoit (Chairman) 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 authorizing remuneration arrangements for senior management. The Compensation Committee held five formal meeting during fiscal 2013, which was 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 Messrs. Fink (Chairman), Benoit, and Reynolds 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 two formal meetings during fiscal 2013, which was attended by all committee members.

 

Code Of Business Conduct And Ethics

 

The Company has adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all of the Company’s Directors, officers and employees, including its principal executive officer and principal financial officer. The Code is posted on the Company’s website at www.rfindustries.com . The Company intends 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 With Section 16(a) of the Exchange Act

 

Section 16(a) of the Securities Exchange Act of 1934 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 furnished to the Company, to the Company’s knowledge, during the fiscal year ended October 31, 2013, the following Forms 3 and 4 were filed later than is required under Section 16(a) of the Securities Exchange Act of 1934:

 

Three of Howard Hill’s Forms 4 were filed late, two of Darren Clark’s Forms 4 were filed late, David Sandberg filed one Form 4 late, James Doss filed two Forms 4 late, Marvin Fink filed one Form 4 late, and William Reynolds filed one Form 4 late. All of the foregoing untimely reports were filed within two days of the required filing deadlines.

 

In addition, Mark Turfler filed his Form 3 two days after the required filing deadline.

 

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 for each person who served the Company’s Chief Executive Officer during the year, and to each executive officer, other than our Chief Executive Officer, who earned over $100,000 during the fiscal year ended October 31, 2013 (collectively, the “Named Executive Officers”). 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, 2013:

 

Summary Compensation Table

 

Name and Principal Position		Year			Salary ($)			Bonus ($)			Stock Awards ($)			Option Awards ($)(6)			Non-Equity Incentive Plan Compensation ($)			Nonqualified Deferred Compensation Earnings ($)			All Other Compensation ($)				Total ($)
Howard F. Hill
Chief Executive			2013			240,000			227,100			-			-			-			-			82,051	(1)			549,151
Officer and Director			2012			240,000			80,000			-			-			-			-			44,367	(1)			364,367
James S. Doss
President and Chief Financial Officer(3)			2013			168,000			117,060			-			-			-			-			14,232	(2)			299,292
			2012			168,000			40,000			-			-			-			-			11,642	(2)			219,642
Darren Clark, President of Cables Unlimited, Inc.			2013			150,000			200,000			-			-			-			-			-				350,000
			2012			150,000			-			-			21,090			-			-			-				171,090
Mark Turfler, Chief Financial Officer(4)			2013			109,043			10,000			-			-			-			-			4,923	(5)			123,966

 

 

	21

 

(1)         Mr. Hill’s other compensation consisted of $63,692 and $27,190 of accrued vacation not taken in fiscal 2013 and 2012, respectively, and $18,359 and $17,177 for vehicle and apartment rental costs in fiscal 2013 and 2012, respectively. Because Mr. Hill does not live in San Diego, the Company has maintained an apartment in San Diego for Mr. Hill and some of the other managers since 1994. The compensation attributable to the use of a Company vehicle represents the value of his personal use of a Company vehicle.

 

(2)         Mr. Doss’s other compensation consisted of $1,115 of accrued vacation not taken in fiscal 2012 and $14,232 and $10,527 for vehicle costs in fiscal 2013 and 2012, respectively.

 

(3)         As of January 18, 2013, Mr. Doss no longer serves as the Chief Financial Officer; he does, however, continue to serve as the President of the Company.

 

(4)         Mr. Turfler was hired January 18, 2013 and appointed Acting Chief Financial Officer and Corporate Secretary effective June 7, 2013. On January 10, 2014, he was appointed Chief Financial Officer of the Company.

 

(5)         Mr. Turfler’s other compensation consisted of $4,923 for vehicle costs in fiscal 2013.

 

(6)         The amounts in this column represent the option awards recognized by the Company as an expense for financial reporting purposes. The fair value of these awards and the amounts expensed were determined in accordance with Financial Accounting Standards Board Statement ASC Topic 718. The assumptions we use in calculating these amounts are discussed in Note 8, “Stock options,” to the Consolidated Financial Statements.

 

2013 Option Grants

 

In fiscal 2013, the Company did not grant stock options to any Named Executive Officers.

 

Holdings of Previously Awarded Equity

 

Equity awards held as of October 31, 2013 by each of our Named Executive Officers were issued under our 2000 Stock Option Plan and 2010 Stock Incentive Plan, except for options to purchase 172,457 shares that were granted to Mr. Hill in 1994 under his employment agreement. The following table sets forth outstanding equity awards held by our Named Executive Officers as of October 31, 2013:

 

Outstanding Equity Awards As Of October 31, 2013

 

Option Awards

Number of

Number of

Equity Incentive Plan

Securities

Securities

Awards: Number of

Underlying

Underlying

Securities Underlying

Option

Unexercised

Unexercised

Unexercised

Exercise

Option

Options

Options

Unearned Options

Price

Expiration

Name

(#) Exercisable

(#) Unexercisable

(#)

($)

Date

Howard Hill

168,457

0.05

(1)

Howard Hill

2,666

3.40

10/31/15

Howard Hill

1,334

1,333

(2)

3.16

10/31/16

James Doss

20,000

100,000

(3)

2.025

10/31/19

James Doss

1,334

3.40

10/31/15

James Doss

666

667

(4)

3.16

10/31/16

Darren Clark

4,100

3.69

12/22/16

  

(1)	This option expires one year after Mr. Hill’s employment with the Company terminates.
(2)	Vests annually in three installments following grant on October 31, 2011.
(3)	Vests as to 20,000 shares annually following grant on October 31, 2009.
(4)	Vests annually in three installments following grant on October 31, 2011.

 

During the fiscal year ended October 31, 2013, the Company did not adjust or amend the exercise price of stock options awarded to the Named Executive Officers.

 

 

	22

 

Employment Agreements

 

The employment agreements that the Company previously entered into with Mr. Hill, the Company’s Chief Executive Officer, Mr. Doss, the Company’s President, and Mr. Clark, the President of the Company’s Cables Unlimited, Inc. subsidiary, all expired on December 31, 2013.  In addition, to date, we have not entered into an employment agreement with Mr. Turfler, the Company’s Chief Financial Officer and Corporate Secretary. Accordingly, as of the date of this Annual Report, we have no employment agreements in place for the Company’s Named Executive Officers and other key officers.  The Company’s Compensation Committee expects to enter into employment agreements with each of the foregoing four executive officers during the second fiscal quarter. 

 

Compensation of Directors

 

Under the new 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 the year ended October 31, 2013, non-employee directors (i.e. directors who are not employed by the Company as officers or employees) received $25,000 annually. Effective for the year ending October 31, 2014, these amounts were increased to $30,000 annually, which amount is paid one-half in cash, and one-half through the grant of stock options to purchase shares of the Company’s common stock. During the quarter ended January 31, 2013, the Company granted each of the non-employee directors 8,405 options with an exercise price of $5.85 per share. The number of stock option shares granted to each director was determined by dividing $12,500 by the fair value of a stock option grant using the Black Scholes model ($1.49 per share). These options vest ratably over fiscal year 2013.During the quarter ended April 30, 2013, the Company granted a newly appointed non-employee director 4,367 options with an exercise price of $6.42 per share. The number of stock options granted was determined by dividing $7,292 (a pro rata portion of the $12,500) by the fair value of a stock option grant using the Black Scholes model ($1.67 per share).

 

 

	23

  

DIRECTOR COMPENSATION FOR FISCAL YEAR 2013

 

Name		Fees Earned or Paid in Cash			Stock Awards			Option Awards (1)(2)(3)			All Other Compensation			Total
Joseph Benoit		$	7,292			-		$	7,292		$	-		$	14,584
Darren Clark		$	-			-		$	-		$	-		$	-
Marvin H. Fink		$	12,500			-		$	12,500		$	-		$	25,000
Howard F. Hill		$	-			-		$	-		$	-		$	-
William Reynolds		$	12,500			-		$	12,500		$	-		$	25,000

 

(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 January 25, 2013 we granted five-year non-qualified options to purchase 8,405 shares of the Company’s common stock to Mr. Marvin Fink (Chairman) and Mr. William Reynolds (Independent Director) for their services as directors for the fiscal year ended October 31, 2013. The options have an exercise price of $5.85 per share.
(3)	On April 5, 2013, we granted a five-year non-qualified option to purchase 4,367 shares of the Company’s common stock to Joseph Benoit (Independent Director) for his services as a director for the fiscal year ended October 31, 2013. The options have an exercise price of $6.42 per share.

 

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 January 10, 2014 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 January 10, 2014, there were 8,153,658 shares of Common Stock issued and outstanding.

 

Name and Address of Beneficial Owner		Number of Shares (1) Beneficially Owned				Percentage Beneficially Owned
Howard H. Hill 7610 Miramar Road, Ste. 6000 San Diego, CA 92126-4202			262,204	(2)			3.1	%
James Doss 7610 Miramar Road, Ste. 6000 San Diego, CA 92126-4202			24,500	(3)			0.3	%
Marvin H. Fink 7610 Miramar Road, Ste. 6000 San Diego, CA 92126-4202			16,658	(4)			0.2	%
William Reynolds 7610 Miramar Road, Ste. 6000 San Diego, CA 92126-4202			59,070	(5)			0.7	%
Joseph Benoit
7610 Miramar Road, Ste. 6000
San Diego, CA 92126-4202			6,332	(6)			0.1	%
Darren Clark 3 Old Dock Road, Yaphank, NY 11980			304,100	(7)			3.7	%
All Directors and Officers as a Group (6 Persons)			672,864	(8)			8.0	%
Hytek International, Ltd PO Box 10927 APO George Town Cayman Islands			901,860				11.1	%

 

 

	24

 

	(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.
	(2)	Includes 172,457 shares that Mr. Hill has the right to acquire upon exercise of options exercisable within 60 days.
	(3)	Includes 22,000 shares that Mr. Doss has the right to acquire upon exercise of options exercisable within 60 days.
	(4)	Includes 16,658 shares that Mr. Fink has the right to acquire upon exercise of options exercisable within 60 days.
	(5)	Includes 18,370 shares that Mr. Reynolds has the right to acquire upon exercise of options exercisable within 60 days.
	(6)	Includes 6,332 shares that Mr. Benoit has the right to acquire upon exercise of options exercisable within 60 days.
	(7)	Includes 4,100 shares, which Mr. Clark has the right to acquire upon exercise of options exercisable within 60 days.
	(8)	Includes 239,917 shares, which the directors and officers have the right to acquire upon exercise of options exercisable within 60 days.

  

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

 

On April 1, 1997, the Company loaned to Howard Hill, its President, at that time, and Chief Executive Officer, $70,000 pursuant to a Promissory Note which provides for interest at the rate of 6% per annum and which has no specific due date for principal repayment. As of October 31, 2013, the principal balance still outstanding on the loan was $66,980. Mr. Hill pays interest on the loan annually. The note is collateralized by personal property owned by Mr. Hill.

 

On June 15, 2011, the Company purchased Cables Unlimited, Inc., a New York corporation, from Darren Clark, the sole shareholder of Cables Unlimited, Inc. In connection with the purchase of Cables Unlimited, the Company entered into a five-year 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, 2013, 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 a current director of the Company.

 

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Audit Fees

 

The following is a summary of the fees billed to the Company by CohnReznick LLP for professional services rendered related to the fiscal years ended October 31, 2013 and 2012:

 

Fee Category		2013			2012
Audit Fees		$	195,000		$	263,000
Audit-Related Fees			-			-
Total Fees		$	195,000		$	263,000

  

Audit Fees .  Consists of fees billed and estimated 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 and estimates 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.” These services include professional services requested by the Company in connection with its preparation for compliance with Section 404 of the Sarbanes-Oxley Act of 2002, accounting consultations in connection with acquisitions and consultations concerning financial accounting and reporting standards. The Company did not incur audit-related fees during fiscal 2013 and 2012.

 

 

	25

 

ITEM 15.

EXHIBITS

 

The following exhibits are filed as part of this report:

 

3.1	Articles of Incorporation, as amended (1)
3.1.1	Amended and Restated Articles of Incorporation (12)
3.2.1	Company Bylaws as Amended through August, 1985 (2)
3.2.2	Amendment to Bylaws dated January 24, 1986 (2)
3.2.3	Amendment to Bylaws dated February 1, 1989 (3)
3.2.4	Amendment to Bylaws dated June 9, 2006(6)
3.2.5	Amendment to Bylaws dated September 7, 2007(7)
10.1	Form of 2000 Stock Option Plan (4)
10.2	Directors’ Nonqualified Stock Option Agreements (2)
10.3	Employment Agreement, dated August 22, 2011, between the Company and  Howard Hill (8)
10.4	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 (9)
10.5	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 (9)
10.6	Single Tenant Commercial Lease, dated August 2009, between Eagle American LLC and RF Industries, Ltd. regarding the Company’s lease in Las Vegas, Nevada (9)
10.7	Single Tenant Commercial Lease, dated June 15, 2011 between K&K and RF Industries, Ltd. regarding the Company’s lease in Yaphank, New York (13)
10.8	Form of 2010 Stock Incentive Plan (10)
10.9	Form of Stock Option Agreement for the Company’s 2010 Stock Incentive Plan (10)
10.10	Amendment of 2000 Stock Incentive Plan (11)
10.11	Employment Agreement, dated September 1, 2013, between the Company and Howard Hill (14)
10.12	Employment Agreement, dated September 1, 2013, between the Company and James Doss (14)
10.13	Employment Agreement, dated September 1, 2013, between the Company and Darren Clark (14)
14.1	Code of Ethics (5)
23.1	Consent of Independent Registered Public Accounting Firm CohnReznick LLP
31.1	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350

 

(1)           Previously filed as an exhibit to the Company’s Form 10-KSB for the year ended October 31, 2000, which exhibit is hereby incorporated herein by reference.

 

(2)           Previously filed as an exhibit to the Company’s Form 10-KSB for the year ended October 31, 1987, which exhibit is hereby incorporated herein by reference.

 

(3)           Previously filed as an exhibit to the Company’s Form 10-KSB for the year ended October 31, 1992, which exhibit is hereby incorporated herein by reference.

 

(4)           Previously filed as an exhibit to the Company’s Form 10-QSB for the quarter ended January 31, 2001, which exhibit is hereby incorporated herein by reference.

 

 

	26

 

(5)           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.

 

(6)           Previously filed as an exhibit to the Company’s Form 8-K, dated June 9, 2006, which exhibit is hereby incorporated herein by reference.

 

(7)           Previously filed as an exhibit to the Company’s Form 10-KSB for the year ended October 31, 2007, which exhibit is hereby incorporated herein by reference.

 

(8)           Previously filed as an exhibit to the Company’s Form 8-K, dated June 5, 2008, which exhibit is hereby incorporated herein by reference.

 

(9)           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.

 

(10)         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.

 

(11)         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.

 

(12)         Previously filed as an exhibit to the Company’s definitive proxy statement filed on July 12, 2012, which exhibit is hereby incorporated herein by reference.

 

(13)         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.

 

(14)         Previously filed as an exhibit to the Company’s Form 10-QSB for the quarter ended July 31, 2013, 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 record of common stock of the Company.

	27

 

RF INDUSTRIES, LTD. AND SUBSIDIARY

 

Index

 

		Page
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets
October 31, 2013 and 2012		F-3-F-4
Consolidated Statements of Income
Years Ended October 31, 2013 and 2012		F-5
Consolidated Statements of Equity
Years Ended October 31, 2013 and 2012		F-6
Consolidated Statements of Cash Flows
Years Ended October 31, 2013 and 2012		F-7
Notes to Consolidated Financial Statements		F-8-F-18

 

*       *       *

 

 

	F-1

 

Report of Independent Registered Public Accounting Firm

 

To the Stockholders

RF Industries, Ltd.

 

We have audited the accompanying consolidated balance sheets of RF Industries, Ltd. and Subsidiary as of October 31, 2013 and 2012, and the related consolidated statements of income, equity and cash flows for the years then ended. The Company’s management is responsible for these financial statements.  Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of RF Industries, Ltd. and Subsidiary as of October 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ CohnReznick LLP

 

San Diego, California

January 17, 2014

 

 

	F-2

 

RF INDUSTRIES, LTD. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

OCTOBER 31, 2013 AND 2012

(In thousands, except share and per share amounts)

 

		2013			2012
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	11,881		$	5,492
Trade accounts receivable, net of allowance for doubtful accounts of $103 and $96			3,160			5,167
Inventories			5,995			6,984
Other current assets			1,552			640
Deferred tax assets			322			761
TOTAL CURRENT ASSETS			22,910			19,044
Property and equipment:
Equipment and tooling			2,500			2,349
Furniture and office equipment			759			655
			3,259			3,004
Less accumulated depreciation			2,206			1,800
Total property and equipment			1,053			1,204
Goodwill			3,076			3,076
Amortizable intangible assets, net			1,407			1,627
Non-amortizable intangible assets			410			410
Note receivable from stockholder			67			67
Other assets			30			35
TOTAL ASSETS		$	28,953		$	25,463

 

 

	F-3

 

RF INDUSTRIES, LTD. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

OCTOBER 31, 2013 AND 2012

(In thousands, except share and per share amounts)

 

		2013			2012
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable		$	792		$	1,429
Accrued expenses			1,741			2,102
Customer deposit			51			-
Income taxes payable			-			610
TOTAL CURRENT LIABILITIES			2,584			4,141
Deferred tax liabilities			950			1,077
Other long-term liabilities			-			15
TOTAL LIABILITIES			3,534			5,233
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Common stock - authorized 20,000,000 shares of $0.01 par value; 8,075,124 and 6,978,374 shares issued and outstanding at October 31, 2013 and 2012, respectively			81			70
Additional paid-in capital			15,706			12,007
Retained earnings			9,632			8,153
TOTAL STOCKHOLDERS' EQUITY			25,419			20,230
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	28,953		$	25,463

 

See Notes to Consolidated Financial Statements.

 

 

	F-4

 

RF INDUSTRIES, LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED OCTOBER 31, 2013 AND 2012

(In thousands, except share and per share amounts)

 

		2013			2012
Net sales		$	36,625		$	27,687
Cost of sales			20,660			15,554
Gross profit			15,965			12,133
Operating expenses:
Engineering			1,377			1,134
Selling and general			7,810			6,930
Totals			9,187			8,064
Operating income			6,778			4,069
Other income – interest/dividends			20			38
Income from continuing operations before provision for income taxes			6,798			4,107
Provision for income taxes			1,830			1,499
Income from continuing operations			4,968			2,608
Income (loss) from discontinued operations, net of tax			(1,140)			4
Consolidated net income			3,828			2,612
Net income attributable to noncontrolling interest			-			2
Net income attributable to RF Industries, Ltd. and Subsidiary		$	3,828		$	2,610
Earnings per share
Basic
Continuing operations		$	0.65		$	0.38
Discontinued operations			(0.15)			-
Net income per share		$	0.50		$	0.38
Earnings per share
Diluted
Continuing operations		$	0.59		$	0.34
Discontinued operations			(0.13)			-
Net income per share		$	0.46		$	0.34
Weighted average shares outstanding
Basic			7,600,029			6,908,890
Diluted			8,455,631			7,680,743

 

See Notes to Consolidated Financial Statements.

 

 

	F-5

 

RF INDUSTRIES, LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF EQUITY

YEARS ENDED OCTOBER 31, 2013 AND 2012

(In thousands, except share amounts)

 

													Total RF
							Additional						Industries,
		Common Stock					Paid-In			Retained			Ltd and			Noncontrolling
		Shares		Amount			Capital			Earnings			Subsidiary			Interest			Total Equity
Balance, November 1, 2011		7,110,507		$	71		$	11,382		$	8,011		$	19,464		$	214		$	19,678
Exercise of stock options		192,738			2			352			-			354			-			354
Excess tax benefit from exercise of stock options		-			-			87						87			-			87
Stock-based compensation expense		-			-			264			-			264			-			264
Dividends		-			-			-			(1,387)			(1,387)			-			(1,387)
Treasury stock purchased and retired		(324,871)			(3)			(78)			(1,062)			(1,143)			-			(1,143)
Deconsoliation of VIE		-			-			-			(19)			(19)			(216)			(235)
Net income		-			-			-			2,610			2,610			2			2,612
Balance, October 31, 2012		6,978,374			70			12,007			8,153			20,230			-			20,230
Exercise of stock options		1,096,750			11			2,750			-			2,761			-			2,761
Excess tax benefit from exercise of stock options		-			-			717			-			717			-			717
Stock-based compensation expense		-			-			232			-			232			-			232
Dividends		-			-			-			(2,349)			(2,349)			-			(2,349)
Net income		-			-			-			3,828			3,828			-			3,828
Balance, October 31, 2013		8,075,124		$	81		$	15,706		$	9,632		$	25,419		$	-		$	25,419

 

See Notes to Consolidated Financial Statements.

 

 

	F-6

 

RF INDUSTRIES, LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED OCTOBER 31, 2013 AND 2012

(In thousands)

 

		2013			2012
OPERATING ACTIVITIES:
Consolidated net income		$	3,828		$	2,612
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Bad debt expense			29			24
Accounts receivable write-off			44			-
Depreciation and amortization			652			600
Inventory write-downs			1,170			-
Stock-based compensation expense			232			264
Deferred income taxes			312			(145)
Excess tax benefit from stock-based compensation			(717)			(87)
Changes in operating assets and liabilities (net of effects of deconsolidation of VIE on January 25, 2012):
Restricted cash			-			5
Trade accounts receivable			1,934			(2,585)
Inventories			(181)			(795)
Other current assets			(912)			(152)
Other long-term assets			5			(2)
Accounts payable			(637)			908
Customer deposit			51			-
Income taxes prepaid			107			1,269
Accrued expenses			(361)			536
Other long-term liabilities			(15)			(117)
Net cash provided by operating activities			5,541			2,335
INVESTING ACTIVITIES:
Maturity of certificates of deposit			-			4,095
Capital expenditures			(281)			(590)
Net cash provided by (used in) investing activities			(281)			3,505
FINANCING ACTIVITIES:
Proceeds from exercise of stock options			2,761			354
Purchases of treasury stock			-			(1,143)
Excess tax benefit from exercise of stock options			717			87
Principal payments on long-term debt			-			(20)
Dividends paid			(2,349)			(1,387)
Net cash provided by (used in) financing activities			1,129			(2,109)
Net increase in cash and cash equivalents			6,389			3,731
Cash and cash equivalents, beginning of year			5,492			1,761
Cash and cash equivalents, end of year		$	11,881		$	5,492
Supplemental cash flow information – income taxes paid		$	1,845		$	955
Supplemental schedule of noncash investing and financing activities:
Retirement of treasury stock		$	-		$	1,143
Write off of fully depreciated property and equipment		$	26		$	1,109
Assets and liabilities of VIE as of January 25, 2012:
Restricted cash		$	-		$	62
Other current assets		$	-		$	24
Property and equipment, net		$	-		$	1,468
Other assets, net		$	-		$	70
Mortgages payable		$	-		$	1,408
Net equity		$	-		$	215

 

See Notes to Consolidated Financial Statements.

 

 

	F-7

 

RF INDUSTRIES, LTD. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 –Business activities and summary of significant accounting policies

 

Business activities

 

The Company’s business is comprised of the design, manufacture and/or sale of communications equipment primarily to the radio and other professional communications related industries. As of October 31, 2013, the Company conducted its operations through four related business divisions: (i) Connector and Cable Assembly Division is engaged in the design, manufacture and distribution of coaxial connectors and cable assemblies used primarily in radio and other professional communications applications; (ii) Aviel Division is engaged in the design, manufacture and sales of radio frequency, microwave and specialized connectors and connector assemblies for aerospace, original electronics manufacturers and military electronics applications; (iii) Bioconnect Division is engaged in the design, manufacture and sales of cable interconnects for medical monitoring applications; and (iv) the Cables Unlimited Division manufactures custom and standard cable assemblies, adapters, and electromechanical wiring harnesses for communication, computer, LAN, automotive and medical equipment.

 

During 2013, the Company sold and discontinued its operations of the RF Neulink and RadioMobile divisions (see Note 2). In addition, effective November 1, 2013, the Oddcables Division was integrated with the Connector and Cable Division.

 

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. and its wholly owned subsidiary, Cables Unlimited, Inc. (“Cables Unlimited”), collectively (the “Company”). K&K Unlimited (“K&K”), a variable interest entity (“VIE”) of the Company was deconsolidated in the first quarter of 2012. 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

 

Four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured. The Company recognizes revenue from product sales after purchase orders are received which contain a fixed price and the products are shipped. Most of the Company’s products are sold to continuing customers with established credit histories.

 

Inventories

 

Inventories, consisting of materials, labor and manufacturing overhead, are stated at the lower of cost or market. Cost has been determined using the weighted average cost method.

 

Property and equipment

 

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

 

Variable interest entity

 

Management analyzes if the Company has any variable interests in VIE’s.  This analysis includes a qualitative review based on an evaluation of the design of the entity, its organizational structure, including decision making ability and financial agreements, as well as a quantitative review.  Accounting principles generally accepted in the United States of America require a reporting entity to consolidate a VIE when the reporting entity has a variable interest that provides it with a controlling financial interest in the VIE.  The entity that consolidates a VIE is referred to as the primary beneficiary of the VIE. See Note 11 for further discussion. 

 

 

	F-8

 

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 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. At October 31, 2013, the Company performed a qualitative assessment of factors to determine whether it was necessary to perform impairment testing. Based on the results of the work performed, the Company concluded that no impairment loss was warranted at October 31, 2013. Qualitative factors considered in this assessment include industry and market considerations, overall financial performance and other relevant events, management expertise and stability at key positions. Additional impairment analyses at future dates may be performed to determine if indicators of impairment are present, and if so, such amount will be determined and the associated charge will be recorded to the Consolidated Statement of Income.     

 

On June 15, 2011, the Company completed its acquisition of Cables Unlimited. Goodwill related to this acquisition is included within the Cables Unlimited reporting unit. As of October 31, 2013, the goodwill balance related solely to the Cables Unlimited acquisition.  No goodwill impairment occurred in 2013 or 2012.

 

Long-lived assets

 

The Company assesses potential impairments to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. An impairment loss is recognized when the undiscounted cash flows expected to be generated by an asset (or group of assets) is less than its carrying amount. Any required impairment loss is measured as the amount by which the assets carrying value exceeds its fair value, and is recorded as a reduction in the carrying value of the related asset and a charge to operations.

 

Intangible assets

 

Intangible assets consist of the following as of October 31 (in thousands): 

 

		2013			2012
Amortizable intangible assets:
Non-compete agreements (estimated life 5 years)		$	200		$	200
Accumulated amortization			(95)			(55)
			105			145
Customer relationships (estimated life 9.6 years)			1,730			1,730
Accumulated amortization			(428)			(248)
			1,302			1,482
Totals		$	1,407		$	1,627
Non-amortizable intangible assets:
Trademarks		$	410		$	410

 

Amortization expense for the years ended October 31, 2013 and 2012 was $220,000 and $239,000, respectively.              

 

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

 

Year ending
October 31,		Amount
2014		$	220
2015			220
2016			206
2017			180
2018			180
Thereafter			401
Total		$	1,407

 

 

	F-9

 

Advertising

 

The Company expenses the cost of advertising and promotions as incurred. Advertising costs charged to operations were approximately $195,000 and $242,000 in 2013 and 2012, respectively.

 

Research and development

 

Research and development costs are expensed as incurred. The Company’s research and development expenses relate to its engineering activities, which consists 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, 2013 and 2012, the Company recognized $1.4 million and $1.1 million in engineering expenses, respectively.

 

Income taxes

 

The Company accounts 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 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 Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense.

 

Stock options

 

For stock option grants to employees, the Company recognizes 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 issues previously unissued common shares upon the exercise of stock options.

 

For the fiscal years ended October 31, 2013 and 2012, charges related to stock-based compensation amounted to approximately $232,000 and $264,000, respectively.  For the fiscal years ended October 31, 2013 and 2012, stock-based compensation classified in cost of sales amounted to $58,000 and $53,000 and stock-based compensation classified in selling, general and engineering expense amounted to $174,000 and $211,000, respectively.

 

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, 2013 and 2012, that were not included in the computation because they were anti-dilutive, totaled 21,177 and 755,568, respectively.

 

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

 

		2013			2012
Numerators:
Consolidated net income (A)		$	3,828,000		$	2,612,000
Denominators:
Weighted average shares outstanding for basic earnings per share (B)			7,600,029			6,908,890
Add effects of potentially dilutive securities - assumed exercise of stock options			855,602			771,853
Weighted average shares outstanding for diluted earnings per share (C)			8,455,631			7,680,743
Basic earnings per share (A)/(B)		$	0.50		$	0.38
Diluted earnings per share (A)/(C)		$	0.46		$	0.34

 

 

	F-10

 

 

Reclassification

 

Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported consolidated net income.

 

Recent accounting standards

 

In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” ASU 2013-11 provides explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The guidance is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013, with an option for early adoption. The Company intends to adopt this guidance at the beginning of its first quarter of fiscal year 2015, and is currently evaluating the impact on its consolidated financial statements and disclosures.

Note 2 - Discontinued operations

 

During 2013, the Company sold its RF Neulink and RadioMobile divisions, which together use to comprise the Company’s RF Wireless segment, as discussed below. As part of the RF Wireless segment, RF Neulink was engaged in the sale of wireless data products, such as transmitter and receiver modules and standard or smart programmable modems, for use in certain high-speed wireless connection markets, and RadioMobile was engaged in the sale of complete hardware and software solutions for wireless mobile data management applications. Given the Company’s focus on the higher growth and higher margin components of its business, the Company decided to sell RF Neulink and RadioMobile in order to reduce operating costs and focus its resources on more profitable divisions. Accordingly, during 2013, the RF Neulink and RadioMobile divisions had met the criteria to be accounted for as discontinued operations. The operations of both RF Neulink and RadioMobile have been reclassified from the ongoing operations of the Company as a result of the sale of these businesses, and the Company will not have any continuing involvement in the operations of RF Neulink and RadioMobile after the disposal transactions, as detailed in the subsequent paragraphs.

 

Effective July 31, 2013, the Company closed an Asset Purchase Agreement (the “RF Neulink Agreement”) with Raveon Technologies Corporation (“Raveon”), whereby Raveon acquired the assets related to the RF Neulink business, primarily consisting of inventory, certain intellectual property and licenses, customer lists and trademarks. Pursuant to the RF Neulink Agreement, no purchase price was paid at the closing. Rather, the purchase price for the RF Neulink business will consist of cash payments made by Raveon to the Company under the following circumstances: (i) for each RF Neulink inventory item that Raveon sells, Raveon is required to pay the Company the assigned value of that inventory item. This arrangement continues until the earlier of three years from the closing date or the date all inventory items are sold; and (ii) Raveon is required to pay the Company a royalty based on Raveon’s use of RF Neulink’s tradename or trademark, its customer list or its intellectual property. The royalty, which ranges from 5% to 10% of Raveon’s sales of such RF Neulink-related products, may not exceed $450,000 in the aggregate, and will not be payable on sales of inventory items. For the year ended October 31, 2013, the Company recognized approximately $20,000 of royalty income, which amount has been included within discontinued operations.

 

Effective October 29, 2013, the Company closed an Asset Purchase Agreement (the “RadioMobile Agreement”) with RadioMobile, Inc. (“Purchaser”), a new company formed by the former manager of the Company’s RadioMobile division, whereby the Purchaser acquired the assets related to the RadioMobile business, primarily consisting of inventory, certain equipment, certain intellectual property and licenses, customer lists and trademarks, in return for the Purchaser’s three-year agreement to pay the Company 10.0% of all net revenues up to $2.0 million. Additionally, as part of the RadioMobile Agreement, all former RadioMobile employees were terminated by the Company and re-hired by the Purchaser, and the Company permitted Purchaser to continue to use its office space, rent-free, through the end of the lease, which expires on March 31, 2014. There is no obligation from Purchaser if inventory is never sold. Other closing costs amounted to approximately $0.2 million. For the year ended October 31, 2013, the Company has not recognized any royalty income in connection with the sale of the RadioMobile division.

 

The following summarized financial information related to the RF Neulink and RadioMobile divisions is segregated from continuing operations and reported as discontinued operations for the years ended October 31, 2013 and 2012 (in thousands):

 

		2013			2012
Net sales		$	1,230		$	2,545
Cost of sales			1,609			1,444
Gross profit (loss)			(379)			1,101
Operating expenses			1,400			1,095
Operating income (loss)			(1,779)			6
Provision (benefit) for income taxes			(639)			2
Income (loss) from discontinued operations, net of tax		$	(1,140)		$	4

  

 

	F-11

 

Given the nature of the inventory at RF Neulink and RadioMobile, the Company assessed that the inventory had a fair value of zero, and recorded a charge of $768,000 in the aggregate during 2013, which has been classified within discontinued operations, in connection with the sales of these divisions. The inventory at both RF Neulink and RadioMobile is highly specialized and not easily transferrable to other products. Additionally, certain components require programming and engineering expertise, which is unique to these products, in order to become fully functional.

Note 3 - Concentrations of credit risk and sales to major customers

 

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents with high-credit quality financial institutions. At October 31, 2013, the Company had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $12.0 million.

 

Accounts receivable are financial instruments that also expose the Company to concentration of credit risk. Such exposure is limited by the large number of customers comprising the Company's customer base and their dispersion across different geographic areas. In addition, the Company routinely assesses the financial strength of its customers and maintains an allowance for doubtful accounts that management believes will adequately provide for credit losses.

 

Sales to one customer represented 50% and 33% of total sales in 2013 and 2012, respectively, and 27% and 49% of total accounts receivable as of October 31, 2013 and 2012, respectively. Although this customer has been an on-going major customer of the Company continuously during the past 15 years, the written agreements with this customer do not have any minimum purchase obligations and the customer could stop buying the Company’s products at any time and for any reason. A reduction, delay or cancellation of orders from this customer or the loss of this customer could significantly reduce the Company’s revenues and profits.

 

Sales of one product line accounted for $14.0 million or 38% of total sales and $5.6 million or 18% of total sales to a single customer for the years ended October 31, 2013 and 2012, respectively. The Company sells this product line to this customer under a written purchase order when this customer places orders. This customer does not have any minimum purchase obligations and could stop buying the product at any time. A reduction, delay or cancellation of orders for this product or the loss of this customer could significantly reduce the Company’s revenues and profits.

Note 4 - Inventories and major vendors

 

Inventories consist of the following as of October 31 (in thousands): 

 

		2013			2012
Raw materials and supplies		$	1,913		$	2,519
Work in process			15			3
Finished goods			4,067			4,462
Totals		$	5,995		$	6,984

 

Purchases of inventory from two major vendors during 2013 represented 20% and 17% of total inventory purchases compared to two major vendors who represented 20% and 14% of total inventory purchases in 2012. The Company has arrangements with these vendors to purchase product based on purchase orders periodically issued by the Company.

Note 5 - Accrued expenses and other long-term liabilities

 

Accrued expenses consist of the following as of October 31 (in thousands):

 

		2013			2012
Wages payable		$	1,188		$	1,032
Accrued receipts			376			864
Other current liabilities			177			206
Totals		$	1,741		$	2,102

 

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

 

 

	F-12

 

Other long-term liabilities of $15,000 as of October 31, 2012 consist of deferred lease liabilities. Deferred lease liabilities represent the excess of recognized rent expense over scheduled lease payments.

Note 6 - Segment information

 

The Company aggregates operating divisions into operating segments which have similar economic characteristics and divisions 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; (5) if applicable, the nature of the regulatory environment. The Company has three segments - RF Connector and Cable Assembly, Medical Cabling and Interconnector, and Cables Unlimited based upon this evaluation.

 

The RF Connector and Cable Assembly segment is comprised of two divisions, whereas the Cables Unlimited segment and the Medical Cabling and Interconnector segment are each comprised of one division.  The three divisions that meet the quantitative thresholds for segment reporting are Connector and Cable Assembly, Cables Unlimited, and Bioconnect. The other division aggregated into the RF Connector and Cable Assembly segment has similar products that are marketed to their respective customer base and production and product development processes that are similar in nature. The specific customers are different for each division; however, there is some overlapping of product sales to them. The methods used to distribute products are similar within each division aggregated.

 

Management identifies the Company’s segments based on strategic business units that are, in turn, based along market lines. These strategic business units offer products and services to different markets in accordance with their customer base and product usage. For segment reporting purposes, the Company aggregates the Connector and Cable Assembly and Aviel divisions into the RF Connector and Cable Assembly segment, while the Cables Unlimited division constitutes the Cables Unlimited segment. The Bioconnect Division comprises the Medical Cabling and Interconnector segment.

 

As reviewed by the Company’s chief operating decision maker, the Company evaluates the performance of each segment based on income or loss before income taxes. The Company charges depreciation and amortization directly to each division within the segment. Effective beginning with the second quarter of 2013, the Company changed its measurement of segment profit or loss whereby certain corporate costs, previously attributed to the RF Connector and Cable Assembly segment, have been allocated to each of the segments. Certain amounts in the 2012 segment tables have been reclassified to conform to the 2013 presentation to reflect all segment information on a comparable basis. Additionally, with the sale and discontinuation of the RF Neulink and RadioMobile divisions during 2013, the segment information has been adjusted as these divisions are reflected within discontinued operations. 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 as for the Company as a whole.

 

Substantially all of the Company’s operations are conducted in the United States; however, the Company derives a portion of its revenue from export sales. The Company attributes sales to geographic areas based on the location of the customers. The following table presents the sales of the Company by geographic area for the years ended October 31, 2013 and 2012 (in thousands):

 

		2013			2012
United States		$	35,115		$	26,076
Foreign Countries:
Canada			638			830
Israel			289			257
Mexico			413			397
All Other			170			127
			1,510			1,611
Totals		$	36,625		$	27,687

 

 

	F-13

 

Net sales, income from continuing operations before provision for income taxes and other related segment information as of October 31, 2013 and for the years then ended are as follows (in thousands): 

 

		RF Connectors						Medical
		and			Cables			Cabling and
		Cable Assembly			Unlimited			Interconnector			Corporate			Total
2013
Net sales		$	14,254		$	19,329		$	3,042		$	-		$	36,625
Income from continuing operations before provision for income taxes			2,105			3,964			723			6			6,798
Depreciation and amortization			232			357			44			19			652
Total assets			6,463			7,715			813			13,962			28,953
2012
Net sales		$	14,176		$	10,913		$	2,598		$	-		$	27,687
Income from continuing operations before provision for income taxes			2,140			1,399			553			15			4,107
Depreciation and amortization			216			340			40			4			600
Total assets			7,072			9,409			784			8,198			25,463

Note 7 - Income taxes

 

The provision for income taxes for the fiscal years ended October 31, 2013 and 2012 consists of the following (in thousands):

 

		2013			2012
Current:
Federal		$	1,365		$	1,329
State			153			315
			1,518			1,644
Deferred:
Federal			285			(142)
State			27			(3)
			312			(145)
		$	1,830		$	1,499

 

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

 

		2013						2012
					% of Pretax						% of Pretax
		Amount			Income			Amount			Income
Income tax at Federal statutory rate		$	2,315		34.0	%		$	1,396		34.0	%
State tax provision, net of Federal tax benefit			232		3.4	%			230		5.6	%
Nondeductible differences:
ISO stock options, net			(509)		-7.4	%			7		0.2	%
Qualified domestic production activities deduction			(87)		-1.3	%			(46)		-1.1	%
Other			40		0.6	%			36		0.9	%
Uncertain tax positions			-		-				(79)		-1.9	%
R&D credit			(87)		-1.3	%			-		-
Other			(74)		-1.1	%			(45)		-1.2	%
Provision for income taxes		$	1,830		26.9	%		$	1,499		36.5	%

 

 

	F-14

 

The Company’s total deferred tax assets and deferred tax liabilities at October 31, 2013 and 2012 are as follows (in thousands):

 

		2013			2012
Current Assets:
Allowance for doubtful accounts		$	40		$	37
Inventory obsolescence			-			66
Accrued vacation			144			154
State income taxes			27			118
Stock based compensation awards			-			236
Section 263A costs			104			129
Other			7			21
Total current assets			322			761
Long-Term Assets:
Amortization / intangible assets			90			103
Long-Term Liabilities:
Amortization / intangible assets			(708)			(799)
Depreciation / equipment and furnishings			(332)			(381)
Net long-term deferred tax liabilities			(950)			(1,077)
Total deferred tax liabilities		$	(628)		$	(316)

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

 

Balance at November 1, 2011		$	79
Lapse of statute of limitations - tax positions in prior period			(79)
Balance at October 31, 2012			-
Lapse of statute of limitations - tax positions in prior period			-
Balance at October 31, 2013		$	-

 

The Company had no gross liability for unrecognized tax benefits at October 31, 2013 and 2012.

 

During the year ended October 31, 2012, a reduction of $19,000 of interest was a result of the expiration of the statute of limitations. As of October 31, 2013 and 2012, no accrued interest or penalties were included in other long-term liabilities on the balance sheet.

 

The Company is currently not undergoing any tax examinations. Tax fiscal years ended October 31, 2009 through October 31, 2013 remain subject to examination.

Note 8- Stock options

 

Incentive and non-qualified stock option plans

 

In May 2000, the Board of Directors adopted the Company’s 2000 Stock Option Plan (the “2000 Option Plan”). Under the 2000 Option Plan, the Company was authorized to grant options to purchase shares of common stock to officers, directors, key employees and others providing services to the Company. The 2000 Option Plan expired in May 2010. At the time of expiration, the 2000 Plan had authorized the Company to grant options to purchase a total of 1,320,000 shares. Upon the expiration of the 2000 Plan, the Company was no longer able to grant any stock options to its employees, officers and directors.  Accordingly, as of October 31, 2013, no shares are available for future grant under the 2000 Option Plan.

 

On March 9, 2010, the Company’s Board of Directors adopted the RF Industries, Ltd. 2010 Stock Incentive Plan (the “2010 Plan”).  In June 2010, the Company’s stockholders approved the 2010 Plan by vote as required by the NASDAQ Capital Market listing standards. An aggregate of 1,000,000 shares of common stock was set aside and reserved for issuance under the 2010 Plan. As of October 31, 2013, 439,750 shares of common stock were remaining for future grants of stock options under the 2010 Plan.

 

 

	F-15

 

Additional disclosures related to stock option plans 

 

The fair value of each option granted in 2013 and 2012 was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions:

 

		2013				2012
Weighted average volatility			42.9	%			57.7	%
Expected dividends			4.2	%			3.0 - 5.0	%
Expected term (in years)			3.5				3.5 - 4.2
Risk-free interest rate			0.36	%			0.3-0.4	%
Weighted average fair value of options granted during the year		$	1.12			$	1.19
Weighted average fair value of options vested during the year		$	1.06			$	1.02

 

Expected volatilities are based on historical volatility of the Company’s stock price and other factors. The Company used the historical method to calculate the expected life of the 2013 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's outstanding stock options at October 31, 2013 and 2012 and changes in outstanding stock options in 2013 and 2012 follows:

 

		2013						2012
		Shares or			Weighted			Shares or			Weighted
		Price Per			Average			Price Per			Average
		Share			Exercise Price			Share			Exercise Price
Options outstanding at beginning of year			2,004,781		$	2.25			2,099,672		$	2.13
Options granted			176,267		$	4.80			114,815		$	3.86
Options exercised			(1,096,750)		$	2.52			(192,738)		$	1.82
Options forfeited			(96,083)		$	4.01			(16,968)		$	3.05
Options outstanding at end of year			988,215		$	2.24			2,004,781		$	2.25
Options exercisable at end of year			743,169		$	1.96			1,650,289		$	2.16
Options vested and expected to vest at end of year			972,015		$	2.21			1,987,333		$	2.25
Option price range at end of year		$	0.05 - 6.42					$	0.05 - 4.12
Aggregate intrinsic value of options exercised during year		$	4,137,000					$	397,000

 

Weighted average remaining contractual life of options outstanding as of October 31, 2013: 3.11 years

 

Weighted average remaining contractual life of options exercisable as of October 31, 2013: 2.67years

 

Weighted average remaining contractual life of options vested and expected to vest as of October 31, 2013: 3.08 years

 

Aggregate intrinsic value of options outstanding at October 31, 2013: $6.9 million

 

Aggregate intrinsic value of options exercisable at October 31, 2013: $5.4 million

 

Aggregate intrinsic value of options vested and expected to vest at October 31, 2013: $5.4 million

 

As of October 31, 2013, $208,000 of expense with respect to nonvested share-based arrangements has yet to be recognized which is expected to be recognized over a weighted average period of 3.26 years.

Note 9- Retirement plan

 

The Company sponsors a deferred savings and profit sharing plan under Section 401(k) of the Internal Revenue Code. Substantially all of its employees may participate in and make voluntary contributions to this defined contribution plan after they meet certain eligibility requirements. The Board of Directors of the Company can authorize discretionary contributions by the Company. The Company did not make contributions to the plan in 2013 and 2012.

 

 

	F-16

 

Note 10 - Related party transactions

 

The note receivable from stockholder of $67,000 at October 31, 2013 and 2012 is due from the Chief Executive Officer of the Company, bears interest at 6%, payable annually, and has no specific due date. The note is collateralized by personal property owned by the Chief Executive Officer.

 

A former director of the Company is an employee of a public relations firm used by the Company. For the fiscal years ended October 31, 2013 and 2012, the Company paid the firm $6,000 and $43,000, respectively, for services rendered by that firm. The Company no longer utilizes the services of this firm.

Note 11 - Variable interest entity

 

The Company’s former variable interest entity, K&K Unlimited, LLC (“K&K”), was formed on August 14, 2009 for the purpose of establishing a separation of legal ownership of the building where Cables Unlimited conducts its operations. Cables Unlimited’s former sole stockholder is the sole member of K&K. Cables Unlimited was deemed the primary beneficiary of K&K even though it has no direct ownership in K&K as it had the power to direct the activities of K&K that most significantly impacted its economic performance and provided significant financial support through a lease agreement between Cables Unlimited and K&K. Cables Unlimited was also guarantor of K&K’s mortgage notes payable to Teacher’s Federal Credit Union and Small Business Administration establishing a direct obligation to absorb any losses of K&K.

 

In November 2011 and on January 25, 2012 the mortgages noted above were repaid and refinanced, respectively, at which time Cables Unlimited was released as a guarantor. Based on these factors, it was determined that Cables Unlimited was no longer the primary beneficiary and the operations of K&K were deconsolidated as of January 25, 2012. As a result, the Company’s consolidated balance sheet at October 31, 2012 reflects a reduction in total assets of approximately $1.6 million with a reduction in liabilities of approximately $1.4 million. The effect of the deconsolidation did not have a material impact on the Company’s consolidated results of operations for the year ended October 31, 2012. There were no variable interest entities as of October 31, 2013.

Note 12-Dividends declaration

 

The Company paid a total of $2.3 million of dividends during the fiscal year ended October 31, 2013. The dividends consisted of a $0.10 dividend, a special dividend of $0.07 and two quarterly dividend payments of $0.07 per share. The Company paid four quarterly dividends of $0.05 per share for a total of $1.4 million during the fiscal year ended October 31, 2012.

Note 13 - Commitments

 

The Company leases its facilities in San Diego, California, Yaphank, New York and Las Vegas, Nevada under non-cancelable operating leases. The Company amended its San Diego lease in March 2009 extending the term of the lease and again in September 2009 adding additional square feet. The amended lease expires in March 2014 and requires minimum annual rental payments that are subject to fixed annual increases. The minimum annual rentals under this lease are being charged to expense on the straight-line basis over the lease term. Deferred rents, included in accrued expenses and other long-term liabilities, were $15,000 as of October 31, 2013 and $54,000 as of October 31, 2012. The San Diego lease also requires 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. The Company also leases certain automobiles under operating leases which expire at various dates through June 2015.

 

Rent expense under all operating leases totaled approximately $652,000 and $624,000 in 2013 and 2012, respectively.

 

Minimum lease payments under these non-cancelable operating leases in each of the years subsequent to October 31, 2013 are as follows (in thousands):

 

Year ending
October 31,		Amount
2014		$	388
2015			197
2016			116
2017			2
Total		$	703

 

 

	F-17

 

Note 14 - Legal proceedings

 

On May 24, 2013, a former employee of the Company filed a complaint with the San Diego, California office of the U.S. Department of Labor-OSHA alleging retaliatory employment practices in violation of the whistleblower provisions of the Sarbanes-Oxley Act. The complaint alleges that the former employee was terminated in November 2012 in retaliation for making disclosures relating to fraudulent accounting practices and lack of compliance with U.S. GAAP; violations of multiple Securities and Exchange Commission rules and regulations; and fraud against the shareholders. The complaint does not seek any specified amount of damages, but does seek various forms of relief, including the following: Reinstatement of the former employee’s employment, or in the alternative, an award for lost future wages, benefits and pension; back pay and bonuses; compensatory monetary damages in an amount to be determined; reasonable attorney’s fees; and all costs of litigation. The Company disputes the employee’s claims. The lawsuit is currently on-going and is being defended by the Company’s insurance carrier’s appointed law firm under the Company’s employment practices liability insurance policy.

Note 15- Subsequent events

 

At its December 5, 2013 meeting, the Board of Directors of the Company declared a quarterly cash dividend of $0.07 per share to be paid on January15, 2014 to stockholders of record on December 31, 2013. 

 

 

	F-18

 

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: January 17, 2014	By:	/s/ Howard F. Hill
	Howard F. Hill, Chief Executive Officer

 

Date: January 17, 2014	By:	/s/ Mark Turfler
	Mark Turfler, Chief Financial 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: January 17, 2014	By:	/s/ Howard F. Hill
	Howard F. Hill, Chief Executive Officer
	(Principal Executive Officer)

 

Date: January 17, 2014	By:	/s/ Mark Turfler
	Mark Turfler, Chief Financial Officer
	(Principal Financial Officer and Principal
	Accounting Officer)
Date: January 17, 2014	By:	/s/ Marvin Fink
	Marvin Fink, Director
Date: January 17, 2014	By:	/s/ William Reynolds
	William Reynolds, Director
Date: January 17, 2014	By:	/s/ Darren Clark
	Darren Clark, Director
Date: January 17, 2014	By:	/s/ Joseph Benoit
	Joseph Benoit, Director