SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d) of
Securities Exchange Act of 1934
for Quarter ended April 30, 2001
Commission File Number 0-13301
RF INDUSTRIES, LTD.
(Exact name of registrant as specified in its charter)
Nevada 88-0168936
(State of Incorporation) (I.R.S. Employer Identification No.)
7610 Miramar Road., Bldg. 6000, San Diego, California 92126-4202
(Address of principal executive offices) (Zip Code)
(858) 549-6340 FAX (858) 549-6345
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days
Yes X No
---
State the number of shares outstanding of each of the issuer's classes of common
stock at the latest practicable date.
As of April 30, 2001, the registrant had 3,403,054 shares of Common Stock, $.01
par value, issued.
Transitional small business disclosure format
Yes No X
---
1
Part I. FINANCIAL INFORMATION
RF INDUSTRIES, LTD. AND SUBSIDIARY
Item 1: Financial Statements CONDENSED CONSOLIDATED BALANCE SHEETS
April 30 October 31
2001 2000
----------- -----------
ASSETS (Unaudited)
------------------------
CURRENT ASSETS
Cash and cash equivalents ........................... $ 215,683 $ 557,923
Investments in available-for-sale securities ........ 1,730,109 2,208,558
Trade accounts receivable, net of allowance
for doubtful accounts of $42,000 .................... 985,659 1,313,935
Notes receivable .................................... 12,000 12,000
Inventories ......................................... 5,108,367 4,165,242
Other current assets ................................ 165,405 174,779
Deferred tax assets ................................. 166,000 166,000
---------- ----------
TOTAL CURRENT ASSETS ........................... 8,383,223 8,598,437
---------- ----------
PROPERTY AND EQUIPMENT
Equipment and tooling ............................... 1,024,170 733,150
Furniture and office equipment ...................... 198,048 190,867
---------- ----------
Fixed assets, at cost .......................... 1,222,218 924,017
Less accumulated depreciation .................. 662,899 605,164
---------- ----------
NET FIXED ASSETS ............................... 559,319 318,853
---------- ----------
Intangible assets ................................... 174,698 0
Less accumulated amortization ....................... 4,853 0
---------- ----------
NET INTANGIBLE ASSETS .......................... 169,845 0
Note receivable from stockholder .................... 70,000 70,000
Deferred tax assets ................................. 106,600 94,000
Other assets ........................................ 11,471 11,471
---------- ----------
TOTAL ASSETS ................................... $9,300,458 $9,092,761
========== ==========
See Notes to Condensed Consolidated Unaudited Financial Statements.
2
RF INDUSTRIES, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30 October 31
2001 2000
----------- -----------
LIABILITIES AND (Unaudited)
STOCKHOLDERS' EQUITY
---------------------------------------
CURRENT LIABILITIES
Accounts payable ................................. $ 180,061 $ 403,530
Notes payable .................................... 98,103 0
Accrued expenses ................................. 319,751 513,186
----------- -----------
TOTAL LIABILITIES .......................... 597,915 916,716
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock - authorized 10,000,000 shares
of $.01 par value; 3,403,054 and
3,402,054, respectively shares issued ......... 34,031 34,021
Additional paid-in capital ....................... 4,687,712 4,686,161
Retained earnings ................................ 4,163,519 3,668,867
Unearned compensation ............................ (70,518) (117,546)
Accumulated other comprehensive loss ............. (57,633) (40,890)
Receivables from sale of stock ................... (1,715) (1,715)
Treasury stock, at cost - 29,400 shares .......... (52,853) (52,853)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY .................. 8,702,543 8,176,045
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ..................... $ 9,300,458 $ 9,092,761
=========== ===========
See Notes to Condensed Consolidated Unaudited Financial Statements.
3
Item 1: Financial Statements (continued)
RF INDUSTRIES, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
April 30 April 30
------------------------- ------------------------
INCOME: 2001 2000 2001 2000
----------- ---------- ---------- ----------
Net sales .............................. $ 2,403,539 $ 1,892,453 $ 4,752,140 $ 3,652,979
Cost of sales .......................... 1,138,063 865,837 2,358,227 1,711,092
----------- ----------- ----------- -----------
Gross profit ...................... 1,265,476 1,026,616 2,393,913 1,941,887
----------- ----------- ----------- -----------
Operating expenses:
Engineering ....................... 125,675 73,110 241,404 138,591
Selling and general ............... 792,080 521,417 1,443,635 1,030,143
----------- ----------- ----------- -----------
Totals ........................ 917,755 594,527 1,685,039 1,168,734
----------- ----------- ----------- -----------
Operating income ....................... 347,721 432,089 708,874 773,153
----------- ----------- ----------- -----------
Other income:
Commissions ....................... 42,784 0 60,857 0
Interest .......................... 23,413 33,568 54,921 64,127
----------- ----------- ----------- -----------
Totals ........................ 66,197 33,568 115,778 64,127
----------- ----------- ----------- -----------
Income before provision
for income tax ..................... 413,918 465,657 824,652 837,280
Provision for income tax ............... 164,500 185,000 330,000 335,000
----------- ----------- ----------- -----------
Net income ............................. $ 249,418 $ 280,657 $ 494,652 $ 502,280
=========== =========== =========== ===========
Basic earnings per share ............... $ 0.07 $ 0.08 $ 0.15 $ 0.15
=========== =========== =========== ===========
Diluted earnings per share ............. $ 0.06 $ 0.08 $ 0.13 $ 0.14
=========== =========== =========== ===========
Basic weighted average
shares outstanding ................. 3,403,054 3,343,838 3,402,882 3,247,035
=========== =========== =========== ===========
Diluted weighted average
shares outstanding.................. 3,876,147 3,705,794 3,949,752 3,685,798
=========== =========== =========== ===========
COMPREHENSIVE INCOME:
Net income ............................. $ 249,418 $ 280,657 $ 494,652 $ 502,280
Unrealized gain (loss) on available-
for-sale securities, net of deferred tax 4,018 0 (16,743) 0
----------- ----------- ----------- -----------
Total comprehensive income ........ $ 253,436 $ 280,657 $ 477,909 $ 502,280
=========== =========== =========== ===========
See Notes to Condensed Consolidated Unaudited Financial Statements.
4
Item 1: Financial Statements (continued)
RF INDUSTRIES, LTD. AND SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended April 30
--------------------------
2001 2000
OPERATING ACTIVITIES ----------- -----------
Net income ................................................... $ 494,652 $ 502,280
Adjustments to reconcile net income
to net cash used in operating activities
Bad debts ............................................... 28,320 0
Inventory deposit write-offs ............................ 30,294 0
Depreciation and amortization ........................... 62,588 32,059
Amortization of unearned compensation ................... 47,028 47,028
Changes in operating assets and liabilities, net of
acquisition payment in 2001:
Trade accounts receivable .......................... 376,293 (70,987)
Inventories ........................................ (933,463) (679,812)
Other assets ....................................... 11,509 (18,065)
Accounts payable ................................... (251,455) 106,040
Accrued expenses ................................... (193,479) 62,699
----------- -----------
Net cash used in operating activities .................. (327,713) (18,758)
----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of (investment in) securities ....... 461,706 (151,061)
Capital expenditures ................................... (110,345) (181,940)
Payment for acquisition, net of cash acquired .......... (147,078) 0
----------- -----------
Net cash provided by (used in) investing activities .... 204,283 (333,001)
----------- -----------
FINANCING ACTIVITIES
Payments on loans payable .............................. (220,371) 0
Proceeds from exercise of common stock options ......... 1,561 130,020
----------- -----------
Net cash provided by (used in) financing activities .... (218,810) 130,020
----------- -----------
Net decrease in cash and cash equivalents .................... (342,240) (221,739)
Cash and cash equivalents at the
beginning of the period ................................ 557,923 1,100,816
----------- -----------
Cash and cash equivalents at the end of the period ........... $ 215,683 $ 879,077
=========== ===========
SUPPLEMENTARY CASH FLOW DATA:
Income taxes paid ....................................... $ 255,000 0
=========== ===========
Noncash investing and financing activities:
Fair value of assets acquired ........................... $ 496,504
Liabilities assumed ..................................... (207,341)
Seller financing ........................................ (139,163)
-----------
Cash paid ............................................... $ 150,000
===========
See Notes to Condensed Consolidated Unaudited Financial Statements
5
RF INDUSTRIES, LTD. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Unaudited interim financial statements:
The accompanying unaudited condensed consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended April 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
October 31, 2001. The unaudited condensed consolidated financial statements
should be read in conjunction with the financial statements and footnotes
thereto included in the Company's annual report on Form 10-KSB for the year
ended October 31, 2000.
Note 2 - The acquisition and other matters
On December 1, 2000, the Company acquired all the outstanding stock of
Bioconnect, Inc. for total consideration of $289,163, of which $139,163 was
financed by seller.
The acquisition has been accounted for pursuant to the purchase method and,
accordingly, the net assets acquired were recorded at estimated fair values on
the date of acquisition. A summary of the allocation of the cost of the
acquisition to the net assets acquired as of December 1, 2000 follows:
Cash ................................. $ 2,922
Accounts receivable .................. 76,337
Inventory ............................ 39,956
Property and equipment ............... 187,855
Intangibles and other assets ......... 189,434
---------
Total assets acquired ................ 496,504
Accounts payable and other liabilities (207,341)
---------
Net assets acquired .................. $ 289,163
=========
The unaudited condensed consolidated financial statements include the accounts
of RF Industries, Ltd. (the "Parent") and its wholly-owned subsidiary,
Bioconnect, Inc. (collectively, the "Company"). All significant intercompany
accounts and transactions are eliminated in consolidation.
6
Note 3 - Components of inventory
April 30 October 31
2001 2000
---------- ----------
Raw material and supplies ................. $ 919,506 $ 559,786
Finished goods ............................ 4,188,861 3,605,456
---------- ----------
Totals ................................... $5,108,367 $4,165,242
========== ==========
Note 4 - Earnings per share:
The Company follows the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share", which requires the presentation of
"basic" and "diluted" earnings per common share, as further explained in Note 1
of the notes to the audited financial statements of the Company, included in
Form 10-KSB for the fiscal year ended October 31, 2000.
Basic earnings per share is computed by dividing net earnings by the weighted
average number of common stock outstanding during the period.
Diluted earnings per share is computed by dividing net earnings by the weighted
average number of shares of common stock increased by the effects of assuming
that other potentially dilutive securities (such as stock options) outstanding
during the period had been exercised.
The following table summarizes basic and diluted shares:
Three Months Ended Six Months Ended
April 30 April 30
------------------- -------------------
2001 2000 2001 2000
------- ------- ------- -------
Weighted average shares outstanding for
basic net earnings per share ............. 3,403,054 3,343,838 3,402,882 3,247,035
Add effects of potentially dilutive securities-
assumed exercised of stock options ....... 473,093 361,956 546,870 438,763
--------- --------- --------- ---------
Weighted average shares for diluted net
earnings per share ...................... 3,876,147 3,705,794 3,949,752 3,685,798
========= ========= ========= =========
7
Note 5 - Segment Information
During the second quarter of 2001, the Company reduced its allocation of
engineering and selling and general expenses relating to Neulink. The change in
the allocation of expenses was due to a decrease in operating overhead relating
to the Neulink Division, as compared to the prior year. As a result of the
decrease, net income (loss) for 2000 has been restated to conform to the 2001
presentation.
Net sales and income (loss) before provision for income taxes for the three
months ended April 30, 2001 and 2000 follows:
Connector/ Common
Cable Neulink Bioconnect Corporate Total
2001 ----------- ----------- ------------- ----------- ----------
------
Net sales ................ $ 2,176,271 $ 157,689 $ 69,579 $ 2,403,539
Income (loss) before
provision for income
taxes .................. 501,447 30,748 (144,902) $ 26,625 413,918
2000
------
Net sales ................ $ 1,758,183 $ 134,270 $ 1,892,453
Income before
provision for income
taxes .................. 367,516 64,573 $ 33,568 465,657
Net sales and income (loss) before provision for income taxes for the six months
ended April 30, 2001 and 2000 follows:
Connector/ Common
Cable Neulink * Bioconnect Corporate Total
2001 ----------- ----------- ------------ ------------ ----------
------
Net sales ................ $ 4,229,547 $ 402,943 $ 119,650 $ 4,752,140
Income (loss) before
provision for income
taxes .................. 1,089,655 (110,546) (212,230) $ 57,773 824,652
2000
------
Net sales ................ $ 3,372,449 $ 280,530 $ 3,652,979
Income (loss) before
provision for income
taxes .................. 771,270 1,883 $ 64,127 837,280
* Bioconnect was purchased on December 1, 2000. The table shows five months of
history.
8
Item 2: Management's discussion and analysis of financial condition and results
of operations
This report contains forward-looking statements. These statements relate to
future events or the Company's future financial performance. In some cases, you
can identify forward-looking statements 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 statements are only predictions. Actual events or results may
differ materially.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance or achievements. Moreover, neither the
Company, nor any other person, assumes responsibility for the accuracy and
completeness of the forward-looking statements. The Company is under no
obligation to update any of the forward-looking statements after the filing of
this Quarterly Report on Form 10-QSB to conform such statements to actual
results or to changes in its expectations.
The following discussion should be read in conjunction with the Company's
financial statements and the related notes and other financial information
appearing elsewhere in this Form 10-QSB. Readers are also urged to carefully
review and consider the various disclosures made by the Company which attempt to
advise interested parties of the factors which affect the Company's business,
including without limitation the disclosures made under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," under the caption "Risk Factors," and the audited financial
statements and related notes included in the Company's Annual Report filed on
Form 10-KSB for the year ended October 31, 2000 and other reports and filings
made with the Securities and Exchange Commission.
Liquidity and Capital Resources
Management believes that cash generated from operations will be sufficient to
fund the anticipated growth of the Company in fiscal 2001. Management believes
that any financing requirements can be met through a combination of cash and
investments held as of April 30, 2001, internally generated cash flow and
advance payments from customers. The Company does not currently have any
commercial banking arrangements providing for loans, credit facilities or
similar matters.
The Company does not believe it will need material additional capital equipment
in fiscal 2001. In the past, the Company has financed some of its fixed asset
requirements through capital leases. No additional capital equipment purchases
have been currently identified that would require significant additional leasing
or capital obligations during fiscal 2001. Management also believes that based
on the Company's financial condition at April 30, 2001, the absence of
outstanding bank debt and recent operating results, the Company would be able to
obtain bank loans to finance its expansion, if necessary, although there can be
no assurance any bank loan would be obtainable, or if obtained, would be on
favorable terms or conditions.
9
Net cash used in operating activities for the first six months of fiscal 2001
was $327,713 whereas cash used in operating activities for the six month period
ended April 30, 2000 was $18,758. Non cash charges for bad debt and inventory
deposit write-offs were $58,614. There were no such charges in the first half of
last year. Depreciation and amortization, including amortization of unearned
compensation, was $109,616 for the first half, compared to $79,087 for the same
period last year. The increase of $30,529 is primarily due to the depreciation
of assets associated with the Bioconnect acquisition. Inventories increased
$933,463 to support higher sales levels, new distributors and the rapid sales
growth of RF cable assemblies. Other assets decreased $11,509 in the first six
months of 2001. Seasonal factors resulted in a decline in trade accounts
receivable by $376,293 and accounts payable and accrued expenses by $444,934.
Net cash provided by investing activities was $204,283 during the first six
month period ended April 30, 2001, compared to $333,001 used in the previous
year. Proceeds from available for sale securities in the current year were used
for capital expenditures of $110,345 and for the Bioconnect acquisition of
$147,078. Proceeds from sale of securities was $461,706.
Net cash used in financing activities was $218,810 for the six month period
ended April 30, 2001, and consisted principally of payments on loans payable of
$220,371, which were associated with the Bioconnect acquisition.
As of April 30, 2001 the Company had $215,683 in cash and investments in
available for sale securities of $1,730,109, as compared to $557,923 in cash and
cash equivalents and $2,208,558 in available for sales securities at October 31,
2000.
Three Months 2001 vs. Three Months 2000
Net sales increased 27%, or $511,086, to $2,403,539 from $1,892,453 in the three
months ended April 30, 2001. RF Connectors sales increased 24% to $2,176,271,
compared to $1,758,183 for the same period last year, due to continuing strong
order rates for coax connectors and cable assemblies. Sales at RF Neulink
increased 17% to $157,689 compared to $134,270 last year. This increase can be
attributed to stronger sales in new application areas. Bioconnect's three month
sales were $69,579.
Cost of sales increased 31%, or $272,226 to $1,138,063 from $865,837 last year,
due to higher sales levels. Minor changes in product mix reduced gross profits,
as a percent of sales, to 53% compared to 54% last year.
Engineering expenses increased $52,565, or 72%, from $73,110 last year. The
increase is attributable to added personnel and expenses associated with the
Bioconnect acquisition and rapid expansion of RF Cable products.
Selling and general expenses increased 52% or $270,663, to $792,080 from
$521,417 last year, and as a percent of sales increased to 33% from 28% of sales
last year. The increase can be attributed to the expenses associated with the
acquisition of Bioconnect and higher expenses for increased travel, advertising,
and insurance expenses.
10
Net interest income decreased $10,155 to $23,413 from $33,568 the previous year
primarily due to lower balances of cash and equivalents and available for sale
securities. The decrease can be attributed to the Bioconnect acquisition and
cash utilized to support the added costs of expansion. Commissions for the
Neulink divisions sales were $42,784. There were no commissions in the previous
year.
The increase in diluted average shares outstanding was due to the company
issuing more stock options and the average market price per share increased for
the three month period ended April 30, 2001 as compared to the prior year,
causing more stock options to be considered dilutive.
Six Months 2001 vs Six Months 2000
Net sales increased $1,099,161, or 30%, to $4,752,140 from $3,652,979 the
previous year. RF Connectors sales increased 25% to $4,229,547 from $3,372,449
last year, due to continuing strong sales of connectors and cable assemblies.
Sales for RF Neulink increased 44% to $402,943 from $280,530 the previous year.
The increase can be attributed to stronger sales of new application areas.
Bioconnect sales were $119,650 with no camparable sales from the prior year due
to the acquisition.
Cost of sales increased $647,135, or 38%, to $2,358,227 from $1,711,092 last
year due to higher sales levels. Changes in product mix reduced gross profits,
as a percent of sales, to 50% compared to 47% last year.
Engineering expenses increased $102,813, or 74%, to $241,404 from $138,591 last
year. This increase can be attributed to added personnel and expenses associated
with the Bioconnect acquisition and expansion of our engineering departments to
meet the increased business demands.
Selling and general expenses increased $413,492, or 40%, to $1,443,635 compared
to $1,030,143 last year, and as a percent of sales increased to 30% from 28% of
sales last year. The increase is due to the added expenses associated with the
Bioconnect acquisition and higher expenses for legal fees due to the SEC
inquiry, increased travel, advertising, and insurance expenses. Selling and
general expenses increased, as a percent of sales, to 30% from 28% for the same
period last year.
Net interest income decreased $9,206 to $54,921 from $64,127 the previous year
primarily due to lower balances of cash and equivalents and available for sale
securities. The decrease can be attributed to the Bioconnect acquisition and
cash utilized to support the added costs of expansion. Commissions for the
Neulink division's sales were $60,857 compared to no commissions the previous
year.
Material changes in financial condition:
Cash decreased $342,240 to $215,683 compared to the October 31, 2000 fiscal year
balance of $557,923. Cash and investments were $1,945,792 at April 30, 2001
compared to $2,766,481 at April 30, 2000.
11
Trade accounts receivable decreased $328,276, or 25% to $985,659 compared to the
October 31, 2000 balance of $1,313,935. This decrease is due to seasonal factors
and to continued collection efforts.
Inventories increased $943,125 compared to October 31, 2000 inventory levels.
This increase is to support sales growth and the anticipated backlog
requirements, and includes $36,754 in Bioconnect inventory.
Other current assets, including prepaid expenses and deposits, decreased to
$165,405 from $174,779 on October 31, 2000. This decrease is due to receipt of
prepaid inventory items and deposits.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In August 2000, the Company was notified that the Securities and Exchange
Commission ("SEC") had issued a formal order of inquiry to determine whether
violations of certain aspects of the federal securities laws may have occurred
in connection with matters related to the Company.
On May 8, 2001, the SEC's staff formally notified the Company that the foregoing
inquiry has been terminated and that, at this time, no enforcement action has
been recommended to the SEC. The SEC's letter to the Company advised that its
notification of the dismissal must in no way be construed as an indication that
the Company has been exonerated or that no action may ultimately result from the
SEC staff's investigation. All that the notification means is that the SEC's
staff has completed its investigation and that at this time no enforcement
action has been recommended.
Items 2-5 Not applicable
Item 6. Exhibits and Reports on Form 8-K
None
(b) Reports on Form 8-K
None
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
RF INDUSTRIES, LTD.
Dated: June 8, 2001 By: /s/ Howard F. Hill
---------------------------
Howard F. Hill, President
Chief Executive Officer
Dated: June 8, 2001 By: /s/ Terrie A. Gross
-----------------------------
Terrie A. Gross
Chief Financial Officer
13