RF Industries
Annual Report 2022

Plain-text annual report

Connecting the Next Generation RF INDUSTRIES ANNUAL REPORT CORPORATE 2022 1 2 LETTER FROM THE CEO July 26, 2023 Fellow Shareholders, 2022 was an outstanding year for RF Industries and I am very proud of what our team accomplished in transforming our company for sustained growth in the years ahead. Even though we encountered the challenges of inflation, higher interest rates and lingering supply chain disruptions in 2022, we made significant headway in executing our five-year strategy to shift our business to a higher margin value proposition while still growing our traditional core business that generates strong cash flow. Strong Growth and Disciplined Execution Delivered Record Performance We delivered record annual sales of $85.3 million, which was a 48% increase over last year and a high mark in our company’s history. Our gross profit margin expanded significantly throughout the year, with a standout fourth quarter of 31%. Our year-over-year adjusted EBITDA also increased 143% to $6.6 million. Fully integrating our acquisition of Microlab was a highlight of 2022, and it made a strong impact on our annual results by contributing $15 million to product sales in the eight months following the Importantly, we financed this acquisition transaction close. with cash and low-interest rate debt and with no dilution to our shareholders. Since acquiring Microlab, we have meaningfully paid down debt from our free cash flow. Managing capital well is a cornerstone of our business success and the completion of this acquisition was no exception. These are impressive numbers for one year. But what’s equally impressive is that we’ve nearly quadrupled our revenue in five years – during a global pandemic, supply chain shortages and turbulent markets. Plus, our core cable assembly business has grown organically for five consecutive years. These positive results reflected the disciplined execution of our plan including our strategic shift to higher value products and solutions, our focus on managing expenses in an inflationary environment, and our commitment to balancing organic growth with strategic acquisitions. Bolstered Our Strong Customer Value Proposition Through Product Expansion Our customers count on us for quality products, inventory availability and speed. We are a highly reliable partner, and we make it easy for our customers to work with us. Our growth plan, whether it’s organic growth or through acquisitions, is to provide more of the bill of materials of interconnect products for telecom, wireless and industrial customer applications. The continued expansion of our product offering allows customers to buy more from RF Industries across multiple product categories. It also helps them reduce complexity and supply chain costs, while procuring the products they need to complete jobs quickly. Our RF Industries family of products, including coaxial jumpers and fiber optic jumpers, is recognized for its consistent high quality, and we are committed to innovating new products that meet the evolving and mission-critical needs of our customers. Our OptiFlexTM hybrid fiber solutions, for example, deliver the optimal solutions for wireless carriers seeking to upgrade existing infrastructure to 5G technology. This is just one of many products that have technical and intellectual property advantages that go well beyond commoditized solutions. These systems were developed by Cables Unlimited, one of our two brands that have qualified for the coveted Corning Assembly House Connection Gold Program, the highest standard for fiber optic cable production. Our Microlab acquisition was a big step forward in strengthening our signal distribution capabilities with proprietary patented technology. Microlab gives us access to distribution and deployment of in-building DAS (distributed antenna systems), wireless base stations and small cell networks. These product lines will continue to produce significant project opportunities in stadiums and other key applications. Our Schrofftech brand offers energy efficient cooling/temperature control and filtration systems for telecom shelters, outdoor enclosures and battery/power rooms. We also retrofit existing communications equipment infrastructure for capacity upgrades and thermal efficiencies through Direct Air Cooling (DAC) systems for wireless base stations and remote equipment shelters, supporting our customers’ green initiatives and energy cost savings programs by eliminating toxic chemicals and decreasing air conditioning costs up to 75%. We are excited about the state-of-the-art solutions these products bring to the marketplace. Positioned To Deliver Long-Term Growth and Returns Our executive team is passionate about driving growth and creating value for all of our stakeholders. We are a mix of industry veterans, who bring valuable experience from larger companies in our space, and trusted colleagues who have worked well together in the past. We also have a tremendous Board of Directors, who are aligned with our strategy and are dedicated to the company’s initiatives and our governance agendas. Other than myself, all of our other five board members are independent, and they bring sophisticated financial expertise, risk management and industry experience to the table. We will continue to deploy our strong cash flow from operations and capital resources prudently to fund growth initiatives that strengthen our competitive position and create value for our shareholders. At the end of 2022, we had built a healthy $28 million backlog that gave us some considerable visibility going into 2023. As I write this letter, we have already completed our first half of 2023 during which we encountered a continued slowdown in wireless carrier spending and some related delays in both customer bookings and shipments. Most of the delayed shipments were related to the rollout of 4G and 5G technologies by wireless carriers. As with similar companies in the wireless industry, our customers are re-thinking their capital expenditure plans based on persistent inflation, higher cost of capital and an economic slowdown. We have been through these cycles before, most recently during the COVID pandemic, when wireless carriers pulled back on certain infrastructure investments. That said, it does not diminish the need for wireless carriers to meet the connectivity and speed demands of their customers with 4G and 5G buildouts. Granted, these delays are very frustrating, but we are confident that the carriers will resume their infrastructure deployments. They are already running from behind and their businesses models require them to stay on the sharp edge of competition or lose valuable customers. We are now slowly starting to see project-related orders flow through and expect them to accelerate in the second half of 2023. Quarter to quarter, our business has always been lumpy—it’s the nature of projects and ordering and fulfillment patterns. Regardless, RF Industries serves all Tier-1 wireless carriers, and this presents a significant opportunity to capture greater market share and to realize our vision of being at the forefront of the wireless industry. As mentioned earlier, we are very excited about the potential of our higher-value products, such as OptiFlexTM hybrid fiber, Direct Air Cooling (DAC) and integrated small cell shrouds for the wireless buildout. DAC has broad applications across many industries and both Small Cell and DAC products are next-generation technology products with compelling value propositions. We also will continue to improve margins by reducing redundancies during 2023. The consolidation of our two West Coast facilities into a single San Diego location was completed in early Summer, and we are accelerating our plan to consolidate some of our East Coast operations in New Jersey. We expect that this will allow us to take advantage of economies of scale, reduce overhead costs and better serve our East Coast customers. With these moves, we will be well positioned to continue providing the high-quality products and services our customers expect from us while also improving overall profitability. Finally, we recently conducted research to understand more about the relationship customers have with our products and the relative importance of our RF Industries family of brands. Based on our findings, during fiscal year 2023, we introduced a new brand architecture that unifies our house of brands and creates touch points for our customers to connect each brand to the RFI reputation for quality products and service. This will evolve our go- to-market strategy as we enter new adjacencies and industries. I am both excited and confident in our ability to continue creating value for our shareholders well into the future, and I would like to take this opportunity to thank our employees for their hard work and dedication. Fiscal `22 was a transformative year for RF Industries, and we are just beginning to scratch the surface of what is to come. Sincerely, Robert Dawson, President and CEO “ Our customers count on us for quality products, inventory availability and speed. We are a highly reliable partner, and we make it easy for our customers to work with us. Our growth plan, whether it’s organic growth or through acquisitions, is to provide more of the bill of materials of interconnect products for telecom, wireless and industrial customer applications. Annual Report 2022RF Industries, Ltd. | www.rfindustries.com3 4 FORM 10-K Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For the fiscal year ended October 31, 2022 Commission File Number 0-13301 RF INDUSTRIES, LTD. 7610 Miramar Road, Bldg. 6000, San Diego, California 92126-4202 (858) 549-6340 The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $59.9 million. On January 2, 2023, the Registrant had 10,193,287 outstanding shares of Common Stock, $.01 par value. Forward-Looking Statements: Certain statements in this Annual Report on Form 10-K (this “Annual Report”), and other oral and written statements made by the Company from time to time are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including those that discuss strategies, goals, outlook or other non-historical matters, or projected revenues, income, returns or other financial measures. In some cases forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “except,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms or other comparable terminology. These forward-looking statements are subject to numerous risks and uncertainties that may cause actual results to differ materially from those contained in such statements. Among the most important of these risks and uncertainties are the ability of the Company to meet customer demand through pricing and product offerings and efficient inventory and distribution channel management, to continue to source our raw materials and products from our suppliers and manufacturers, particularly those in Asia, the market demand for our products, which market demand is dependent in large part on the state of the telecommunications industry and whether plans to develop 4G and 5G networks accelerate as expected, as well as our ability to meet any such demand, the effect of future business acquisitions and dispositions, the impairment charges, and competition. incurrence of Important factors which may cause actual results to differ materially from the forward-looking statements are described in the Section entitled “Risk Factors” in this Form 10-K, and other risks identified from time to time in the Company’s filings with the Securities and Exchange Commission. The Company assumes no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward- looking statements. PART I ITEM 1. BUSINESS General RF Industries, Ltd. (together with subsidiaries, the “Company”, “we”, “us”, or “our”) is a national manufacturer and marketer of interconnect products and systems, including high-performance components such as RF connectors and adapters, dividers, directional couplers and filters, coaxial cables, data cables, wire harnesses, fiber optic cables, custom cabling, energy-efficient cooling systems and integrated small cell enclosures. Through our manufacturing and production facilities, we provide a wide selection of interconnect products and solutions primarily to telecommunications carriers and equipment manufacturers, wireless and network infrastructure carriers and manufacturers and to various original equipment manufacturers (“OEMs”) in several market segments. We also design, engineer, manufacture and sell energy-efficient cooling systems and integrated small cell solutions and related components. We operate through two reporting segments: (i) the RF Connector and Cable Assembly (“RF Connector”) segment, and (ii) the Custom Cabling Manufacturing and Assembly (“Custom Cabling”) segment. The RF Connector segment primarily designs, manufactures, markets and distributes a broad range of RF connector, adapter, coupler, divider, and cable products, including coaxial passives and cable assemblies that are used in telecommunications and information technology, OEM markets and other end markets. The Custom Cabling segment designs, manufactures, markets and distributes custom copper and fiber cable assemblies, complex hybrid fiber optic and power solution cables, electromechanical wiring harnesses, wiring harnesses for a broad range of applications in a diverse set of end markets, energy-efficient cooling systems for wireless base stations and remote equipment shelters and custom designed, pole-ready 5G small cell integrated enclosures. Recent Events On March 1, 2022, we purchased 100% of the issued and outstanding membership interests of Microlab/FXR LLC, a New Jersey limited liability company (“Microlab”) from Wireless Telecom Group, Inc, a New Jersey corporation (the “Seller”) pursuant to the Membership Interest Purchase Agreement (the “Purchase Agreement”) dated December 16, 2021. The consideration for the acquisition was $24,250,000, subject to certain post-closing adjustments as set forth in the Purchase Agreement. The purchase price was paid in cash at the closing. The Company funded $17 million of the cash purchase price from the funds obtained under a $17 million term loan (the “Term Loan”) with Bank of America, N.A. and paid the remaining amount of the cash purchase price with cash on hand. The Term Loan was issued as part of a loan agreement with Bank of America, N.A. which also provided the Company with a $3 million revolving credit facility (the “Revolving Credit Facility” and together with the Term Loan, the “Credit Facility”). The primary interest rate for the Revolving Credit Facility is based on the Bloomberg Short-Term Bank Yield Index Rate plus a margin of 2.00%. The maturity date of the Revolving Credit Facility is March 1, 2024. The Term Loan may be drawn in one disbursement, at the election of the Company. As described above, we drew down the entire amount of the Term Loan on March 1, 2022. The primary interest rate for Term Loan is 3.76% per annum. The maturity date of the Term Loan is March 1, 2027. Borrowings under the Revolving Credit Facility are available for general working capital purposes and Borrowings under the Term Loan are available for the acquisition of Microlab. See, “Item 1. Business—Acquisition of Microlab/FXR LLC,” below. Microlab designs and manufactures a wide selection of RF components and integrated subsystems for signal conditioning and distribution in the wireless infrastructure markets as well as for use in medical devices. Microlab products are used in small cell deployments, distributed antenna systems, in-building wireless solutions and cellular base-stations. Microlab’s portfolio includes RF components for ultra-wideband frequency ranges deployed in commercial wireless networks utilizing mid-band spectrum allocations for 5G mobile broadband. We believe Microlab components possess unique capabilities in the area of broadband frequency coverage, minimal loss and low passive intermodulation (“PIM”). Microlab’s high performance components – such as power combiners, directional couplers, attenuators, terminators and filters – are used in broadband applications to support commercial in-building wireless networks, public safety networks, rail and transportation deployments, and global positioning system (“GPS”) signal distribution. Microlab also produces and sells various other products, including a portfolio of GPS digital repeaters and splitters for cellular timing synchronization as well as a passive systems monitor for real-time diagnostics of an in-building distributed antenna system (“DAS”). We have operated the Microlab business at Seller’s facilities in Hanover Township, Parsippany, New Jersey, pursuant to a sublease since closing of the acquisition. On October 19, 2022, we entered into two lease agreements for contiguous office and production space in Parsippany, New Jersey and will move the Microlab operations upon completion of certain improvements negotiated under the lease agreements. We expect Microlab to occupy this space on or around our second quarter of fiscal year 2023. The Microlab acquisition is in line with our previously announced strategy for driving revenue growth both organically and through the acquisition of companies that offer access to new products that can be sold to a growing customer base, including through an extensive distribution channel. Microlab’s products are known worldwide for their superior quality and performance and are considered the gold standard in RF and microwave distribution systems. We believe that there are significant growth opportunities in the small cell and DAS markets, and that Microlab’s products will provide the Company with additional scale and opportunity for further revenue growth. Strategy Our overall strategy is to provide our customers with a broad selection of products, rapid and high-quality service, and custom design capabilities, all at competitive prices. Specifically, our strategy is the following: Provide rapid and flexible design and manufacturing services. Over the past few years we have focused our organization on providing a standardized portfolio, allowing for quick-turn readily available products, while having the capabilities, flexible design and manufacturing services to customize our offering to address customer specific requirements or applications. Competitive pricing. Our manufacturing and distribution arrangements have been designed to lower costs and enable us to offer prices on both our standard and custom manufactured products that are competitive with the marketplace, all while keeping quality as a priority. Annual Report 2022RF Industries, Ltd. | www.rfindustries.com5 6 Leverage our manufacturing and distribution capabilities and facilities. Our strategy is to operate our manufacturing and distribution locations to best provide our customers with a competitively priced, high-quality product offering delivered with a fast turnaround time. As part of this strategy, we utilize a “one- company” approach to production and distribution locations and allocate our resources based on each location’s production specialization capabilities, its proximity to the shipment destination, and on other factors. Using this “one-company” approach, our goal is to leverage available capacity and shorten delivery times, while potentially providing lower shipping costs. We operate manufacturing and distribution locations in California, and in the Northeastern United States. Integrate marketing and selling efforts. Our strategy is to integrate and cross-sell our various historical and acquired product lines. We have been integrating our marketing and sales efforts, thereby expanding the number and type of products we can offer to our existing client base, while also using this cross-sell approach to win new customers. Broad range of immediately available products. Our strategy is to provide a high level of availability where we stock a large selection of standard products that are available for immediate delivery, including availability from multiple distributors. Additionally, we augment this “on-the-shelf” availability of several cable assembly and interconnect products with fast-turn production and assembly providing better lead times for our customers. Targeted focus of product lines. Our strategy is to focus on passive products rather than manufacturing and selling operating or active components or products. Our product line focus remains on supporting and leveraging our distribution channels with our core passive interconnect and cable assemblies offering, while in parallel we continue to expand our portfolio of integrated solutions to address key end customer and market applications. Increase long-term relationships with customers. Our goal is to establish long-term relationships with the customers who have used us for specialized projects by having our solutions built into the customer’s product specifications and bills of materials. As we remain focused on maintaining and expanding our national distributor relationships through our dedicated sales and account management teams, we have invested in targeted business development efforts to assist in getting more closely aligned with the requirements of strategic end customers. Grow through strategic and targeted acquisitions. We will continue to consider strategic acquisitions of companies or technologies that can increase our customer penetration and/ or diversify our customer base, supplement our management team, expand our product offerings, and/or expand our footprint in relevant market segments. Operations We currently conduct operations through our six divisions with our product areas divided into two reporting segments. RF Connector and Cable Assembly Segment. Our RF Connector and Cable Assembly segment (“RF Connector segment”) consists of the RF Connector and Cable Assembly division (“RF Connector division”) that is based at our headquarters in San Diego, California and recently expanded in New Jersey through our acquisition of Microlab. The RF Connector division is engaged in the design, manufacture and distribution of coaxial connector solutions for companies that design, build, operate, maintain and use a variety of connectivity/communication applications. Coaxial connector products consist primarily of connectors which, when attached to a coaxial cable, facilitate the transmission of analog and digital signals in various frequencies. Although most of the connectors are designed to fit standard cable products, the RF Connector division also sells custom connectors specifically designed and manufactured to suit its customers’ requirements. The Microlab division is included in the RF Connector segment. Microlab was acquired in March 2022, and is based in Parsippany, New Jersey. Microlab designs and manufactures high-performance RF and Microwave products enabling signal distribution and deployment of in-building DAS (distributed antenna systems), wireless base stations and small cell networks. Manufacturing operations are performed at Microlab’s facilities in New Jersey. The RF Connector division typically carries over 1,500 different types of connectors, adapters, tools, and test and measurements kits. This division’s RF connectors are used in thousands of different devices, products and types of equipment. Since the RF Connector division’s standard connectors can be used in a number of different products and devices, the discontinuation of one product typically does not make our connectors obsolete. Accordingly, most connectors that we carry can be marketed for a number of years. Furthermore, because our connector products are not dependent on any single line of products or any market segment, our overall sales of connectors tend to fluctuate less when there are material changes or disruption to a single product line or market segment. Cable assembly products manufactured and sold by the RF Connector division consist of various types of coaxial cables that are attached to connectors (usually our connectors) for use in a variety of communications applications. Cable assemblies manufactured for the RF Connector division are primarily manufactured at our San Diego, California facilities using state-of-the-art automation equipment and are sold through distributors or directly to major OEM accounts. Our cable assembly portfolio consists of both standard and custom cable assemblies designed for specific customer requirements. We offer a line of cable assemblies with over 100,000 cable product combinations. We design our connectors at our headquarters in San Diego, California, and Microlab designs and manufactures a wide selection of RF components and integrated subsystems for signal conditioning and distribution in the wireless infrastructure markets as well as for use in medical devices. However, most of the RF connectors are manufactured for us by third-party foreign manufacturers located in Asia. Custom Cabling Manufacturing and Assembly Segment. The Custom Cabling segment currently consists of four wholly- owned subsidiaries – three located in the Northeastern United States and one located in Southern California. Our plan is to integrate certain aspects of the manufacturing, sales and marketing functions of these divisions so as to better address overlapping market opportunities and to more efficiently manufacture, market, and ship products to our customers. The four divisions that comprise the current Custom Cabling segment consist of the following: Cables Unlimited, Inc. Cables Unlimited, Inc. (“Cables Unlimited”) is a custom cable manufacturer located in Yaphank, New York, that we acquired in 2011. Cables Unlimited is a Corning Cable Systems CAH ConnectionsSM Gold Program member, authorized to manufacture fiber optic products that are backed by Corning Cable Systems’ extended warranty. Cables Unlimited designs, develops and manufactures custom connectivity solutions for the industrial, defense, telecommunications and wireless markets. The products sold by Cables Unlimited include custom and standard copper and fiber optic cable assemblies, adapters and electromechanical wiring harnesses for communications, computer, LAN, automotive fiber optic and medical equipment. Rel-Tech Electronics, Inc. Rel-Tech Electronics, Inc. (“Rel-Tech”) was acquired in June 2015. Rel-Tech’s offices and manufacturing facilities are located in Milford, Connecticut. Rel-Tech is a designer and manufacturer of cable assemblies and wiring harnesses for blue chip industrial, oilfield, instrumentation, medical and military customers. Wire and cable assembly products include custom wire harnesses, ribbon cable, electromechanical and kitted assemblies, and networking and communications cabling. C Enterprises, Inc. C Enterprises, Inc. (“C Enterprises”) is a fiber optic and copper cable manufacturer located in Vista, California. This subsidiary acquired the business and assets of C Enterprises, L.P. on March 15, 2019. C Enterprises is a Corning Cable Systems CAH ConnectionsSM Gold Program member, authorized to manufacture fiber optic products that are backed by Corning Cable Systems’ extended warranty. C Enterprises designs, develops and manufactures connectivity solutions to telecommunications and data communications distributors. Schroff Technologies International, Inc. Schroff Technologies International, Inc. (“Schrofftech”) was acquired in November 2019. Schrofftech is a Rhode Island based manufacturer and marketer of intelligent thermal cooling control systems, along with pole-ready wireless small cell shrouds and enclosures, custom designed for plug-and-play installation. These products are typically used by telecommunications companies across the U.S. and Canada. Impact of COVID-19 Pandemic In March 2020, the World Health Organization (the “WHO”) declared coronavirus (“COVID-19”) a pandemic emergency. The COVID-19 pandemic has negatively impacted regional and global economies, disrupted global supply chains, and created significant volatility and disruption of financial markets. The global impact of the outbreak has been rapidly evolving and certain jurisdictions, including those where we or third parties on which we rely have manufacturing facilities, have also reacted by instituting quarantines, restrictions on travel, social distancing protocols and restrictions on types of business that may continue to operate. While we have continued our operations during the pandemic, the impact of the COVID-19 pandemic has affected both our operations and those of our customers. Our operations in fiscal 2021 and 2022 were negatively affected by partial shutdowns of our facilities (particularly in the Northeast United States), by changes that we had to make to our operating methods and procedures, and by a fluctuating workforce as at times, some of our employees stayed at home. Many of our customers and vendors have likewise had temporary closures of their facilities and have otherwise been impacted by changes in their industries. Further, recently, our third-party contract manufacturers have been subject to various supply chain disruptions. These supply chain disruptions have slowed the delivery of products to us. As a result, there has been some volatility in the overall demand for our products, and certain costs have increased. We have taken measures to protect the health and safety of our employees, and we continue to work with our customers and vendors to minimize potential disruptions in addressing the challenges posed by this global pandemic. Our third-party contract manufacturers are based in Asia. Recently, our third-party contract manufacturers have been subject to various supply chain disruptions. These supply chain disruptions have slowed the delivery of products to us, and have increased the price of certain materials due to the significant increase in costs of raw materials and shipping costs. Our ability to produce and timely deliver our products may be materially impacted in the future if these supply chain disruptions continue and worsen. In addition, because of the rising cost, we may be forced to increase the price of our products to our customers, or we may have to reduce our gross margins on the products that we sell. Because some of our custom manufacturing contracts call for deliveries over a longer period of time, cost increases during the term of these agreements at times cannot be passed through to our customers and therefore will have to be borne by us. including the duration and spread of The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, the pandemic and related actions taken by domestic and international jurisdictions to prevent disease spread, all of which are uncertain and cannot be predicted. While the majority of the outbreak impacted our performance for the years ended October 31, 2021 and October 31, 2022, during the periods covered by this report, we generally saw a recovery to a more normal environment though the operations at all locations were affected intermittently as some of our employee schedules were impacted, and as certain macro-economic conditions persisted. Because of the impact that COVID-19 had on our operations, in May 2020 we applied for and received loans under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act, H.R. 748 (“CARES Act”) totaling approximately $2.8 million (“PPP Loans”). All of our PPP Loans have been forgiven and are considered paid in full (including applicable interest). Product Description We produce a large variety of interconnect products and assemblies that are used in telecommunications and a range of other industries. The products that we offer and sell consist of the following: Connector and Cable Products We design, manufacture and market a broad range of coaxial connectors, adapters and cable assemblies fornumerous applications in commercial, industrial, automotive, transportation, scientific, aerospace and military markets. There are numerous applications for these connectors, some of which include digital applications, 2.5G, 3G, 4G, 5G, LTE, Wi- Fi and other broadband wireless infrastructure, GPS, mobile radio products, aircraft, video surveillance systems, cable assemblies and test equipment. Users of our connectors include telecommunications companies, circuit board manufacturers, OEMs, consumer electronics manufacturers, audio and video product manufacturers and installers, and satellite companies. We market over 1,500 types of connectors, adapters, tools, assembly, test and measurement kits, which range in price from under $1 to over $1,000 per unit. The kits satisfy a variety of applications including, but not limited to, lab operations, site requirements and adapter needs. Annual Report 2022RF Industries, Ltd. | www.rfindustries.com7 8 We also design and sell a variety of connector tools and hand tools that are assembled into kits used by lab and field technicians, research and development technicians and engineers. These tools are manufactured for us by outside contractors. Tool products are carried as an accommodation to our customers and have not materially contributed to our revenues. We market and manufacture cable assemblies in a variety of sizes and combinations of RF coaxial connectors and coaxial cabling. Cabling is purchased from a variety of major unaffiliated suppliers and is assembled predominately with our connectors as complete cable assemblies. Coaxial cable assemblies have numerous applications including low PIM, Wi-Fi and wireless local area networks, wide area networks, internet systems, cellular systems including 2.5G, 3G, 4G, 5G, LTE, DAS and Small Cell installations, TV/dish network systems, test equipment, military/ aerospace (mil-standard and COTS (Commercial Off–The-Shelf)) and entertainment systems. Cable assemblies are manufactured to customer requirements. We carry thousands of separate types of connectors, most of which are available in standard sizes and configurations and that are also offered by other companies. However, we also have some proprietary products, including the CompPro product line, OptiFlex cables, and the Schrofftech telecom shelter cooling and control system products. CompPro is a patented compression technology that offers advantages for a water-tight, ruggedized connection, providing easier installation, and improved system reliability on braided cables. CompPro is used by wireless network operators, installers and distributors in North America and other parts of the world. OptiFlex is a hybrid fiber optic and DC power cabling solution that we designed and manufactured, and the Schrofftech products are energy efficient cooling/temperature control and filtration systems for use in telecom shelters, outdoor enclosures and battery/power rooms. Passive RF Products We design and manufacture high-performance RF and microwave high-performance components such as dividers, directional couplers and filters enabling signal distribution and deployment of in-building DAS (distributed antenna systems), wireless base stations and small cell networks. Fiber Optic Products Cables Unlimited is a Corning Cable Systems CAH ConnectionsSM Gold Program member that is authorized to manufacture fiber optic products that are backed by Corning Cable Systems’ extended warranty. Through our Cables Unlimited division, we offer a broad range of interconnect products and systems that have the ability to combine radio frequency and fiber optic interconnect components, with various connectors and power cables through customized solutions for these customers. Cables Unlimited also manufactures OptiFlex, a custom designed hybrid fiber optic and DC power cabling solution manufactured for wireless service providers engaged in upgrading their cell towers. The custom hybrid cable is significantly lighter and possesses greater flexibility than cables previously used for wireless service. C Enterprises is a Corning Cable Systems CAH ConnectionsSM Gold Program member, authorized to manufacture fiber optic products that are backed by Corning Cable Systems’ extended warranty. C Enterprises designs, develops and manufactures connectivity telecommunications and data communications solutions distributors. to Other Cabling Products We design, manufacture, and sell cable assemblies and wiring harnesses for industrial, oilfield, instrumentation, medical, and military customers. Wire and cable assembly products include custom wire harnesses, ribbon cable, electromechanical and kitted assemblies, networking and communications cabling. DIN and Mini DIN connector assemblies include power cord, coaxial, Mil-spec and testing. Telecommunications Thermal Control Systems and Shrouds We engineer, design, manufacture and sell intelligent thermal control systems for outdoor telecommunications equipment. The thermal control systems, which can be controlled offsite using networked software at the telecommunication company’s own data center, maintain the interior temperature of telecommunications and other networking equipment. We also design and sell integrated shrouds and enclosures for small cell deployments that reduce installation time and improve aesthetics by eliminating the exterior cabling used with current configurations. Foreign Sales Net sales to foreign customers accounted for $10,335,000 (or approximately 12%) of our net sales, and $2,464,000 (or approximately 4%) of our net sales for the fiscal years ended October 31, 2022 and 2021, respectively. The majority of the export sales during these periods were to Canada. We do not own, or directly operate any manufacturing operations or sales offices in foreign countries. Distribution and Marketing We currently sell our products through independent warehousing distributors and through our in-house marketing and sales team. Sales through independent distributors accounted for approximately 38% of our net sales for the fiscal year ended October 31, 2022. Our agreements with most of the distributors are nonexclusive and generally may be terminated by either party upon 30-60 days’ written notice. The Company directly sells certain of its products to large, national telecommunication equipment and solution providers who include the Company’s products in their own product offerings. Manufacturing We contract with outside third parties for the manufacture of a significant portion of our coaxial connectors. However, virtually all of the RF cable assemblies sold during the fiscal year ended October 31, 2022 were assembled at the International Organization for Standardization (“ISO”) approved factories in San Diego, California and Parsippany, New Jersey. We procure our raw cable from manufacturers with ISO approved factories in the United States, China, and Taiwan. The Company primarily relies on several third-party partners for the manufacture of its coaxial connectors, tools and other passive components and receives bulk cable from multiple manufacturing plants. Although we do not have manufacturing contracts with these manufacturers for our connectors and cable products, we do have long-term purchasing relationships. There are certain risks associated with our dependence on third-party manufacturers for some of our products. See “Risk Factors” below. We have in-house design engineers who create the engineering drawings for fabrication and assembly of connectors and cable assemblies. Accordingly, the third-party manufacturers are not primarily responsible for design work related to the manufacture of our connectors and cable assemblies. Although our current facilities are set up to manufacture certain lines of products, manufacturing of certain products is often shifted to other facilities to alleviate capacity limitations or to address a customer’s product manufacturing schedule requirements. We manufacture custom cable assemblies, adapters and electromechanical wiring harnesses and other products through Cables Unlimited at its Yaphank, New York manufacturing facility. The Yaphank facility is an ISO approved factory. Cables Unlimited is a Corning Cable Systems CAH Connections SM Gold Program member, authorized to manufacture fiber optic products and assemblies that are backed by Corning Cable Systems’ extended warranty. The Milford, Connecticut facility of Rel-Tech is an ISO approved manufacturing facility that is primarily used to manufacture cable assemblies, electromechanical assemblies, wiring harnesses and other similar products. The Vista, California facility operated by C Enterprises is an ISO approved manufacturing facility that is primarily used to manufacture fiber optic and copper cable assemblies that are backed by Corning Cable Systems’ extended warranty. The products sold by Schrofftech are designed and manufactured at its ISO approved manufacturing facility in North Kingstown, Rhode Island. Schrofftech’s products are manufactured and tested in accordance with the ETL Listing standards. Microlab designs and manufactures a wide selection of RF components and integrated subsystems in our design and manufacturing facility in Parsippany, New Jersey. We are currently subleasing space and are in the process of building out new space, also in Parsippany, New Jersey. Raw Materials Connector materials are typically made of commodity metals such as copper, brass and zinc and include small applications of precious materials, including silver and gold. The RF Connector division purchases most of its connector products from contract manufacturers located in Asia and the United States. We believe that the raw materials used in our products are readily available and that we are not currently dependent on any supplier for our raw materials. We do not currently have any long-term purchase or supply agreements with our connector suppliers. The Custom Cabling divisions obtain coaxial connectors from the RF Connector division. We believe there are numerous domestic and international suppliers of other coaxial connectors that we may utilize for any of our cabling products. The Cables Unlimited, Rel-Tech, C Enterprises, and Schrofftech divisions purchase largely all of the raw materials used in their products from sources located in the United States. Fiber optic cables are available from various manufacturers located throughout the United States, however, Cables Unlimited purchases most of its fiber optic cables from Corning Cables Systems LLC. The Company believes that the raw materials used by Cables Unlimited in its products are readily available and that Cables Unlimited is not currently dependent on any supplier for its raw materials except where Corning Extended Warranty certification is required. Neither Cables Unlimited nor Rel-Tech Electronics currently have any long- term purchase or supply agreements with their connector and cable suppliers. Backlog As of October 31, 2022, our estimated backlog of unfilled firm orders was approximately $27.8 million compared with backlog of approximately $33.3 million as of October 31, 2021. Orders typically fluctuate from quarter to quarter based on customer demand, general business conditions and, in particular, for project- based orders from wireless carrier customers for custom cable assemblies at our Cables Unlimited division. Since purchase orders are submitted from customers based on the estimated timing of their requirements, our ability to predict orders in future periods or trends in future periods is limited. Furthermore, purchase orders may be subject to shipment delays and to cancellation from customers, although we have not historically experienced material cancellations of purchase orders. It is expected that a substantial portion of the backlog will be filled within the next 12 months. Most of the orders that we receive, particularly in the RF Connector and Cable Assembly segment, generally have short lead times. Therefore, backlog may not be indicative of future demand. Acquisition of Microlab/FXR LLC On December 16, 2021, the Company entered into the Purchase Agreement with Seller (Wireless Telecom Group, Inc.), and its wholly-owned subsidiary Microlab, pursuant to which we purchased 100% of the issued and outstanding membership interests of Microlab from the Seller on March 1, 2022. The consideration for the acquisition was $24,250,000, subject to certain post-closing adjustments as set forth in the Purchase Agreement. The purchase price was paid in cash at the closing. We funded most of the cash purchase price from the funds obtained under the $17 million “Term Loan” with Bank of America, N.A. and paid the remaining amount of the cash purchase price with $7.3 million of cash on hand. The Term Loan was issued as part of a loan agreement with Bank of America, N.A. which also provided the Company with the $3 million “Revolving Credit Facility”. Microlab is a New Jersey based company that designs and manufactures high-performance RF and microwave products such as dividers, directional couplers and filters enabling signal distribution and deployment of in- building DAS (distributed antenna systems), wireless base stations and small cell networks. We obtained representation and warranty insurance to cover any breach of Seller’s representations. Seller also agreed not to, directly or indirectly, (i) engage in any activities that compete with Microlab’s business and (ii) hire or solicit any employee, independent contractor, or consultant of Microlab’s business for a period of five years from the closing date, subject to certain carve-outs. Human Capital As of October 31, 2022, we employed 344 full-time employees, of whom 76 were in accounting, administration, sales and management, 255 were in manufacturing, distribution and assembly, and 13 were engineers engaged in design, engineering and research and development. The employees were based at our facilities in San Diego, California (94 employees), Yaphank, New York (65 employees), Milford, Connecticut (52 employees), Vista, California (73 employees), Parsippany, New Jersey (45 employees), and North Kingstown, Rhode Island (15 employees). We also occasionally hire part-time employees. We believe that we have a good relationship with our employees. Patents, Trademarks and Licenses We own ten U.S. patents related to the CompPro Product Line that we acquired in May 2015. The CompPro Product Line utilizes Annual Report 2022RF Industries, Ltd. | www.rfindustries.com9 10 a patented compression technology that offers revolutionary advantages for a water-tight connection, easier installation, and improved system reliability on braided cables. The CompPro Product Line is used by wireless network operators, installers and distributors in North America and other parts of the world. can be no assurance that we will be able to compete successfully against existing or new competition, and the inability to do so may result in price reductions, reduced margins, or loss of market share, any of which could have an adverse effect on our business, financial condition and results of operations. Our Schrofftech subsidiary owns eight issued patents on its proprietary telecom shelter cooling and control system technology and its equipment room ventilation controls. Schrofftech has also filed one pending patent application related to ventilation and control equipment and controls. The trademarks we own include the “CompPro” registered trademark associated with the compression cable product line and the “OptiFlexTM” as a trademark for its hybrid cable wireless tower cable solution. Each of our subsidiaries also use various trademarks (and associated logos and trade names) in their operations, although none of these trademarks have been registered. Because the RF Connectors division carries thousands of separate types of connectors and other products, most of which are available in standard sizes and configurations and are also offered by our competitors, we do not believe that our cables and connector business or competitive position is dependent on patent protection. Under agreements with Corning Cables Systems LLC, Cables Unlimited and C Enterprises are permitted to advertise that they are Corning Cables System CAH ConnectionsSM Gold Program members. With the recent acquisition of Microlab, two additional relevant patents have been added to our portfolio regarding GPS signal repeaters as well as RF broadband non directional tap couplers. Additional filings are also pending for RF system monitoring and GPS systems. Warranties and Terms We warrant our products to be free from defects in material and workmanship for varying warranty periods, depending upon the product. Products are generally warranted to the dealer for one year, with the dealer responsible for any additional warranty it may make. The RF Connector products are warranted for the useful life of the connectors. Although we have not experienced any significant warranty claims to date, there can be no assurance that we will not be subjected to such claims in the future. We usually sell to customers on 30-day terms pursuant to invoices and do not generally grant extended payment terms. Sales to most foreign customers are made on cash terms at time of shipment. Generally, customers may delay, cancel, reduce, or return products after shipment subject to a restocking charge. Under their agreements with Corning Cables Systems LLC, Cables Unlimited and C Enterprises are authorized to manufacture optic cable assemblies that are backed by Corning Cables Systems’ extended warranty (referred to as the “Gold Certified Warranty”). Competition The industries in which we operate are highly competitive, and we compete with thousands of companies that range from large multinational corporations, most of which have greater assets and financial resources, to local manufacturers. Competition is generally based on breadth of product offering, product innovation, price, quality, delivery, performance and customer service. In addition, rapid technological changes occurring in the communications industry could also lead to the entry of new competitors of all sizes against whom we may not be able to successfully compete. There Government Regulations Our products are designed to meet all known existing or proposed governmental regulations. We believe that we currently meet existing standards for approvals by government regulatory agencies for our principal products. Our products are Restriction on Hazardous Substances (“RoHS”) compliant. Environmental Regulations We are subject to various laws and governmental regulations concerning environmental matters and employee safety and health matters in the United States. Compliance with these federal, state, and local laws and regulations related to protection of the environment and employee safety and health has had no material effect on our business. There were no material capital expenditures for environmental projects in fiscal year 2022, and there are no material expenditures planned for such purposes in fiscal year 2023. ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable. ITEM 2. DESCRIPTION OF PROPERTY We currently lease our corporate headquarters and RF connector and cable assembly manufacturing facilities in San Diego, California. At that location, we lease three buildings, with a total of approximately 21,908 square feet of office, warehouse and manufacturing space, that house our corporate administration, sales and marketing, and engineering departments. The buildings are also used for production and warehousing by our RF Connector segment. We recently entered into two lease agreements for adjacent office and commercial lab space in Parsippany, New Jersey, which will be used for the Microlab operations. Additionally, we lease spaces in four other locations in the United States that house the administration offices and manufacturing facilities for our Custom Cabling segment. The table below shows a summary of the square footage of these locations as of October 31, 2022: Lease Location Milford, CT North Kingstown, RI Parsippany, NJ Vista, CA Yaphank, NY Square Footage 13,750 10,700 23,300 24,014 24,500 ITEM 3. LEGAL PROCEEDINGS From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. As of the date of this report, we are not subject to any proceeding that is not in the ordinary course of business or that is material to the financial condition of our business. ITEM 4. MINE SAFETY DISCLOSURES None. PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information. RF Industries, Ltd.’s common stock is listed on The Nasdaq Global Market and is traded under the “RFIL” trading symbol. Stockholders. As of October 31, 2022, there were 260 holders of our common stock according to the records of our transfer agent, Continental Stock Transfer & Trust Company, New York, New York, not including holders who hold their stock in “street name.” Repurchase of Securities. The following table sets forth information regarding the shares of common stock cancelled, and deemed to have been repurchased during the three months ended October 31, 2022 in connection with employee tax withholding for shares of restricted stock that vested under our 2020 Equity Incentive Plan. Recent Sales of Unregistered Securities. There were no previously unreported sales of equity securities by us that were not registered under the Securities Act during fiscal 2022. Dividend Policy. Due to the current economic uncertainty, the COVID-19 pandemic, and other financial considerations, our Board terminated dividend payments. No assurance can be given if, or when the Board will resume dividend payments. The declaration and amount of any actual cash dividend are in the sole discretion of the Board of Directors and are subject to numerous factors that ordinarily affect dividend policy, including the results of our operations and financial position, as well as general economic and business conditions. Accordingly, if and when any dividends will be declared in the future will be determined by our Board based on the Company’s future operations and on the Board’s decision regarding the use of any future earnings. EQUITY COMPENSATION PLAN INFORMATION The following table provides information as of October 31, 2022 with respect to the shares of Company common stock that may be issued under the Company’s existing equity compensation plans: (1) The RF Industries, Ltd. 2010 Stock Incentive Plan expired on March 8, 2020. Accordingly, additional equity incentive awards cannot be granted under this plan. 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 The consolidated financial statements and related disclosures have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these consolidated financial statements requires 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. Revenue Recognition Revenue is recorded in an amount that reflects the consideration to which we expect to be entitled in exchange for goods or services promised to customers. In accordance with ASC (“Accounting Standards Codification”) 606, we follow a five-step model to: (1) identify the contract with our customer; (2) identify our performance obligations in our contract; (3) determine the transaction price for our contract; (4) allocate the transaction price to our performance obligations; and (5) recognize revenue when (or as) each performance Annual Report 2022RF Industries, Ltd. | www.rfindustries.com11 12 obligation is satisfied. In accordance with this accounting principle, we recognize revenue using the output method at a point in time when finished goods have been transferred to the customer and there are no other obligations to customers after the title of the goods have transferred. Title of goods are transferred based on shipping terms for each customer – for shipments with terms of FOB Shipping Point, title is transferred upon shipment; for shipments with terms of FOB Destination, title is transferred upon delivery. Inventories Inventories are stated at the lower of cost or net realizable value, with cost determined using the weighted average cost method of accounting. Certain items in inventory may be considered obsolete or excess and, as such, we periodically review our inventories for excess and slow moving items and makes provisions as necessary to properly reflect inventory value. Because inventories have, during the past couple years, represented up to one-fourth of our total assets, any reduction in the value of our inventories would require us to take write-offs that would affect our net worth and future earnings. Allowance for Doubtful Accounts We record our allowance for doubtful accounts based upon our assessment of various factors. We consider historical experience, the age of the accounts receivable balance, credit quality of our customers, current economic conditions and other factors that may affect a customer’s ability to pay. Long-Lived Assets Including Goodwill We assess property, plant and equipment and intangible assets, which are considered definite-lived assets, for impairment. Definite- lived assets are reviewed when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If property and equipment and intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value. We amortize our intangible assets with definite useful lives over their estimated useful lives and reviews these assets for impairment. We test our goodwill and trademarks and indefinite-lived assets for impairment at least annually or more frequently if events or changes in circumstances indicate these assets may be impaired. These events or circumstances require significant judgment and could include a significant change in the business climate, legal factors, operating performance indicators, competition and sale or disposition of all or a portion of a division. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital. Income Taxes We record a tax provision for the anticipated tax consequences of the reported results of operations. Income taxes are accounted for under the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates as of the date of the financial statements that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. We account for uncertain tax positions by determining if it is “more likely than not” that a tax position will be sustained by the appropriate taxing authorities upon examination based on the technical merits of the position. An uncertain income tax position is not recognized if it has less than a 50% likelihood of being sustained. We recognize interest and penalties related to certain uncertain tax positions as a component of income tax expense and the accrued interest and penalties are included in deferred and income taxes payable in our consolidated balance sheets. See Note 8 to the Consolidated Financial Statements included in this Report for more information on our accounting for uncertain tax positions. The calculation of the tax provision involves significant judgment in estimating the impact of uncertainties in the application of GAAP and complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on our financial condition and operating results. Stock-based Compensation We use the Black-Scholes model to value our stock option grants. This valuation is affected by our stock price as well as assumptions regarding a number of inputs which involve significant judgments and estimates. These inputs include the expected term of employee stock options, the expected volatility of the stock price, the risk-free interest rate and expected dividends. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS For recently issued accounting pronouncements that may affect us, see Note 1 of Notes to Consolidated Financial Statements. OVERVIEW During the periods covered by this Annual Report, we marketed a variety of connector products, including connectors and cables, standard and custom cable assemblies, wiring harnesses and fiber optic cable products to numerous industries for use in thousands of products. We aggregate our operating divisions into segments that have similar economic characteristics and are similar in the majority of the following areas: (1) the nature of the product and services; (2) the nature of the production process; (3) the type or class of customer for their products and services; (4) the methods used to distribute their products or services; and (5) if applicable, the nature of the regulatory environment. We have two reportable segments – the RF Connector and Cable Assembly (“RF Connector”) segment and the Custom Cabling Manufacturing and Assembly (“Custom Cabling”) segment – based upon this evaluation. The RF Connector segment was comprised of two divisions while the Custom Cabling segment was comprised of four divisions. The five divisions that met the quantitative thresholds for segment reporting in the fiscal year ended October 31, 2021 were the RF Connector and Cable Assembly division, Cables Unlimited, Rel-Tech, C Enterprises, and Schrofftech. Microlab, which the Company acquired in the current fiscal year ending October 31, 2022, is part of the RF Connector segment. Revenues generated from the Custom Cabling segment were from the sale of fiber optics cable, copper cabling, custom patch cord assemblies, and wiring harnesses, which collectively accounted for 63% of the Company’s total sales, and revenues from the RF Connector segment were generated from the sales of RF connector products and cable assemblies and accounted for 37% of total sales for fiscal 2022. The RF Connector segment mostly sells standardized products regularly used by customers and, therefore, has a more stable revenue stream when compared to the Custom Cabling segment. The Custom Cabling segment mostly designs, manufactures, and sells customized cabling and wireless-related equipment under larger project-based purchase orders. Accordingly, the Custom Cabling segment is more dependent upon larger project orders, and its revenues, therefore, may be more volatile than the revenues of the RF Connector segment. The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by domestic and international jurisdictions to prevent disease spread, all of which are uncertain and cannot be predicted. While the majority of the outbreak impacted our performance for the years ended October 31, 2021 and October 31, 2020, during the periods covered by this report, we generally saw a recovery to a more normal environment though the operations at all locations were affected intermittently as some of our employee schedules were impacted, and as certain macro-economic conditions persisted. Because of the impact that COVID-19 had on our operations, in May 2020 we applied for and received loans under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act, H.R. 748 (“CARES Act”) totaling approximately $2.8 million (“PPP Loans”). All of our PPP Loans have been forgiven and are considered paid in full (including applicable interest). In March 2021, the Internal Revenue Service (“IRS”) released Notice 2021-20, which retroactively eliminated the restriction that prevented employers who received a PPP loan from qualifying for the Employee Retention Credit (“ERC”), which is a refundable tax credit against certain employment taxes. Upon determination that the employer has complied with all of the conditions required to receive the credit, a receivable is recognized and the credit reduces salaries and wages. For the fiscal year ended October 31, 2021, we qualified and filed to claim the ERC and have recorded the credit as a receivable in Other Current Assets. As of October 31, 2022, we carried a $1.6 million the ERC receivable in Other Current Assets. In January 2023, we received a refund of $1.2 million related to the ERC. Financial Condition The following table presents certain key measures of financial condition as of October 31, 2022 and 2021 (in thousands, except percentages): Liquidity and Capital Resources Historically, we have been able to fund our liquidity and other capital requirements from funds we generated from operations. On March 1, 2022, we acquired Microlab. The acquisition of Microlab has affected both our liquidity and our capital resources. In order to acquire Microlab, we used $7.3 million of our cash on hand to pay a portion of the purchase price, thereby reducing the amount available for future acquisitions, for investments in the expansion of our existing businesses and assets, or as a reserve for unanticipated financial requirements. In connection with the purchase of Microlab, we entered into the Credit Facility and borrowed the full $17 million amount available under the Term Loan. We believe that our remaining and existing assets and the cash we expect to generate from operations and from our current backlog of unfulfilled orders, will be sufficient to fund our liquidity needs during the next twelve months from the date of this filing based on the following: As of October 31, 2022, we had a total of $4.5 million of cash and cash equivalents compared to a total of $13.1 million of cash and cash equivalents as of October 31, 2021. As of October 31, 2022, we had working capital of $26.7 million and a current ratio of approximately 2.4:1 with current assets of $46.2 million and current liabilities of $19.5 million. As of October 31, 2022, our backlog was $27.8 million compared to a backlog of $33.3 million as of October 31, 2021. Since purchase orders are submitted from customers based on the timing of their requirements, our ability to predict orders in future periods or trends in future periods is limited. Furthermore, purchase orders may be subject to shipment delays and to cancellation from customers, although we have not historically experienced material cancellations of purchase orders. As of October 31, 2022, we generated $2.9 million of cash in our operating activities. This net inflow of cash is primarily related to our net income of $1.4 million, $1.7 million from depreciation and amortization and increased accrued expenses of $3.1 million, increases in right of use asset of $3.4 million, and increased trade accounts receivable of $1.5 million due to timing of collections. The foregoing cash provided was primarily offset by increased inventory purchases (which increased our inventory balance by $6.1 million), deferred income taxes of $1.4 million, other current assets of $2.9 million and accounts payable of $1.1 million. As of October 31, 2022, we also spent $2.7 million on capital expenditures, primarily related to lease hold improvements which were eligible for reimbursement (noted in other current assets), and $24.4 million on the purchase of Microlab offset by $17 million from the Term Loan as noted above which we have also paid $1.4 million down. The cash used in operating activities and the amounts spent on capital expenditures were partially offset by $0.1 million of proceeds that we received from the exercise of stock options. Annual Report 2022RF Industries, Ltd. | www.rfindustries.com13 14 RF INDUSTRIES, LTD. AND SUBSIDIARIES INDEX Report of Independent Registered Public Accounting Firm (PCAOB ID 596).................................................. 15 Consolidated Balance Sheets October 31, 2022 and 2021 .................................................................................................................................. 17-18 Consolidated Statements of Operations Years Ended October 31, 2022 and 2021 .............................................................................................................. 19 Consolidated Statements of Stockholders’ Equity Years Ended October 31, 2022 and 2021 ............................................................................................................. 20 Consolidated Statements of Cash Flows Years Ended October 31, 2022 and 2021 .............................................................................................................. 21 Notes to Consolidated Financial Statements ....................................................................................................22-33 Our goal to expand and grow our business both organically and through acquisitions may require material additional capital equipment. In the past, we have purchased all additional equipment, or financed some of our equipment and furnishings requirements through leases. Currently, no additional capital equipment purchases have been identified that would require significant additional leasing or capital expenditures during the next twelve months. We also believe that based on our current financial condition, our current backlog of unfulfilled orders and our anticipated future operations, we would be able to finance our expansion, if necessary. From time to time, we may undertake acquisitions of other companies or product lines in order to diversify our product and solutions offerings and customer base. Conversely, we may undertake the disposition of a division or product line due to changes in our business strategy or market conditions. Acquisitions may require the outlay of cash, which may reduce our liquidity and capital resources while dispositions may increase our cash position, liquidity and capital resources. Since our goal is to continue to expand our operations and accelerate our growth through future acquisitions, we may use some of our current capital resources to fund any acquisitions we may undertake in the future. Results of Operations The following summarizes the key components of our consolidated results of operations for the fiscal years ended October 31, 2022 and 2021 (in thousands, except percentages): Net sales for the year ended October 31, 2022 (“fiscal 2022”) increased by $27.8 million (or 48%) to $85.3 million, as compared to net sales of $57.4 million for the year ended October 31, 2021 (“fiscal 2021”). The increase was due to the RF Connector segment ($15.5 million or 99% increase from fiscal 2021), which includes Microlab which we acquired March 2022 (which contributed $14.4 million in sales). Net sales in the Custom Cabling segment increased by $12.3 million, or 29%, to $54.1 million compared to $41.8 million in fiscal 2021. The sales increase reflects the increase in project-based business that were primarily related to the sales of hybrid fiber cables used in the build out of 4G and 5G networks. Gross profit for fiscal 2022 increased by $6.8 million (excluding ERC from fiscal 2021, gross profit increased $9.4 million) to $24.5 million, and gross margins decreased to 28.8% of sales from 30.9% of sales in fiscal 2021 (excluding ERC from fiscal 2021, gross margin increased when compared to fiscal 2021, which was 26.4%). The improved gross margin and gross profit, which excluding the impact of ERC from fiscal 2021, was primarily a result of higher sales and a better product mix with the acquisition of Microlab. Engineering expenses increased $1.4 million to $2.9 million for fiscal 2022 compared to $1.5 million in fiscal 2021 (excluding ERC, engineering expense would have been $1.8 million). The primary reason for the increase is due to Microlab engineering expenses of $1.0 million. Engineering expenses represent costs incurred relating to the ongoing research and development of new products. Selling and general expenses increased by $7.6 million to $19.4 million (to 22.8% of sales) in fiscal 2022 compared to $11.9 million (20.7% of sales) in fiscal 2021 (excluding ERC, selling and general expenses would have been $12.4 million (21.6% of sales)). Microlab accounted for $3.3 million of the selling and general expenses and acquisition related expenses and other one-time charges (including attorney fees, due diligence, and broker fees) accounted for $1.5 million and additional rent expense of $529,000 (non-cash) related to lease accounting for fiscal 2022. Selling and general expenses also increased as a result of the increase in net sales during the current fiscal 2022. Other loss for fiscal 2022 is primarily interest expense of $0.4 million from the term loan and $0.2 million from foreign currency at time of collections. In February 2021, all of the $2.8 million of PPP Loans were forgiven and considered paid in full (including applicable interest), which debt forgiveness is reflected as “Other Income”. The provision for income taxes was $0.1 million for an effective tax rate of 8.8% for fiscal 2022 and $1.0 million for an effective tax rate of 14.4% for fiscal 2021. The change in effective tax rate for fiscal 2022 and 2021 was primarily driven by the disproportionate impact of various permanent book-tax differences with respect to our forecasted book income or loss in each period. For fiscal 2022, net income was $1.4 million and fully diluted earnings per share was $0.14 per share as compared to net income of $6.2 million and fully diluted earnings per share of $0.61 per share for fiscal 2021. For fiscal 2022, the diluted weighted average shares outstanding was 10,242,417 as compared to 10,154,239 for fiscal 2021. Inflation and Rising Costs The cost to manufacture the Company’s products is influenced by the cost of raw materials and labor. The Company has recently experienced higher costs as a result of the increasing cost of labor and the increasing cost of raw materials. The cost of raw materials is due in part to a shortage in the availability of certain products, the higher cost of shipping, and inflation. Labor costs have risen recently as a result of increases in the minimum wage laws and an increased demand for workers. The Company may, from time to time, try to offset these cost increases by increasing the prices of its products. However, because the prices of certain of the Company’s products, particularly those under longer-term manufacturing contracts for communications related products, are fixed until the goods are manufactured and delivered, implementing price increases frequently is often not feasible. Annual Report 2022RF Industries, Ltd. | www.rfindustries.com15 16 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of RF Industries, Ltd. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of RF Industries, Ltd. and Subsidiaries (the “Company”) as of October 31, 2022 and 2021, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended October 31, 2022, and the related consolidated notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended October 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Evaluation of Goodwill and Tradename with indefinite life arising from the acquisition of Schroff Technologies International, Inc. (“Schrofftech”) (Notes 1 to the Consolidated Financial Statements) Critical Audit Matter As disclosed in the consolidated financial statements, the Company has goodwill and indefinite lived intangible assets of $8.1 million and $1.17 million, respectively, as of October 31, 2022. Approximately 13.9% of goodwill and 44.1% of indefinite lived intangibles relate to the acquisition of Schrofftech. Goodwill is tested for impairment at least annually at the reporting unit level using either a qualitative or quantitative approach. Under the quantitative approach to test for goodwill impairment, the Company compares the fair value of a reporting unit to its carrying amount, including goodwill. Generally, the Company estimates the fair value of its reporting units using a combination of a discounted cash flows analysis and market-based valuation methodologies. Similarly, the indefinite lived intangible assets are not amortized but rather are tested by management for impairment at least annually using a relief from royalty model to estimate the fair value as compared to its carrying value. Significant judgment is exercised by the Company in estimating the fair value of the reporting units for goodwill and the fair value of indefinite lived intangible assets, specifically: • The fair value estimate of the Schrofftech reporting unit is sensitive to assumptions such as the discount rate, revenue growth rates, and the projected cash flow terminal growth rate. • The fair value estimates for Schrofftech indefinite lived intangible assets are sensitive to assumptions such as discount rates, revenue growth rates, royalty rates and projected cash flow terminal growth rates. These assumptions are affected by such factors as expected future market or economic conditions. Given these factors, auditing management’s quantitative impairment tests for goodwill and indefinite lived intangible assets was challenging, subjective, and complex and required a high degree of auditor judgment. How Our Audit Addressed the Critical Audit Matter • Our audit procedures related to the fair value of goodwill for the Schrofftech Reporting Unit and the Schrofftech indefinite lived intangible assets included the following, among others: • We gained an understanding of and evaluated the design and implementation of the Company’s controls that address the risk of material misstatement related to potential impairment; • We gained an understanding of the process to estimate future cashflows, including methods, data, and significant assumptions used, in developing the discounted cashflow analysis as well as tested the reasonableness of the underlying data used by the Company in its analyses; • We evaluated management’s significant accounting policies related to impairment of goodwill and indefinite lived intangible assets for reasonableness; • We evaluated significant judgments made by management, including the identification of reporting units along with a separate unit to capture the corporate overhead; • We evaluated management’s ability to estimate future cash flows, including projected revenues, by performing a retrospective review of select Company historical cash flow forecasts; • We evaluated management’s projected revenues and cash flows by comparing the projections to the underlying business strategies and growth plans and performed a sensitivity analysis related to the key inputs to projected cash flows, including revenue growth rates, to evaluate the changes in the fair value of the reporting unit that would result from changes in assumptions; and • With the assistance of our firm’s valuation professionals with specialized skills and knowledge in valuation methods and models, we tested the Company’s discounted cash flow models, including certain assumptions including the terminal value and discount rates. Acquisition of Microlab/FXR LLC (“Microlab”) (Notes 1 and 2 to the Consolidated Financial Statements) Critical Audit Matter As described in Note 2 to the financial statements, on March 1, 2022, the Company completed the acquisition of Microlab/FXR, LLC for a total acquisition price of $24.5 million. The Company accounted for the acquisitions as business combinations under Accounting Standards Codification 805, Business Combinations. Under this method, the Company allocated the fair value of purchase consideration transferred to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition, including customer relationships, tradenames, backlog and proprietary technology intangible assets. The fair values assigned are based on estimates and assumptions determined by management that were inherently uncertain. Certain assumptions are forward-looking and could be affected by future economic and market conditions. We identified the valuation of the customer relationships, tradenames, backlog and proprietary technology intangible assets as a critical audit matter because of the significant assumptions made by management to determine the fair value for purposes of the purchase price allocation. Those assumptions included revenue growth rates and EBITDA (together, the “forecasts”), as well as discount and customer attrition rates and estimates of the costs to continue to develop the technology. Given these factors, auditing management’s quantitative impairment tests for goodwill and indefinite lived intangible assets was challenging, subjective, and complex and required a high degree of auditor judgment. How Our Audit Addressed the Critical Audit Matter Our audit procedures related to the acquisition of Microlab included the following, among others: • We gained an understanding of and evaluated the design and implementation of the Company’s controls that address the risk of material misstatement related to the valuation of intangible assets acquired in a business combination, evaluating management’s significant accounting policies related to accounting for business combinations and valuation of intangible assets for reasonableness and obtaining documentation prepared by management to understand the Company’s accounting for the acquisition of Microlab. This included management’s review of the valuation models, the significant underlying assumptions used to develop estimates and the reasonableness of the data used in the valuations. • We tested the estimated fair value of the acquired customer relationships, tradenames, backlog and proprietary technology intangible assets. In order to do so, we evaluated (1) whether material intangible assets were properly identified, (2) the significant assumptions discussed above that were used in valuing these intangible assets and (3) the reasonableness of the underlying data used by the Company in its analyses. • We assessed the reasonableness of management’s forecasts of future cash flows by comparing the projections to historical results, and internal communications to management and board of directors. Professionals with valuation skill and knowledge were used to assist in the evaluation of the (1) valuation methodology and (2) the discount and customer attrition rates utilized, testing the mathematical accuracy of the calculation, and developing a range of independent estimates and comparing those to the rates selected by management. We also evaluated whether the estimated future cash flows were consistent with evidence obtained in other areas of the audit. /s/ CohnReznick LLP We are uncertain as to the year CohnReznick LLP became the Company’s auditor as 1995 is the earliest year of which we have knowledge. Tysons, Virginia January 24, 2022 Annual Report 2022RF Industries, Ltd. | www.rfindustries.com17 18 RF INDUSTRIES, LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS OCTOBER 31, 2022 AND 2021 (In thousands, except share and per share amounts) RF INDUSTRIES, LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS OCTOBER 31, 2022 AND 2021 (In thousands, except share and per share amounts) See Notes to Consolidated Financial Statements. Annual Report 2022RF Industries, Ltd. | www.rfindustries.com19 20 RF INDUSTRIES, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED OCTOBER 31, 2022 AND 2021 (In thousands, except share and per share amounts) RF INDUSTRIES, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY YEARS ENDED OCTOBER 31, 2022 AND 2021 (In thousands, except share amounts) See Notes to Consolidated Financial Statements. See Notes to Consolidated Financial Statements. Annual Report 2022RF Industries, Ltd. | www.rfindustries.com21 22 RF INDUSTRIES, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 2022 AND 2021 (In thousands) See Notes to Consolidated Financial Statements. RF INDUSTRIES, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 – Business activities and summary of significant accounting policies Business activities RF Industries, Ltd., together with its five wholly-owned subsidiaries (collectively, hereinafter the “Company”, ”we”, “us”, or “our”), primarily engages in the design, manufacture, and marketing of interconnect products and systems, including coaxial and specialty cables, fiber optic cables and connectors, and electrical and electronic specialty cables. For internal operating and reporting purposes, and for marketing purposes, as of the end of the fiscal year ended October 31, 2022, we classified our operations into the following five divisions/subsidiaries: (i) The RF Connector and Cable Assembly division designs, manufactures and distributes coaxial connectors and cable assemblies that are integrated with coaxial connectors; (ii) Cables Unlimited, Inc., the subsidiary that manufactures custom and standard cable assemblies, complex hybrid fiber optic power solution cables, adapters, and electromechanical wiring harnesses for communication, computer, LAN, automotive and medical equipment; (iii) Rel-Tech Electronics, Inc., the subsidiary that designs and manufacturers cable assemblies and wiring harnesses for blue chip industrial, oilfield, instrumentation and military customers; (iv) C Enterprises, Inc., the subsidiary that designs and manufactures quality connectivity solutions to telecommunications and data communications distributors; (v) Schroff Technologies International, Ltd., the subsidiary that manufactures and markets intelligent thermal control systems used by telecommunications companies across the U.S. and Canada, and shrouds for small cell integration and installation, and (vi) Microlab, the subsidiary that designs and manufactures high-performance RF and Microwave products enabling signal distribution and deployment of in-building DAS (distributed antenna systems), wireless base stations and small cell networks. The Cables Unlimited and C Enterprises divisions are Corning Cables Systems CAH ConnectionsSM Gold Program members that are authorized to manufacture fiber optic cable assemblies that are backed by Corning Cables Systems’ extended warranty. Use of estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results may differ from those estimates. Principles of consolidation The accompanying consolidated financial statements include the accounts of RF Industries, Ltd., Cables Unlimited, Inc. (“Cables Unlimited”), Rel-Tech Electronics, Inc. (“Rel-Tech”), C Enterprises, Inc. (“C Enterprises”), Schroff Technologies International, Ltd. (“Schrofftech”), and Microlab/FXR LLC (“Microlab”), wholly-owned subsidiaries of RF Industries, Ltd. All intercompany balances and transactions have been eliminated in consolidation. Cash equivalents The Company considers all highly-liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Revenue recognition On November 1, 2018, we adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASC 606”) applying the modified retrospective method. The core principle of ASC 606 is that revenue should be recorded in an amount that reflects the consideration to which we expect to be entitled in exchange for goods or services promised to customers. Under ASC 606, we follow a five-step model to: (1) identify the contract with our customer; (2) identify our performance obligations in our contract; (3) determine the transaction price for our contract; (4) allocate the transaction price to our performance obligations; and (5) recognize revenue when (or as) each performance obligation is satisfied. In accordance with this accounting principle, we recognize revenue using the output method at a point in time when finished goods have been transferred to the customer and there are no other obligations to customers after the title of the goods have transferred. Title of goods are transferred based on shipping terms for each customer – for shipments with terms of FOB Shipping Point, title is transferred upon shipment; for shipments with terms of FOB Destination, title is transferred upon delivery. Inventories Inventories are stated at the lower of cost or net realizable value, with cost determined using the weighted average cost of accounting. Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories. We regularly review inventory quantities on hand, future purchase commitments with our suppliers, and the estimated utility of our inventory. If our review indicates a reduction in utility below carrying value due to damage, physical deterioration, obsolescence, changes in price levels, or other causes, we reduce our inventory to a new cost basis through a charge to cost of sales in the period in which it occurs. The determination of market value and the estimated volume of demand used in the lower of cost or market analysis requires significant judgment.  Property and equipment Equipment, tooling and furniture are recorded at cost and depreciated over their estimated useful lives (generally three to five years) using the straight-line method. Expenditures for repairs and maintenance are charged to operations in the period incurred. Annual Report 2022RF Industries, Ltd. | www.rfindustries.com23 Goodwill Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Goodwill is not amortized, but is subject to impairment analysis at least once annually, which we perform in October, or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit’s carrying amount is greater than its fair value. We assess whether a goodwill impairment exists using both qualitative and quantitative assessments at the reporting level. Our qualitative assessment involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If based on this qualitative assessment we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, we will not perform a quantitative assessment. Under the amendments of this update, the goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss should be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. No instances of goodwill impairment were identified as of October 31, 2022 and 2021. We considered the impact of the COVID-19 related economic slowdown on our evaluation of goodwill impairment indicators as of October 31, 2022 as well as consideration of positive factors including backlog and sell-through subsequent to October 31, 2022. Although no goodwill impairment indicators were identified, it is possible that impairments could emerge as the impact of the crisis becomes clearer, and those impairment losses could be material. On June 15, 2011, we completed the acquisition of Cables Unlimited. Goodwill related to this acquisition is included within the Cables Unlimited reporting unit. As of May 19, 2015, we completed the acquisition of the CompPro product line. Goodwill related to this acquisition is included within the RF Connector and Cable Assembly Division. Effective June 1, 2015, we completed the acquisition of Rel-Tech. Goodwill related to this acquisition is included within the Rel-Tech reporting unit. On March 15, 2019, we completed the acquisition of C Enterprises; however, no goodwill resulted from this transaction. On November 4, 2019, we completed the acquisition of Schrofftech. Goodwill related to this acquisition is included within the Schrofftech reporting unit. On March 1, 2022, we completed the acquisition of Microlab. Goodwill related to this acquisition is included within the Microlab reporting unit. Long-lived assets We assess property, plant and equipment and intangible assets, which are considered definite-lived assets for impairment. Definite- lived assets are reviewed when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We measure recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If property and equipment and intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the asset exceeds its fair market value. We have made no material adjustments to our long-lived assets in any of the years presented. We amortize our intangible assets with definite useful lives over their estimated useful lives and review these assets for impairment. In addition, we test our trademarks and indefinite-lived asset for impairment at least annually or more frequently if events or changes in circumstances indicate that these assets may be impaired. No instances of impairment were identified as of October 31, 2022 or 2021. Fair value measurement We measure at fair value certain financial assets and liabilities. Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. GAAP specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs have created the following fair-value hierarchy: Level 1 – Quoted prices for identical instruments in active markets; Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. As of October 31, 2022 and 2021, the carrying amounts reflected in the accompanying consolidated balance sheets for cash and cash equivalents, accounts receivable, and accounts payable approximated their carrying value due to their short-term nature. Intangible assets Intangible assets consist of the following as of October 31, 2022 and 2021 (in thousands): 24 Amortization expense was $1,282,000 and $442,000 for the years ended October 31, 2022 and 2021, respectively. The weighted- average amortization period for the amortizable intangible assets is 9.48 years. There was no impairment to trademarks for the years ended October 31, 2022 and 2021. Estimated amortization expense related to finite-lived intangible assets is as follows (in thousands): Advertising We expense the cost of advertising and promotions as incurred. Advertising costs charged to operations were approximately $333,000 and $314,000 in 2022 and 2021, respectively. Research and development Research and development costs are expensed as incurred. Our research and development expenses relate to its engineering activities, which consist of the design and development of new products for specific customers, as well as the design and engineering of new or redesigned products for the industry in general. During the years ended October 31, 2022 and 2021, we recognized $2,913,000 and $1,479,000 in engineering expenses, respectively. Income taxes We account for income taxes under the asset and liability method, based on the income tax laws and rates in the jurisdictions in which operations are conducted and income is earned. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Developing the provision (benefit) for income taxes requires significant judgment and expertise in federal, international and state income tax laws, regulations and strategies, including the determination of deferred tax assets and liabilities and, if necessary, any valuation allowances that may be required for deferred tax assets. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Management’s judgments and tax strategies are subject to audit by various taxing authorities. Annual Report 2022RF Industries, Ltd. | www.rfindustries.com25 26 We had adopted the provisions of ASC 740-10, which clarifies the accounting for uncertain tax positions. ASC 740-10 requires that we recognize the impact of a tax position in the financial statements if the position is not more likely than not to be sustained upon examination based on the technical merits of the position. We recognize interest and penalties related to certain uncertain tax positions as a component of income tax expense and the accrued interest and penalties are included in deferred and income taxes payable in our consolidated balance sheets. See Note 8 to the Consolidated Financial Statements included in this Report for more information on the Company’s accounting for uncertain tax positions. Stock options For stock option grants to employees, we recognize compensation expense based on the estimated fair value of the options at the date of grant. Stock-based employee compensation expense is recognized on a straight-line basis over the requisite service period. We issue previously unissued common shares upon the exercise of stock options. For the fiscal years ended October 31, 2022 and 2021, charges related to stock-based compensation amounted to approximately $689,000 and $769,000, respectively. For the fiscal years ended October 31, 2022 and 2021, all stock-based compensation is classified in selling and general and engineering expense. Earnings per share Basic earnings per share is calculated by dividing net income applicable to common stockholders by the weighted average number of common shares outstanding during the period. The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, principally those issuable upon the exercise of stock options, were issued and the treasury stock method had been applied during the period. The greatest number of shares potentially issuable upon the exercise of stock options in any period for the years ended October 31, 2022 and 2021, that were not included in the computation because they were anti-dilutive, totaled 508,889 and 386,364, respectively. The following table summarizes the computation of basic and diluted earnings per share: Recent accounting standards Recently issued accounting pronouncements not yet adopted: In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments—Credit Losses, which requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The guidance is effective for fiscal years beginning after December 15, 2019. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), which pushes back the effective date for public business entities that are smaller reporting companies, as defined by the SEC, to fiscal years beginning after December 15, 2022. Early adoption is permitted. We are currently evaluating the impact the adoption of this new standard will have on our consolidated financial statements. Recently issued accounting pronouncements adopted: In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the amendments of this update, the goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss should be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The guidance also still gives entities the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. We adopted the standard as of November 1, 2020, the beginning of our fiscal 2021, applying this prospectively. The adoption of the standard did not result in an impairment charge as of October 31, 2022 or October 31, 2021. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new ASU also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates. These changes aim to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. The guidance was effective for the Company beginning on November 1, 2021 and prescribes different transition methods for the various provisions. The adoption of this standard had no material impact on the Company’s consolidated financial statements or related disclosures. Note 2 – Business Acquisition On March 1, 2022, the Company completed its purchase (the “Purchase Transaction”) of 100% of the issued and outstanding membership interests of Microlab, a New Jersey limited liability company, from Wireless Telecom Group, Inc, a New Jersey corporation (the “Seller”) pursuant to the Membership Interest Purchase Agreement (the “Purchase Agreement”) dated December 16, 2021, with the Seller. The consideration for the Purchase Transaction was $24,250,000, subject to certain post-closing adjustments as set forth in the Purchase Agreement. The purchase price was paid in cash at the closing. The Company funded $17 million of the cash purchase price from the funds obtained under the Term Loan (as defined in Note 11) and paid the remaining amount of the cash purchase price with cash on hand. During the three months ended July 31, 2022, we paid an additional $225,000 in purchase consideration as a result of certain post-closing adjustments relating to net working capital. The acquisition was accounted for with the acquisition method of accounting. The acquired assets and assumed liabilities have been recorded at their estimated fair values. We determined the estimated fair values with the assistance of appraisals or valuations performed by an independent third-party specialist. Microlab designs and manufactures high-performance RF and Microwave products enabling signal distribution and deployment of in-building DAS (distributed antenna systems), wireless base stations and small cell networks. The Microlab acquisition further diversifies and strengthens the portfolio of products that we offer to the market and allows us to provide a more complete solution to our customers in key market segments. All manufacturing operations are performed at Microlab’s facilities in New Jersey. The acquisition closed on March 1, 2022, accordingly, subsequent to March 1, 2022, Microlab’s financial results have been included in the results of the RF Connector and Cable Assembly (“RF Connector”) segment as well as in the consolidated statements of operations. The Company expects the goodwill recorded to be deductible for income tax purposes. Acquired amortizable intangible assets are being amortized on a straight-line basis over their estimated useful lives ranging from one to 15 years. Total costs, as of October 31, 2022, related to the acquisition of Microlab were approximately $1.3million and have been expensed as incurred and categorized in selling and general expenses. The following table summarizes the components of the purchase price at fair values at March 1, 2022: The following table summarizes the allocation of the preliminary purchase price at fair value at March 1, 2022: The current purchase price allocation is preliminary. The primary areas of the preliminary purchase price allocations that are not yet finalized relate to the fair value of certain tangible and intangible assets acquired and liabilities assumed, and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition dates during the measurement periods. Any adjustments to the preliminary purchase price allocation identified during the measurement period, which will not exceed one year from the acquisition date, will be accounted for prospectively. The following unaudited pro forma financial information presents the combined operating results of the Company and Microlab as if both acquisitions had occurred as of the beginning of the earliest period presented. Pro forma data is subject to various assumptions and estimates and is presented for informational purposes only. This pro forma data does not purport to represent or be indicative of the consolidated operating results that would have been reported had the transaction been completed as described herein, and the data should not be taken as indicative of future consolidated operating results. Annual Report 2022RF Industries, Ltd. | www.rfindustries.com27 28 Unaudited pro forma financial information assuming the acquisition of Microlab as of November 1, 2021 is presented in the following table: Note 5 – Other current assets Other current assets consist of the following (in thousands): Note 3 – Concentrations of credit risk Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. We maintain our cash and cash equivalents with high-credit quality financial institutions. At October 31, 2022, we had cash and cash equivalent balances in excess of federally insured limits in the amount of approximately $3.1 million. Sales from each customer that were 10% or greater of net sales were as follows: Pursuant to the CARES Act, eligible employers are able to claim an ERC, which is a refundable tax credit against certain employment taxes. If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may get an advance payment from the IRS. The period assessed for eligibility of the ERC is on a calendar year basis. As of October 31, 2022, the remaining portion of the ERC that we have not yet received is included as other receivables in other current assets. Note 6 – Accrued expenses and other long-term liabilities Accrued expenses consist of the following (in thousands): For the year ended October 31, 2022, a wireless carrier customer accounted for approximately 20% of total sales. The same customer had accounts receivable balances that accounted for 14% of the total net accounts receivable balance at October 31, 2022. Another distributor customer accounted for less than 10% of total sales and for 19% of the total net accounts receivable. For the year ended October 31, 2021, the same wireless carrier accounted for approximately 21% of total sales, and a distributor accounted for 11% of total sales. These two customers’ accounts receivable balances each accounted for approximately 28% and 8% of the total net accounts receivable balance at October 31, 2021. Although the distributors have been on-going major customers of the Company and the wireless carrier is a newer customer to the Company, the written agreements with these customers do not have any minimum purchase obligations and they could stop buying our products at any time and for any reason. A reduction, delay, or cancellation of orders from these customers or the loss of these customers could significantly reduce our future revenues and profits. Note 4 – Inventories and major vendors Inventories, consisting of materials, labor and manufacturing overhead, are stated at the lower of cost or net realizable value. Cost has been determined using the weighted average cost method. Inventories consist of the following (in thousands): One vendor accounted for 27% of inventory purchases during the fiscal year ended October 31, 2022, and one vendor accounted for 26% of inventory purchases for the fiscal year ended October 31, 2021. We have arrangements with our vendors to purchase products based on purchase orders that we periodically issue. Accrued receipts represent purchased inventory for which invoices have not been received. Note 7 – Segment information We aggregate operating divisions into two reporting segments that have similar economic characteristics primarily in the following areas: (1) the nature of the product and services; (2) the nature of the production process; (3) the type or class of customer for their products and services; (4) the methods used to distribute their products or services; and (5) if applicable, the nature of the regulatory environment. Based upon this evaluation, as of October 31, 2022, we had two reportable segments – RF Connector and Cable Assembly (“RF Connector”) segment and Custom Cabling Manufacturing and Assembly (“Custom Cabling”) segment. The RF Connector segment consists of two divisions and the Custom Cabling segment consists of four divisions. The six divisions that met the quantitative thresholds for segment reporting are the RF Connector and Cable Assembly division (“RF Connector division”), Cables Unlimited, Rel-Tech, C Enterprises, Schrofftech, and Microlab. While each segment has similar products and services, there was little overlapping of these services to their customer base. The biggest difference in segments is in the channels of sales: sales or product and services for the RF Connector segment were primarily through the distribution channel, while the Custom Cabling segment sales were through a combination of distribution and direct to the end customer. Management identifies segments based on strategic business units that are, in turn, based along market lines. These strategic business units offer products and services to different markets in accordance with their customer base and product usage. For segment reporting purposes, the RF Connector and Microlab divisions constitutes the RF Connector segment, and the Cables Unlimited, Rel- Tech, C Enterprises, and Schrofftech divisions constitute the Custom Cabling segment. As reviewed by our chief operating decision maker, we evaluate the performance of each segment based on income or loss before income taxes. We charge depreciation and amortization directly to each division within the segment. Accounts receivable, inventory, property and equipment, right of use assets, goodwill and intangible assets are the only assets identified by segment. Except as discussed above, the accounting policies for segment reporting are the same for the Company as a whole. Annual Report 2022RF Industries, Ltd. | www.rfindustries.com29 30 All of our operations are conducted in the United States; however, we derive a portion of our revenue from export sales. We attribute sales to geographic areas based on the location of the customers. The following table presents the sales by geographic area for the years ended October 31, 2022 and 2021 (in thousands): Our total deferred tax assets and deferred tax liabilities at October 31, 2022 and 2021 are as follows (in thousands): Net sales, income (loss) before provision (benefit) for income taxes and other related segment information for the years ended October 31, 2022 and 2021 are as follows (in thousands): * For the 12 months ended October 31, 2021, other income consists of the $2.8M PPP loans that were forgiven. Note 8 – Income tax provision The provision (benefit) for income taxes for the fiscal years ended October 31, 2022 and 2021 consists of the following (in thousands): Income tax at the federal statutory rate is reconciled to our actual net provision (benefit) for income taxes as follows (in thousands, except percentages): Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. We have evaluated the available evidence supporting the realization of its gross deferred tax assets, including the amount and timing of future taxable income, and has determined it is more likely than not that the assets will be realized in future tax years. The provision (benefit) for income taxes was $0.1 million or 9.2% and $1.0 million or 14.4% of income before income taxes for fiscal 2022 and 2021, respectively. The fiscal 2022 effective tax rate differed from the statutory federal rate of 21% primarily as a result of the tax benefit from research and development tax credits and foreign derived intangible income deduction and the tax expense associated with tax accounting method changes. The Company recognizes the benefit of tax positions taken or expected to be taken in its tax returns in the consolidated financial statements when it is more likely than not that the position will be sustained upon examination by authorities. Recognized tax positions are measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. A reconciliation of the beginning and ending balance to total uncertain tax positions in fiscal years ended October 31, 2022 and 2021 are as follows: We had gross unrecognized tax benefits of $121,000 and $128,000 attributable to U.S. federal and California research tax credits as of October 31, 2022 and 2021, respectively. During fiscal 2022, the decrease in our gross unrecognized tax benefit was primarily related to statute expirations and adjustments for prior year federal and California research tax credits. The uncertain tax benefit is recorded as income taxes payable in our consolidated balance sheet and if recognized in the future would impact our effective tax rate. We recognize interest and penalties related to uncertain tax positions in income tax expense. We recognized expense of approximately $13,000 and $13,000 during the years ended October 31, 2022 and 2021, respectively. We believe that an adequate provision has been made for any adjustments that may result from tax examinations. However, it is possible that certain changes may occur within the next twelve months, but we do not anticipate that our accrual for uncertain tax positions will change by a material amount over the next 12-month period. We are subject to taxation in the United States and state jurisdictions. Our tax years for October 31, 2019 and forward are subject to examination by the United States and October 31, 2018 and forward with state tax authorities. Note 9 – Stock options Incentive and non-qualified stock option plans On July 22, 2020, the Company’s Board of Directors adopted the 2020 Equity Incentive Plan (the “2020 Plan”). In September 2020, the Company’s stockholders approved the 2020 Plan by vote as required by NASDAQ. An aggregate of 1,250,000 shares of common Annual Report 2022RF Industries, Ltd. | www.rfindustries.com31 32 stock was set aside and reserved for issuance under the 2020 Plan. As of October 31, 2022, 916,369 shares of common stock were remaining for future grants of stock options under the 2020 Plan. Additional disclosures related to stock option plans On January 12, 2021, we granted a total of 33,500 shares of restricted stock and 67,000 incentive stock options to one manager and three officers. The shares of restricted stock and incentive stock options vest over four years as follows: (i) one-quarter of the restricted shares and options shall vest on January 12, 2022; and (ii) the remaining restricted shares and options shall vest in 12 equal quarterly installments over the next three years. All incentive stock options expire ten years from the date of grant. On July 16, 2021, our Chief Executive Officer was granted incentive stock options to purchase 50,000 shares. These options immediately vested on the date of grant, and expire ten years from the date of grant. On January 10, 2022, we granted a total of 39,666 shares of restricted stock and 106,001 incentive stock options to one manager and three officers. The shares of restricted stock and incentive stock options vest over four years as follows: (i) one-quarter of the restricted shares and options shall vest on January 10, 2023; and (ii) the remaining restricted shares and options shall vest in 12 equal quarterly installments over the next three years. All incentive stock options expire ten years from the date of grant. On May 2, 2022, we granted a total of 39,000 incentive stock options to the following: • One employee was granted 12,000 incentive stock options. These options vested with respect to 3,000 shares on the date of grant, and the remaining shares vests in equal installments thereafter on each of the next three anniversaries of May 2, 2022. The options expire ten years from the date of grant. • Three employees were each granted 5,000 incentive stock options. These options will vest in two equal installments on the first two anniversaries of May 2, 2022, and expire ten years from the date of grant. • Two employees were each granted 6,000 incentive stock options. These options will vest in three equal installments on the first three anniversaries of May 2, 2022, and expire ten years from the date of grant. No other shares or options were granted to Company employees during fiscal 2022. The fair value of each option granted in 2022 and 2021 was estimated on the grant date using the Black-Scholes option pricing model with the following assumptions: Expected volatilities are based on historical volatility of our stock price and other factors. We used the historical method to calculate the expected life of the 2022 and 2021 option grants. The expected life represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on the U.S. Treasury rate with a maturity date corresponding to the options’ expected life. The dividend yield is based upon the historical dividend yield. Additional information regarding all of our outstanding stock options at October 31, 2022 and 2021 and changes in outstanding stock options in 2022 and 2021 follows: Weighted average remaining contractual life of options outstanding as of October 31, 2022: 6.61 years Weighted average remaining contractual life of options exercisable as of October 31, 2022: 5.91 years Weighted average remaining contractual life of options vested and expected to vest as of October 31, 2022: 6.62 years Aggregate intrinsic value of options outstanding at October 31, 2022: $518,000 Aggregate intrinsic value of options exercisable at October 31, 2022: $265,000 Aggregate intrinsic value of options vested and expected to vest at October 31, 2022: $513,000 As of October 31, 2022, $685,000 and $594,000 of expense with respect to nonvested stock options and restricted shares, respectively, has yet to be recognized but is expected to be recognized over a weighted average period of 2.19 and 0.95 years, respectively. Under the compensation policies adopted by the Compensation Committee, directors who also are officers and/or employees of the Company do not receive any compensation for serving on the Board. On September 8, 2021, the Board of Directors determined that the compensation payable to directors as Board fees for the next year ending with the 2022 annual meeting of stockholders was the same as they received in 2021 (i.e., $50,000). In addition, effective September 8, 2021, the Board determined that both Board fees and additional chair fees would be paid half in cash and half in restricted stock, and, in light of the additional work required by the chairs, revised the chair fees as follows, $25,000 for the Chairman of the Board, $25,000 for the Audit Committee Chair, $20,000 for the Compensation Committee Chair, $20,000 for the Strategic Planning and Capital Allocation Chair, and $10,000 for the Nominating & Governance Chair. The cash and restricted stock fees vest in four equal quarterly installments commencing on December 8, 2021, with the restricted stock portion determined by dividing the amount of the fee by the 20-day average trailing closing price of the Company’s common stock from the date of grant ($8.21). Note 10 – Retirement plan We have a 401(k) plan available to our employees. For the years ended October 31, 2022 and 2021, we contributed and recognized as an expense $488,000 and $413,000, respectively, which amounts represented 3% of eligible employee earnings under the Company’s Safe Harbor Non-elective Employer Contribution Plan. Note 11 – Line of credit and PPP Loan In February 2022, we entered into an agreement for a revolving line of credit (the “Revolving Credit Facility”) in the amount of $3.0 million and a $17.0 million term loan (the “Term Loan”, and together with the Revolving Credit Facility, the “Credit Facility”). Amounts outstanding under the Revolving Credit Facility shall bear interest at a rate of 2.0% plus the Bloomberg Short-Term Bank Yield Index Rate (“base interest rate”). The maturity date of the Revolving Credit Facility is March 1, 2024. The Company drew down the entire amount of the Term Loan on March 1, 2022. The primary interest rate for Term Loan is 3.76% per annum. The maturity date of the Term Loan is March 1, 2027. Borrowings under the Credit Facility are secured by a security interest in certain assets of the Company and contains certain loan covenants. The Credit Facility requires the maintenance of certain financial covenants, including: (i) consolidated debt to EBITDA ratio not to exceed 3.00 to 1.00; (ii) consolidated fixed charge coverage ratio of at least 1.25 to 1.00; and (iii) consolidated minimum EBITDA of at least $600,000 for the discrete quarter ending January 31, 2022. In addition, the Credit Facility contains customary affirmative and negative covenants. As of October 31, 2022, we have borrowed $15,586,000 under the Term Loan while we have not borrowed any amounts under the Revolving Credit Facility. In May 2020, we applied for and received loans under the PPP of the CARES Act totaling approximately $2.8 million. The funds from the PPP Loans were used to retain employees, maintain payroll and benefits, and make lease and utility payments. Without the PPP Loans, we would have made material reductions in our workforce (particularly at our New York Facility). As of April 30, 2021, the full amount of the PPP Loans has been forgiven and considered paid in full (including applicable interest). Note 12 – Related party transactions A portion of our operating leases are leased from K&K Unlimited, a company controlled by Darren Clark, the former owner and current President of Cables Unlimited. Cables Unlimited’s monthly rent expense under the lease is $16,000 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, 2022, we paid a total of $180,000 under the leases. During fiscal 2022, we paid royalties to Elmec Ltd. (“Elmec”), a European-based company that owns the intellectual property that is used in Schrofftech’s products. One third of Elmec is jointly owned by David Therrien and Richard DeFelice, two of the former owners and current President and Vice President, respectively, of Schrofftech. For the year ended October 31, 2022, we paid a total of $19,000 of royalty payments to Elmec, and have accrued an additional $4,000 as of October 31, 2022. The expenses related to these transactions are included in cost of goods sold. Note 13 – Cash dividend and declared dividends We did not pay any dividends during fiscal year 2022. Nor did we pay any dividends during fiscal year 2021. Note 14 – Commitments We adopted ASU 2016-02 on November 1, 2019, and elected the practical expedient modified retrospective method whereby the lease qualification and classification was carried over from the accounting for leases under ASC 840. The lease contracts for the corporate headquarters, RF Connector division manufacturing facilities, Cables Unlimited, Rel-Tech, and C Enterprises commenced prior to the effective date of November 1, 2019, and were determined to be operating leases. All other new contracts have been assessed for the existence of a lease and for the proper classification into operating leases. The rate implicit in the leases was undeterminable and, therefore, the discount rate used in all lease contracts is our incremental borrowing rate. We have operating leases for corporate offices, manufacturing facilities, and certain storage units. Our leases have remaining lease terms of one year to five years. A portion of our operating leases are leased from K&K Unlimited, a company controlled by Darren Annual Report 2022RF Industries, Ltd. | www.rfindustries.com33 34 Clark, the former owner and current President of Cables Unlimited, to whom we make rent payments totaling $16,000 per month. We also have other operating leases for certain equipment. The components of our facilities and equipment operating lease expenses for the period ended October 31, 2022 were as follows (in thousands): Other information related to leases was as follows (in thousands): Future minimum lease payments under non-cancellable leases as of October 31, 2022 were as follows (in thousands): As of October 31, 2022, operating lease ROU asset was $13.5 million and operating lease liability totaled $16.9 million, of which $1.9 million is classified as current. There were no finance leases as of October 31, 2022. Note 15 – Subsequent event In January 2023, we received a refund of $1.2 million related to the ERC, of which $1.6 million was in Other Current Assets as of October 31, 2022.  Leadership DIRECTORS Mark K. Holdsworth Chairman Managing Partner The Holdsworth Group Sheryl Cefali Managing Director Duff & Phelps Jason Conhenour Retired Executive Gerald Garland Retired Executive Kay L. Tidwell General Counsel and Chief Risk Officer Hudson Pacific Properties Inc. Robert Dawson President and Chief Executive Officer OFFICERS Robert Dawson President and Chief Executive Officer Peter Yin Chief Financial Officer, Corporate Secretary and Treasurer Ray Bibisi Chief Operating Officer Stockholder Information ANNUAL MEETING The Annual Meeting of Stockholder of RF Industries is scheduled to be held at 11:00 a.m. PDT, Wednesday, September 6, 2023, at RF Industries, Ltd., 16868 Via Del Campo Court, Suite 200, San Diego, California 92127. INVESTOR RELATIONS Analysts, investors, and stockholders seeking additional information about RF Industries are invited to contact: Peter Yin Chief Financial Officer 16868 Via Del Campo Court, Suite 200 San Diego, CA 92127 Telephone: 858-549-6340 Email: pyin@rfindustries.com A copy of the Company’s Annual Report on Form 10-K as filed with the United States Securities and Exchange Commission is available without charge on the SEC website, www.sec.gov, or upon request RF Industries, Ltd., Via Del Campo Court, Suite 200, San Diego, California 92127 RF Industries on NASDAQ RF Industries common stock trades on the NASDAQ Global Market under the symbol RFIL. Corporate Counsel DLA Piper LLP (US) 4365 Executive Drive, Suite 1100 San Diego, CA 92121 Transfer Agent and Registrar Continental Stock Transfer & Trust Co. 1 State Street, 30th Floor New York, NY 10004 Telephone: 212-509-4000 Email: cstmail@continentalstock.com Independent Public Accounting Firm CohnReznick LLP 8000 Towers Crescent Drive Suite 1000 Tysons, VA 22182 Annual Report 2022RF Industries, Ltd. | www.rfindustries.com858.549.6340 800.233.1728 rfi@rfindustries.com 16868 Via Del Campo Court Suite 200, San Diego, CA 92127 

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