BRIDGFORD FOODS CORP 10-K

Item 9A. Controls and Procedures Evaluation of disclosure controls and procedures Our management, with the participation and under the supervision of our Chairman and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Report. Based on this evaluation, the Chairman and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this Report in their design and operation to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, and recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms to allow timely decisions regarding required disclosures. Our management, including our Chairman and Chief Financial Officer, does not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. We maintain and evaluate a system of internal accounting controls, and a program designed to provide reasonable assurance that our assets are protected and that transactions are performed in accordance with proper authorization and are properly recorded. This system of internal accounting controls is continually reviewed and modified in response to evolving business conditions and operations and to recommendations made by our independent registered public accounting firm. We have established a code of conduct. Our management believes that the accounting and internal control systems provide reasonable assurance that assets are safeguarded, and financial information is reliable. The Audit Committee of the Board of Directors meets regularly with our financial management and counsel, and with the independent registered public accounting firm engaged by us. Internal accounting controls and the quality of financial reporting are discussed during these meetings. The Audit Committee has discussed with the independent registered public accounting firm matters required to be discussed by Statement of Auditing Standards No. 16 (Communication with Audit Committees). In addition, the Audit Committee and the independent registered public accounting firm have discussed the independent registered public accounting firm’s independence from our Company and its management, including the matters in the written disclosures required by Public Company Accounting Oversight Board Rule 3526 “Communicating with Audit Committees Concerning Independence”. Changes in Internal Control over Financial Reports There has been no change in our internal control over financial reporting during the last fiscal quarter covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 17 Section 404 of the Sarbanes-Oxley Act of 2002 In order to comply with the Sarbanes-Oxley Act of 2002, we have undertaken and continue a comprehensive effort, which includes the documentation and review of our internal controls. In order to comply with the Sarbanes-Oxley Act, we centralized most accounting and many administrative functions at our corporate headquarters in an effort to control the cost of maintaining our control systems. The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by the President on July 21, 2010, permanently exempts small public companies with less than $75 million in public float, such as the Company, from the requirement to obtain an external audit on the effectiveness of internal financial reporting controls provided in Section 404(b) of the Sarbanes-Oxley Act. As a result, an attestation report on internal controls over financial reporting by an independent registered public accounting firm has not been presented. Section 404(a) is still effective for smaller public companies and requires the disclosure of management attestations on internal controls over financial reporting. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management conducted an evaluation of the effectiveness of the internal controls over financial reporting based on the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control-Integrated Framework (2013) and related illustrative documents as an update to Internal Control-Integrated Framework (1992). Management determined that the 17 principles were present and functioning during its assessment of the effectiveness of our internal controls. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting for our fiscal year ended October 30, 2020. Based on management’s assessment and the above-referenced criteria, management believes that the internal control over financial reporting for our fiscal year ended October 30, 2020 was effective. Item 9B. Other Information Not applicable. 18 PART III Item 10. Directors, Executive Officers and Corporate Governance The information required by this item will be included in the Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year ended October 30, 2020 and is incorporated herein by reference. Information concerning our executive officers is set forth in Part I, Item 1 of this Report under the heading “Executive Officers of the Registrant”. Item 11. Executive Compensation The information required by this item will be included in the Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year ended October 30, 2020 and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item will be included in the Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year ended October 30, 2020 and is incorporated herein by reference. Equity Compensation Plan Information Not applicable, as we do not have any compensation plans under which our equity securities are authorized for issuance. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item will be included in the Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year ended October 30, 2020 and is incorporated herein by reference. We are considered a “controlled company” within the meaning of Rule 5615(c)(1) of the NASDAQ Listing Rules based on the approximate 80% beneficial ownership of our outstanding common stock by Bridgford Industries Incorporated and are therefore exempted from various NASDAQ Listing Rules pertaining to certain “independence” requirements of our directors. Nevertheless, the Board of Directors has determined that Messrs. Andrews and Scott and Ms. Schott who together comprise the Audit Committee and the Compensation Committee, are all “independent directors” within the meaning of Rule 5605 of the NASDAQ Listing Rules. Our general legal counsel is the son of the former senior chairman of the Board of Directors. As legal counsel to the Board and the Compensation Committee, he currently is paid a fee of $2,480 for each meeting attended. Total fees paid under this arrangement for fiscal year 2020 were approximately $24,600. Legal services are performed on our behalf and billed by a firm in which he is a partner. Total fees billed under this arrangement for fiscal year 2020 were approximately $292,700. Former director Allan Bridgford Jr., son of the former senior chairman of the Board of Directors, is providing consulting services to the Chicago plant and management. The contract on behalf of the Company with Allan Bridgford Jr. is for consulting services at $1,200 per day. Total fees billed under this arrangement for fiscal year 2020 were approximately $169,000. As a member of the Board of Directors, he was paid a fee of $2,480 for each meeting attended during fiscal year 2020. Total fees paid under this arrangement for fiscal year 2020 were $22,220. Under an arrangement with Allan Bridgford Jr., we accrued approximately $279,400 of profit sharing based on fiscal year 2020 profitability to be paid out in three installments equally over the next three years. Director Keith Ross currently provides real estate consulting services to the Board and management. He was paid a fee of $2,480 for each Board meeting attended and was paid an aggregate of $24,600 for meetings attended during fiscal year 2020. Fees of approximately $37,780 were paid during fiscal year 2020 for consulting services. Item 14. Principal Accountant Fees and Services The information required by this item will be included in the Proxy Statement, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year ended October 30, 2020 and is incorporated herein by reference. 19 PART IV Item 15. Exhibits and Financial Statement Schedules (a)(1) Financial Statements . The following documents are filed as a part of this Report: Page Management’s Annual Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm 22 Consolidated Balance Sheets as of October 30, 2020 and November 1, 2019 23 Consolidated Statements of Operations for years ended October 30, 2020 and November 1, 2019 24 Consolidated Statements of Comprehensive Income for years ended October 30, 2020 and November 1, 2019 25 Consolidated Statements of Shareholders’ Equity for years ended October 30, 2020 and November 1, 2019 26 Consolidated Statements of Cash Flows for years ended October 30, 2020 and November 1, 2019 27 Notes to Consolidated Financial Statements 28 (2) Financial Statement Schedules Not applicable for a smaller reporting company. (3) Exhibits (a) The exhibits below are filed or incorporated herein by reference . Incorporated by Reference Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filed Herewith 3.1 Restated Articles of Incorporation, as amended. 10-K 000-02396 3.4 01/18/19 3.2 Amended and Restated Bylaws. 10-K/A 000-02396 3.7 02/09/18 4.1 Description of Capital Stock of the Registrant 10-K 000-02396 4.1 01/24/20 X 10.1* Bridgford Foods Corporation Defined Benefit Pension Plan. 10-K 000-02396 10.1 01/18/19 10.2* Bridgford Foods Corporation Supplemental Executive Retirement Plan. 10-K 000-02396 10.2 01/18/19 10.3* Bridgford Foods Corporation Deferred Compensation Savings Plan. 10-K 000-02396 10.3 01/18/19 10.4* Consulting Agreement, dated August 12, 2019, between the Registrant and Allan L. Bridgford Sr. 8-K 000-02396 10.1 08/16/19 10.5 Purchase and Sale Agreement dated March 16, 2020 between Bridgford Foods Processing Company and CRG Acquisition, LLC. 8-K 000-02396 10.1 03/19/20 21.1 Subsidiaries of the Registrant. 10-K 000-02396 21.1 01/24/20 X 24.1 Power of Attorney (included as part of the signature page). X 31.1 Certification of Principal Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 31.2 Certification of Principal Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Principal Executive Officer). X 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Principal Financial Officer). X 101.INS XBRL Instance Document. X 101.SCH XBRL Taxonomy Extension Schema Document. X 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. X 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. X 101.LAB XBRL Taxonomy Extension Label Linkbase Document. X 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. X * Each of these Exhibits constitutes a management contract, compensatory plan or arrangement. Item 16. Form 10-K Summary Not applicable. 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BRIDGFORD FOODS CORPORATION By: /s/ WILLIAM L. BRIDGFORD William L. Bridgford Chairman of the Board Date: January 15, 2021 POWER OF ATTORNEY We, the undersigned directors and officers of Bridgford Foods Corporation, do hereby constitute and appoint William L. Bridgford and Raymond F. Lancy, or either of them, with full power of substitution and resubstitution, our true and lawful attorneys and agents, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents, or either of them, or their substitutes, may deem necessary or advisable to enable said corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission in connection with this Annual Report on Form 10-K, including specifically, but without limitation, power and authority to sign for us or any of us in our names and in the capacities indicated below, any and all amendments; and we do hereby ratify and confirm all that the said attorneys and agents, or either of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ WILLIAM L. BRIDGFORD Chairman of the Board January 15, 2021 William L. Bridgford (Principal Executive Officer) /s/ JOHN V. SIMMONS President and Director January 15, 2021 John V. Simmons Chief Financial Officer, Executive Vice President, /s/ RAYMOND F. LANCY Treasurer, Assistant Secretary and Director January 15, 2021 Raymond F. Lancy (Principal Financial and Accounting Officer) /s/ ALLAN L. BRIDGFORD SR. Director January 15, 2021 Allan L. Bridgford Sr. /s/ TODD C. ANDREWS Director January 15, 2021 Todd C. Andrews /s/ D. GREGORY SCOTT Director January 15, 2021 D. Gregory Scott /s/ KEITH A. ROSS Director January 15, 2021 Keith A. Ross /s/ MARY SCHOTT Director January 15, 2021 Mary Schott 21 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders Bridgford Foods Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Bridgford Foods Corporation and its subsidiaries (the Company) as of October 30, 2020 and November 1, 2019, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 30, 2020 and November 1, 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 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 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 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Baker Tilly US, LLP We have served as the Company’s auditor since 2009. Irvine, California January 15, 2021 22 BRIDGFORD FOODS CORPORATION CONSOLIDATED BALANCE SHEETS October 30, 2020 and November 1, 2019 (in thousands, except per share amounts) 2020 2019 ASSETS Current assets: Cash and cash equivalents $ 4,302 $ 3,478 Restricted cash 1,125 - Accounts receivable, less allowance for doubtful accounts of $16 and $31, respectively and promotional allowances of $2,550 and $2,974, respectively 23,818 21,875 Inventories, net 29,296 26,367 Refundable income taxes 9,517 - Prepaid expenses 692 1,048 Total current assets 68,750 52,768 Property, plant and equipment, net of accumulated depreciation and amortization of $58,686 and $54,015, respectively 73,332 54,346 Other non-current assets 13,201 12,295 Deferred income taxes - 4,047 Total assets $ 155,283 $ 123,456 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 10,502 $ 7,993 Accrued payroll, advertising and other expenses 5,981 5,480 Income taxes payable 94 90 Current notes payable – equipment (Note 5) 4,430 1,943 Current portion of non-current liabilities 5,196 4,434 Total current liabilities 26,203 19,940 Long-term notes payable – equipment (Note 5) 24,692 11,804 Deferred income taxes 2,338 - Non-current liabilities 30,804 25,228 Total liabilities 84,037 56,972 Contingencies and commitments (Notes 3, 5 and 6) Shareholders’ equity: Preferred stock, without par value; Authorized, - 1,000 shares; issued and outstanding – none - - Common stock, $1.00 par value; Authorized, - 20,000 shares; issued and outstanding – 9,076 9,134 9,134 Capital in excess of par value 8,298 8,298 Retained earnings 79,755 72,432 Accumulated other comprehensive loss (25,941 ) (23,380 ) Total shareholders’ equity 71,246 66,484 Total liabilities and shareholders’ equity $ 155,283 $ 123,456 See accompanying notes to consolidated financial statements. 23 BRIDGFORD FOODS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS For the fiscal years ended October 30, 2020 and November 1, 2019 (in thousands, except share and per share amounts) October 30, 2020 November 1, 2019 (52 Weeks) (52 Weeks) Net sales $ 197,970 $ 188,785 Cost of products sold 138,452 127,121 Gross margin 59,518 61,664 Selling, general and administrative expenses 54,446 52,837 (Gain) loss on sale of property, plant and equipment (58 ) 290 Income before taxes 5,130 8,537 (Benefit on) provision for income taxes (2,193 ) 2,053 Net income $ 7,323 $ 6,484 Basic earnings per share $ 0.81 $ 0.71 Shares used to compute basic earnings per share 9,076,832 9,076,832 See accompanying notes to consolidated financial statements. 24 BRIDGFORD FOODS CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the fiscal years ended October 30, 2020 and November 1, 2019 (in thousands) October 30, 2020 November 1, 2019 (52 Weeks) (52 Weeks) Net income $ 7,323 $ 6,484 Other comprehensive loss from defined benefit plans (3,920 ) (6,632 ) Other postretirement benefit plans: Actuarial gain (loss) 556 (790 ) Prior service cost - (50 ) Other comprehensive income (loss) from other postretirement benefit plans, net 556 (840 ) Other comprehensive loss, before taxes (3,364 ) (7,472 ) Tax benefit on other comprehensive loss 803 1,792 Change in other comprehensive (loss), net of tax (2,561 ) (5,680 ) Comprehensive income, net of tax $ 4,762 $ 804 See accompanying notes to consolidated financial statements. 25 BRIDGFORD FOODS CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY For the fiscal years ended October 30, 2020 and November 1, 2019 (in thousands) Shares Amount Capital in excess of par value Retained earnings Accumulated other comprehensive loss Total shareholders’ equity Balance, November 2, 2018 9,076 $ 9,134 $ 8,298 $ 65,948 $ (17,700 ) $ 65,680 Net income 6,484 6,484 Net change in defined benefit plans and other benefit plans, net of tax (5,680 ) (5,680 ) Balance, November 1, 2019 9,076 $ 9,134 $ 8,298 $ 72,432 $ (23,380 ) $ 66,484 Net income 7,323 7,323 Net change in defined benefit plans and other benefit plans, net of tax (2,561 ) (2,561 ) Balance, October 30, 2020 9,076 $ 9,134 $ 8,298 $ 79,755 $ (25,941 ) $ 71,246 See accompanying notes to consolidated financial statements. 26 BRIDGFORD FOODS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS For the fiscal years ended October 30, 2020 and November 1, 2019 (in thousands) October 30, 2020 November 1, 2019 (52 Weeks) (52 Weeks) Cash flows from operating activities: Net income $ 7,323 $ 6,484 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 5,514 4,153 (Recovery of) provision for losses on accounts receivable (8 ) 44 Reduction in promotional allowances (423 ) (852 ) (Gain) loss on sale of property, plant and equipment (58 ) 290 Deferred income taxes, net 6,385 1,889 Changes in operating assets and liabilities: Accounts receivable (1,512 ) (774 ) Inventories (2,929 ) (2,954 ) Prepaid expenses (75 ) 283 Refundable income taxes (9,086 ) - Other non-current assets (102 ) (663 ) Accounts payable 2,509 338 Accrued payroll, advertising and other expenses 501 903 Income taxes payable 4 (65 ) Current portion of non-current liabilities (412 ) (1,643 ) Non-current liabilities 2,286 (184 ) Net cash provided by operating activities 9,917 7,249 Cash flows from investing activities: Proceeds from sale of property, plant and equipment 39 61 Proceeds from sale of assets in escrow 1,125 - Additions to property, plant and equipment (24,482 ) (25,739 ) Net cash used in investing activities (23,318 ) (25,678 ) Cash flows from financing activities: Payment of capital lease obligations (24 ) (17 ) Proceeds from bank borrowings 18,450 17,000 Repayments of bank borrowings (3,076 ) (3,253 ) Net cash provided by financing activities 15,350 13,730 Net increase (decrease) in cash and cash equivalents and restricted cash 1,949 (4,699 ) Cash and cash equivalents and restricted cash at beginning of year 3,478 8,179 Cash and cash equivalents and restricted cash at end of year $ 5,427 $ 3,478 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 336 $ 697 Cash paid for interest $ 828 403 Transportation equipment financed by lease obligations $ 40 473 See accompanying notes to consolidated financial statements. 27 BRIDGFORD FOODS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands except share and per share amounts, time periods, ratios and percentages) NOTE 1 - The Company and Summary of Significant Accounting Policies: Bridgford Foods Corporation was organized in 1952. We originally began operations in 1932 as a retail meat market in San Diego, California and evolved into a meat wholesaler for hotels and restaurants, a distributor of frozen food products, a processor and packer of meat, and a manufacturer and distributor of frozen food products for sale on a retail and wholesale basis. We, including our subsidiaries, are primarily engaged in the manufacturing, marketing and distribution of an extensive line of frozen, refrigerated, and snack food products throughout the United States. The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All inter-company transactions have been eliminated. Use of estimates and assumptions The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the respective reporting periods. Actual results could differ from those estimates. Amounts estimated related to liabilities for pension benefits, self-insured workers’ compensation and employee healthcare benefits are subject to inherent uncertainties and these estimated liabilities may ultimately settle at amounts which may vary from current estimates. Other areas with underlying estimates include realization of deferred tax assets, cash surrender or contract value of life insurance policies, promotional allowances and the allowance for doubtful accounts and inventory reserves. Management believes its current estimates are reasonable and based on the best information available at the time. We test long-lived assets for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an impairment is indicated, we measure the fair value of assets to determine if and when adjustments are recorded. Subsequent events Management has evaluated events subsequent to October 30, 2020 through the date the accompanying consolidated financial statements were filed with the Securities and Exchange Commission for transactions and other events that may require adjustment of and/or disclosure in such financial statements. The Company maintains a line of credit with Wells Fargo Bank, N.A. that expires on March 1, 2022. Under the terms of this line of credit, we may borrow up to $7,500 at an interest rate equal to the bank’s prime rate or LIBOR plus 1.5%. The Company borrowed an additional $2,000 under the line of credit on December 2, 2020. Effective November 3, 2020, Allan Bridgford Jr. resigned as a member of the Board of Directors of Bridgford Foods Corporation. The resignation was not the result of a disagreement with management regarding operations, policies or practices of the Company. Mr. Bridgford will continue to serve as a consultant to the Company. As previously reported, on March 16, 2020, Bridgford Food Processing Corporation (“BFPC”), a wholly-owned subsidiary of the Company, entered into a Purchase and Sale Agreement (the “CRG Purchase Agreement”) with CRG Acquisition, LLC (“CRG”), pursuant to which BFPC agreed to sell to CRG, pursuant to the terms and conditions set forth in the CRG Purchase Agreement, a parcel of land including an approximate 156,000 square foot four-story industrial food processing building located at 170 N. Green Street in Chicago, Illinois (the “Property”). The purchase price for the Property is $60,000 subject to a due diligence period and certain closing adjustments and prorations, and is conditioned upon, among other customary closing conditions, CRG receiving zoning and other governmental approvals necessary for the construction and development of a mixed use project on the Property in accordance with certain development plans to be approved by the City of Chicago. The cost basis of the Property was immaterial. On November 2, 2020, the Company executed a fourth amendment to the CRG Purchase Agreement. Under the original terms and conditions of the CRG Purchase Agreement, the closing of the sale of the Property to CRG would occur on the date that is thirty (30) days after CRG’s receipt of the necessary zoning approvals, but in any event no earlier than October 31, 2020 and no later than March 31, 2021. The first amendment dated as of April 10, 2020 extended the inspection period to June 1, 2020. The second amendment dated as of June 1, 2020 extended the inspection period to July 31, 2020, zoning period to February 1, 2021 and closing date to February 5, 2021. The third amendment dated July 31, 2020 extended the inspection period to October 31, 2020, zoning period to April 30, 2021 and closing date to May 6, 2021. The fourth amendment dated November 2, 2020 further extended the inspection period to February 1, 2021, the zoning period to August 2, 2021 and closing date to August 31, 2021. The escrow account has received $1,350 in earnest money through October 30, 2020. We have received a total of $225 which is non-refundable earnest money and thus not part of restricted cash. Based on management’s review, no other material subsequent events were identified that require adjustment to the financial statements or additional disclosure. 28 Accounts Receivable Accounts receivable are recorded at net realizable value. The value is presented net of allowance for doubtful accounts and promotional incentives. Our accounts receivable consists mainly of trade receivables from customer sales. We evaluate the collectability of our accounts receivable based on several factors. The provision for doubtful accounts receivable is based on historical trends and current collectability risk. Our provision for doubtful accounts was $16 and $31 as of October 30, 2020 and November 1, 2019, respectively. Concentrations of credit risk Our credit risk is diversified across a broad range of customers and geographic regions. Losses due to credit risk have recently been immaterial. The carrying amount of cash equivalents, accounts and other receivables, accounts payable and accrued liabilities approximate fair market value due to the short maturity of these instruments. We maintain cash balances at financial institutions, which may at times exceed the amounts insured by the Federal Deposit Insurance Corporation. Management does not believe there is significant credit risk associated with these financial institutions. Sales to Wal-Mart® comprised 36.9% of revenues in fiscal year 2020 and 19.8% of total accounts receivable was due from Wal-Mart® as of October 30, 2020. Sales to Wal-Mart® comprised 35.7% of revenues in fiscal year 2019 and 31.9% of total accounts receivable was due from Wal-Mart® as of November 1, 2019. Sales to Dollar General® comprised 13.6% of revenues in fiscal year 2020 and 31.1% of total accounts receivable was due from Dollar General® as of October 30, 2020. Sales to Dollar General® comprised 11.1% of revenues in fiscal year 2019 and 21.7% of total accounts receivable was due from Dollar General® as of November 1, 2019. COVID-19 pandemic We have considered the impact of federal, state and local government actions related to the global novel coronavirus pandemic (“COVID-19” or “pandemic”) on our consolidated financial statements. The business disruptions associated with the pandemic had a significant negative impact on our consolidated financial statements for the fifty-two week period ended October 30, 2020. We expect these events to have future business impact, the extent of which is uncertain and largely subject to whether the severity worsens, or the duration of current business shutdowns continue. These impacts could include but may not be limited to risks and uncertainty related to shifts in demand between sales channels, market volatility, constraints in our supply chain, our ability to operate production facilities and worker availability. These unknowns may subject the Company to future risks related to long-lived asset impairments, increased reserves for uncollectible accounts, price and availability of ingredients and raw materials used in our products and adjustments to reflect the market value of our inventory. Business segments The Company and subsidiaries operate in two business segments - the processing and distribution of frozen foods products, and the processing and distribution of snack food products. See Note 7 for further information. Fiscal year We maintain our accounting records on a 52-53-week fiscal basis ending on the Friday closest to October 31. As part of the regular accounting cycle, fiscal years 2020 and 2019 included 52 weeks. Revenues The Company recognizes revenue for the sale of the product at the point in time when our performance obligation has been satisfied and control of the product has transferred to our customer, which generally occurs upon shipment, pickup or delivery to a customer based on terms of the sale. Contracts with customers are typically short-term in nature with completion of a single performance obligation. Product is sold to foodservice, retail, institutional and other distribution channels. Products are delivered to customers primarily through our own long-haul fleet, common carrier or through a Company owned direct store delivery system. These delivery costs, $4,537 and $5,012 for fiscal years 2020 and 2019, respectively, are included in selling, general and administrative expenses in the accompanying consolidated financial statements. Shipping and handling that occurs after the customer has obtained control of the product is recorded as a fulfillment cost rather than an additional assured service. Costs paid to third party brokers to obtain contracts are recognized as part of selling expenses. Other sundry items in context of the contract are also recognized as selling expense. Any taxes collected on behalf of the government are excluded from net revenue. We record revenue at the transaction price which is measured as the amount of consideration we anticipate to receive in exchange for providing product to our customers. Revenue is recognized as the net amount estimated to be received after deducting estimated or known amounts including variable consideration for discounts, trade allowances, consumer incentives, coupons, volume-based incentives, cooperative advertising, product returns and other such programs. Promotional allowances, including customer incentive and trade promotion activities, are recorded as a reduction to sales based on amounts estimated being due to customers, based primarily on historical utilization and redemption rates. Estimates are reviewed regularly until incentives or product returns are realized and the result of any such adjustments are known. Promotional allowances deducted from sales for fiscal years 2020 and 2019 were $11,418 and $11,105, respectively. Advertising expenses Advertising and other promotional expenses are recorded as selling, general and administrative expenses. Advertising expenses for fiscal years 2020 and 2019 were $2,246 and $2,574, respectively. 29 Cash and cash equivalents We consider all investments with original maturities of three months or less to be cash equivalents. Cash equivalents include money market funds and treasury bills. Cash equivalents totaled $4,302 as of October 30, 2020 and $3,478 as of November 1, 2019. All material cash and cash equivalents as of October 30, 2020 were held at Wells Fargo Bank N.A. Restricted cash Proceeds from deposits in escrow of $1,125 as of October 30, 2020 relate to the pending sale of a parcel of land including an approximate 156,000 square foot four-story industrial food processing building located at 170 N. Green Street in Chicago, Illinois. Refer to Note 1 – Subsequent Events for more information. Fair value measurements We classify levels of inputs to measure the fair value of financial assets as follows: ● Level 1 inputs: Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date. ● Level 2 inputs: Level 2 inputs are from other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. ● Level 3 inputs: Level 3 inputs are unobservable and should be used to measure fair value to the extent that observable inputs are not available. The hierarchy noted above requires us to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. The Company does not have any assets or liabilities measured at fair value on a recurring or non-recurring basis for the fiscal years ended October 30, 2020 and November 1, 2019. Inventories Inventories are valued at the lower of cost (which approximates actual cost on a first-in, first-out basis) or net realizable value. Inventories include the cost of raw materials, labor and manufacturing overhead. We regularly review inventory quantities on hand and write down any excess or obsolete inventories to net realizable value. An inventory reserve is created when potentially slow-moving or obsolete inventories are identified in order to reflect the appropriate inventory value. Changes in economic conditions, production requirements, and lower than expected customer demand could result in additional obsolete or slow-moving inventory that cannot be sold or must be sold at reduced prices and could result in additional reserve provisions. Property, plant and equipment Property, plant and equipment are carried at cost less accumulated depreciation. Major renewals and improvements are charged to the asset accounts while the cost of maintenance and repairs is charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the respective accounts and the resulting gain or loss is credited or charged to income. Depreciation is computed on a straight-line basis over 10 to 20 years for buildings and improvements, 5 to 10 years for machinery and equipment, and 3 to 5 years for transportation equipment. We built a processing plant from the ground up and as such have attributed long useful lives accordingly to these types of assets employed at the new facility in Chicago. The Company incurred interest costs of $879 for fiscal year 2020, all of which was capitalized in relation to the construction of the new facility in Chicago. Leases Leases are recognized in accordance with Accounting Standards Update (“ASU”) 2016-02 Leases (ASC 842) which requires a lessee to recognize assets and liabilities with lease terms of more than 12 months. We lease or rent property for such operations as storing inventory, packaging or processing product, equipment and parking vehicles. We analyze our agreements to evaluate whether or not a lease exists by determining what assets exist for which we control usage for a period of time in exchange for consideration. In the event a lease exists, we classify it as a finance or operating lease and record a right-of-use (“ROU”) asset and the corresponding lease liability at the inception of the lease. In the case of month-to-month lease or rental agreements with terms of 12 months or less, we made an accounting policy election to not recognize lease assets and liabilities and record them on a straight-line basis over the lease term. The storage units rented for use by our Snack Food Product Segment direct store delivery route system are not costly to relocate, contain no significant leasehold improvements, no degree of integration over leased assets, orders can be fulfilled by another route storage unit interchangeably, no specialized assets exist, market price is paid for storage units and there is no guarantee of debt. Finance lease assets are recorded within property, plant and equipment, net of accumulated depreciation and amortization. The Company’s leases of long-haul trucks used in its Frozen Food Products Segment qualify as finance leases. Finance lease liabilities are recorded as a separate line item on the consolidated balance sheets reflecting both the current and long-term obligation. The classification as a finance or operating lease determines whether the recognition, measurement and presentation of expenses and cash flows are considered operating or financing. 30 Life insurance policies We record the cash surrender value or contract value for life insurance policies as an adjustment of premiums paid in determining the expense or income to be recognized under the contract for the period. The cash surrender value is included in other non-current assets in the accompanying Consolidated Balance Sheets. Income taxes Deferred taxes are provided for items whose financial and tax bases differ. A valuation allowance is provided against deferred tax assets when it is expected that it is more likely than not that the related asset will not be fully realized. The determination as to whether or not a deferred tax asset can be fully realized is subject to a significant degree of judgment, based at least partially upon a projection of future taxable income, which takes into consideration past and future trends in profitability, customer demand, supply costs, and multiple other factors, which are inherently difficult to predict. We provide tax accruals for federal, state and local exposures relating to audit results, tax planning initiatives and compliance responsibilities. The development of these accruals requires judgments about tax issues, potential outcomes and timing. (See Note 4 for further information). Although the outcome of these tax audits is uncertain, in management’s opinion adequate provisions for income taxes have been made for potential liabilities emanating from these reviews. If actual outcomes differ materially from these estimates, they could have a material impact on our results of operations. Stock-based compensation We measure and recognize compensation expense for all share-based payments to employees, including grants of employee stock options, in the financial statements based on the fair value at the date of the grant. We have not issued, awarded, granted or entered into any stock-based payment agreements since April 29, 1999, and no such expense was recognized in fiscal years 2020 and 2019. Comprehensive income or loss Comprehensive income or loss consists of net income and additional minimum pension liability adjustments. Recently issued accounting pronouncements and regulations In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-09 “Revenue from Contracts with Customers” to supersede previous revenue recognition guidance under current U.S. GAAP. The guidance presents a single five-step model for comprehensive revenue recognition that requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Two options are available for implementation of the standard which are either the retrospective approach or cumulative effect adjustment approach. The guidance became effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with early adoption permitted. The Company adopted the modified retrospective transition method beginning with the first quarter of fiscal 2019. The adoption did not have a material impact on our consolidated financial statements. For further information please refer to Revenues above. Disaggregated revenue is disclosed in Note 7 - Segment Information. In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” that requires most equity investments to be measured at fair value and subsequent changes in fair value to be recognized in net income. The guidance covers presentation and disclosure requirements of financial liabilities and the classification and measurement of financial instruments. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2017. We adopted this guidance in the first quarter of fiscal 2019. The adoption did not have a material impact on our consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, “Leases”, which requires a lessee to recognize assets and liabilities with lease terms of more than 12 months. Both capital and operating leases are to be recognized on the balance sheet. The guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019 which is our first quarter of fiscal 2020. We have analyzed all lease transactions during fiscal year 2019 and 2020 to date. The Company elected not to reassess expired contracts or adjust comparative periods. The Company determined that no change to current accounting treatment is warranted for most transactions due to the underlying nature of our leases. In the case of month-to-month lease or rental agreements with terms of 12 months or less, the Company made an accounting policy election to not recognize lease assets and liabilities. The Company performed a detailed analysis and determined that the only indication of a long-term lease was Hogshed Ventures, LLC. The accounting treatment of this lease for warehouse storage included establishing a right-of-use asset and corresponding liability was recorded for Hogshed Ventures, LLC for 40th Street in Chicago during the fourth quarter of fiscal 2020. The application of this pronouncement resulted in additional disclosures detailing our lease arrangements. The Company adopted this guidance during the first quarter of fiscal 2020 and it did not have a material impact on our consolidated financial statements. 31 In October 2016, the FASB issued ASU 2016-16, “Income Taxes – Classification of Certain Cash Receipts and Cash Payments”. The guidance involves eight specific cash flow issues and aims to unify accounting for these transactions. The guidance became effective for annual reporting periods beginning after December 15, 2017 with early adoption permitted. The Company adopted this guidance during the first quarter of fiscal 2019 and it did not have a material impact on our consolidated financial statements. In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits”. The guidance separates service cost from other pension cost components changing the presentation of net periodic benefit cost related to company sponsored defined benefit or other postretirement benefits. The guidance became effective for annual and interim reporting periods beginning after December 15, 2017 with early adoption permitted. Additional disclosure reconciling net periodic benefit cost is detailed in Note 3 - Retirement and Other Benefit Plans. The Company adopted this guidance during the first quarter of fiscal 2019 and it did not have a material impact on our consolidated financial statements. In December 2019, the FASB issued ASU 2019-12, “Income Taxes – Simplifying the Accounting for Income Taxes”. The guidance removes exceptions to the general principles in Topic 740 for allocating tax expense between financial statement components, accounting basis differences stemming from an ownership change in foreign investments and interim period income tax accounting for year-to-date losses that exceed projected losses. The guidance becomes effective for annual reporting periods beginning after December 15, 2020 and interim periods within those fiscal years with early adoption permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements. 32 NOTE 2 - Composition of Certain Financial Statement Captions: 2020 2019 Inventories, net: Meat, ingredients and supplies $ 6,439 $ 5,283 Work in process 1,860 1,562 Finished goods 20,997 19,522 $ 29,296 $ 26,367 Property, plant and equipment, net: Land $ 3,908 $ 3,908 Buildings and improvements 27,518 21,044 Machinery and equipment 88,785 60,617 Capital leased trucks 513 473 Transportation equipment 8,846 8,391 Right of use assets 1,090 - Construction in process 1,358 13,928 132,018 108,361 Accumulated depreciation and amortization (58,686 ) (54,015 ) $ 73,332 $ 54,346 Other non-current assets: Cash surrender value benefits $ 13,195 $ 12,289 Other 6 6 $ 13,201 $ 12,295 Accrued payroll, advertising and other expenses: Payroll, vacation, payroll taxes and employee benefits $ 4,287 $ 4,063 Accrued advertising and broker commissions 863 648 Property taxes 566 520 Other 265 249 $ 5,981 $ 5,480 Current portion of non-current liabilities (Notes 3 and 6): Defined benefit retirement plan $ - $ - Executive retirement plans 163 10 Incentive compensation 3,074 4,264 Capital lease obligation 144 95 Escrow and customer deposits 1,360 10 Right-of-use leases 372 - Postretirement healthcare benefits 83 55 $ 5,196 $ 4,434 Non-current liabilities (Note 3): Defined benefit retirement plan $ 18,678 $ 14,130 Executive retirement plans 6,380 6,418 Incentive compensation 2,996 3,655 Capital lease obligation 289 360 Right-of-use leases 719 - Deferred payroll taxes 1,103 - Postretirement healthcare benefits 639 665 $ 30,804 $ 25,228 NOTE 3 - Retirement and Other Benefit Plans: Noncontributory-Trusteed Defined Benefit Retirement Plans for Sales, Administrative, Supervisory and Certain Other Employees We have noncontributory-trusteed defined benefit retirement plans for sales, administrative, supervisory and certain other employees. In the third quarter of fiscal year 2006, we froze future benefit accruals under these plans for employees classified within the administrative, sales or supervisory job classifications or within any non-bargaining class. The benefits under these plans are primarily based on years of service and compensation levels. The funding policy of the plans requires contributions which are at least equal to the minimum required contributions needed to avoid a funding deficiency. The measurement date for the plans is our fiscal year end. 33 Net pension cost consisted of the following: October 30, 2020 November 1, 2019 (52 Weeks) (52 Weeks) Service cost $ 127 $ 103 Interest cost 2,025 2,396 Expected return on plan assets (3,688 ) (3,414 ) Amortization of unrecognized loss 2,163 1,236 Net pension cost $ 627 $ 321 Net pension costs and benefit obligations are determined using assumptions as of the beginning of each fiscal year. Weighted average assumptions for each fiscal year are as follows: 2020 2019 Discount rate 2.45 % 3.00 % Rate of increase in salary levels N/A N/A Expected return on plan assets 7.00 % 7.00 % The benefit obligation, plan assets, and funded status of these plans as of the fiscal years ended are as follows: October 30, 2020 November 1, 2019 (52 Weeks) (52 Weeks) Change in plan assets: Fair value of plan assets - beginning of year $ 53,892 $ 49,434 Employer contributions - 875 Actual return on plan assets 2,189 5,402 Benefits paid (1,965 ) (1,819 ) Fair value of plan assets - end of year $ 54,116 $ 53,892 Change in benefit obligations: Benefit obligations - beginning of year $ 68,022 $ 57,487 Service cost 127 103 Interest cost 2,025 2,396 Actuarial gain (loss) 4,585 9,856 Benefits paid (1,965 ) (1,820 ) Benefit obligations - end of year 72,794 68,022 Funded status of the plans (19,965 ) (14,130 ) Unrecognized prior service costs - - Unrecognized net actuarial loss 27,373 23,453 Net amount recognized $ 7,408 $ 9,323 We perform an internal rate of return analysis when making the discount rate selection. The discount rates were based on FTSE Pension Liability Index (formerly Citibank) as of October 31, 2020 and November 1, 2019, respectively. Plan assets are primarily invested in marketable equity securities, corporate and government debt securities and are administered by an investment management company. The plans’ long-term return on assets is based on the weighted average of the plans’ investment allocation as of the measurement date and the published historical returns for those types of asset categories, taking into consideration inflation rate forecasts. No expected employer contribution to the plans in fiscal year 2021 is planned. For fiscal year 2020, our actuary updated mortality tables from the RP-2014 Total Dataset Mortality Table with Scaling to Pri-2012 Total Dataset Mortality Table with MP-2020 Scaling. The expected rate of return on plan assets remained the same at 7.00% effective for fiscal years 2020 and 2019, respectively. 34 The actual and target allocation for plan assets are as follows: Asset Class 2020 Target Asset Allocation 2019 Target Asset Allocation Large Cap Equities 21.5 % 22.0 % 21.8 % 22.0 % Mid Cap Equities 0.0 % 0.0 % 0.0 % 0.0 % Small Cap Equities 13.5 % 12.0 % 13.8 % 12.0 % International (equities only) 25.7 % 26.0 % 25.2 % 26.0 % Fixed Income 37.5 % 39.0 % 37.6 % 39.0 % Cash 1.8 % 1.0 % 1.6 % 1.0 % Total 100.0 % 100.0 % 100.0 % 100.0 % The fair value of our pension plan assets as of October 30, 2020 and the level under which fair values were determined, using the hierarchy described in Note 1, is as follows: 2020 Level 1 Level 2 Level 3 Total Total plan assets $ 54,116 - - $ 54,116 Expected payments for the pension benefits are as follows: Fiscal Years Pension Benefits 2021 $ 2,627 2022 $ 2,770 2023 $ 2,936 2024 $ 3,091 2025 $ 3,303 2026-2030 $ 17,625 Executive Retirement Plans Non-Qualified Deferred Compensation Effective January 1, 1991, we adopted a deferred compensation savings plan for certain key employees. Under this arrangement, selected employees contribute a portion of their annual compensation to the plan. We contribute an amount to each participant’s account by computing an investment return equal to Moody’s Average Seasoned Bond Rate plus 2%. Employees receive vested amounts upon death, termination or attainment of retirement age. No benefit expense was recorded under this plan for fiscal years 2020 and 2019. Supplemental Executive Retirement Plan Retirement benefits otherwise available to certain key executives under the Primary Benefit Plan have been limited by the effects of the Tax Equity and Fiscal Responsibility Act of 1982 (“TEFRA”) and the Tax Reform Act of 1986 (“TRA”). To offset the loss of retirement benefits associated with TEFRA and TRA, the Company has adopted a non-qualified “makeup” benefit plan (the “Supplemental Executive Retirement Plan”). Benefits will be provided under the Supplemental Executive Retirement Plan in an amount equal to 60% of each participant’s final average earnings minus any pension benefits and primary insurance amounts available to them under Social Security. However, in all cases the benefits are capped at $120,000 per year for Allan L. Bridgford. Benefits provided under this plan for William L. Bridgford and Raymond F. Lancy are calculated at 50% of final average earnings, capped at $200,000 per year, without offsets for other pension or Social Security benefits. 35 Benefits payable related to these plans and included in the accompanying consolidated financial statements were $6,544 and $6,428 as of October 30, 2020 and November 1, 2019, respectively. In connection with these arrangements we are the beneficiary of life insurance policies on the lives of certain key employees and retirees. The aggregate cash surrender value of these policies, included in non-current assets, was $13,195 and $12,289 as of October 30, 2020 and November 1, 2019, respectively. Expected payments for executive postretirement benefits are as follows: Fiscal Years Executive Postretirement Benefits 2021 $ 499 2022 $ 533 2023 $ 533 2024 $ 533 2025 $ 533 2026-2030 $ 2,642 Incentive Compensation Plan for Certain Key Executives We provide an incentive compensation plan for certain key executives, which is based upon our pretax income. The payment of these amounts is generally deferred over three or five-year periods. The total amount payable related to this arrangement was $6,070 and $7,919 as of October 30, 2020 and November 1, 2019, respectively. Future payments are approximately $3,074, $1,996, $877, $87 and $36 for fiscal years 2021 through 2025, respectively. Postretirement Healthcare Benefits for Selected Executive Employees We provide postretirement health care benefits for selected executive employees. Net periodic postretirement healthcare (benefit) cost is determined using assumptions as of the beginning of each fiscal year, except for the total actual benefit payments and the discount rate used to develop the net periodic postretirement benefit expense, which is determined at the end of the fiscal year. Net periodic postretirement healthcare cost (benefit) consisted of the following: October 30, 2020 November 1, 2019 (52 Weeks) (52 Weeks) Service cost $ 3 $ 9 Interest cost 16 22 Amortization of prior service cost - (44 ) Amortization of actuarial gain - (7 ) Net periodic postretirement healthcare cost (benefit) $ 19 $ (20 ) Weighted average assumptions for the fiscal years ended October 30, 2020 and November 1, 2019 are as follows: 2020 2019 Discount rate 2.43 % 2.92 % Medical trend rate next year 8.00 % 7.50 % Ultimate trend rate 5.00 % 5.00 % Year ultimate trend rate is achieved 2026 2025 The table below shows the estimated effect of a 1% increase in healthcare cost trend rate on the following: 2020 2019 Interest cost plus service cost $ 2 $ 3 Accumulated postretirement healthcare obligation $ 59 $ 64 The table below shows the estimated effect of a 1% decrease in healthcare cost trend rate on the following: 2020 2019 Interest cost plus service cost $ (2 ) $ (3 ) Accumulated postretirement healthcare obligation $ (50 ) $ (53 ) 36 The healthcare obligation and funded status of this plan as of the fiscal years ended are as follows: 2020 2019 Change in accumulated postretirement healthcare obligation: Healthcare obligation - beginning of year $ 586 $ 517 Service cost 3 9 Interest cost 16 22 Actuarial gain (8 ) 44 Benefits paid (9 ) (6 ) Healthcare obligation – end of year $ 588 $ 586 Funded status of the plans 588 586 Unrecognized prior service costs - - Unrecognized net actuarial gain (66 ) (58 ) Unrecognized amounts recorded in other comprehensive income 66 58 Postretirement healthcare liability $ 588 $ 586 Expected payments for the postretirement benefits are as follows: Fiscal Years Postretirement Healthcare Benefits 2021 $ 66 2022 $ 46 2023 $ 21 2024 $ 22 2025-2029 $ 108 401(K) Plan for Sales, Administrative, Supervisory and Certain Other Employees During the fiscal year ended November 3, 2006, we implemented a qualified 401(K) retirement plan (the “401K Plan”) for our sales, administrative, supervisory and certain other employees. During fiscal years 2020 and 2019, we made total employer contributions to the 401K Plan in the amounts of $754 and $722, respectively. NOTE 4 - Income Taxes: The benefit on or provision for income taxes includes the following: October 30, 2020 November 1, 2019 (52 Weeks) (52 Weeks) Current: Federal $ (9,517 ) $ (177 ) State 135 342 (9,382 ) 165 Deferred: Federal 7,097 1,667 State 92 221 7,189 1,888 $ (2,193 ) $ 2,053 37 The total tax (benefit) provision differs from the expected amount computed by applying the statutory federal income tax rate to income before income taxes as follows: October 30, 2020 November 1, 2019 (52 Weeks) (52 Weeks) Provision for federal income taxes at the applicable statutory rate $ 1,052 $ 1,790 Increase in provision resulting from state income taxes, net of federal income tax benefit 179 445 Change in federal rate – NOL carryback (2,868 ) - Research and development tax credit (358 ) - Non-taxable life insurance gain (190 ) (140 ) Other, net (8 ) (42 ) $ (2,193 ) $ 2,053 Deferred income taxes result from differences in the bases of assets and liabilities for tax and accounting purposes. 2020 2019 Receivables allowance $ 4 $ 8 Returns allowance 70 160 Inventory packaging reserve 33 90 Inventory overhead capitalization 427 394 Employee benefits 525 467 Deferred payroll tax 290 - Other 120 25 State taxes (182 ) (281 ) Incentive compensation 1,387 1,794 Pension and health care benefits 6,752 5,604 Depreciation (12,944 ) (6,310 ) Net operating loss carry-forward and credits 1,273 2,173 Valuation allowance established against state NOL (77 ) (77 ) Deferred income tax assets, net $ (2,322 ) $ 4,047 Management is required to evaluate whether a valuation allowance should be established against its deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. Realization of deferred tax assets is dependent upon taxable income in prior carryback years, estimates of future taxable income, tax planning strategies, and reversals of existing taxable temporary differences. As of October 30, 2020, the Company did not have any valuation allowance against its federal net deferred tax assets. Management reevaluated the need for a valuation allowance at the end of fiscal 2020 and 2019 and determined that some of its California net operating loss (“NOL”) may not be utilized. Therefore, a valuation allowance of $77 has been retained for such portion of California NOL. As of October 30, 2020, the Company had NOL carryforwards of approximately $2,934 for federal and $4,233 for state purposes. The federal loss will be carried forward indefinitely until it can be utilized against future taxable income. The state loss carryforwards will expire at various dates from 2023 through 2040. As of October 30, 2020, we have provided a liability of $169 for unrecognized tax benefits related to various federal and state income tax matters. None of this liability will reduce our effective income tax rate if the asset is recognized in future reporting periods. We have not identified any new unrecognized tax benefits. As of November 1, 2019, we have provided a liability of $90 for unrecognized tax benefits related to various federal and state income tax matters. None of this liability will reduce our effective income tax rate if the asset is recognized in future reporting periods. We have not identified any new unrecognized tax benefits. 38 A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows: October 30, 2020 November 1, 2019 (52 Weeks) (52 Weeks) Balance at beginning of year $ 90 $ 155 Additions based on tax positions related to the current year - - Additions for tax positions of prior years - - Reductions for tax positions of prior years 79 (65 ) Settlements - - Balance at end of year $ 169 $ 90 We recognize any future accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of October 30, 2020, we had approximately $21 in accrued interest and penalties which is included as a component of the $169 unrecognized tax benefit noted above. Our federal income tax returns are open to audit under the statute of limitations for the fiscal years 2017 through 2019. We are subject to income tax in California and various other state taxing jurisdictions. Our state income tax returns are open to audit under the statute of limitations for the fiscal years ended 2017 through 2019. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before January 01, 2021. In addition, the CARES Act allows NOLs incurred in taxable years beginning after December 31, 2017 and before January 01, 2021 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company is currently evaluating the impact of various provisions of the CARES Act, but at present, expects that the NOL carryback provision of the CARES Act would result in a material cash benefit to us. The Company has filed a federal income tax return for tax year 2019 (fiscal year 2020) and carried back a taxable loss of $9,900 to tax years 2014 (fiscal year 2015) and 2015 (fiscal year 2016). Furthermore, the Company estimates additional taxable loss for tax year 2020 (current fiscal year 2021) which can be carried back to remaining taxable income of tax year 2015 (fiscal year 2016) and taxable income of tax years 2016 (fiscal year 2017) and 2018 (fiscal year 2019). On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “Tax Act”). Among other significant changes, the Tax Act reduced the corporate federal income tax rate from 35% to 21%. The carryback of NOLs from tax years 2019 and 2020 under the CARES Act to pre- Tax Act years will generate an income tax benefit due to the differential in income tax rates. Under U.S. GAAP, specifically ASC Topic 740, Income Taxes, the tax effects of changes in tax laws must be recognized in the period in which the law is enacted, or March 27, 2020, for the CARES Act. Thus, at the date of enactment, in the second quarter, the Company recorded an income tax benefit of $1,100 which represented the impact of the carryback of NOL related to tax year 2019 (fiscal year 2020) which could be estimated with reasonable certainty at that time. The tax benefit on account of the current year NOL carryback is recorded as a component of the annual effective tax rate per guidance provided in ASC Topic 740. The effective tax rate was -47.2% and 24.0% for fiscal years 2020 and 2019, respectively. The effective tax rate for fiscal year 2020 was impacted by the rate differential on NOL carryback available under the CARES Act discussed in the paragraphs above. In addition, the effective tax rates for fiscal years 2020 and 2019 were impacted by such items as non-deductible meals and entertainment, non-taxable gains and losses on life insurance policies and state income taxes. 39 NOTE 5 - Line of Credit and Borrowing Agreement: The Company maintains a line of credit with Wells Fargo Bank, N.A. that extends through March 1, 2022. Under the terms of this line of credit, we may borrow up to $7,500 at an interest rate equal to the bank’s prime rate or LIBOR plus 1.5%. We borrowed $2,000 under this line of credit on November 24, 2019 and $2,500 on January 24, 2020 for a combined total of $4,500. We repaid the balance on this line of credit with Wells Fargo Bank, N.A. on May 13, 2020 of $4,500 with the proceeds from the fifth borrowing of $7,200 under the master collateral loan and security agreement with Wells Fargo Bank, N.A. described below. The line of credit contains various covenants, the more significant of which require us to maintain a minimum tangible net worth, a minimum quick ratio, a minimum net income after tax and total capital expenditures less than $7,500. The Company was in compliance with all covenants as of October 30, 2020. Subsequent to October 30, 2020, we borrowed $2,000 under the line of credit on December 2, 2020. On December 26, 2018, we entered into a master collateral loan and security agreement with Wells Fargo Bank, N.A. (the “Original Wells Fargo Loan Agreement”) for up to $15,000 in equipment financing. Pursuant to the Wells Fargo Loan Agreement, we borrowed the following amounts. Type and Number (1) Date Funds Received Rate Amount Payment Amount and Date Equipment Loan No. 01 12/26/18 4.13 % $ 7,500 $ 103 01/31/19 Equipment Loan No. 02 04/23/19 3.98 % 7,500 102 05/31/19 Equipment Loan No. 03 12/23/19 3.70 % 3,750 54 02/03/20 Equipment Loan No. 04 03/06/20 3.29 % 7,500 100 03/13/20 Equipment Loan No. 05 04/17/20 3.68 % 7,200 97 05/15/20 Total $ 33,450 $ 456 (1) Term: 7 years for 84 installment payments. October 30, 2020 November 1, 2019 Secured equipment notes payable to Wells Fargo Bank, N.A. collateralized by equipment for the new Chicago processing facility. $ 29,122 $ 13,747 Less current portion of notes payable (4,430 ) (1,943 ) Total long-term notes payable $ 24,692 $ 11,804 The Wells Fargo Loan Agreement as amended, contains various affirmative and negative covenants that limit the use of funds and define other provisions of the loan. The main financial covenants are listed below: ● Total Liabilities divided by Tangible Net Worth not greater than 2.5 to 1.0 at each fiscal quarter, ● Quick Ratio not less than 1.0 to 1.0 at each fiscal quarter end, and ● Fixed Charge Coverage Ratio not less than 1.25 to 1.0 as of each fiscal quarter end, determined on a trailing 4-quarter basis. Aggregate contractual maturities of debt in future fiscal years are as follows: Fiscal Years Debt Payable 2021 $ 4,429 2022 $ 4,599 2023 $ 4,775 2024 $ 4,958 2025 $ 5,148 2026-2027 $ 5,213 The Company was in compliance with all covenants under the Wells Fargo Loan Agreement as of October 30, 2020. NOTE 6- Contingencies and Commitments: The Company leases warehouse and/or office facilities throughout the United States through month-to-month rental agreements. In the case of month-to-month lease or rental agreements with terms of 12 months or less, the Company made an accounting policy election to not recognize lease assets and liabilities and record them on a straight-line basis over the lease term. For further information regarding our lease accounting policy, please refer to Note 1 – Summary of Significant Accounting Policies, Leases. The Company leases three long-haul trucks received during fiscal year 2019. The six-year leases for these trucks expire in 2025. Amortization of equipment under capital lease was $71 in 2020. The Company leased one long-haul truck for $40 received during fiscal year 2020, and that lease term is two years. The Company performed a detailed analysis and determined that the only indication of a long-term lease was Hogshed Ventures, LLC. A right-of-use asset and corresponding liability for warehouse storage space was recorded for $1,091 for Hogshed Ventures, LLC for 40th Street as of October 30, 2020. We lease this space under a non-cancelable operating lease. This lease does not have significant rent escalation holidays, concessions, leasehold improvement incentives or other build-out clauses. Further this lease does not contain contingent rent provisions. This lease terminates on June 30, 2023. This lease includes both lease (e.g., fixed rent) and non-lease components (e.g., real estate taxes, insurance, common-area and other maintenance costs). The non-lease components are deemed to be executory costs and are included in the minimum lease payments used to determine the present value of the operating lease obligation and related right-of-use asset. This lease does not provide an implicit rate and we estimated our incremental interest rate to be approximately 1.6%. We used our estimated incremental borrowing rate and other information available at the lease commencement date in determining the present value of the lease payments. 40 The following is a schedule by years of future minimum lease payments for transportation leases and right-of-use assets: Fiscal Year Financing Obligations 2022 $ 504 2023 550 2024 405 2025 102 2026 59 Later Years - Total minimum lease payments(a) $ 1,620 Less: Amount representing executory costs (82 ) Less: Amount representing interest(b) (14 ) Present value of future minimum lease payments(c) $ 1,524 (a) Minimum payments exclude contingent rentals based on actual mileage and adjustments of rental payments based on the Consumer Price Index. (b) Amount necessary to reduce net minimum lease payments to present value calculated at the Company’s incremental borrowing rate at the inception of the leases. (c) Reflected in Note 2, as current and noncurrent obligations under capital leases of $144 and $289, respectively and right-of-use assets of $372 and $719, respectively. 41 NOTE 7 - Segment Information: We have two reportable operating segments, Frozen Food Products (the processing and distribution of frozen products) and Snack Food Products (the processing and distribution of meat and other convenience foods). We evaluate each segment’s performance based on revenues and operating income. Selling, general and administrative expenses include corporate accounting, information systems, human resource and marketing management at the corporate level. These activities are allocated to each operating segment based on revenues and/or actual usage. The following segment information is for the fiscal years ended October 30, 2020 (52 weeks) and November 1, 2019 (52 weeks): Segment Information 2020 Frozen Food Products Snack Food Products Other Totals Net sales $ 41,241 $ 156,729 $ - $ 197,970 Cost of products sold 27,687 110,765 - 138,452 Gross margin 13,554 45,964 - 59,518 SG&A 12,566 41,880 - 54,446 (Gain) on sale of property, plant and equipment - (58 ) - (58 ) Income before taxes $ 988 $ 4,142 $ - $ 5,130 Total assets $ 11,490 $ 115,657 $ 28,136 $ 155,283 Additions to PP&E $ 284 $ 24,198 $ - $ 24,482 Segment Information 2019 Frozen Food Products Snack Food Products Other Totals Net sales $ 51,234 $ 137,551 $ - $ 188,785 Cost of products sold 33,444 93,677 - 127,121 Gross margin 17,790 43,874 - 61,664 SG&A 14,867 37,970 - 52,837 (Gain) loss on sale of property, plant and equipment (4 ) 294 - 290 Income before taxes $ 2,927 $ 5,610 $ - $ 8,537 Total assets $ 12,198 $ 90,221 $ 21,037 $ 123,456 Additions to PP&E $ 654 $ 25,085 $ - $ 25,739 The following information further disaggregates our sales to customers by major distribution channel and customer type for the fiscal years ended October 30, 2020 and November 1, 2019, respectively. 2020 Distribution Channel Retail (a) Foodservice (b) Totals Direct store delivery $ 117,386 $ - $ 117,386 Direct customer warehouse 39,343 - 39,343 Total Snack Food Products 156,729 - 156,729 Distributors 9,639 31,602 41,241 Total Frozen Food Products 9,639 31,602 41,241 Total Net Sales $ 166,368 $ 31,602 $ 197,970 (a) Includes sales to food retailers, such as grocery retailers, warehouse club stores, and internet-based retailers. (b) Includes sales to foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, convenience stores, healthcare facilities and the military. 42 2019 Distribution Channel Retail (a) Foodservice (b) Totals Direct store delivery $ 100,936 $ - $ 100,936 Direct customer warehouse 36,615 - 36,615 Total Snack Food Products 137,551 - 137,551 Distributors 6,915 44,319 51,234 Total Frozen Food Products 6,915 44,319 51,234 Total Net Sales $ 144,466 $ 44,319 $ 188,785 (a) Includes sales to food retailers, such as grocery retailers, warehouse club stores, and internet-based retailers. (b) Includes sales to foodservice distributors, restaurant operators, hotel chains and noncommercial foodservice establishments such as schools, convenience stores, healthcare facilities and the military. NOTE 8 - Unaudited Interim Financial Information: Not applicable for a smaller reporting company. 43